the lolc saga is that of a dynamic group having the vision ... · solutions to an eager market....

The LOLC saga is that of a dynamic Group having the vision and agility to leverage evolving opportunities for growth as they appear on the national landscape and, in doing so, mould one of Sri Lanka’s most successful and respected business conglomerates. This is the message that reverberates with a roar, across the business arena; a leonine symbol of the success of a truly Sri Lankan conglomerate. Within our enterprise are firmly entwined the strands of success and advancement of both Nation and conglomerate – through what we have accomplished and in what we plan to accomplish in the years ahead.

From point of view of phraseology, one may be more accustomed to saying ‘Peace Dawned’. However, Sri Lanka’s experience was so dramatic that it warrants the term ‘Peace Broke’. One moment we were at war… and then there was peace and from that point onwards… a new Sri Lanka dawned!

...Paved the way for a

Conglomerate in the Making

L A N K A O R I X L E A S I N G C O M P A N Y P L C A N N u A L R E P O R T 2 0 1 0 / 1 1

Report Summary

Page 02 Introducing the new LOLCWe trace the evolution of LOLC from its early days as Sri Lanka’s pioneer in leasing, to a total financial solutions provider, to a strategically diversified Group of companies aligned with key growth areas of the country leading to the moulding of one of Sri Lanka’s most respected business conglomerates.

Page 04 The ORIX ConnectionAn overview of LOLC as an integral institution, within ORIX’s business realm and the honour the Group received for Outstanding Performance amongst all ORIX companies for the year under review.

Page 08 Financial HighlightsThe table and the graphs illustrate the exceptional performance of the Company and the Group during the year where pre tax profits grew by 192% and post tax profits by 194%.

Page 10 A Conglomerate in the MakingA comprehensive review, both from retrospective and prospective viewpoints, of the businesses of the LOLC Group in the context of its transition to a conglomerate, viewed against the backdrop of the emerging national landscape and Group strategy.

Page 56 Chairperson’s Statement

An enabling economic environment; peace dividends of growth and development have begun to flow; strategic alignment of LOLC’s future growth to national growth areas; year of phenomenal success; LOLC moves to become a Holding Company; strict focus on compliance with regulations, good governance, transparency and accountability.

Page 60 Deputy Chairman’s MessageA detailed and comprehensive overview of LOLC’s key businesses, their philosophies, strategies and roles within the context of LOLC’s own evolution as well as that of the Nation - in particular within identified growth industries; pursuit of organic growth in the future.

Page 66 Group MD/CEO’s ReviewOverview of rationale for LOLC’s business portfolio and its expansion and development; a stellar year - reasons for achievement; balance sheet growth; exemplary NPL ratio; widening footprint; expanding portfolio; committed to sustainability; the future.

Page 72 Financial Review

The financial performance of the LOLC Group has been outstanding in the year under review with the consolidated gross revenue of the Group increasing to Rs. 32.1 Bn and profit after tax of Rs. 7.0 Bn. The diversification strategy was favourable and the Group Companies have immensely contributed to record such noteworthy results.

Page 82 Corporate GovernanceThe Board of Directors is committed to good corporate governance as it provides the basis for sustainable growth; and therefore, good governance measures will continue to be exercised irrespective of whether they are a continuing legal requirement or not.

Page 94 Enterprise Risk ManagementRisk is inherent in any business venture. Viewing risk as ‘anything or any event hindering the achievement of our stated corporate objectives’ provides LOLC the right focus in identifying risks and formulating control and mitigating strategies at appropriate levels.

Page 100 Sustainability ReportAn evaluation of the Group’s performance across the sustainability ‘tripod’ of economic, social and environment activity; LOLC is a member of the united Nations’ Global Compact (uNGC) and its charter on sustainability practices.

Page 107 Financial ReportsThe Financial Statements presented here have complied with the Sri Lankan Accounting Standards and the Companies Act No.07 of 2007.

Page 177 AnnexesThis section consists of ancillary financial information, details of key management personnel and group companies and documents required for the AGM.

Annual Report 2010/11 | Lanka ORIX Leasing Company PLC | PAGE 001

The post-war landscape of Sri Lanka opened up exciting new vistas of tremendous opportunity to grow and prosper. For the innovative and the bold, there is much fruitful progress to be made. Over the past year, LOLC has been re-shaping its business from one primarily steeped in the financial services sector, to a diversified conglomerate. Our main business ventures lie within the Financial Services, Agriculture and Plantations, Renewable Energy, Leisure, Construction and Manufacturing and Trading sectors. In pursuing our own goals, we are in happy coincidence with development goals of the Nation where massive growth is earmarked in all these sectors. We see a win-win situation developing – where enterprise, citizen and Company can enjoy mutual benefit from the unfolding era. The future is nothing if not exciting!

| Lanka ORIX Leasing Company PLC | Annual Report 2010/11

Introducing the ‘new LOLC’

Over the intervening years, this bold and dynamic approach has enabled LOLC to grow its business beyond the field of leasing, into many other areas within the financial services realm. Our aim then was to become one of Sri Lanka’s premier total financial solutions providers. However, today, LOLC is one of Sri Lanka’s truly sustainable business conglomerates.


Thirty-one years ago, a company with a very good eye for the future and the facility of reading the times with accuracy, opened its doors to provide what was then Sri Lanka’s pioneer portfolio of leasing solutions to an eager market.

This Company was Lanka ORIX Leasing Company (LOLC).

From the outset, LOLC’s prowess within the financial services sphere helped it to identify a lacuna in the industry - the lack of financial solutions reaching grassroot level entrepreneurs and individuals. As its business unfolded and evolved, LOLC, by means of a carefully-tailored portfolio of products and services, financially empowered the masses and the SME sector to such an extent that they reached whole new levels of financial stability and well-being.

Over the intervening years, this bold and dynamic approach has enabled LOLC to grow its business beyond the field of leasing, into many other areas within the financial services realm. Our aim then was to become one of Sri Lanka’s premier total financial solutions providers.

The Company LOLC soon became the LOLC Group as it established Group Companies specialised in offering financial services beyond leasing, such as factoring, savings and deposits, tailored financial products for the SME sector, microfinance, Islamic financing and foreign currency deposits.

Leveraging the synergies from its diversified portfolio, LOLC began to offer services such as fleet management, information technology and vehicle-related services. Ushering in insurance and stock broking in the portfolio this year, it is the largest non-banking financial institution in the country and well positioned for the next step along its growth trajectory.

With the cessation of the thirty-year terrorist conflict in 2009, Sri Lanka has embarked on a journey of rapid growth and development. The trickle down effects of a national economy no longer burdened by war spending has jumpstarted this process.

LOLC took a strategic decision to align new business development with the emerging areas of growth and development in Sri Lanka and this has seen the Group move into areas such as Agriculture, Leisure, Construction and Renewable Energy whilst continuing to grow its existing portfolio.

This growth and diversification has led to the moulding of the LOLC Conglomerate. LOLC is transforming itself into a holding company, whilst leveraging the expertise of its Group Companies to handle the hands-on running of sector interests. So, today, LOLC is one of Sri Lanka’s truly sustainable business conglomerates.

What has not changed or diminished however, are the qualities of dynamism, agility and the passion and that unique ability to open up opportunities for all.

One of LOLC’s core deliverables across all businesses is empowerment. From budding entrepreneurs at the grassroot level to the top corporate, our business has always been about delivering products and services that enhance and advance lives and livelihoods; about making dreams come true and fulfilling long-held aspirations; about empowering people.

Introducing the ‘new’ LOLC

Introducing the new LOLC 02

The ORIX Connection 04

Financial Highlights 08

A Conglomerate in the Making 10

Chairperson’s Statement 56

Deputy Chairman’s Message 60

Group MD/CEO’s Review 66

Financial Review 72

Corporate Governance 82

Enterprise Risk Management 94

Sustainability Report 100

Financial Reports 107

Annexes 177


The ORIX Connection

The measure of success that LOLC has achieved as an integral institution within the ORIX business realm can best be gauged by the award it won for Outstanding Performance among ORIX Companies. This annual prize awarded by ORIX Corporation of Japan, recognises exceptional Divisions and Group Companies at home and overseas for their outstanding achievements.


The ORIX Connection

ORIX Corporation was established in 1964 in Osaka, Japan as Orient Leasing Company Ltd. by three trading Companies and five banks, as a pioneer in the sphere of Leasing. Since its inception, ORIX has remained on the leading edge of financial innovation. Among many other unique qualities, ORIX attributes its success mainly to its ability to respond rapidly to changes in the market place. ORIX’s growth strategy has involved expansion strategically and geographically, with a boldness and scope that puts the Company in a class by itself among major Japanese firms offering financial services. The Company’s name was changed to ORIX Corporation in 1989 to reflect its increasingly international profile and move into financial services other than Leasing. It is listed in the Tokyo and New York Stock Exchanges.

ORIX has a diverse range of revenue streams, stemming from operating and financing leases, low margin business, auto and equipment leasing, insurance, corporate rehabilitation, loan servicing, real-estate related and other specialised finance, investments and retail banking and value-added services. Today, ORIX Corporation, as a leading Japanese diversified financial services Group, is providing innovative, value-added financial products and services to SMEs with a global network that spans 27 countries and regions worldwide. ORIX is made up of 811 consolidated subsidiaries and 108 affiliates. ORIX has 1,114 offices in Japan, with 270 locations throughout the United States, Asia, Oceania, Europe, the Middle East and Africa.

ORIX was able to surpass its targets for the financial year ended in March 2011, despite the sluggish recovery of the world economy. The ORIX Group continued to focus on its dual management strategy of ‘From Finance’ to ‘Finance + Services’ and ‘Expanding Business in Asia’ and the realisation of stable operations and steady growth through further enhancement of financial stability and comprehensive risk management.

Lanka ORIX Leasing Company PLC (LOLC), which was the third joint venture of ORIX with the International Finance Corporation (IFC), continued to add value to ORIX with another year of excellent performance propelled by expansion and diversification. LOLC’s aggressive expansion strategy through cost effective channels has assisted in expanding its reach significantly into newly opened regional economies and areas of national economic growth. It is complemented by the dynamic diversification strategy based on the driving principle that expansion into new areas will increase our specialisation and competitiveness. This strategy draws inspiration from the ‘ORIX-way’ and enables it to sustain Group synergy, professionalism, expertise, technology, innovative products and services and a dynamic corporate culture.








Financial Review 72





Annexes 177


USA

Global ORIX Network

The measure of success that LOLC has achieved as an integral institution within ORIX can best be gauged by the award it won for Outstanding Performance from amongst many ORIX companies. This annual prize, awarded by ORIX Corporation of Japan, recognizes exceptional divisions and Group Companies at home and overseas for their outstanding achievements. Lanka ORIX Leasing Company PLC has been awarded the Prize for Outstanding Performance in the Overseas Operations Category for the financial year ending 31 March 2011.

It is indeed a significant accomplishment for the Group and its constituent entities and one that gives a fillip to further growth in the years ahead.


Australia

Indonesia

Philippines

Hong Kong

TaiwanVietnam

Japan

KoreaKazakhstan

United Kingdom

Germany

Poland

Saudi Arabia

UAE

China

Egypt

India

Sri Lanka

Oman

Pakistan Thailand

Singapore

Malaysia

New Zealand

France

Ireland

The ORIX Connection


For the year ended 31 March 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Group

Performance Indicators

(Rs. Mn)Profit before tax 224 290 402 572 709 998 1,183 1,247 2,841 8,282 Profit after tax 218 278 391 575 689 1,050 1,343 1,055 2,385 7,023 Total assets 6,209 7,038 8,987 10,706 16,227 24,484 32,994 46,287 75,371 111,813

New executions 2,242 3,189 4,740 5,591 10,064 13,340 14,320 14,906 21,963 47,392 Gross portfolio (rentals receivable) 6,169 6,867 8,517 10,112 14,806 23,057 29,282 44,824 47,351 70,777 Outstanding borrowings 4,171 4,615 5,952 6,634 10,475 17,001 22,887 31,764 38,235 50,813 Non-performing portfolio 715 815 883 865 113 137 526 1,933 1,431 1,159 Return on equity (%) 15 17 21 27 26 31 30 19 26 37

Key Indicators

(Rs. per share)Net asset value per share (adjusted) 3.12 3.60 3.92 4.92 6.10 7.96 10.78 12.65 16.63 27.35 Earnings per share (adjusted) 0.45 0.57 0.85 1.21 1.44 2.19 2.82 2.22 3.88 8.08

Company

Performance Indicators

(Rs. Mn)Profit before tax 213 256 418 562 677 910 841 582 491 1,898 Profit after tax 213 256 418 562 664 987 1,059 505 327 1,523 Total assets 5,528 5,981 7,617 8,747 13,298 20,889 28,996 31,335 29,738 31,153

New executions 2,242 3,189 4,427 4,972 8,858 12,068 12,127 12,170 4,569 5,036 Gross portfolio (rentals receivable) 6,052 6,757 8,082 9,144 12,858 19,851 25,056 25,185 17,958 11,897 Outstanding borrowings 3,751 4,113 5,396 6,025 9,824 16,250 22,273 24,850 23,087 22,379 Non-performing portfolio 715 815 883 865 113 137 443 538 769 545

Key Indicators

(Rs. per share)Dividends per share (adjusted) 0.33 0.33 0.19 0.23 0.30 0.15 0.23 0.28 – – Market price per share (adjusted) 5.10 7.35 6.00 8.50 10.10 10.75 11.78 6.95 16.50 119.60 Net asset value per share (adjusted) 3.08 3.53 3.88 4.86 6.00 7.77 10.02 10.74 11.42 15.67

(Times) Debt to equity ratio 2.56 2.45 2.93 2.61 3.45 4.40 4.66 4.87 4.25 3.00 Interest cover 1.38 1.52 1.85 2.56 1.96 1.63 1.28 1.14 1.16 1.80 Dividend cover 2.75 3.30 4.50 5.09 4.64 13.86 9.53 3.79 – –

Financial Highlights


Financial Highlights

A Conglomerate in the Making

PAGE 010 | Lanka ORIX Leasing Company PLC | Annual Report 2010/11

We built a formidable portfolio of businesses offering comprehensive financial solutions…we applied our inherent qualities, vision and agility to diversify into new areas of business aligned with sectors of national growth…we are transforming into one of Sri Lanka’s premier and most successful business conglomerates…

This is just the beginning…the shape of things to come.

The years ahead will see much more from the LOLC Group…the Nation and our people can expect more innovation, growth and development with LOLC as the driving catalyst…empowering and enabling wherever our shadow falls.









Financial Review 72





Annexes 177


The New Landscape 12

Group Strategic Direction 12

Financial Services 13

Microfinance 14 Small and Medium Enterprises 16

Islamic Finance 18 Working Capital 22 Savings and Deposits 24

Fleet Management 28 LOLC Motors 28 Insurance 30 Stock Broking 30

Diversified Activities 31

Agriculture and Plantations 32 Renewable Energy 34 Leisure 36 Construction 38 Manufacturing and Trading 40

Our Reach 42

A Sweep of the Sectors We Serve 48

Group Structure 50

Global Funding Partners 52

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Group Strategic DirectionThe Group’s strategic direction has evolved from that of being a total financial solutions provider to being a diversified conglomerate offering a comprehensive portfolio of products, services and interests that lie within identified national growth sectors.

The LOLC Group is a conglomerate with its own unique identity. We continue to be innovative and forward looking in developing new products and services and creating new markets, particularly in untapped regions of the country.

A fuller account of how this strategy is developed and applied is contained in the Deputy Chairman’s Message appearing on pages 60 to 65 of this Report.

The New LandscapeFor thirty long years, Sri Lanka struggled to manage its economy and other key fundamentals in a climate of war.

In 2009, when the Government succeeded in ending the era of terrorist conflict, unprecedented opportunity for development emerged.

Today, an era of rapid development and growth prevails and sans the shackles of war, the necessary resources are being deployed to rebuild and rehabilitate the war-torn Northern and Eastern Provinces and to develop other regions as well as key areas of strategic interest in the sphere of nation building.

The Government has decided to leverage Sri Lanka’s geo-positioning to good effect as it sets about establishing Sri Lanka as an aviation and maritime hub as well as a regional centre for knowledge, commerce and energy.

On the economic front, with Sri Lanka enjoying a higher level of foreign exchange reserves, the regulator has been relaxing controls, which has opened up unique opportunities-allowing the corporate sector to pursue overseas investment opportunities. With rapidly rising per capita income coupled with distribution, we see phenomenal growth unfolding in the rural areas.

LOLC, as a new age conglomerate, has astutely tailored its business to be in the vanguard of this development, with the ideal product and service portfolio and footprint.


Financial Services

Lending

Factoring and Working Capital

Stock Broking

Ventures

Microfinance

Islamic Finance

Fleet Management

Savings & Deposits

SME & DevelopmentFinance

LOLC MotorsAutomobileRestorationand ServiceCentre

Foreign Currency Deposits

Insurance

Investment

The Year - In Retrospect and ProspectIn this segment of our report, we present the year’s highlights as reported by key sector constituents from our financial services portfolio.


The New Landscape

Group Strategic Direction

Financial Services






Our Reach 42


Group Structure 50









Financial Review 72





Annexes 177

MicrofinanceLanka ORIX Micro Credit (LOMC), the Group’s specialised microfinance company, enjoyed another year of exceptional success in 2010/11, following on from that of last year.

During the year under review, the Company’s loan portfolio grew by Rs. 4.2 Bn to Rs. 8.2 Bn. LOMC disbursed Rs. 7.6 Bn as advances during the year, which was an increase of 100% over the previous year. In total, accommodations were provided for 39,635 borrowers during the year. By March 2011, the Company had provided microcredit to 53,998 active borrowers with its borrower base increasing by 100% over the previous year. Of the active borrower base 27,345 were males and 26,653 were females.

In the past, the ‘un-bankable’, (those who could not provide collateral) did not fall within the framework required to access credit from the banks. LOLC, following its strategy of the early 80s of entering the leasing market by supporting the SME sector to fuel growth by financing productive assets, entered into the mircofinance market in 2003. Entering into the mircofinancing arena, LOLC stepped in to fill the void for microcredit by financing solar systems for rural Sri Lankan homes not connected to the main grid. Since then, LOLC carefully worked its strategy to establish itself as a strong provider of financing to the sector which was thought unbankable, through its branch network.

One of the key success factors of LOMC has been its presence in the rural areas of the country. During the year, LOMC widened its footprint considerably, and now reaches customers via 39 branches and 53 Isuru Diriya service centres. It now carries out group lending activities in 12 districts around the country.

The Company’s human resource base has also widened considerably. Currently, 208 loan officers are employed throughout the network. These officers have been recruited from and employed in their own home towns. The creation of employment opportunities for rural youth has been a significant factor, among many others, in earning preferred employer status for LOMC. The Company has invested considerably in improving their competencies for a sustainable business model by setting up a fully-fledged training and development centre during the year.



New VistasIt’s all about empowerment and moving the less affluent up the ‘quality of life’ index. LOLC’s Microfinancing brings financial solutions to people who had been below the radar of purveyors of conventional financing. We are evolving as a conglomerate…and in tandem we’re acting as a major catalyst in the lives of millions of farmers, SMEs and impoverished yet eager entrepreneurs and individuals across the country.





Microfinance Small and Medium Enterprises 16





Our Reach 42


Group Structure 50









Financial Review 72





Annexes 177


The Company was also able to further consolidate its position as the largest agricultural implement financier in the country during the period under review.

During the year, LOMC received funding from Minlam MF Offshore Master Fund, Blue Orchard MF Investment Managers, Triodos Bank, Triple Jump and Symbiotic amounting to Rs. 3.0 Bn to carry out its microfinancing activities.

The Company also received technical assistance grants from FMO and the IFC during the year, which were effectively used for capacity development purposes within the Company.

LOMC commenced its ‘Isuru Diriya Viyapara Shilpa’-Grade 5 Scholarship Programme targeting children of its group lending borrowers.

In line with our constant self-examination, LOMC commissioned a social performance diagnostic study. The study was done by EDA Rural Systems (Pvt) Ltd., based in India.

Also, during the year, the IFC conducted a risk-diagnostic study. IFC is one of our key funding agencies and such studies are part of a valuable input that the LOLC Group Companies receive to help keep in line with the exacting standards required by such international funding partners.

Looking to the future, we will continue to expand our reach-providing access to financial services for borrowers who do not have access to finance from the mainstream financial sector. The growth will focus on aggressively expanding into areas where accessibility was limited due to the three-decade long war.

As an overarching goal, the Company is aspiring to be an institution dedicated to achieving excellence in development finance in South Asia.

Small and Medium EnterprisesThe Small and Medium Enterprises (SMEs) play a pivotal role in the economic development of Sri Lanka. As the pioneer leasing company in the country established to meet the financial needs and aspirations of SMEs, we are proud of our achievements-having facilitated access to finance to this critical sector of the national economy.

Our mission to assist those driven by the spirit of enterprise to reach greater heights through our innovative, personalised and wide ranging financial solutions was amply demonstrated by us increasing the total lending to those seeking access to finance, with the Group’s net portfolio growing by 67% over the previous year.

By providing access to finance and credit support to this sector with the objective of creating an enabling business environment, the LOLC proposition seeks to capitalise on the credit growth being experienced.

Continuous negotiations are underway with funding agencies to procure low-cost borrowings to meet the demand for credit in post-war Sri Lanka.

During the year under review, credit facilities in the form of Loans, Hire Purchase and Finance Leases amounting to Rs. 39.8 Bn was disbursed through the Group’s financial services companies operating within the SME sector which is a 120% increase the disbursement when compared with the previous year. Of the credit disbursements made, 75% have been to the SME sector with approximately 80% coming from semi-urban/rural areas. Trading, Agriculture and Services sectors accounted for more than 50% of the disbursements.

The reduction of import duties and tariffs was a boon to the registered and unregistered vehicle market, which is a key component of the Group’s business activities.

Lanka ORIX Finance Company (LOFC) and Commercial Leasing Company Ltd. (CLC), as the flagship entities of the LOLC Group, grasped the opportunities generated from a favourable operating environment to further its business particularly in the North and East of Sri Lanka, whilst also consolidating its emergence as one of the front runners in the industry.

During the year in review, LOFC and CLC extended the Group outreach through expansion of branch network, enhancement of broker channels, introduced new account management techniques and forged new business partnerships.

In the year ahead we are planning to achieve strong credit growth whilst maintaining the current superior portfolio quality with low non-performing loans. Joint promotions with suppliers, regional promotions to market development-finance products, product bundling strategies, special promotional offers and developing and strengthening business introducer schemes are some of the initiatives that are expected to support the planned credit growth.


During the year under review, credit facilities in the form of Loans, Hire Purchase and Finance Leases amounting to Rs. 39.8 Bn were disbursed through the Group’s financial services companies operating within the SME sector.





Microfinance Small and Medium Enterprises





Our Reach 42


Group Structure 50









Financial Review 72





Annexes 177


Islamic FinanceAl-Falaah, the Islamic Business Unit of the LOLC Group, functions under Lanka ORIX Finance Company Ltd. (LOFC).

With the launch of its Shari’ah-based Islamic financing window, LOLC entered into a specialised area of financing which has provided a unique opportunity for the Company to provide a customised and innovative product portfolio addressing both the business and socio-economic requirements of the diverse market segments and the specialised needs of individuals.

Shari’ah based financing alternatives form an integral part of the banking and finance industry today and is fast gaining popularity with an average of approximately 30% to 40% growth over the past few years.

Amendments to the Banking Act made in 2005, paved the way for Shari’ah-based banking and finance activities to be practiced in Sri Lanka. In fact, Sri Lanka is one of the very few countries to enact specific legislation for Shari’ah-based financing.

The practitioners also have formed an ‘Islamic Finance Focus Group’ comprising leading industry experts and interest groups under the guidance of KPMG of Sri Lanka with the objective of lobbying the regulatory bodies to permit Shari’ah- based financing into the mainstream and allow it to compete on a level playing field with conventional financiers. This focus group continues to play a pivotal role in the development of new tax legislation and regulations in Sri Lanka to facilitate Shari’ah-based financing.

Sri Lanka has a number of Islamic finance service providers. However, Al-Falaah, having strong Shari’ah compliant processes, segregated from the conventional financial services products and processes, could be ranked as the forerunner in this sector with the added accolade of being the trend-setter in the industry.

In terms of markets served, the Sri Lankan Muslim community comprises of 10% of the country’s population and they engage mainly in trade and commerce. The density of the population is quite high in the Central and Eastern Provinces of the country.


New VistasThe case for Islamic Financing as a viable alternative to conventional financing has never been more potently brought home than in the aftermath of the economic chaos of 2008/09. Here in Sri Lanka, the ground is fertile…the room to grow and expand this sector is considerable. LOLC has tasted huge success in bringing Islamic Financing to the masses in Sri Lanka…the unfolding vista is one of considerable growth and transcending of many barriers of perception, mainly those that postulate that Islamic Financing is constrained by religious, racial and/or cultural boundaries. Bringing Islamic Financing into the mainstream and reaching a wider customer base will preoccupy the evolving LOLC conglomerate.






Islamic Finance Working Capital 22 Savings and Deposits 24




Our Reach 42


Group Structure 50









Financial Review 72





Annexes 177


According to Islamic finance statistics, this sector in Sri Lanka is estimated to be around Rs. 100 Bn (US$ 900 Mn approximately).

Although the concepts of Shari’ah-based financing were developed with specific focus on meeting the requirements of the Muslim community, Al-Falaah has an open policy that welcomes all communities who wish to patronise its services so that the benefits of Shari’ah concepts are made available to all.

Our customers are to be found in the Corporate Sector, SME and Micro Sector, Selective High Net Worth Individuals and Professionals.

In terms of key achievements during the year under review, the Mudharabah Investments and Savings portfolio grew to Rs. 2.9 Bn from Rs. 1.8 Bn in 2009/10.

Our asset base grew to Rs. 3.5 Bn in 2010/11 in comparison to Rs. 1.1 Bn achieved in 2009/10.

Al Falaah opened its dedicated IBU centres in Kattankudy, Oddamavadi and Kalmunai in the Eastern Province during the year to provide an enhanced level of service to its customers.

Customer awareness programmes were conducted in identified main towns across the country, to educate the general public on Islamic finance. This is an on-going activity on our year planner and is conducted as part of our efforts to improve financial awareness and knowledge of the community.

In terms of the way ahead, it is LOLC’s view that the success and future advancement of Islamic finance hinges on education and awareness. This is now taking place both in Sri Lanka and worldwide. We at Al-Falaah, consider this a window of opportunity.

Since the very commencement of operations, Al-Falaah’s strategy has focused around building close links with the Muslim population with a view to providing a vibrant Islamic alternative financing module to the banking/financial products presently available in the market.

Currently, the services of Al-Falaah are offered at all LOFC approved branches in over 50 locations. The plan is for a few more dedicated Al-Falaah branches to be opened in the regions in the coming year.

Whilst engaging more trained staff, business introducer networks and strategic alliances, Al-Falaah plans to enhance the product range to cater to most frequently demanded financial services with the added objective of sustaining our status as the leading Islamic financial services provider in the country with the largest market share of Mudharabah Investments and Islamic assets.

The year ahead continues to hold promise and Al-Falaah is looking forward to enhancing its growth momentum and performance.

In terms of key achievements during the year under review, the Mudharabah Investments and Savings portfolio grew to Rs. 2.9 Bn from Rs. 1.8 Bn in 2009/10.







Islamic Finance Working Capital 22 Savings and Deposits 24




Our Reach 42


Group Structure 50









Financial Review 72





Annexes 177

Working CapitalSigns of the anticipated post-war economic revival are strong in the light of an exponential demand for credit. This has been further strengthened by record low interest rates.

This climate has, however, drawn the interest of competitors as well and we have witnessed heightened competition in working capital solutions offered.

Working capital solutions are offered through LOLC Factors Ltd. (LOFAC) and the factoring division of Commercial Leasing Company (CLC) under the brand Commercial Factors. LOLC Factors commenced commercial operations on 1 May 2011, inheriting the factoring business that was carried out by LOLC. Between these two entities, LOLC is proud to be the leader in the working capital financing industry. The products on offer comprise of working capital loans and factoring, which includes cheque and invoice discounting. The factoring portfolio of the Group grew by 90% when compared with the previous year, demonstrating the demand for working capital and the high level of service efficiency offered by the Group Companies in providing working capital solutions.

We have been able to successfully tap into hitherto unavailable markets in the Northern Province and intend to spread our products to all other regional markets.

During the course of the year, we revamped and re-launched our Cheque Discounting Agreement with more flexible repayment options. The product was branded “Privilege Cheque Discounting” and has attracted great interest from within the corporate sector.

During the next financial year, the factoring and working capital services offered by LOLC Group will be further strengthened by the dedicated presence of ‘LOLC Factors’ as an independent Company as well as focussed strategies executed by Commercial Factors to

capture new markets. The new company will further strengthen our pioneering status in the field of factoring and enable us to reach new heights in the industry along with Commercial Factors.

We see huge potential in the need for working capital products in all regions of the country based on the new projects that are underway and those that will be initiated in the near future, including those for the travel and tourism sector.


New VistasPeace time is rapidly migrating to boom time for many, in Sri Lanka these days. As national development takes place at a pace and scope which hasn’t been possible over the past three decades due to the terrorist conflict, entrepreneurial ventures across a wide swathe of interests are looking to grow in tandem. This is where LOLC’s Working Capital Business Unit has been most active, as a preferred total working capital solutions provider across the spectrum of needs. The unfolding scenario sees LOLC play an increasingly pivotal role in supporting an ever-expanding, dynamic business sector as it grows to be a total provider of fully-sustainable business ventures.






Islamic Finance 18 Working Capital Savings and Deposits 24




Our Reach 42


Group Structure 50










Financial Review 72





Annexes 177


Savings and DepositsThe expansion of economic activity supported the strengthening of financial system stability, resolving concerns and stresses that surfaced in 2008 due to domestic and external shocks that adversely impacted public confidence in the registered Finance Company Sector.

Financial markets operated with high liquidity, and improved depositor sentiment which reflected in increased volumes of operations. Declining interest rates with greater stability in the exchange rate were the outcomes. Public confidence was further strengthened with the introduction of a mandatory deposit insurance scheme to protect small depositors and the implementation of a number of regulations to encourage prudence in operations. As a result of the improved performance in the financial sector, supported by macro economic recovery, most major issues concerning financial system stability were resolved.

The Savings Business Unit of the LOLC Group, Lanka ORIX Finance Company Ltd. (LOFC) a Registered Finance Company (RFC) operates in the deposit mobilisation market which is dominated by Banks. The 22 Licensed Commercial Banks and the 9 Specialised Banks operate through a network of 1,932 branches, 965 extension offices, 2,977 other banking outlets and 2,006 ATMs reaching all corners of the island.


New VistasOur unprecedented success over the past four years in mobilising a prime portfolio of Deposit taking and Savings products has seen exponential growth, not only in terms of our bottom line results, but most importantly in the economic well-being and success of our clientele. The vista opening up before us will see further growth, economic stability and well-being for many more Sri Lankans, as LOLC promotes its product offerings through an expanding footprint across the Nation.






Islamic Finance 18 Working Capital 22 Savings and Deposits




Our Reach 42


Group Structure 50









Financial Review 72





Annexes 177


There are 37 RFCs operating through 376 branches. We offer our savings products through the 42 branches and 10 service centres of LOFC and issue ATM and Debit cards to our savings account holders giving them access to their savings accounts through the 400+ ATMs of the Commercial Bank and from any ATM or merchant linked to the Maestro network globally.

During the year under review, collaboration with Dialog as a service provider, and NDB Bank as the settlement bank, saw the issue of ‘virtual cards’ giving savings account holders access to their savings accounts through a Dialog Mobile Phone connection. Now, a Savings Account holder can perform transactions, such as balance inquiries, obtain mini statements, and pay utility and telephone bills from the comfort of their homes.

These initiatives have helped meet the stiff competition arising from the banking sector resulting in a Rs. 7.3 Bn (72%) growth of our deposit base during the year under review, which compares favourably

A joint venture with SEEDS permitted us to complete 12 capacity-building workshops for beneficiaries of foreign remittances. We also provided them access to finance and instilled in them, the culture of savings. Looking to the future, with the projected macro economic growth prospects, we expect the momentum reached in deposit mobilisation to be maintained during the year 2011/12, greatly supported by the expanding branch network and our foray into the fast growing Northern and Eastern markets.

Some of the key initiatives that are expected to drive this growth are the re-launch of the Senior Citizens Time Deposit Scheme and Children’s Savings Scheme, launching of eZPay, linking Savings Accounts to mobile phones and e-Banking Solutions in addition to upgrading the SWIFT membership to include the worker remittance platform.

with the Rs. 4.8 Bn growth recorded during the previous year. This performance is significant when compared with a 16% growth in deposits in banks and the 22% growth of deposits in RFCs in 2010. This has resulted in an increase of the market share of deposits in the RFC sector to 9.9% from 7.5% a year ago.

With the total volume of inward worker remittances reaching USD 10 Mn in May 2010, we received approval to continue in the foreign currency business on a permanent basis, thus making LOFC the only non-bank financial institution operating in this segment, on par with the banks.

With the expansion of the money changing business to include RFCs, LOFC commenced its own money changing operations from its Matara Branch in January 2011. Our collaboration with Xpress Money, the money transfer arm of the UAE Exchange Company, enabled LOFC to extend its reach to the expatriate migrant worker communities in the Middle East.


We offer our savings products through all branches of LOFC and issue ATM and Debit cards to our savings account holders…through the 400+ ATMs of Commercial Bank and from any ATM or merchant linked to the Maestro network globally.






Islamic Finance 18 Working Capital 22 Savings and Deposits




Our Reach 42


Group Structure 50









Financial Review 72





Annexes 177


Fleet ManagementAs for most of LOLC’s business units, the favourable economic climate proved beneficial for the activities of our fleet management arm. The services offered by the unit includes a combination of short-term hires to long-term solutions, encompassing vehicle maintenance.

The core customer segment of the fleet management service is the corporate sector, relieving our clients of the burden of managing their own fleet of motor vehicles; effectively, replacing the transport division of a corporate by offering a hassle-free and economical solution, allowing our clients to concentrate on their core business activities.

In addition to the corporate clientele, the fleet management service offers products to individuals as well as SMEs, ranging from short-term vehicle hires to operating leases.

We have recently entered into the rent-a-car service business, complimenting the existing range of services on offer.

Due to the high demand for vehicle hires ranging from 3 days to 12 months, we have offered this product capitalising on the existing infrastructure and know-how.

The establishment of the motor repair facility (LOLC Motors) has enhanced the service level of the product offering, enhancing the customer experience.

Moving forward and going into the new financial year, we intend to consolidate our position in the corporate and SME sectors as the preferred provider of fleet management services, in addition to an increasing presence in the rent-a-car sector.

LOLC Motors LOLC Motors (LOMO) was created as a value addition to the financial services provided by the Group Companies, especially as a support service to the Fleet Management Business Unit and the Group’s Insurance Company. The Company also undertakes the servicing and repair of fleets owned by external parties and individuals wishing to avail themselves of a premium vehicle care and maintenance regime.

LOMO is a state-of-the-art automotive workshop with a floor area of 5,600 sq. metres with a capacity of handling more than100 vehicles at any given time - which makes it one of the largest workshops in Colombo - and is equipped to handle mechanical repairs, preventive maintenance, lubrication service, quick lube service, collision repairs, paint re-finishing or touch-ups, wheel- alignment, wheel-balancing unit repairs, etc.

An interesting and environmentally important fact is that the equipment we employ and the design and layout of the facility, incorporate the latest technologies developed for the automotive sector, to help us live the theme “Automobiles in Harmony with Nature”. This model allows us to use less electricity and water in day-to-day operations. The workshop is specially designed to maximise natural lighting and plans are underway to install solar panels on the roof to harness solar energy. Waste water is recycled with a state-of-the-art microbiological system and rainwater is collected in a tank with a 40,000 litre capacity and harvested for internal use.


New VistasThe automotive landscape of Sri Lanka reflects as well as any other, the dynamic evolution that is taking place across the Nation. The shift from privately or company-owned vehicles to the vehicle leasing option has gained rapid ground. LOLC has been at the vanguard of this shift, initially through its expertise and experience in vehicle leasing, and more recently through the establishment of its fleet management arm and LOLC Motors. The unfolding vista is of an increasing population of leased fleets, catered to by advanced capability motor service facilities…its where LOLC’s fleet management and motor facility come into their own.







Fleet Management LOLC Motors Insurance 30 Stock Broking 30



Our Reach 42


Group Structure 50









Financial Review 72





Annexes 177


Steps are taken to ensure that emissions such as exhaust gases and petroleum vapour are processed and filtered prior to being released into the environment. Air-conditioning refrigerant is recycled and re-used and effluents are disposed of in an eco-friendly manner.

While being environmentally friendly, this equipment and our processes will ensure a short repair time leading to minimised downtime, superior quality of work and excellent finishes, resulting in a pleasant experience for all LOLC customers.

Delivering these services and product ideals is in the hands of staff who are experienced-professionals and experts in their respective fields.

Looking to the future, we aim to make LOLC Motors, the preferred auto workshop facility for the discerning motorist.

InsuranceThe new company, LOLC Insurance Company Ltd. (LOIC), is a registered insurance company offering a composite insurance portfolio of Life and Non-Life products.

During the initial period of its operations, the Company’s focus will be to capitalise on the existing business leads from the LOLC Group, both for Life and General insurance. We will primarily concentrate on the retail market during the initial phase. Plans are underway to set up effective client servicing and claims management processes. This is a vital aspect of service within the insurance industry and we regard it as a key differentiating factor in the LOIC product offering.

The state-of-the-art insurance system that is currently being implemented will facilitate and provide a comprehensive end-to-end, integrated solution to manage and monitor activities relating to Clients, Quotations, Cover-Note Issuance, Agency and Distribution, Policy Administration and Underwriting, Claims, Reinsurance, Recoveries, Third Party Service Providers and Credit Management among others. As a medium to long-term strategy the Company will embark on expanding its operations to conventional insurance so that in addition to the Group’s captive corporate and retail businesses, the Company will also offer comprehensive insurance solutions to the external market.

The Company will establish connections with corporate brokers to channel general insurance and establish its own business model for life business.

Stock BrokingLOLC was successful in securing a stock broking licence during the financial year complementing the suite of financial solutions provided by the Group.

LOLC Securities is expected to commence its business operations in the second quarter of 2011/12 and strategies are being drawn up to provide a superior service to its clientele.


Diversified Activities

The Year - In Retrospect and ProspectOver recent years, LOLC has been evolving into a conglomerate of stature, which today stands as one of Sri Lanka’s premier enterprises. To do this, we’ve had to look beyond our very successful core pursuits within the financial services sphere, to other growth areas in the country.

As we did for the constituent businesses of our financial services segment, we present the highlights of the year as experienced by our key sectors of diversified enterprises.

Agriculture and Plantations

• Agricultureequipment via Brown & Company

• Tea&RubberPlantations via Maturata & Pussellawa

• RubberPlantation via Pussellawa

• SugarPlantationvia Galoya

• Fertilizerandagri products via Agstar

• HydroPower via LOLC Eco Solutions

• BioMassPower via United Dendro Energy

• Solar

• Leisure

Eden Resort & Spa

Riverina

Club Palm Garden

Tropical Villas

Renewable Energy

Leisure Construction Manufacturing and Trading

• Sierra • BrownsGroup







Fleet Management 28 LOLC Motors 28 Insurance Stock Broking

Diversified Activities


Our Reach 42


Group Structure 50









Financial Review 72





Annexes 177


Agriculture and PlantationsDespite the passage of time and the arrival of the techno-age, agriculture remains the cornerstone of Sri Lanka’s economy, with more than 70% of the population living in rural areas and being dependent on agriculture for their livelihood.

When LOLC moved into the Microfinancing sector in 2003, it took the Group into the agricultural heartlands of the country. Today, LOLC is a leading Agriculture and Microfinance solutions provider, to the rural masses, in particular.

From solar home systems, to agriculture- related financing, dairy financing and the provision of loans for tractors, three- wheeled vehicles and motor cycles, LOLC has expanded its services to this sector.

The Group’s plantations – Maturata, which is predominantly tea, and Pussellawa, which is predominantly rubber, Galoya Plantations - the first public-private partnership for sugar production with the Government of Sri Lanka - are good examples of green investments and they are run as completely eco-friendly entities, contributing bountifully to the agriculture and plantation landscape of the country.

Another subsidiary company, Agstar, is a renowned supplier of agricultural inputs such as fertiliser and seed.

In terms of the future, agricultural prosperity is fundamental to the reduction of poverty and the well-being of the Nation.

Agricultural prosperity being fundamental to all other development in the country, the future can only be one of progress.


New VistasLOLC possesses a sustained presence in this sector with plantation holdings and businesses that provide agricultural inputs across the length and breadth of Sri Lanka. Apart from core produce, our plantations are home to hydro power and bio-mass power generation initiatives, as well as reforestation ventures. In the era unfolding before us, LOLC expects to play a pivotal role in the agriculture sector-contributing to regionally equitable economic growth, rural livelihood improvement and food security, through efficient production of commodities for consumption for agro-based industries and for exporting competitively to the world market.









Agriculture and Plantations Renewable Energy 34 Leisure 36 Construction 38 Manufacturing and Trading 40

Our Reach 42


Group Structure 50









Financial Review 72





Annexes 177


Renewable EnergyThis is an area of high growth prospects. LOLC is already immersed in this field, with extensive interests in hydro power and bio-mass produced power, whilst taking the first steps in the wind power generation sector.

The operating environment that prevails today in Sri Lanka vis-à-vis power generation is an enabling one, with the Energy Policy of the country clearly stating that by 2015 at least 10% of the power generation should be achieved through renewable sources.

In this connection, LOLC’s vision is to possess a portfolio consisting of Mini-Hydro, Bio-Mass and Wind with a total capacity of 80-100 MW in the coming years.

LOLC-owned Plantation Companies, Maturata and Pussellawa, are home to 14 hydro power projects with a total capacity of 27 MW. Currently, two projects are commissioned to generate 3.2 MW of power. These projects are the only mini-hydro power plants in the country to be registered with the United Nations Framework Convention on Climate Change (UNFCCC) for carbon credit and is already generating a trading income of Rs. 10 Mn per annum on each project. In terms of bio-mass power generation, our Group Company, United Dendro Energy, is now licensed to operate a power plant with an initial capacity of 4 MW that can be further extended to 6 MW. Situated in the Kalutara District, the unique feature of this green investment is the fact that we are geared to mitigate the greatest risk of power generation of this nature: the supply of raw material. We are aggressively cultivating the raw material in a substantial land mass across the island which will enable us to facilitate a cluster of bio-mass power plants approximately totalling to 24 MW of capacity in the long run.


New VistasThe urgency in the global pursuit of renewable energy resources to replace non-renewable energy resources is clearly manifested by the proliferation of solar, hydro, bio-mass generated and wind power projects across the world. LOLC typifies the evolving Sri Lankan energy landscape, with extensive holdings producing hydro and dendro-generated power. It is already a benchmark Company for the use of solar power at its Head Office, with plans to expand this to other facilities. The Group is also on the threshold of entering the wind power sector. LOLC will remain clearly visible in the ‘new’ Sri Lankan energy sector as it evolves.









Agriculture and Plantations 32 Renewable Energy Leisure 36 Construction 38 Manufacturing and Trading 40

Our Reach 42


Group Structure 50









Financial Review 72





Annexes 177


Leisure LOLC made its initial foray into the leisure sector, during the previous financial year, through the acquisition of controlling interest of Club Palm Garden Hotel, Riverina Hotel, Eden Resort & Spa and Tropical Villas & Ayurvedic Spa, all situated in prime locations along the southern coastline which is known as the ‘Golden Mile’ of Sri Lanka.

This acquisition is a prime example of strategy in action, where LOLC has brought to fruition its intent to align its business thrust with defined growth areas on a national scale. Tourism is expected to grow significantly, with the Government targeting tourist arrivals of 2.5 Mn by the year 2016. The requirement for logistical support for this initiative provides an area of opportunity which LOLC has tapped into.

Looking beyond short-term gains, the Group has closed all these properties down for extensive refurbishment except for Eden Resort and Spa, which on completion will enable us to position them as prime properties with the backing of some of the reputed international hotel operators within the tourism landscape of emerging Sri Lanka.

Taking our strategy further, we are planning to vest these properties with renowned hotel operating chain(s) and are already in the process of studying expressions of interest from some of the biggest names in the global hotel operating industry.


New VistasNewfound peace is making Sri Lanka an increasingly attractive tourist proposition for more travellers from around the globe, as is evidenced by the numbers generated thus far. Ambitious targets are in place in terms of expected tourist arrivals over the next year. The national vision now unfolding depicts a country offering unique, vibrant and dynamic prospects for visitors, with ‘second to none’ facilities and infrastructure in place. LOLC has entered the leisure market through its acquisition of the Confifi Hotel Group…we’re here for the long haul…a strategically conceived approach to grow with the industry as it unfolds in the years ahead.









Agriculture and Plantations 32 Renewable Energy 34 Leisure Construction 38 Manufacturing and Trading 40

Our Reach 42


Group Structure 50









Financial Review 72





Annexes 177


ConstructionAmidst a climate of massive national development, particularly in the North and the East, LOLC’s stake in Sierra Constructions and Sierra Holdings is timely and in accordance with our strategic direction of alignment with growth sectors in the country.

Sierra Constructions (Pvt) Ltd. is a prominent player in General Engineering and Construction in Sri Lanka. The Company has businesses established in India, Maldives, Qatar, Saudi Arabia and Australia. Their prestigious portfolio of clients includes, Ceylon Electricity Board, Sri Lanka Telecom and some of the major national power plants, such as Kerawalapitiya and Kotugoda. It is the preferred entity for infrastructure development and rehabilitation of Sri Lanka’s road network.

The future prospects of the Company and LOLC, given the long-term national strategy for massive development towards making Sri Lanka an important hub of the region, are extremely favourable.


New VistasA new Sri Lanka is being built today. A nation preoccupied with a debilitating war over the last 30 years is at last free to build and grow to realise its full potential. Rebuilding and rehabilitation initiatives are going ahead full steam across the country. Vital to this initiative is the construction sector. LOLC, through its Group Company, Sierra Constructions, is aligned with the building of a ‘new’ Sri Lanka.









Agriculture and Plantations 32 Renewable Energy 34 Leisure 36 Construction Manufacturing and Trading 40

Our Reach 42


Group Structure 50









Financial Review 72





Annexes 177


Manufacturing and TradingIn acquiring Brown and Company PLC during the previous financial year, LOLC added significant strength to its diversified portfolio of businesses. Clear synergies lie in the areas of agriculture and power generation, where LOLC already has strong interests.

Browns Group is a leading conglomerate in its own right, with extremely strong presence in the areas of manufacturing, trading, agriculture, automotive equipment, office automation, consumer electronics, hardware, power generation and pharmaceuticals.

Browns Group are market leaders for products such as motor vehicle batteries, auto radiators, four-wheeled and two-wheeled tractors, marine engines, power tools, integrated office automation solutions and veterinary pharmaceuticals.

In several other categories such as generators, small appliances and a host of hardware items such as cutting and grinding wheels and hacksaw blades, Browns Group rates amongst the top three positions within the respective categories.

With the spread of their interests placing Browns Group within several important growth industries of the country, the future prospects hold much promise for further expansion and prosperity for LOLC in this category.


New VistasThe evolving landscape of Sri Lanka will call for a quantum leap in terms of quality and content of its Manufacturing and Trading portfolio. The country will require enhancement and expansion of its produce and industry with sufficient value addition that could help the Nation bridge or narrow the gap in its balance of trade ratio. With the diversified blue-chip Browns PLC within the LOLC family, we’re well placed to contribute towards these goals. We envision that National prosperity which should ensue from success in this area, will trickle down to foster personal prosperity…and that is the new Sri Lanka we see unfolding.









Agriculture and Plantations 32 Renewable Energy 34 Leisure 36 Construction 38 Manufacturing and Trading

Our Reach 42


Group Structure 50









Financial Review 72





Annexes 177


Our Reach

Northern Province

North Central Province

North Eastern Province

North Western Province

Central Province

Western Province

Sabaragamuwa Province

Uva Province

Southern Province

LOFC & LOMC Branches

CLC Branches and Service Centres

LOMC Service Centres

Browns Group Branches


Jaffna

Manipai Chunnakam

Chavakachcheri

Vavuniya

of the Sri Lankan population is in the Nothern ProvinceAgriculture is the dominant force in the province. Most people here engage in farming and fishing or are professionals within the civil and business sectors. Small scale industries such as chemical manufacturing, light manufacturing and textiles were present before the civil war.

5.8%of the Sri Lankan population is in the North Western ProvinceThe province is the third largest paddy producing area in the country. It has a highly-developed agricultural economy, growing a variety of fruits and vegetables, flowering plants, spices, oil-seeds in addition to the traditional plantation crops such as coconut, rubber and rice. Rich soils and varied climate give this province a potential for virtually any crop in Sri Lanka.

Fishing, prawn farming and rubber plantation are the prominent industries in the region.

11.3%Mahawa

Anamaduwa

Malsiripura

PalaviyaNikaweratiya

Puttalam

Bingiriya

Kuliyapitiya Giriulla

Chilaw

Wennappuwa

Kurunegala










Our Reach


Group Structure 50









Financial Review 72





Annexes 177


Medawachchiya

ParakramapuraKebitigollewa

AralaganwilaBakamuna

Hingurakgoda

Horowpothana

Nochchiyagama

Padaviya

Polonnaruwa

Eppawala

Anuradhapura

Thambuththegama

Galenbindunawewa

Galewela

Galagedara

Pilimathalawa

Nawalapitiya

Hatton

Matale

Kandy

Theldeniya

Rikillagaskada

Nuwara Eliya

ThalawakeleKappetipola

Dambulla

of the Sri Lankan population is in the North Central ProvinceThis is the largest province in the country.

More than 65% of its people depend on basic agriculture and agro-based industries for their livelihood.

The province offers much potential for investors in areas such as agriculture, agro-based industries and livestock farming.

6%

of the Sri Lankan population is in the Central ProvinceThis province is home to the famed tea gardens of Ceylon (Sri Lanka). It is also a magnet for tourists due to its cool weather and scenic mountain beauty in stark contrast to the tropical heat elsewhere in the Island.

13%


Eheliyagoda

Ratnapura

Warakapola

Ruwanwella

Balangoda

Godakewela

Embilipitiya

Kegalle

Bandarawela

Mahiyanganaya

Bibila

Badulla

Monaragala

Wellawaya

Thanamalwila

of the Sri Lankan population is in the Sabaragamuwa ProvinceThe famed gem mining town of Ratnapura lies within the province.

One of the world’s renowned rainforests the Sinharajah reserve also lies within its boundaries.

The area holds much potential for further development of its tourist attractions such as trekking and bird watching.

9.4%

of the Sri Lankan population is in the Uva ProvinceThe province is rich in tourist attractions with some of the island’s most spectacular waterfalls such as Dunhinda, Diyaluma and Rawana lying within its boundaries as does the Udawalawe National Park and Galoya National Park.

6.4%










Our Reach


Group Structure 50









Financial Review 72





Annexes 177


Divulapitiya

Attanagalla

Kaduwela

Hanwella

Padukka

Ingiriya

Bulathsinghala

Mathugama

Horana

GanemullaWeliweriya

KiribathgodaRajagiriya

Homagama

Gampaha

Avissawella

Kochchikade

Negombo

Kalutara

Wattala

Seeduwa

Kadawatha

Grandpass

MaharagamaNugegoda

PettahKotahena

City BranchBambalapitiya

Mount Lavinia

Keselwatta

Panadura

Aluthgama

Baduraliya

Wellawatta

Kohuwala

Colombo

Elpitiya

Neluwa

PitigalaUdugama

Morawaka

Debarawewa

TissamaharamaWalasmulla

Matara

Weligama

BeliattaTangalle Hambanthota

Ambalanthota

Ambalangoda

Galle

Hikkaduwa

of the Sri Lankan population is in the Western ProvinceThis is the most densely populated province in the country. Within its environs lies Colombo, the nation’s administrative and business ’capital’.

As Sri Lanka’s economic hub, all the major local and international corporations have their presence in the city and so do all the major designer and high street retailers.

Almost all the premier educational institutions in the country are located here. Also, this province has the largest number of schools and colleges in the country.

28.4%

of the Sri Lankan population is in the Southern ProvinceFarming and fishing are the main sources of income for the vast majority of people of this region.

Important landmarks of this province include the wildlife sanctuaries of the Yala National Park and the holy city of Kataragama.

12.1%


Pothuvil

Nilaweli

Kinniya

Ampara

Dehiattakandiya

Kaduruwela

Kantale

Trincomalee

Muttur

Oddamawaddy

Akkaraipattu

Chenkaladdi

Kaththankudi

Kalmunai

Batticaloa

of the Sri Lankan population is in the Eastern ProvinceThis is the province with the most diversity in terms of ethnicity and religion.

Thirty years of conflict with an attendant uncertain security climate means this is relatively ‘virgin’ territory, in terms of touristic development - thus it is an area with vast potential for investment and development particularly in the leisure sector with vast stretches of pristine and unspoilt beach front. Placement of the Trincomalee Harbour will add a lot of benefits to the overall economy of the country.

7.6%










Our Reach


Group Structure 50









Financial Review 72





Annexes 177


A Sweep of the Sectors We Serve

Lanka ORIXLeasing

Company PLC


Financial Services•Lending

•MicroFinance

•SavingsandDeposits

•ForeignCurrencyDeposits

•Factoring/WorkingCapital

•IslamicFinance

•SME&DevelopmentFinance

•Insurance

•StockBroking

•FleetManagement

•AutomobilerestorationandServiceCentre

•Investments

Leisure•EdenResort&Spa

•Riverina

•ConfifiHotels

•TropicalVillas

Trading & Agencies•ConsumerElectronics

•Pharmaceuticals

•AutomativeSpares

•PowerTools

Construction

Renewable Energy•HydroPower

•BioMass

•Solar

Agriculture & Plantations•Agricultureequipment

•TeaPlantations

•RubberPlantations

•SugarPlantation

•Fertilizerandagriproducts










Our Reach 42

A Sweep of the Sectors We Serve

Group Structure 50









Financial Review 72





Annexes 177


Group Structure

Lanka ORIXLeasing Company PLC

LOFC

100%

LOMC

80%

CLC

100%

DIRIYA

50%

MP

BCP

BI

CIB

SB

AF

SB OA

40% 10% 100%

10%

10%

SH

10%

10%

10%

30%

RH

49%

25.5%

52.8%

60%

EH

24.39%

21.82%

SC

10%

CHH

29%

LOLL

70%

TVH

CFL

100%

LOFAC

100%

LOIC

100%

LOSEC

100%

LOIL

100%

LOITS

100%


LOFC [Lanka ORIX Finance Company Ltd.] | LOMC [LOLC Micro Credit Company Ltd.]

CLC [Commercial Leasing Company Ltd.] CFL [Commercial Factors Ltd.]

LOIC [LOLC Insurance Company Ltd.] | LOSEC [LOLC Securities Ltd.]

LOITS [Lanka ORIX Information Technology Services Ltd.] | LOECO [LOLC Eco Solutions Ltd.]

LOLL [LOLC Leisure Ltd.] | LOIL [LOLC Investments Ltd.] | LOMO [LOLC Motors Ltd.]

LOPD [Lanka ORIX Project Development Ltd.] GHL [Gal Oya Holdings Ltd.] | GPPL [Gal Oya Plantations (Pvt) Ltd.]

PRASAC [PRASAC Micro Finance Institution] | UDE [United Dendro Energy (Pvt) Ltd.] | OA [Orient Academy Ltd.]

SB [Seylan Bank PLC] | AF [Agstar Fertilizer (Pvt) Ltd.] | TVH [Tropical Villas Hotel (Pvt) Ltd.]

RH [Riverina Hotels PLC] | CHH [Confifi Hotel Holdings PLC] | EH [Eden Hotel Lanka PLC]

SC [Sierra Constructions Company Ltd.] SH [Sierra Holdings Company Ltd.] | BI [Browns Investment Ltd.]

MP [Maturata & Pussellawa Plantations] | BCP [Brown and Company PLC]

CIB [Commercial Insurance Brokers Ltd.] | LOFAC [LOLC Factors Ltd.]

LOMO

100%

LOECO

100%

PRASAC

18%

SUNDAYA

51%

GHL

50%

GPPL

22.05%

LOPD

100%

AGRISIL

50%

UDE

75%










Our Reach 42


Group Structure









Financial Review 72





Annexes 177


Global Funding Partners

French Development Agency Group (PROPARCO) - France

Type of Facility: Long-term US$ loan/Long-term Euro loan

Purpose of Funding: Tsunami-affected SME sector financing

Value Addition: Environmental policy; Anti-Money Laundering policy

The Netherlands Development Finance Company (FMO) - Netherland

Type of Facility: Long-term Rupee Loan/Equity Tier I & II and debt capital for the microfinance company

Purpose of Funding: SME and Microfinance sector financing and development


Deutsche Investitions-und Entwicklungs-gesellschaft mbH (DEG) - Germany

Type of Facility: Long-term Euro loan

Purpose of Funding: SME sector financing and development

Value Addition: Environmental policy; Anti-Money Laundering policy, Liquidity Risk Management Technology

Overseas Private Investment Corporation (OPIC)

Risk sharing facility with Citibank, Colombo

Type of Facility: Long-term LKR facility



Organisation of the Petroleum Exporting Countries Fund for International Development (OPEC)

Type of Facility: Long-term US$ Loan


Belgium Investment Organisation (BIO) - Belgium

Type of Facility: Long-term Euro loan




United States Agency for International Development (USAID) - USA

Type of Facility: Portable guarantee scheme

Purpose of Funding:

Microfinance Sector Development in Eastern and Uva Provinces


European Investment Bank (EIB)

Type of Facility: Long-term Rupee/Euro refinancing scheme

Purpose of Funding: Tsunami-affected SME sector development and support in tourism sector


Finnish Development Finance Company (FINNFUND) - Finland

Type of Facility: Long-term US$ loan



World Bank

Type of Facility: Long-term refinancing Rupee loan

Purpose of Funding: Refinancing of rural sector renewable energy development











Our Reach 42


Group Structure 50









Financial Review 72





Annexes 177


Export Development Corporation (EDC) - Canada


Purpose of Funding: SME Sector financing and development with Canadian imports

ING Bank - Japan


Purpose of Funding: SME and Leasing Sector Financing

Citi - Japan



Nippon Export and Investment Insurance (NEXI) - Japan

Citibank and ING Bank Tokyo being the lenders and Nexi as the guarantor



Japan Bank for International Cooperation (JBIC) - Japan

Type of Facility: Long-term Rupee loan/refinancing scheme

Purpose of Funding: Environmental Protection/Mitigate and eliminate industrial pollution and waste/Energy saving, Recycling and resource recovery in industries


Asian Development Bank (ADB)

Type of Facility: Long-term Rupee loan/refinancing scheme

Purpose of Funding: SME sector financing and development/Tea smallholders income improvement and development. Development of the plantation sector in enhancing profitability. Improve the living and working conditions of the workforce



Purpose of Funding: Microfinance Sector development



Type of Facility: Technical Assistance

Purpose of Funding: Development of Microfinance Sector

Value Addition: Institutional capacity development


Deutsche Gesellschaft für Technische Zusammenarbeit (GTZ) - Germany

Type of Facility: Technical assistance for Microfinance

Purpose of Funding: Development of Microfinance sectors

Value Addition: Promotion of Microfinance Sector

Triple Jump - Netherlands

Type of Facility: Long-term EURO loan

Purpose of Funding: Microfinance sector development

Symbiotics -Switzerland



Triodos Bank - Netherlands
















Our Reach 42


Group Structure 50









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Chairperson’s Statement

The backdrop for our outstanding performance was undoubtedly Sri Lanka’s first year of total peace, where post-war growth and development has begun to flow… Today, we have ventured into the leisure, tourism and construction sectors, propelling the erstwhile financial services provider into the top 10 diversified conglomerates in the country within a short period.


Rohini Nanayakkara Chairperson


I am pleased to present before you the Annual Report and Financial Statements of the LOLC Group for the financial year 2010/11.

The year under review has proved stable from both the local and global perspective. The global economic recession continued to show signs of easing, though recovery has been uneven across markets, with Europe and North America not bouncing back as quickly as countries in the Asian Region have over the past year.

In Sri Lanka, the growth momentum was maintained and the economy grew by as much as 8%. The Central Bank of Sri Lanka has been proactive in continuously reviewing and bringing interest rates and inflation levels under control. This supervision enabled the financial sector to stabilise and grow and also contributed to the economy in a very positive manner. Meanwhile, the drop in the interest rates and reduction of import duties will certainly boost economic activity while FDIs too will increase over time.

The backdrop for our outstanding performance was undoubtedly Sri Lanka’s first year of total peace, where post-war growth and development has begun to flow, particularly in the North and East. Massive development in the form of construction and repair of roads, bridges and other infrastructure development is taking place, in tandem with enhanced agricultural activity, all signifying economic growth into the future.

The flow of goods and produce from these regions is beginning to reach markets in the South and have a positive impact on other areas of the country.

Many of these developments have particular resonance within LOLC, as it has been our practice to strategically align our business with areas of growth in the country. Thus, our investments, acquisitions and new ventures mirror national growth trends and are being positioned to reap optimal benefit for the LOLC Group.

Over the last two years, we made a bold foray into the agriculture, plantations and renewable energy sectors, which have been incredible successes. Today, we have ventured into the leisure, tourism and construction sectors, propelling the erstwhile financial services provider into the top 10 diversified conglomerates in the country within a short period.

From LOLC’s perspective, 2010/11 has been a phenomenally outstanding year. All business fundamentals and performance parameters have been excellent. The Group recorded an impressive pre-tax profit of Rs. 8.3 Bn and Rs. 7 Bn as post-tax profits for the twelve months up to 31 March 2011. The comparatives for the last financial year were pre-tax profits of Rs. 2.8 Bn and Rs. 2.4 Bn post-tax profits. The growth in the pre-tax profits was a staggering 192% over last year with post-tax profits recording a growth of 194%.

It is noteworthy that more than 60% profit contribution is from our financial services sector, reflecting the stability of LOLC’s core business. Although we are pursuing the diversification of our portfolio with

vigour, we simultaneously strive to add value in the financial services arena to become a one-stop shop, a complete solutions provider to our clientele. This year, we added Insurance and Stock Broking to our basket of services and plan to take Islamic Business, Pawning and Wealth Management to greater heights.

In tandem with our business model of diversification, we have been in constant dialogue with the Central Bank of Sri Lanka towards moving LOLC from a Financial Services Company to a Holding Company. Compliance with the regulations of the Central Bank is being strictly observed at every step. When the transition is completed in the coming months, Group Companies will handle the individual businesses whilst LOLC will assume Holding Company status.

Transparency and corporate accountability have underpinned the business success of the LOLC Group, giving it an extra edge over competition, especially in a milieu where businesses routinely circumvent regulations and leverage loopholes in the law.

From an operational perspective, LOLC aggressively pursued branch expansion, improving reach across more areas of the country. A key feature that has been extremely gratifying has been the opportunity to work with Government agencies such as the Postal Authority. Our tie up with Sri Lanka Post enables us to reach the remotest of areas in the country via Post Offices.


Establishing a wider footprint has also enabled the Group to tap into valuable human resource pools across the country. We can now recruit talented youth from across the country and give them the training and opportunity to move into various businesses, most particularly microfinance.

LOLC’s microfinance initiative continues to be a success story. The only regulated Microfinance Institution in Sri Lanka, LOLC Micro Credit has grown exponentially and provides yeoman service to communities not reached by most financial service providers.

LOLC is now an adherent to the United Nations’ Global Compact (UNGC), which lends strength and basis to our already well-developed sustainability regime. In this context, we view our investments in the leisure and renewable energy sectors as a green step in the right direction. In the same vein, we take a holistic view of sustainability and are mindful of our responsibilities towards society. LOLC Care is an initiative set up to offer support and care for those who are less privileged and differently abled.

LOLC has continuously worked closely with our single largest shareholder, the ORIX Corporation Japan. This is a fruitful relationship we cherish and are proud of.

Chairperson’s Statement

We were extremely proud and honoured to receive the ORIX Award for Outstanding Performance for the Financial Year 2010/11. This singular honour is a testament to the level of service we offer our customers from within our dynamic and unique business culture. I do believe congratulations are in order for every member of LOLC for being a part of this outstanding achievement

Our performance this year owes much to all. I’d like to thank them all - our highly supportive and dynamic Board for their guidance and invaluable contribution; our young and multi talented management team and our dedicated and motivated staff. I wish to specially thank the Deputy Chairman and Group Managing Director for their inspired leadership.

I thank our bankers and external funding partners who have played an important role in the success and continued well- being of our enterprise.

The era unfolding before LOLC is an exciting one and I am confident that the Group is well geared to play an integral role in developing the nation and crafting a vibrant conglomerate in the process.








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Deputy Chairman’s Message

The LOLC Group’s growth has been characterised by a clear strategy to move up the value chain, setting up new businesses, supporting them until they gain critical mass and then allowing them to find their own level playing field. This consolidation at the beginning is what has given strong roots to our Companies.


Ishara NanayakkaraDeputy Chairman


I wish to welcome our valuable stakeholders with the heartening news of LOLC’s exceptional financial performance in the year 2010/11. Our journey from the time of our inception until now has been an inspirational one and forms the solid foundation on which LOLC has consolidated its dynamic growth through the years.

LOLC too has culminated its eventful journey along with the peace that has dawned in Sri Lanka, and is on the cusp of transforming into a conglomerate with diversified businesses in sectors encompassing Financial Services, Agriculture and Plantations, Construction, Leisure, Renewable Energy and Trading.

Conceived as a Leasing Company soon after the liberalisation of the economy in the 1970s, LOLC was the first Company to introduce the concept of leasing to the SME sector - revolutionising the lives and livelihoods of despairing smallholder farmers who were finally able to gain access to cheap capital to finance their modest demands for machinery and equipment - and dare to dream. Decades later, our commitment to this segment of the market still remains.

We believe that our support to the SME sector has served as a catalyst for its growth and has engendered a spirit of entrepreneurship in this sector. From the very beginning, LOLC was able to access local and global funding lines and this strong partnership made LOLC an ideal conduit through which funding could reach beneficiaries directly. Widening its base, LOLC then ventured into factoring and is now a clear market leader in the leasing and factoring business with the acquisition of Commercial Leasing Company Ltd.

(CLC). CLC becoming a wholly-owned subsidiary of LOLC has created the largest leasing and factoring entity in the country, automatically bestowing market leadership status.

The arrival of peace in the country has given birth to a new era of hope and prosperity for Sri Lanka. We at LOLC have aligned our businesses to the Government’s vision for thrust areas in the economy that will receive its maximum support. A majority of the population lives in rural Sri Lanka where agriculture is the principal means of earning a livelihood. LOLC Micro Credit Ltd. has now been set up to focus on a level below the SME sector - the poorest of the poor, who will benefit by our range of microfinance services. After decades of eking out a living below subsistence levels, the less privileged farmers can now avail of microcredit and attempt to elevate themselves from a life of poverty. It is our vision to support these farmers to move up the value chain by providing not just microcredit, but also technical know-how and ready markets, and we have made fast progress in this regard.

In a bid to promote gender equality and improve the status of women, women in villages are being empowered by our microcredit loans and we are proud to say that 95% of them come back for more loans and achieve a perfect payback ratio. Last year, LOLC Micro Credit’s lending portfolio had 6,000 women on the books. In 2010/11, this number has grown to over 25,000, with these women eventually setting up small businesses that sustain their families and help them realize their dreams of a prosperous future. Our vision is to mirror LOLC’s growth up the value chain supported by strong integration at the grassroots level in this manner. We

have a wealth of know-how embedded in our Group Companies and our philosophy of knowledge sharing enables us to enhance IT, English and technical skills amongst rural communities in which we operate.

LOLC’s stake in Brown & Company PLC was a strategic move to fuse the synergies between the largest importer of agriculture machinery and equipment with our leasing capabilities, thereby creating the largest entity of agriculture machinery and financing in the country.

Further, we perceive immense potential in the Islamic finance segment. Our Islamic finance unit has made rapid strides in garnering a widening customer base.

Pawning is another fast emerging segment of our business that will see aggressive consolidation by us.

LOLC has been able to adopt and implement new financial solutions and bring new businesses online in real time due to our business enabled IT system, which gives us the required leverage to deploy our solutions rapidly and effectively across the board. Foreign currency services, mobile banking, deposits, ATMs, and many more such IT enabled systems offer convenience and comfort to our customers.

Our financial services will be further strengthened with LOLC Insurance coming onboard in July 2011 for which we were granted a license in 2010. Our services will extend to both life and general insurance sectors and we intend to infuse a fresh approach to the business of insurance. This forward integration model ensures a virtual 360 degree control over our operations, enabling us to monitor and enforce quality standards and ensure good corporate governance.


Financial services remains our core business, generating approximately 50% of our revenue currently. Although LOLC will soon become a diversified conglomerate, we will continue to power growth in the financial services field, enhancing and adding value to our offerings.

As a leading player in the financial services segment, LOLC is bullish about the country’s capital markets and has recently acquired a stock broking license. LOLC Securities Ltd. will commence operations in July this year.

Our extensive presence in the financial services does not end here. LOLC has already stepped into the banking sector with a 20% stake in Seylan Bank and a 15% shareholding in HDFC, two crucial players in their respective segments.

Over the years we have collaborated closely and been a conduit for bilateral, multilateral and private equity funds with commercial and developmental objectives, both of which we optimised to build a strong community network and a sustainable organisation that can aspire to reach conglomerate status today. My deepest appreciation goes out to all our funding partners over the years without whose financial and technical support LOLC could not have developed the systems and processes, and leveraged competencies to be a significant financial partner for customers, ranging from poor farmers to leading corporates in the country.

Our forward integration business model will be further enhanced with a fully-fledged environmentally-friendly motor garage which will secure a complete chain between the insurance company, fleet management arm and leasing services. This synergy within the Group has allowed us to leverage on myriad business opportunities, driving profitability in every strategic business unit.

The LOLC Group’s growth has been characterised by a clear strategy to move up the value chain, setting up new businesses, supporting them until they gain critical mass and then allowing them to find their own level playing field. This consolidation at the beginning is what has given strong roots to our Companies.

All our mergers and acquisitions are accomplished only after careful feasibility studies and risk assessment to ensure that they add genuine value to our existing business portfolio and that it is a sustainable niche. We want LOLC and Sri Lanka to be known as high value addition and knowledge centres of excellence, and we maintain this motto across our businesses.

The LOLC Group is committed to the well-being of the nation and towards nation building. This sense of social consciousness ensures that our business has a high sustainability quotient and that we have no negative impact on our stakeholders. As our portfolio of businesses grows in a natural culmination of a conglomerate, we continue to strengthen and reinforce our enterprise risk and governance systems to ensure compliance at all levels.









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Moreover, LOLC is also mindful of not over-reaching by ensuring that every new business we enter into is aligned with the enduring vision and objectives we have set for the Group. The Board support, vision and oversight is provided to every LOLC Group entity, but finally each Company is helmed by a team of professionals who share our passion to enhance LOLC’s position in the market while ensuring their operations are underpinned by hard work and ethicality at all times.

LOLC’s next key focus area will be enhancing its agribusiness portfolio, which includes tea, rubber, timber and forestry. As always, we envision adding value to these crops before exporting, to move up the value chain. Our Maturata, Pussellawa and Gal Oya plantations offer ample opportunities to maximise natural resources housed in these land extents. This abundance of natural resources kindled our interest in renewable energy and today this interest has developed into a key thrust area for the Group with the setting up of mini-hydro power plants through Hydro Power Free Lanka PLC. We intend to enhance the scope of our mini-hydro power operations over a period of time.

Led by a pioneering vision to fashion a sustainable future for the nation, United Dendro Energy is currently engaged in building a 6 mega-watt wood-fired plant (Gliricidia) in Sri Lanka along with several innovative agro forestry and agricultural initiatives. The first-ever mega dendro project in the country will serve to lay the foundation for the harnessing of dendro energy as an alternative fuel source once commissioned by end 2012. The capacity of this project will be increased in the future.

Although the stem of the gliricidia plant is used to create biomass, even the leaves of the tree can also be used as cattle feed or as a substitute for bio fertilizer, thereby ensuring minimal wastage. Our investment in Agstar Fertilizer through Sierra Holdings is another move to complete the value chain.

Financial services remains our core business, generating over 50% of our revenue currently, and even though LOLC will soon become a diversified conglomerate, we will continue to power growth in the financial services field, enhancing and adding value to our offerings.


I believe that LOLC has achieved rapid success due to cognisance of its limitations and aspirations, which has given us a crystal clear view while formulating our business model. Yes, we do help set up Group Companies and nurture them, but ultimately the management is left to the best and brightest industry professionals.

Our ambition to grow and expand is tempered by a strategic approach which ensures that we have clearly mapped out growth plans that are time-bound and which enable us to stagger investments to ensure that the payback time is such that steady cash flow is ensured, even though certain businesses may be in the incubatory stages. Moreover, LOLC has allowed stakeholders to buy into its success by divesting a certain percentage of its businesses to the public. This requires excellent financial management skills, and astute financial prudence and discipline to maintain the perfect balance and leverage on the investment pool within our control.

As we prepare to don the mantle of a conglomerate, LOLC will continue to pursue organic growth by improving the performance of Group Companies whilst also assessing opportunities for joint synergies with external partners. We exercise the greatest caution while entering businesses and ensure the right management synergy exists for a smooth transition.

I sincerely hope the LOLC success story - from Company to Conglomerate - will help you appreciate our journey and also bring home the important role that each of you, valuable stakeholders, have played in our transformation into a diversified conglomerate at the upper echelons of Sri Lanka’s business landscape.

Our Group awareness about ‘green’ initiatives is extremely high and we are constantly examining measures by which we can minimise our carbon footprint. LOLC is the first commercial building to have the largest solar panel installation with 2,000 solar panels which provides 15% of our monthly energy needs at our head office. Our heightened sense of social responsibility has led us to be a signatory to the UN Global Compact.

LOLC’s early collaboration with foreign funding lines required compliance to align our IT systems and sustainability initiatives and goals with that of the funding agency. Early knowledge of these social aspects of running a business has given us a cutting edge. Today, sustainability is ingrained into every stage of our business model and in every business area in which we operate.

Our interest in aligning our goals to the national vision to boost the tourism sector has resulted in exciting developments in the leisure arm of our business. Our acquisition of the Confifi Group of Hotels in the south – Club Palm Garden, Riverina and Eden Resort & Spa - and Tropical Villas, has given us ownership of a large swathe of beach property. Currently all are under refurbishment, except Eden. This entire stretch will be unveiled as a unique resort property in 2013, catapulting us to the forefront of the leisure sector as the largest room operator along Sri Lanka’s Golden Mile. We are exploring possibilities to construct a city hotel to widen our leisure portfolio further, to cater to the holiday and business traveller alike.

The dawn of peace calls for massive infrastructure development in the country, not only in the underdeveloped North and East but also islandwide. Greater economic activity has already revived the construction sector, and keeping in mind the infinite potential of this sector, Brown & Company PLC and LOLC Group have invested in Sierra Constructions Company Ltd., which includes a construction and cabling company.









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Group Managing Director/CEO’s ReviewLOLC’s passion for sustainable business, impeccable timing to launch new investments and ability to identify future business trends continue to drive the Group to the forefront of Sri Lanka’s corporate landscape. We consciously align our business model to accommodate the opportunities stemming from the growth sectors of the local economy.


Kapila JayawardenaGroup Managing Director/CEO


The achievements of LOLC Group in the year under review are nothing short of phenomenal!

We have recorded the best financial performance thus far, rapidly expanded our footprint, empowered our brand value, diversified our portfolio and, above all, maintained a consistent stream of income to sustain our unprecedented growth.

In this context, one might ask what our secret for success is.

LOLC’s passion for sustainable business, impeccable timing to launch new investments and ability to identify future business trends continue to drive the Group to the forefront of Sri Lanka’s corporate landscape. We consciously align our business model to accommodate the opportunities stemming from the growth sectors of the local economy.

This is the first full year since peace broke and it has been an extraordinary year of progress in many of the growth sectors of the economy. The local economy recorded an impressive growth of 8.0%, the highest annual rate of growth reported in the last three decades.

This remarkable performance was supported by the restoration of permanent peace, which created an environment conducive for expansion in economic activity, increased domestic demand, the development of infrastructure facilities, improved external demand with the gradual recovery in the global economy and favourable domestic weather conditions.

The agriculture sector, which contributed around 11.9% of the GDP in 2010, grew by 7% compared to 3.2% in 2009, mainly driven by the increased production of paddy, tea, rubber and minor export crops along with significant improvements in the fisheries sector output.

Increased performance in the construction sector and improved power generation through renewable sources were notable. The share of the industry sector in total GDP increased marginally to 28.7% in 2010. The services sector grew by 8.0% in 2010. The hotels and restaurants sub sector grew sharply by about 39.8% underpinned by the strong performance in tourism.

Other major sub sectors such as transport, communications, banking, insurance and real estate also recorded significantly higher growth rates compared to 2009.

Benign inflation and the favourable inflation outlook enabled the Central Bank of Sri Lanka to continue its accommodative monetary policy stance with further moderation of interest rates in all market segments supporting economic activity.

I have deliberately portrayed a snapshot of the macro economy in my review as it is the key to everything LOLC is currently accomplishing and will achieve in the future, and serves as an excellent introduction to our stellar performance of the year under review.

From a strategic perspective, one of the key decisions we took several years ago was to align LOLC’s strategy with economic trends that reflect the evolving sectoral growth areas in Sri Lanka. Whilst monitoring the economic trends of the country, the dawn of peace has enabled us to seize opportunities hitherto unavailable.

Our analyses revealed that three sectors were clearly outperforming the rest and held the potential to grow exponentially into the future. These sectors were Leisure, Construction and Renewable Energy. Keeping in mind that LOLC already had significant investments in the agricultural sector, we added Agriculture and our core business of Financial Services to the list. These five areas would henceforth form the strategic areas of focus and involvement for LOLC Group.

Within this context, LOLC made its initial foray into the leisure market last year, with the acquisition of the Confifi Group of Hotels and Tropical Villas. Our first step would seem paradoxical - to close them down, except for Eden Resort and Spa for refurbishment and, in time, place them under the management of a globally renowned hotel management company. However, we are as always looking at the bigger picture; not short-term gains but the long-term profitability of the enterprise.

As developmental work around the country reaches full flow, the construction industry is experiencing a natural boom. LOLC, through its stake in Sierra Holdings and Construction, is ‘in on the ground floor’ as it were.


Group Managing Director/CEO’s Review

There is great momentum in eco-investment too; the National Energy Policy has targets set for generating power through renewable energy sources to the National Grid by 2015. Sustainable investment by ‘going green’ is at the very core of our business model since inception. This core theme is reflected in every strategic move of the LOLC Group. LOLC’s vision to possess a green portfolio consisting of Mini-Hydro, Bio-Mass and Wind Power is now becoming a reality through our Companies - United Dendro Energy, GalOya Plantations, Maturata and Pussellawa Plantations.

Taking our sustainability commitment a step further, LOLC, whilst converting all conventional lighting in our establishments, to CFL is also going in for LED lighting. LED lights yield substantial savings in terms of power consumption, leading on to a 95% energy saving.

Purely with the desire of maintaining a ‘sustainable office’ concept, we installed 2,000 solar panels at our Head Office premises. Now we enjoy a 48KW grid-connected solar system with expected net metering, which generates 15% of our monthly power consumption at the Head Office. On weekends and holidays, the produced electricity is channelled to the National Grid.

However, from a strategic perspective, where the areas of Construction, Leisure, Agriculture and Renewable Energy generation are concerned, LOLC is not a direct operator, since these are not core areas of expertise for us. What we do is to invest in projects with good growth potential, provide strategic vision and let the experts run the business. This simple ability to identify strengths and outsource expertise where necessary has succeeded in building internal capacity while harnessing best practices, lending maturity and depth to the Group. We also ensure that business prudence prevails and all such projects embody ‘exit in sight’ provisos.

Thirty years ago we pioneered leasing and expanded our financial portfolio to factoring, working capital, savings and deposits, microfinancing, Islamic financing, pawning, insurance, stock broking and fleet management to become a one-stop-shop offering an array of financial services.

We truly excel in our core business, financial services.

Our main financial services companies generate more than 60% of our profits and will remain our core business.








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The Group recorded a commendable post tax profit of Rs. 7.0 Bn as against Rs. 2.3 Bn in the previous year, an increase of 194%. Our book grew by 48% to reach Rs. 112 Bn from Rs. 75 Bn in the corresponding year reflecting the lending portfolio of the Group Companies. Our Group Non-Performing Loan (NPL) ratio is approximately 2%, a laudable figure in comparison with the industry average of 7%.

While the financial services sector brings us steady growth and profitability we believe that we have now built a strong portfolio of other investments and businesses which will bring us continuous profits and capital gains, considering the profile of short to medium to long term nature of such businesses.

This will give LOLC a sustainable stream of long-term growth and profitability from a diversified array of businesses.

The success of this diversification strategy of the Group was proven by the consolidated revenues from leisure, agriculture, plantation and trading sectors.

The contribution from the leisure sector was Rs. 1.4 Bn to the Group’s revenue, while the Agriculture and Plantations sector contributed Rs. 5.1 Bn to the consolidated revenue. In less than 10 months under our purview, investments in leisure recorded a Rs. 219 Mn pre-tax profit and the Group recognized a negative goodwill of Rs. 272 Mn.

Our Finance Company, Lanka ORIX Finance Company Limited (LOFC) went beyond leaps and bounds to be established as a premier finance house in the country.

The total deposit base of the Company grew by 72% to reach Rs. 17.4 Bn from Rs.10 Bn last year. The recent capital infusion on prudent basis has strengthened the Company even further, with a new brand and logo established and a listing on the way, and a fair share of it for our valued employees, LOFC is fully geared to become the number one finance company in the country.

Commercial Leasing Company Ltd. (CLC) continued to be a success story. The lending portfolio increased by 88% to record a book of Rs. 18.4 Bn. With the exponential growth in the portfolio, branch network and the customer base, CLC did not lose sight of its credit quality, which is the reason it has maintained a gross Non-Performing Loan (NPL) ratio of 0.8%.

LOLC Micro Credit (LOMC) continued to remain as a preferred conduit by most of the external funding lines, not only because of its outstanding performance but also because of its unique low cost distribution channels coupled with its low overhead and borrowing costs. Five more foreign funds were procured in the year under review to support the growth of the book by 106% to reach Rs. 8.2 Bn. With pawning as a new product in the product mix with dedicated centres across the island known as “Ransavi Centres”, LOMC is on course to reach new heights on microfinance arena.

The Islamic Business Unit of LOFC recorded tremendous growth in the year under review. With the highest profit returns in the industry and a rapidly growing asset book, Al-Falaah is the single largest IBU attached to a Finance Company. To meet the increasing demand,

we have a network of dedicated IBU centres currently operating in the areas of Kalmunai, Kaththankudi and Oddamavadi, with 10 more centres in the pipeline.

To optimise the resources and efficiency, we spun off our working capital unit, which now functions as a Factoring Company – LOLC Factors Ltd (LOFAC). Together with Commercial Factors, a business unit of CLC, the LOLC Group has a substantial market share of factoring and is the market leader in the country.

Value addition through related diversification, is one of our key strategic directions. In the year under review, we obtained a license for an insurance company. LOLC Insurance Company (LOIC) is a fully-fledged insurance company offering both general and life insurance. In compliance with the regulation, we closed down our Insurance Broking Company - Lanka ORIX Insurance Brokers and LOIC will be geared for full operations by July 2011, backed by internationally reputed reinsurance companies and operational systems.

In the same vein, we expanded the operations of our motor vehicle repair and restoration company – LOLC Motors Ltd. (LOMO). LOMO is a result of a natural need to strengthen our fleet management unit, which has big plans in the coming months and is a value addition to our Insurance Company. Green to its core with its unique design maximizing the use of natural lighting sound proof walls, systems to harvest rain water and waste water recycling, LOMO is a state-of-the-art facility with the capacity to accommodate 100 vehicles at any given time.


The latest addition to our portfolio of financial services is the stock broking firm. LOLC Securities Ltd. obtained its licence to operate in the year under review and plans are underway to commence operations in the coming months.

One of the critical success factors of our business model is our Branch Network. Our partnership with the Sri Lanka Post, allows us a competitive edge over our peers in extending our reach to the deep rural areas of the country. In the year under review we expanded our footprint, in particular in the North and the East with main branches and 32 post offices island-wide. Our rapidly growing network stands at 156 locations island-wide as at 31st March 2011, an unparalleled increase of 72 branches from 84 last year.

The LOLC Group has now moved towards establishing a new paradigm; a holding company. When we looked at the conglomerate of over 60 companies we have built over the years, we felt it was timely and moreover necessary that we allowed constituent entities to flourish with their inbuilt expertise whilst LOLC would move towards being the Parent or Holding Company of the Group.

Ultimately, any and every organisation is a success because of its talent pool and the LOLC Group is committed to building a skilled, contented and fulfilled workforce through best practices. Our earnest efforts in this regard have borne fruit - as LOLC

Group Managing Director/CEO’s Review

enjoys one of the best staff retention ratios in the industry. I would like to thank the Board of LOLC for their support and guidance and the management and staff of the Group for their commitment and passion, which have been instrumental in recording another year of tremendous success.

To conclude my note, LOLC Group witnessed a year of phenomenal achievement and progress; a moment of great importance in re-shaping and re-engineering its business composition; an era of alignment with the growth, development and prosperity of the Nation.

LOLC is truly poised on all fronts to accomplish greater heights in the business landscape of Sri Lanka.








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Financial Review

The diversification strategy of the Group contributed heavily to the top line with a full year of operations from the leisure, agriculture & plantations and trading sectors.


LOLC GroupThe LOLC Group concluded an extremely successful year with the consolidated gross revenue of the Group increasing to Rs. 32.1 Bn from Rs. 14.9 Bn during the previous year and profit after tax of Rs. 7.0 Bn.

The diversification strategy of the Group contributed heavily to the top line with a full year of operations from the leisure, agriculture & plantations and trading sectors adding value to the top line. The consolidated revenue from the leisure, agriculture & plantations and trading sectors of the Group increased to Rs. 16.8 Bn from Rs. 2.6 Bn during the previous year, where only 3 months of operations, from December 2009 to March 2010, were consolidated last year. The major investments in the leisure sector too were during the current financial year.

Financial Review

LOLC Group

Lanka ORIX Leasing Company PLC (LOLC) 74


Lanka ORIX Finance Company Ltd. (LOFC) 76

LOLC Micro Credit Ltd. (LOMC) 78

Commercial Leasing Company Ltd. (CLC) 79

Leisure 80

Trading 80

Renewable Energy 80

Agriculture and Plantations 81

The income from financial services to the Group increased by 20% over the previous year to Rs. 11.9 Bn despite the reduction in interest rates. The impact of the lower interest rates prevalent during the year was overcome by the increase in income from the growth of the Group’s loan book. The Group made substantial gains from investments, with capital gains of Rs. 551 Mn on the sale of Treasury Bonds complementing the gains through short-term investments. The capital gains realised from the sale of shares was Rs. 2.0 Bn and the marked to market gains from shares held for trading is Rs. 1.0 Bn.

The increase in net interest cost of the Group over the previous year was 4% even though the quantum of borrowings of the Group had increased by a much larger proportion, due to the lower interest rates prevalent.








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The direct expenses excluding net interest cost increased by 88% to Rs. 1 Bn mainly due to increases in value added tax on financial services to Rs. 650 Mn and BTT, debit tax, etc. to Rs. 368 Mn.

Provisioning for bad and doubtful debt of the Group was down 14% to Rs. 546 Mn reflecting significant improvement in the portfolio quality. The gross non-performing loan ratio of the Group was 2.0% as at the year end and the net non-performing ratio, after provisions for bad and doubtful debts, was 0.1% which was well below the industry average.

The other operating expenses of the Group, including staff costs, increased to Rs. 6.3 Bn and the resultant profits from operating activities was Rs. 7.8 Bn.

The Group recognised Rs. 179 Mn as share of profit from equity accounted investees during the year, mainly from PRASAC Microfinance Institution in Cambodia and Associated Battery Manufacturers.

The LOLC Group, through LOLC Leisure, obtained controlling interest of the Confifi Group of Hotels, consisting of Confifi Hotel Holdings PLC (Club Palm Garden), Riverina Hotels PLC and Eden Hotel Lanka PLC in May 2010. Subsequently, LOLC Leisure acquired controlling interest in Tropical Villas (Pvt) Ltd. The Group recognised a negative goodwill of Rs. 272 Mn, arising from the fair value of net assets acquired via these hotel properties.

The Group recorded an impressive pre-tax profits of Rs. 8.3 Bn and Rs. 7.0 Bn as post-tax profits for the financial year after providing Rs. 1.3 Bn for tax. The comparatives for the last financial year were pre-tax profits of Rs. 2.8 Bn and Rs. 2.4 Bn post-tax profits.

The earnings per share, adjusted for the 1:10 share split in November 2010, increased by 108% over the previous year to Rs. 8.08.

Total investment securities held by the Group, consisting of quoted and unquoted shares and investments in Government Securities was higher by 24% over the previous year, while the composition of the investment securities changed significantly from the previous year to take advantage of the growth in capital markets. The total assets of the Group as at the year end was Rs. 111.8 Bn, with the increase in total assets over the previous year being mainly from the increase in financial assets. Rs. 23.3 Bn of the 48% Balance Sheet growth was from the lending portfolio of the Group Companies.

Lanka ORIX Leasing Company PLC (LOLC)The period under review witnessed the Company formally launching itself as a Holding Company, after having operated as the pioneer Leasing Company in the country for the last 30 years. LOLC requested approval from the Central Bank of Sri Lanka (CBSL) to withhold renewal of its leasing license and the request was duly approved by the CBSL.

During the year, LOLC’s investments in Group Companies, subsidiaries, joint ventures and associate companies, were increased to Rs. 10.3 Bn with significant investments in the financial services, leisure, agriculture & plantations, construction and renewable energy sectors.

Seylan Bank, which was accounted for as an associate company during the previous year, was treated as an equity investment and marked to market following the request from CBSL to reduce the Group’s shareholding in Seylan Bank.


With LOLC positioning itself as a Holding Company, most of the new lease and loan facilities were booked under the subsidiary companies, resulting in a shrinking loan book. The shift of business activity had a significant impact on the revenue composition of the Company. The Company’s income was down by 23% from the previous year due to this and also the lower interest rates prevalent during the year.

The Company made significant gains through its investment portfolio, comprising quoted shares as well as from the investments in Treasury Bonds. Realised gains during the year was Rs. 1,535 Mn in capital gains, dividends and interest income on Treasury Bonds. The marked to market gain on the investment portfolio is a further 718 Mn.

Positioning itself as a Holding Company, LOLC has reduced its level of leverage from a debt to equity ratio of 4.2 times in 2010 to 3.0 times in 2011. With the lower level of gearing and the prevalent lower interest rates, the Company’s borrowing cost was down by 23% from the previous year to Rs. 2.4 Bn.

The provision for doubtful debt during the year was down to Rs. 100 Mn from Rs. 447 Mn last year due to improved collections during the year. The Company has made additional specific provisions of Rs. 43 Mn on account of arrears contracts from the Northern, North Central and Eastern Provinces, which were affected by floods during the last quarter. The Company reported a profit after tax of Rs. 1.5 Bn for the year.

Financial Review

LOLC Group

Lanka ORIX Leasing Company PLC (LOLC)





Leisure 80

Trading 80

Renewable Energy 80









Financial Review 72





Annexes 177


Financial ServicesThe financial services sector, which is the core business of the Group, concluded an extremely successful year with macro- economic variables too being favourable to the business activities. The lower interest rates prevalent during the year and the increased demand for credit provided a favourable environment for the leasing and finance companies of the Group.

The total lending portfolio of the Group companies increased by 67% to Rs. 58.4 Bn from an year ago with the aggressive growth policy adopted by LOLC.

Complementing the product range of financial services offered by the Group’s companies, LOLC Insurance received approval from the Insurance Board of Sri Lanka to engage in both, life and general insurance activities. The Company commenced operations in late March following a soft launch of the Company.

Lanka ORIX Finance Company Ltd. (LOFC)LOFC completed a challenging and successful year of operations, where the Group and the Company, underwent many structural changes. In the backdrop of the Parent Company, LOLC, formally announcing itself as a holding company, LOFC inherited the mantle as the premier financial services company within the Group. The Company’s lending business as well as the savings and deposits operation recorded best ever performances with the Islamic financing business too gaining momentum during the year under review.

The total deposit base of the Company, consisting of fixed deposits, savings deposits, mudarabah deposits (of the Islamic Business Unit) and foreign currency deposits increased by 72% to Rs. 17.4 Bn.

The lease and loan book of the Company, consisting of finance lease, hire purchase and loans increased by 134% to Rs. 20.8 Bn. The growth of the lending portfolio was due to new business that would have been booked under LOLC too being booked in LOFC complemented by increased economic activity levels. Disbursements during the year from LOFC were Rs. 21.8 Bn.

LOFC’s rapid growth of the lease and loan book was achieved whilst maintaining a very high credit quality. The Company’s gross NPL ratio improved to 2.0% in 2011 from 4.9% in 2010 and the net NPL ratio too improved to 1.0% in 2011 from 3.0% in 2010.

In order to sustain the rapid growth of the Company, of the deposit base as well as the lease and loan portfolio, the Company was further capitalised by Rs. 1.0 Bn during the year. With the infusion of additional capital and the earnings from operations, the Company’s capital adequacy ratio was at a healthy 17.01% (14.21% in 2010).


Despite the lower interest rates prevalent during the financial year 2010/11 when compared with the previous year, the interest income earned during the year increased by 87% to Rs. 3.1 Bn over the previous year. The increased earnings were primarily due to the increase in the Company’s lease and loan portfolio. The lower interest rates enabled LOFC to manage its financing costs, with the interest expenses increasing by only 36% to Rs. 1.8 Bn despite the deposit base increasing by 72%.

Total write-offs of bad debts during the year was Rs. 105 Mn, less by 33% when compared with the previous year. Provision for doubtful debts during the year, net of reversals of specific provisions, was Rs. 50 Mn. LOFC too made additional

specific provisions of Rs. 141 Mn on account of arrears contracts from the provinces which were affected by floods during the last quarter.

With the increased level of business activity, the personnel expenses of LOFC increased by 179% over the last year to Rs. 310 Mn. The Company’s administration and marketing expenses too increased by 125% to Rs. 666 Mn with the increased level of operations. The resultant operating profit for the year was Rs. 1.6 Bn. The Company reported a profit after tax of Rs. 1.2 Bn after providing for income tax and VAT on financial services.

Financial Review

LOLC Group 73


Financial Services

Lanka ORIX Finance Company Ltd. (LOFC)



Leisure 80

Trading 80

Renewable Energy 80









Financial Review 72





Annexes 177


LOLC Micro Credit Ltd. (LOMC)LOMC commenced its operations in February 2009 with the transfer of a lease and loan book of Rs. 2.3 Bn from the Parent Company, LOLC. Over the last 2 years, LOMC has shown tremendous growth in terms of portfolio growth, outreach as well as profitability.

The lending portfolio, consisting of lease, hire purchase, loan and pawning receivables, increased by 106% over the previous year to Rs. 8.2 Bn. While the loan book of the Company grew at an extremely rapid pace, LOMC was extremely successful in maintaining its gross NPL ratio at 0.6%. LOMC’s net NPL ratio was a negative 1.7%. The pawning business of the Group was previously carried out by LOFC. However, as the product and customer characteristics of pawning were more suited for the Microfinance business, the pawning portfolio was purchased by LOMC from LOFC.

The Company has been extremely successful in raising most of its debt through foreign financial institutions. The Company has benefited from the expertise of some of the funding institutions through technical assistance as well as sharing of industry best practices. However, the exposure to foreign funding institutions has resulted in the Company having to hedge its risk of foreign currency exposures. The Company either enters into currency swaps or maintains a foreign currency deposit with a local bank and obtains a local currency loan against the deposit as methods of hedging its currency exposures.

The rapid growth of the Company has increased the debt to equity ratio to 5.9 times from 4.5 during the year. The debt to equity ratio without the double count created due to currency hedging was 4.8 times (2010 - 3.9 times).


LOMC’s interest income for the year grew by 61% over the previous year to Rs. 1.6 Bn supported by the rapid growth of the Company’s lease and loan portfolio. The interest expense of the Company increased by 38% over the previous year to Rs. 554 Mn. The provisioning for bad and doubtful debts during the year was Rs. 162 Mn, and write offs during the year of doubtful loans already fully-provided for was Rs. 24 Mn. LOMC made additional specific provisions of Rs. 107 Mn on account of arrears contracts in flood- affected areas. With the rapid expansion of the Company and increased level of business activity, the Company’s personnel expenses increased by 61% over the previous year to Rs. 221 Mn. The Company reported a profit after tax of Rs. 415 Mn.

Commercial Leasing Company Ltd. (CLC)The year under review was an extremely successful year for CLC, expanding its portfolio, presence and customer base.

CLC’s lending portfolio consisting of lease, loan, hire purchase and factoring receivables, grew by 88% over the previous year to Rs. 18.4 Bn. CLC was successful in maintaining a very high credit quality along with the rapid growth of the portfolio, with a gross NPL ratio of 0.8% and a net NPL ratio of negative 1.9%. During the year, the Company was further capitalised by Rs. 1.0 Bn, enabling the Company to maintain its rapid growth. The Company’s debt to equity ratio was at a healthy 4.2 times as at year end (3.7 times in 2010). The debt to equity ratio excluding the double count of loans created due to foreign currency hedges was at 4.1 times (3.3 times in 2010).

Financial Review

LOLC Group 73




LOLC Micro Credit Ltd. (LOMC)

Commercial Leasing Company Ltd. (CLC)

Leisure 80

Trading 80

Renewable Energy 80









Financial Review 72





Annexes 177


In keeping with the growth of the portfolio, the interest income of the Company increased by 36% with interest on Hire Purchase continuing to contribute significantly to the Company’s topline. The Company was extremely successful in reducing its cost of funds by taking advantage of the reducing interest rates and through borrowings from foreign funding institutions. The interest cost of CLC remained at the same levels as the previous year, despite the increase in total borrowings of the Company.

The operating expenses of the Company increased with the higher level of business activity and expansion with the personnel costs increasing by 51% over the previous year. CLC too made additional specific provisions of Rs. 112 Mn on account of arrears contracts in flood-affected areas. The Company reported a profit after tax of Rs. 664 Mn for the year.

LeisureLOLC Leisure, the holding company of the Group’s investments in the leisure sector, gained controlling interests in Confifi Hotel Holdings PLC, Riverina Hotels PLC, Eden Hotel Lanka PLC and Tropical Villas (Pvt) Ltd. during the year. As a result of these transactions, the Group recorded a negative goodwill of Rs. 272 Mn.

The leisure sector contributed Rs. 1.4 Bn to the Group’s revenue and the resultant profit before tax from the leisure sector was Rs. 219 Mn.

Confifi Hotel Holdings PLC, Riverina Hotels PLC and Tropical Villas (Pvt) Ltd. were closed for business from the 1st of May 2011 in order to complete an accelerated refurbishment programme.

TradingTotal contribution of revenue to the Group from the trading sector was Rs. 10.3 Bn and the cost of sales associated was Rs. 7.2 Bn, resulting in a gross profit of Rs. 3.1 Bn. Operating expenses of the trading sector was Rs. 1.7 Bn.

The Group’s exposure to the trading sector is primarily through Brown & Company PLC and its subsidiary companies, which manage a portfolio of leading brands of consumer durables, motor accessories and industrial equipment.

Renewable EnergyLOLC Eco Solutions Ltd. is the holding company of United Dendro Energy (Pvt) Ltd. Through the investment in this Company, the Group has planned on setting up dendro power plants. The Company is in the process of acquiring land required to plant gliricidia and is also in the process of procuring machinery and equipment to set up the power plant.

Further, the Group’s joint venture company, Hydro Power Free Lanka, is engaged in generating electricity through mini-hydro power projects.

The total revenue to the Group from the sector is Rs. 74 Mn and the profit before tax from the sector was Rs. 20 Mn.


Agriculture and PlantationsThe Group’s investments in Maturata Plantations and Pussellawa Plantations continued to bear fruit with both of the plantation companies reporting healthy profits.

During the current year, the Group made further investments in the sector acquiring a 20% stake in Agstar Fertilizer through LOLC and Browns Investments.

Galoya Plantations is the private public partnership entered into by the Group where a total of 49% of the Company is held by LOLC and Brown & Company PLC. The Government of Sri Lanka holds 51% of the Company. The Company was capitalised during the year with the contribution from the Government being allocated and paid in the form of fixed assets. LOLC and Brown and Company PLC received its shareholding by way of capitalisation of previously granted loans. The Company is making good progress in renovating the factory.

Total revenue to the Group from the sector was Rs. 5.1 Bn with cost of sales of Rs. 2.3 Bn. The profit before tax from the sector was Rs. 2.0 Bn.

Financial Review

LOLC Group 73





Commercial Leasing Company Ltd. (CLC)

Leisure

Trading

Renewable Energy

Agriculture and Plantations








Financial Review 72





Annexes 177


Corporate Governance

The Board of Directors is committed to good corporate governance as it provides the basis for sustainable growth; and therefore, good governance measures will continue to be exercised irrespective of whether they are a continuing legal requirement or not


As a company listed on the Colombo Stock Exchange (CSE) , LOLC is governed by the Listing Rules of the CSE, including those on Corporate Governance.

For the year under review, as a Company licensed to undertake leasing, LOLC was governed by the Directions of the Central Bank of Sri Lanka (CBSL) including Directions on Corporate Governance . However, in April 2011 LOLC relinquished its leasing license, and will therefore no longer be governed by the CBSL Directions.

The Board recognises the fact that good corporate governance is not only necessary for sustainability, but also beneficial to all stakeholders, and a means of facilitating growth. Therefore, good governance measures will continue to be exercised, irrespective of whether they are a continuing legal requirement or not.

Detailed below are the corporate governance requirements of the relevant regulators, and LOLC’s compliance thereto.

Compliance with the Corporate Governance RequirementsGovernance Principle Compliance

Board of Directors

Composition of the Board:

(a) Independent Directors Compliant with the CBSL and CSE requirements currently applicable. The Company has 3 Independent Directors.

(b) Period of service(c) Number of Directors(d) Age(e) Other directorships

Moving towards compliance of requirements which will be applicable by 2013.

However, following the relinquishing of the leasing license, these requirements will now be reviewed and compliance ensured with those applicable.

(f) Skills and experience of Directors

Compliant. The Board comprises Directors with varied experience and skills, including financial, management and entrepreneurial. This facilitates understanding of the micro and macroeconomy in which the Company and the Group operate, and also of the several industries into which the Company and Group are diversifying.

The names of the Directors and their profiles are given on pages 200 to 206.

Roles of Chairman and Chief Executive Officer to be separate

Compliant. These roles have always been separate at LOLC.

Chairman to be Non-Executive Compliant

Relationship between Board members

There is no financial, business, family or other relationship between the Chairperson and the CEO. Mr. R.M. Nanayakkara, Mr. I.C. Nanayakkara and Mrs. K.U. Amarasinghe share a family relationship. There is no financial, business, family or other material relationship between any other members of the Board.

Board appraisal Compliant with requirement to conduct Board evaluations. The Nominations Committee periodically reviews and improves the evaluation process to ensure optimum benefit of these appraisals.


Compliance with the Corporate Governance Requirements

Attendance at Meetings 88

Directors’ Shareholdings 88

Board Sub-Committees 89

Remuneration Committee Report 90

Nomination Committee Report 90

Audit Committee Report 91

Report of the Integrated Risk Management Committee 92

Corporate Governance Committee Report 93








Financial Review 72





Annexes 177


Governance Principle Compliance

Directorate The current Directorate is as given below:

Mrs. R.L. Nanayakkara - Non-Executive Chairperson

Mr. I.C. Nanayakkara - Executive Deputy Chairman

Mr. W.D.K. Jayawardena - Managing Director and Group CEO

Deshamanya M.D.D. Pieris - Independent Director

Mr. R.A. Fernando - Independent Director

Mr. R.N. Asirwatham - Independent Director

Mr. R.M. Nanayakkara - Non-Executive Director (Alternate - Mr. I.C. Nanayakkara) Mrs. K.U. Amarasinghe - Executive Director

Mr. H. Ichida - Non-Executive Director (Alternate Mr. T. Yamazaki appointed with effect from 23 February 2011) Mr. K. Okimoto - Non-Executive Director (Appointed with effect from 23 February 2011) (Alternate Mr. T. Yamazaki appointed with effect from 23 February 2011)Mr. M. Inoue(Resigned with effect from 23 February 2011) Mr. H. Umetani (Alternate to Mr. M. Inoue and Mr. H. Ichida resigned with effect from 23 February 2011)

Directors’ shareholdings The Directors’ shareholdings are disclosed on page 88.

Independent Directors

Board’s determination of Directors’ independence

Mr. R.A. Fernando and Deshamanya M.D.D. Pieris have served as Directors of the Company for more than nine years. It is the opinion of the Board that this period of service does not affect either Mr. Fernando’s or Mr. Pieris’ ability to function as an Independent Director.

Mr. Fernando has served on the Boards of several companies both locally and globally, including multinationals. Apart from his professional expertise and experience, he also has wide ranging academic exposure in the field of sustainable business.

Mr. Fernando is a Cambridge University Alumni in Sustainable Business Leadership, the emerging ‘new’ paradigm for the 21st Century. His expertise in Corporate Sustainability and Branding are a new ‘skill’ in today’s corporate world.

In view of LOLC’s regional expansion, and its focus on sustainable growth and environmental responsibility, Mr. Fernando has been identified as a Director who can make a significant contribution.

Mr. Pieris is an illustrious retired civil servant, with a distinguished career history. He has served as the Secretary to the Prime Minister and as Secretary of several key ministries and has been appointed to chair several Government organisations. He has been and still serves on the Boards of Management or Governing Councils of several universities or postgraduate institutions. He also holds senior positions in the private sector including as Deputy Chairman of a private Merchant Bank .

In view of his vast experience, the Board is of the view that he can contribute significantly to the review of processes and controls and their improvement, to ensure integrity of information for decision making as well as in the area of strategic management.



Retirement of Directors Mr. I.C. Nanayakkara and Mr. H. Ichida retire by rotation and offer themselves for re-election. As they are eligible for re-election, the Board recommends their re-election.

Mr. K. Okimoto, a Director appointed during the year, retires and offers himself for re-election. As he is eligible for re-election, the Board recommends his re-election.

Mrs. R.L. Nanayakkara who is over the age of 70, retires. The Board has received Notice of Intention to move for her re-election. The Board recommends that she be re-elected.

Deshamanya M.D.D. Pieris, who is over the age of 70, retires. The Board has received Notice of Intention to move for his re-election. The Board recommends that he be re-elected.

Mr. R.M. Nanayakkara who is over the age of 70, retires. The Board has received Notice of Intention to move for his re-election. The Board recommends that he be re-elected.

Board Meetings

(a) Number of meetings per year

Compliant, the Board met 12 times for the year.

(b) Notice Compliant with required period of notice for Board meetings (seven days). A schedule of meetings for the year is provided at the beginning of each year. Further, at each meeting the date of the next meeting (the following month) is confirmed.

(c) Agenda Compliant with method of drawing up Board Agenda. The agenda items include regular reports which facilitate monitoring of performance and compliance. Non-routine issues which require Board attention are specifically mentioned in the agenda as separate items.

(d) Attendance Compliant with required attendance of each Director. The chart on meetings and attendance is on page 88.

(e) Participation Compliant with requirement that Chairman encourages active participation and contribution of all Directors. This enables the Company and Group to benefit from the skills and experience of all the Directors.

(f) Minutes Compliant with recommended method of recording Minutes. The minutes record not only the decisions taken but also the information on which the decision was based, and the discussions leading up to the decision. In certain instances, copies of the relevant Board presentations or papers are also included in the Minute Book.


















Financial Review 72





Annexes 177



Board Sub Committees

Audit Committee

Committee Chairman to be Non-Executive Director with qualifications and experience in accountancy and/or audit

Compliant. The Audit Committee Chairman is Mr. Rajan Asirwatham.

His profile is on page 205.

Committee to comprise Non-Executive Directors, majority of whom are independent

Compliant. The Audit Committee comprises Independent Directors.

Tasks and responsibilities of the Committee

Compliant with the requirements, which include among others regular reviewing of financials, meeting with External Auditors, discussing the scope of audit and the Management Letter, review of the Internal audit function, including any investigations.

Put in place a process to enable employees to raise concerns about any improprieties

Compliant. A Whistle Blowing Policy has been adopted and hot line has been provided to all employees. Further, there are several meetings of Board Sub-Committees (including the Audit Committee and the Integrated Risk Management Committee) at which members of the management are also invited to be present and can voice their concerns.

The Audit Committee Report is on page 91.

Integrated Risk Management Committee

Composition of Committee Compliant. The Committee comprises independent and Non-Executive Directors

Tasks and responsibilities of the Committee

Compliant with the requirements, which include among others regular reviewing of all relevant types of risks, discussion and decisions on appropriate mitigation, and identification of compliance officers.

The Integrated Risk Management Committee Report is on page 92.

Remuneration Committee

(a) Composition Compliant. The Remuneration Committee comprises Independent Directors

(b) Committee Chairman to be Non-Executive

Compliant. The Committee Chairman is Mr. Ravi Fernando.

The Remuneration Committee Report is on page 90.

Nomination Committee

Not a statutory or regulatory requirement

This Committee is not required by any regulation, but is part of LOLC’s self-regulation.

The Nomination Committee Report is on page 90.

Corporate Governance Committee

Not a statutory or regulatory requirement

This Committee is not required by any regulation, but is part of LOLC’s self-regulation. The Committee reviews the systems and processes of the Company with a view to continuous improvement.

The Corporate Governance Committee Report is on page 93.



Management and Supervision

(a) Identify Key Management Personnel

Compliant. The Remuneration Committee, at meetings with the Managing Director and the Chief HR Officer, has discussed these issues and been satisfied that the key personnel have been identified and a retention plan and a succession plan put in place.(b) Ensure succession

(c) Ensure adequate supervision

Compliant. Reports from the Key Management Personnel are called for and daily supervision is exercised by the three Executive Directors.

(d) Meet regularly with KMPs Compliant. Board Sub-Committees meet with the Senior Management Personnel regularly at Sub-Committee meetings.

Controls and Management Information Systems

(a) Identify risks Compliant. The Enterprise Risk Management Division reviews processes, procedures, operations and controls and submits regular reports. Depending on the nature of the review, these reports are discussed either at Audit Committee meetings or at Integrated Risk Management Committee meetings.

Key Management Personnel also submit reports on identified risk and mitigation methods employed in critical areas such as Treasury, and Information Technology.

Investigation reports are also submitted to the Audit Committee, together with detail of the corrective measures taken.

Minutes of these Sub-Committee meetings are tabled at the next Board meeting, enabling all Directors to be informed.

(b) Review adequacy of controls

(c) Review MIS

Donations During the year under review the Company made donations of Rs. 1.454 Mn.


















Financial Review 72





Annexes 177


Attendance at Meetings

Board Executive Committee

Audit Committee

RemunerationCommittee

Nomination Committee

Corporate GovernanceCommittee

Integrated Risk

Management Committee

IT Steering Committee

No of Meetings 12 08 13 02 01 05 04 04Director Classification

Mrs. R.L. Nanayakkara* Non-Executive 11 08 N/A N/A N/A 05 N/A 04

Mr. I.C. Nanayakkara Executive 11 03 N/A N/A 01 N/A N/A N/A

Mr. W.D.K. Jayawardena Executive 12 08 N/A N/A N/A N/A 04 02

Mrs. K.U. Amarasinghe Executive 11 08 N/A N/A N/A N/A N/A 02

Mr. R.N. Asirwatham Independent 12 N/A 13** 02 01 05 04** N/A

Deshamanya M.D.D. Pieris Independent 12 08 13 02 01** 05** 04 N/A

Mr. R.A. Fernando Independent 09 N/A 05 02** 01 02 N/A N/A

Mr. R.M. Nanayakkara - by his alternate Mr. I.C. Nanayakkara

Non-Executive 06 N/A N/A N/A N/A N/A N/A N/A

Mr. K. Okimoto - by his alternate Mr. T. Yamazaki (Appointed w.ef. 23.02.2010)

Non-Executive 0101***

N/A N/A N/A N/A N/A N/A N/A

Mr. H. Ichida - by his alternate Mr. T. Yamazaki/ Mr. H. Umetani

Non-Executive 07 N/A N/A N/A N/A N/A N/A N/A

* - Chairman of the Board ** - Chairman of the Committee*** - Number of Board Meetings held after his appointment

Directors’ ShareholdingsAs at As at

Director’s Name 31.03.2011 31.03.2010

1. Mrs. R.L. Nanayakkara – –2. Mr. I.C. Nanayakkara 59,895,500 5,989,5503. Deshamanya M.D.D. Pieris – –4. Mr. R.N. Asirwatham 5,000 5005. Mr. R.A. Fernando 12,600 1,5006. Mrs. K.U. Amarasinghe 52,432,000 5,243,2007. Mr. R.M. Nanayakkara 141,433,220 14,143,3228. Mr. W.D.K. Jayawardena – –9. Mr. H. Ichida – –10. Mr. K. Okimoto – –


Executive Committee (Ex-Co)Mrs. R.L. Nanayakkara Chairperson

Mr. I.C. Nanayakkara Deputy Chairman

Mr. W.D.K. Jayawardena Managing Director & Group CEO

Mrs. K.U. Amarasinghe Executive Director

Deshamanya M.D.D. Pieris

Audit CommitteeMr. R.N. Asirwatham Chairman


Mr. R.A. Fernando

Remuneration Committee Mr. R.A. Fernando Chairman


Mr. R.N. Asirwatham

Nominations Committee Deshamanya M.D.D. Pieris Chairman

Mr. R.A. Fernando

Mr. R.N. Asirwatham

Mr. I.C. Nanayakkara

Corporate Governance Committee Deshamanya M.D.D. Pieris Chairman

Mr. R.A. Fernando

Mr. R.N. Asirwatham Mrs. R.L. Nanayakkara

Board Sub-Committees IT Steering Committee Mrs. R.L. Nanayakkara

Mr. W.D.K. Jayawardena

Mrs. K.U. Amarasinghe

Mrs. S. Wickremasekera Chief Risk Officer

Mrs. S. Kotakadeniya Chief Financial Officer

Mr. C. Dias Chief Information Officer

Integrated Risk Management CommitteeMr. R.N. Asirwatham Chairman


Mr. W.D.K. Jayawardena

Mr. R. Perera GM - Treasury

Mr. J. Kelegama Chief Credit Officer

Mrs. S. Kotakadeniya Chief Financial Officer

Mr. C. Dias Chief Information Officer


Compliance with the Corporate Governance Requirements 83

Attendance at Meetings

Directors’ Shareholdings

Board Sub-Committees













Financial Review 72





Annexes 177


The Remuneration Committee comprises 3 independent Directors - Mr. R.A. Fernando (Chairman), Deshamanya M.D.D. Pieris and Mr. R.N. Asirwatham.

The Committee took cognisance of the structure of the Group, where shared services are provided for many of the regulatory and other essential functions. The Committee therefore reviewed the strategies for retention of key employees and also succession planning. In further pursuance of this, the Committee, together with the Chief Human Resources Officer, reviewed the remuneration and other benefits given to employees such as training and development.

The Committee met twice for the year 2010/2011.

R.A. FernandoRemuneration Committee Chairman

Remuneration Committee Report

The Nomination Committee consists of three Independent Directors - Deshamanya M.D.D. Pieris (Committee Chairman), Mr. R.N. Asirwatham and Mr. R.A. Fernando.

The Nomination Committee met once during the year. The Committee reviewed the Directors’ evaluation, which had been carried out, and discussed means of further improving this evaluation.The Committee’s recommendation was discussed by the full-Board of Directors and initial steps agreed upon.

The Nomination Committee also reviewed the Board composition in terms of the Direction on Corporate Governance issued by the Central Bank of Sri Lanka. Currently the transitional provisions of the Direction are in place and the Company will be in full compliance by the applicable date.

Deshamanya M.D.D. Pieris Nomination Committee Chairman

Nomination Committee Report


The Audit Committee comprises three Independent Directors, R.N. Asirwatham (Chairman), R.A. Fernando and M.D.D. Pieris. At the invitation of the Committee, the Chairman of the Company, the Managing Director and the Chief Financial Officer are present at meetings, together with the Chief Risk Officer.

The Committee reviews the interim financials prior to their release to the Colombo Stock Exchange, and reviews the audited accounts for the financial year. The External Auditors are invited to be present at such meetings.

The Committee also reviews reports submitted by the Enterprise Risk Management Division. These reports cover operational issues, processes and controls.

The Committee met 13 times during the financial year 2010/11 .

Audit Committee Report

The Audit Committee is satisfied that the Auditors, Messrs Ernst and Young are independent. This determination is based on the following:

a. Period of Service - Ernst and Young were appointed Auditors, with shareholder approval, in June 2008.

b. Fees and Services - neither the fees paid nor the non-audit services rendered are of sufficient quantum to impair their independence.

Accordingly, the Audit Committee has recommended to the Board of Directors that Messrs Ernst and Young be reappointed as Auditors for the financial year ending 31 March 2012. The reappointment of the Audit Firm and the authorising of the Board to negotiate its fee will be subject to the approval of the shareholders at the Annual General Meeting to be held on 27 July 2011.

R.N. AsirwathamAudit Committee Chairman






Remuneration Committee Report

Nomination Committee Report

Audit Committee Report










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Annexes 177


The Integrated Risk Management Committee comprises two Independent Directors - Mr. R.N. Asirwatham (the Committee Chairman), Deshamanya M.D.D. Pieris - and the Group Managing Director/CEO. The Chairman and Executive Directors attend by invitation. Also present are the Senior Managers overseeing areas identified as critical to risk management and mitigation. These include the Chief Risk Officer, the Chief Financial Officer, the Chief Credit Officer, the General Manager - Treasury and the Chief Information Officer. The attendance of the Chief HR Officer has also been identified as being necessary, as a part of risk management and mitigation involves training and awareness building among staff.

These officers present reports on the risks identified in their respective areas of supervision. Mitigation measures can then be discussed with a cross section of officers to ensure that these measures are viable, and actively understood and supported by all. Constant review of processes and market analysis ensure that risk identification is a continuous process.

Report of the Integrated Risk Management Committee

The Committee meets quarterly and the minutes of these meetings are tabled at Board meetings so that the entire Board is kept apprised of the Committee’s discussions, and the steps taken thereafter for implementation.

R.N. AsirwathamCommittee Chairman


The Corporate Governance Committee comprises the following:

Mr. M.D.D. Pieris - (Committee Chairman) Independent Director Mr. R.A. Fernando - Independent Director Mr. R.N. Asirwatham - Independent DirectorMrs. R.L. Nanayakkara - Non-Executive Chairperson

The Committee was appointed as a part of the Company’s self-regulating mechanisms, and it was a natural extension for this committee to study the Direction on Corporate Governance, issued by the Central Bank of Sri Lanka (CBSL).

The Committee gave attention to the responsibilities of Directors, and addressed in particular attendance at meetings and Directors’ assessments. Based on the recommendations of this Committee and on the advice of professional expertise sought from outside, the Board is guiding the Company towards full compliance within the time frame given by the CBSL.

Corporate Governance Committee Report

The Committee also reviewed the Board’s supervision of the key management personnel, including the Executive Directors, and was satisfied that the regular Board and Board subcommittee meetings, including meetings of the Executive Committee, the Audit Committee and the Integrated Risk Management Committee ensured adequate monitoring and supervision.

The Committee met quarterly during the year 2010/11.

Deshamanya M.D.D. PierisCommittee Chairman









Report of the Integrated Risk Management Committee

Corporate Governance Committee Report








Financial Review 72





Annexes 177


Enterprise Risk Management

Risk is inherent in any business venture. Viewing risk as ‘anything or any event hindering the achievement of our stated corporate objectives’ provides LOLC the right focus in identifying risks and formulating control and mitigation strategies at appropriate levels.



Reaching for Excellence 96

The Challenges 97

Towards the Future 98

The Risk Profile of LOLC 98








Financial Review 72





Annexes 177


Information Systems

Audit

RiskManagement

Internal Audit

Having identified the need for an enterprise level view of risk and understanding the need for a practical and a workable solution that suits our corporate vision, LOLC embarked on a journey to implement an Enterprise Risk Management (ERM) concept, pulling together the synergies of Internal Audit, Information Systems Audit and Risk Management by implementing a Framework aligning all three functions to focus on risk.

Defining risk as ‘Anything or any event hindering the achievement of our stated corporate objectives’ allowed us to have the right focus in capturing critical to minor risks including process level isolated risks and formulating adequate controls and mitigation strategies to contain these risks at appropriate levels.

The risk management framework of LOLC is an adaptation of the COSO enterprise risk management framework, which was customised to suit our organisational structure. This framework facilitates the management to have confidence over the reliability of controls and risk mitigation strategies in four critical domains

Strategic - high level goals, aligned with and supporting its mission

Operations - effective and efficient use of its resources

Reporting - reliability of reporting

Compliance - compliance with applicable laws and regulations.

The approach to risk management at LOLC starts with risk identification, which is a three-tier process consisting of

Self-risk assessment by the risk owners.

Risk assessment by ERM and evaluation of internal controls by the internal audit.

Perceived risk by the stakeholders.


External Risk Environment

Policy Framework

Enterprise Governance

Risk Review & Audit

Management Supervision

Procedural Framework

Internal Risk Environment

Risk rating and prioritising is based on a two-dimensional matrix developed by the ERM division, which allows us to rate risks based on both quantitative and qualitative actions.

Pro

babi

lity

(P)

Risk Matrix

(5) Very High p>80% 5 10 15 20 25

(4) High 60%<p>80% 4 8 12 16 20

(3) Medium 40%<p<60% 3 6 9 12 15

(2) Low 20%<p<40% 2 4 6 8 10

(1) Very Low P<20% 1 2 3 4 5

(1) Isolated (2) SBU Level

(3) Process Level

(4) Regional/Channel level

(5) Enterprise Level

Impact

The same matrix functions as a risk scoring model, which the Enterprise Risk Management and the Internal Audit team use to rate the processes on risk and to decide on the audit frequency of the same.

The risk ownership is retained with the business silos and process owners and the primary responsibility of formulating adequate risk management initiatives rests with the respective management units. The risk control process is complimented by independent risk reviews conducted by the ERM division and periodic audits carried out by the Internal Audit arm. Foreseeing the challenges ahead we clearly understood that the ultimate risk management strategy is equipping all levels of staff across the organisation with the required awareness, knowledge and skills for mitigating risks and creating a risk culture within the organisation which is governed by the values of - Protection, Assurance, Accountability, Transparency and Confidentiality. The aforesaid approach is embedded in our risk mitigation strategy which adopts a defence in depth approach

LOLC strongly believes in proper governance and thereby we have ensured that both the risk management and internal audit functions are independent by having their reporting lines to the Board Chairman via the Integrated Risk Management Committee and Audit Committee respectively. The above reporting mechanisms are complemented by compulsory risk reporting lines established from each business silo and support service unit to ERM.

Reaching for Excellence Our initial focus was on strengthening our internal control framework and enhancing the knowledge and skills of the staff of Enterprise Risk Management division. As part of this strategy we strengthened the Internal Audit function to aggressively monitor and ensure implementation of the recommended controls. Our staffing strategy for ERM was to accumulate a diverse set of skills and expertise covering the entire gamut of operations in LOLC, complemented with continuous training and education in order to keep abreast with the current developments and the changes in line with the global trends. In addition we manage and maintain an e-Resource base where the ERM and Internal Audit Staff can refer material on various related subjects.


With the strengthening of our internal control framework and formulating review strategies and aligning internal audit focus to continuously monitor key controls, our next step was to address the more macro level and enterprise level risks, thus giving an additional degree of confidence to the management over the risk mitigation strategies adopted by the risk owner business silos and support service units.

Formulation of Integrated Risk Management Committee (IRMC) and establishing of continuous reporting lines from each business silo, support service and the independent risk assessments by the ERM division followed by internal control reviews of the internal audit enhanced the confidence over the risk mitigation strategies and related controls.

The Information Systems (IS) Reviews are carried out by the IT audit division which evaluates all IS-related functions covering all domains specified in the Control Objectives for IT & related services (COBIT) standard and Information Systems Audit & Control Association (ISACA) guidelines.

The Challenges The rapidly changing and volatile global business environment and the tremendous growth potential of the post-war Sri Lankan economy brought in more complex and a myriad of risks which required more aggressive and robust risk mitigation strategies. The rapid growth and expansion of LOLC capitalising on the business opportunities poised numerous challenges for risk management activities, which necessitated a review of both the risk mitigation strategies and the methodologies adopted by the risk management process.

Foremost of the requirements was increasing our presence and monitoring ability within the internal processes as well as establishing a close monitoring mechanism for enterprise level critical risks.

The ERM division was not hesitant to explore new approaches or to go in search of novel methodologies for better monitoring and review of the risk profile of LOLC. In this endeavour we moved the internal audit focus from process based to event-based or event cluster-based reviews and risk management focus on to a macro level enterprise wide impacts. In addition, we started decentralised operations by stationing staff in our regional hubs, which allowed us to have an increased presence across the organisation in order to monitor the effectiveness and consistency of controls and to identify any potential control weaknesses.

The diversified nature of LOLC and its Group Companies and the rapid expansion required a more robust risk-related information gathering mechanism and ERM division changed its risk-related information gathering strategy from information pull to information push approach. Periodic reporting requirements from each business silo, support service unit and branches to ERM on predetermined risk indicators are established and based on the gathered information ERM performs an independent assessment of risk for onward transmission to the Board of Management via the IRMC.


Reaching for Excellence

The Challenges

Towards the Future 98

The Risk Profile of LOLC 98








Financial Review 72





Annexes 177


Towards the Future Keeping up with our vision of creating “An organizational at culture where Protection, Assurance, Reliability, Accountability, Transparency and Confidentiality are treasured and are lasting values” ERM is hoping to create risk awareness among the staff of the business silos and support service units, thereby enabling them to act as risk managers within their scope of functions by conducting risk awareness programmes covering both operational and enterprise risks. Operational staff being the front-line defence against any threat, we anticipate that all threats would be mitigated at the source or if any material threat emerges the staff would be more aware of its impact and consequences that they will report on the risk indicators within a reasonable time thereby allowing us to take appropriate action to control the risks at appropriate levels.

The rapid expansion and diversification of the LOLC Group, meant that risk-related information should reach the risk owners with ample time to take appropriate action. In addition, it is of paramount importance that constant and real time monitoring capability on the risk profile is enhanced. We are moving towards this with establishing risk indicator dashboards from which the stakeholders can gauge the status and effectiveness of our risk mitigation strategies and controls adopted. This will allow LOLC to rapidly respond to risk as well as opportunities.

Increased risk management capabilities require innovative and flexible strategies to deal with the vast amount of risk-related information in identification, analysis, control and monitoring of the risks. ERM is in the process of devising a new reporting mechanism and methodology where the risk owners will be presented with a snapshot view of the risk map of their process/business units and more detailed analysis of critical risks including risk modelling, scenario analysis and stress testing.

We believe in continuous improvement and all processes under risk management are constantly and continuously reviewed in order to add more value and increase effectiveness. The adoption of project management techniques for risk management process and internal audit processes and the development of rating systems for risk assessments have allowed us to be always in control of the assignments carried out by the staff of the respective functions and it has enhanced our productivity and efficiency considerably and has given us enhanced monitoring and review capabilities.

We are in the process of introducing control self-assessments for evaluating the effectiveness of the risk controls by the risk owners and increasing review frequencies of the risk profile which will act as an enabler in creating the appropriate risk and governance culture within the organisation.

The Risk Profile of LOLC This is a broad level categorisation only. Risk Rating Risk Score

Very low 1Low 2Medium 3High 4Very high 5

The above rating is used for graphical illustration only.



Reaching for Excellence 96

The Challenges 97

Towards the Future

The Risk Profile of LOLC








Financial Review 72





Annexes 177


Sustainability Report

Our approach to sustainability is based on business principles to achieve long-term value for shareholders and broader stakeholder groups through sound environmental, social and governance practices


The health of our triple bottom line delivers wealth to the Company, Stakeholders and the Nation. It is a simple precept that drives our every thought and action as we build our business around exemplary values across the sustainability tripod in focus and evaluate the impacts of our enterprise on social, environmental and economic parameters.

It is LOLC’s ethos that all our companies seek to optimally balance cause and effect when it comes to People, Planet and Profit. In strategy and practice, it has become our goal to practice business in a manner that delivers a win-win situation for ‘People, Planet and Profit’.

All of these three ‘P’s must co-exist, be nurtured, safeguarded and grown in a manner that heralds a healthy tomorrow for all.

Formulating Our ReportLOLC is a member of the UN Global Compact and its charter on sustainability in practice.

The UNGC Principles are scheduled under four main clusters - Human Rights, Labour, Environment and Anti-Corruption.

Principles of the UN Global CompactHuman RightsPrinciple 1 - Businesses should support and respect the protection of internationally proclaimed human rights; and

Principle 2 - Make sure that they are not complicit in human rights abuses.

LabourPrinciple 3 - Businesses should uphold the freedom of association and the effective recognition of the right to collective bargaining;

Principle 4 - The elimination of all forms of forced and compulsory labour;

Principle 5 - The effective abolition of child labour; and

Principle 6 - The elimination of discrimination in respect of employment and occupation.

EnvironmentPrinciple 7 - Businesses are asked to support a precautionary approach to environmental challenges;

Principle 8 - Undertake initiatives to promote greater environmental responsibility; and

Principle 9 - Encourage the development and diffusion of environmentally-friendly technologies.

Anti-CorruptionPrinciple 10 - Businesses should work against anti-corruption in all its forms, including extortion and bribery.


Formulating Our Report

Principles of the UN Global Compact

Human Rights 102

Labour 102

Environment 104

Anti-Corruption 106

LOLC Care 106








Financial Review 72





Annexes 177


The information we present in this Report appears under these cluster headings, in the interests of clarity.

It is also relevant to note that the raw data that has gone into formulating this report has been collected from all Group companies, as the UNGC Principles pervade and guide every Group entity.

Human RightsAcross all Group constituents, a healthy respect and adherence to best principles of human rights are in place.

To illustrate via one example of the many types of varied activity that LOLC undertakes, on Maturata and Pussellawa Plantations, we have a comprehensive strategy and body of work in place to upgrade housing and sanitation facilities and provide ready access to medical and schooling for our estate worker community.

Awareness meetings with follow up review meetings are conducted regularly to ensure that we maintain an exemplary human rights regime and are not in danger of complicity in terms of human rights abuses of any kind.

LabourWith a diverse portfolio of businesses, the LOLC Group manages a sizeable workforce in equally diverse business environments - from office and factory to plantations, motor service facilities and more.

Across this varied sweep of enterprise, we have enshrined workers’ rights that secure freedom of association and a voice in determining their career paths, remuneration and working conditions.

In our Plantation sector, Workers’ Committees and Collective Agreements address all manner of worker issues such as wages, grievance handling and

more. Gender equity in these processes is maintained, with female staff in authority appointed to oversee issues pertaining to females.

LOLC is an equal opportunity employer and has no gender, race or religious bias in its recruitment, employment and career progression processes.

Our endeavour is to recruit those with the best qualifications, skills, experience and mindset, without any bias. We look for people who can progress and prosper with LOLC, whilst deploying their potential to the fullest for mutual benefit of the Company and individual.

The minimum hiring age is 18 years. We abhor and shun child labour and will brook no aberration of this policy.

We also enact an Anti-Sexual Harassment Policy, to which every employee must be an adherent.

LOLC does not approve of or condone forced or compulsory labour.

In all of these matters, we are governed by the law of the land and the Terms of Employment agreed upon with our employees.

An Overview of Our Human ResourcesThe HR architecture of the Group has played a pivotal role to support the rapid expansion and integration activities. With this immense growth and diversification of the Group, the Company undertook a review of HR policies, procedures and processes which were then strengthened to cater to each business whilst being aligned to the overall Group HR framework. As businesses transformed and new businesses were acquired, the HR architecture either supported it or was created anew.

At LOLC we work on a shared services platform, and therefore our services have been developed and offered in tandem with the individual company’s vision and objectives.

The total staff strength of the LOLC Group as at 31st March 2011 stood at 3,326. During the year in review, an unprecedented staff growth of 40% transpired in the financial sector, with a net increase of 491 employees. With our strategic acquisition of the Confifi Group of Hotels, around 900 staff were absorbed to the total group cadre. Our staff retention rate stands at an impressive 85%, one of the highest in the industry.

95% of our staff have been trained in the disciplines of the financial sector. We have continued to provide all aspects of training including product, customer service and leadership training among others, on a regular basis.

Our Microfinance Company, LOLC Micro Credit Ltd. (LOMC), has set up a dedicated training centre which is a special highlight for this year. This concept provides Microfinance specific training, re-training and leadership programmes to a number of talented employees. LOMC witnessed a 75% growth in staff with a net increase of 106 employees.

One of the key highlights of HR in addition to the accelerated recruitment of experienced/skilled employees was the launch of a nationwide programme to attract and develop school leavers which was initiated under the banner, ‘From Student To Professional’. The programme has been designed by LOLC to provide them with basic employability skills which will enable them to seize employment opportunities within the LOLC Group.


The programme was initiated to surmount the dearth of competent and skilled/employable staff in the employment market vis-à-vis the generation of employment opportunities within the diverse sectors of the LOLC Group. Following an in-depth screening process, 100 school leavers are now participating in an accelerated training programme conducted by Orient Academy, a subsidiary of LOITS.

In addition to the above initiative, several internship programmes have been offered to undergraduates of both local and overseas universities who need to pursue a period of industrial training as part of their degree programme. Internships have been offered in Microfinance, IT, Finance, Administration, Treasury and HR.

With the implementation of the FSTP programme and other alternate recruitment strategies, LOLC aims to have a ready pool of skilled candidates who can be trained in niche areas and subsequently deployed to the job openings available across the country.

Another noteworthy initiative launched over the year in review was the offering of employment opportunities to skilled youth from the regions we operate. We believe that the dynamisms of our rural youth add leverage to the strong workforce of the Group as the Company grows from strength to strength. We are also proud of our status as an equal opportunity provider which has contributed largely to the growth of a diverse workforce.

We have very effectively engaged in teamwork and rewards and recognition programmes which have driven many of our employees to continuously exceed established objectives. A young and dynamic workforce has created many opportunities for the Group to grow and expand in multiple ways. Employees who show exceptional levels of commitment and dedication combined with a dynamic leadership team have been the driving force that has contributed immensely towards the success of the LOLC Group.

At Commercial Leasing Company (CLC), an online leave and attendance system was introduced, streamlining this vital area. Training and development interventions were enhanced to include sales and credit training for all marketing staff. A comprehensive induction programme was also formulated and put in place. Branch Managers were also afforded training in management development programmes.

At LOLC Motors Ltd. (LOMO), which was a start-up enterprise during the year in review, we built a customised HR framework and laid down the required resources from the ground up. Thus, recruitment of required personnel was followed by training after which the business of LOMO was launched.

LOLC Insurance Company Ltd. too, is a new business venture for the Group. Here, we evolved a rallying, team building theme - ‘One Spirit, One Team, One Achievement’. We have put in place optimum infrastructure, sourced and recruited skilled personnel and absorbed LOLC staff to handle Insurance. Training was also imparted in relevant areas.


Formulating Our Report 101

Principles of the UN Global Compact 101

Human Rights

Labour

Environment 104

Anti-Corruption 106

LOLC Care 106








Financial Review 72





Annexes 177


The Group’s recreation club ‘SPIRIT’ as always has put forth a full calendar of activities aimed at fulfilling the social and recreational aspirations of our people.

Events such as a Six-a-Side Cricket Tournament, Staff Trip, Pirith Ceremony, LOLC’s Annual Dinner Dance and Kiddies Christmas Party were conducted.

In the sports arena, LOLC’s badminton team became champions of the Mercantile ‘D’ Division Inter-Firm Badminton Championships organised by the Mercantile Badminton Association. This is the third consecutive championship win for our team in this tournament.

EnvironmentAt the very heart of LOLC’s enterprise lies environmental consciousness. It is an awareness of the impact every business process exerts on the ‘health’ of the planet and, in extension, is a willingness to take the necessary measures to reduce dependence on non-renewable resources, whilst putting into practice environmentally conscious business processes.

To illustrate, across our plantation holdings, we espouse best-in-class agricultural practices. Our estates are home to several Hydro Power and Dendro power projects, Reforestation projects and eco-friendly waste disposal methods.

Similarly, our group companies, Maturata and Pussellawa Plantations and all other plantation companies within the Group, engage in tree planting within its plantation sites whilst launching programmes to prevent soil erosion. During the year in review, Pussellawa Plantations has planted 310,000 timber saplings.

LOMO espouses the ‘Green Garage’ concept and has already begun rainwater harvesting and waste water recycling processes. LOMO collects rainwater in a 50,000 - litre underground tank for use in vehicle washing and washrooms. It employs a microbiological media system for waste water treatment as well as technology to recapture refrigerant from its air-conditioning systems to prevent their escape into the environment. The unique design of this facility maximises the use of natural lighting, whilst the Company is also planning to source some of its electricity requirements from solar power, thus reducing draw off from the National Grid.

Many other initiatives have been launched with the aim of greater environmental responsibility.

LOLC Micro Credit Ltd. (LOMC) is gradually weaning away from providing financing for 2 stroke 3-wheeled vehicles as they have been deemed a potential threat to air quality.

Our Group Company Hydro Power Free Lanka PLC (HPFL) is already registered with UNFCC for its Emission Reduction Programme and is thus an active participant in global emission reduction programmes. HPFL has already commissioned Mini-Hydro Power plants generating 3.2 MW of power whilst plans are underway for the establishment of four more such projects.

We have embarked on 14 Mini-Hydro Power projects which are expected to generate 27 MW in total at an initial investment of approximately US$ 30 Mn. These projects are registered for carbon credit.

Several estates within the Maturata and Pussellawa Plantations Groups have substituted fuel wood for fossil fuels in their tea drying process.

One of the most ambitious and certainly the largest environmentally responsible installation in a commercial building is to be found at the Group’s Head Office. Solar panels cover the roof of the building and generate 15% of LOLC’s daily power requirements. At full capacity, this system generates 48 kW of electricity.

LOLC holds the firm belief that the way ahead for this planet is in the exploration and commissioning of renewable forms of energy and lessening the dependence on fossil and non-renewable energy resources.

In line with this belief, LOLC is involved in setting up renewable energy biomass power plants around the country that will generate and supply power to the national grid. Through its subsidiary LOLC Eco Solutions, the Group has initiated several biomass electricity power plants, hydro power plants and expects to build several wind power plants.

In 2010, LOLC made a strategic investment in United Dendro Energy (Pvt) Ltd. (UDE), a Company with a pioneering vision of fashioning a sustainable future for the nation.

UDE is currently engaged in building a 6 MW fuel wood-fired plant in Sri Lanka along with several innovative agro forestry and agricultural initiatives. As the first ever mega dendro project in the country, this plant will serve to lay the foundation for the harnessing of dendro energy as an alternative fuel source.


The dendro power plant will be commissioned by end 2012, converting biomass into electrical energy that will be sold to the national grid under the terms of a power purchase agreement signed with the Ceylon Electricity Board.

We are also in the process of securing redundant barren landmass around the country with a view to converting them into biomass fuel plantations. These lands within the plantation sector, which now lie fallow, once converted, will supply fuel to LOLC power plants while contributing to national power output.

One of the added bonuses is that both the power plant and plantation operations will generate enormous employment opportunities in the local areas where they operate. Both power plant and plantation operations will qualify for carbon trading (CDM) under UNFCC programme whilst minimising the Group’s carbon footprint which is always our goal as a responsible corporate citizen.

In tandem, the Company is also steadily building an extensive outgrower network that will enhance livelihoods of impoverished farmers in surrounding areas and ensure an uninterrupted fuel wood supply.

The Company’s precise business model ensures that the project will be as commercially viable as it is beneficial to the environment and society.

This project marks a definitive shift towards economically, socially and environmentally sustainable power generation and agro forestry methodology that will hopefully be a watershed development in the national consciousness for sustainable and ‘earth-friendly’ solutions that will lessen the burden on future generations.

The ‘Green Investments’ made by LOLC speak eloquently of the ethos we follow in being a responsible steward of good environmental practice.

The Group is also actively exploring opportunities for wind power generation.

On Galoya Plantations, which LOLC runs as a Public-Private partnership with the Government, we have revitalised the entire project into a vibrant operation.

We have rejuvenated 5,200 ha of landmass and brought it under sugar cane cultivation. As a by-product, the Company produces the bio-fuel ethanol, whilst, we expect to be able to generate 2 MW of Bagasse derived power from a special plant set up for this purpose.

The Factory has provided direct employment for 4,400 farmer families and 2,000 non-irrigated farmer families and contributes towards the upliftment of their livelihoods with new revenue streams.

LOLC also promotes initiatives such as internal paper recycling, employing energy saving lighting, minimising unnecessary power draw offs in respect of the operation of its air-conditioning, computers and lighting and replacement of its fleet of conventional vehicles with the new hybrid motors.

In our credit appraisal process, we have mandated the requirement of Environmental Assessment Reports and the requirement for local Environmental Authority Clearance where applicable. Further along the process, our staff is tasked with the evaluation of these businesses with regard to their environmental friendliness.


Formulating Our Report 101

Principles of the UN Global Compact 101

Human Rights 102

Labour 102

Environment

Anti-Corruption 106

LOLC Care 106








Financial Review 72





Annexes 177


LOLC has a Code of Conduct in place in regard to the development of new products, to ensure compliance with sustainability and environmental friendliness.

Anti-CorruptionLOLC has in place a comprehensive framework both in the regulatory and strategic sense, to combat and pre-empt any form of corruption.

The Group’s Anti-Money Laundering Policy commits that every precaution would be taken to ensure that the systems and processes of the Group are not used for money laundering activity as defined by the Prevention of Money Laundering Act No. 05 of 2006 (PMLA), or for financing of unlawful activities.

Among many safeguards built into this Policy is the Customer Identification and Due Diligence process, or in other words ‘Know Your Customer’. This is an exhaustive exercise whereby LOLC delves into the salient details of a prospective customer, which equips the Group to make sure that financial resources, client business and relationships are all lawful and free of the taint of corruption.

Our Whistle Blowing Policy is an inclusive one, guiding and empowering every employee to report without fear on any matters of irregularity to the Internal Audit/Enterprise Risk Management Department.

LOLC is in compliance with the legislation of the Government of Sri Lanka in relation to but not limited to - the Convention on Suppression of Terrorist Financing Act No. 25 of 2005, the Financial Transactions Reporting Act No. 06 of 2006 and the Prevention of Money Laundering Act No. 05 of 2006.

The Group also ensures transparency of communication at all times and communicates with its stakeholders via – the Annual Report, announcements made through the Colombo Stock Exchange, Press Releases and our corporate website.

LOLC CareLOLC CARE is a body incorporated to carry forward the strategic Corporate Social Responsibility initiatives of the LOLC Group. Through this channel, the Group will execute its vision and mission for sustainability, which is to be aware of and sensitive to the well-being of the community and the environment around us.

In 2009, we launched LOLC CARE as our inaugural strategic Corporate Social Responsibility project.

With the support of our staff members we have been actively involved in looking into the well-being of the children at the ‘Madiwela Special Education School and Home for Boys’.

During Phase 1 of our initiative, we sponsored the renovation and maintenance of the Home, where we increased its capacity to accommodate more members, and in Phase 2, we have initiated the construction of a separate home for orphaned boys which is currently ongoing. We hope to complete the construction by December 2011.

Through generous donations by way of personal and voluntary contributions from staff members, customers and friends of LOLC, we have set up an LOLC CARE fund where all proceeds go to the welfare of the children of the home.

An important feature of this Fund is that LOLC matches every Rupee donated by others and thus swells the gross fund significantly.

Financial Reports

Directors’ Responsibility for Financial Reporting 109

Chief Executive Officer’s and Chief Financial Officer’s Responsibility Statement 110

Independent Auditors‘ Report 111

Balance Sheets 112

Income Statements 114

Statements of Changes in Equity 115

Cash Flow Statements 116

Notes to the Financial Statements 118

Financial Reports

Financial Calendar2010/111st Quarter Results 2010/11 released on 13 August 2010

2nd Quarter Results 2010/11 released on 15 November 2010

3rd Quarter Results 2010/11 released on 15 February 2011

Annual Report for 2010/11 released on 5 July 2011

32nd Annual General Meeting on 27 July 2011

Proposed Financial Calendar 2011/121st Quarter Results 2011/12 will be released on 15 August 2011

2nd Quarter Results 2011/12 will be released on 15 November 2011

3rd Quarter Results 2011/12 will be released on 15 February 2012

Annual Report for 2011/12 will be released on June 2012

33rd Annual General Meeting in June 2012








Financial Review 72





Annexes 177


Directors’ Responsibilityfor Financial Reporting

The Directors confirm that the Company’s Financial Statements for the year ended 31 March 2011, are 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, the Finance Leasing Act No. 56 of 2000 and the Companies Act No. 07 of 2007. They believe that the Financial Statements present a true and fair view of the state of the affairs of the Company and of the Group as at the end of the financial year.

The Directors also accept responsibility for the integrity and accuracy of the Financial Statements presented and confirm that appropriate accounting policies have been selected and applied consistently and reasonable and prudent judgment has been exercised so as to accurately report transactions.

The Directors have taken reasonable steps to safeguard the assets of the Company, to prevent, deter and detect fraud, and to ensure the integrity, accuracy and safeguarding of operational and financial records.

The Directors confirm that to the best of their knowledge, all statutory payments due in respect of the Company and its subsidiaries as at the Balance Sheet date have been paid for, or where relevant, provided for.

The External Auditors, Messrs Ernst & Young, were provided with the opportunity to make appropriate inspections of financial records, minutes and other documents to enable them to form an opinion of the Financial Statements. The Report of the Auditors is set out on page 111.

Kapila JayawardenaGroup Managing Director/ Chief Executive Officer

30 May 2011


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

The Financial Statements are prepared in compliance with the Sri Lanka Accounting Standards issued by The Institute of Chartered Accountants of Sri Lanka and the requirements of the Companies Act No. 07 of 2007 and any other applicable statutes to the extent applicable to the Company. There are no departures from the prescribed accounting standards in their adoption. The accounting policies used in the preparation of the Financial Statements are appropriate and are consistently applied.

The Board of Directors and the management of your Company accept responsibility for the integrity and objectivity of these Financial Statements. The estimates and judgments relating to the Financial Statements were made on a prudent and reasonable basis, in order that the Financial Statements reflect in a true and fair manner, the form and substance of transactions and reasonably present the Company’s state of affairs. To ensure this, the Company has taken proper and sufficient care in installing a system of internal controls 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. Our 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 Financial Statements were audited by Messrs Ernst & Young, Chartered Accountants, the Company’s External Auditors. The Audit Committee of your Company meets periodically with the Internal Auditors and the External Auditors to review the manner in which these Auditors are performing their responsibilities and to discuss auditing, internal control and financial reporting issues. To ensure complete independence, the External Auditors and the Internal Auditors have full and free access to the members of the Audit Committee to discuss any matter of substance.

It is also declared and confirmed that the Company has complied with and ensured compliance by the Auditor with the guidelines for the audit of listed companies where mandatory compliance is required. It is further confirmed that all the other guidelines have been complied with.

Kapila JayawardenaGroup Managing Director/ Chief Executive Officer

Sunjeevani KotakadeniyaChief Financial OfficerLOLC Group

30 May 2011


Company’s state of affairs as at 31 March 2011 and its profit and cash flows for the year then ended in accordance with Sri Lanka Accounting Standards.

In our opinion, the consolidated financial statements give a true and fair view of the state of affairs as at 31 March 2011 and the profit and cash flows for the year then ended, in accordance with Sri Lanka Accounting Standards, of the Company and its subsidiaries dealt with thereby, so far as concerns the shareholders of the Company.

Report on Other Legal and Regulatory RequirementsIn our opinion, these financial statements also comply with the requirements of Sections 151(2) and 153(2) to 153(7) of the Companies Act No. 07 of 2007.

09 June 2011Colombo

Independent Auditors’ Report

HMAJ/RM/BV/JJ

INDEPENDENT AUDITORS’ REPORT TO THE SHAREHOLDERS OF LANKA ORIX LEASING COMPANY PLCReport on the Financial StatementsWe have audited the accompanying financial statements of Lanka Orix Leasing Company PLC (“Company”) and the consolidated financial statements of the Company and its subsidiaries, which comprise the balance sheets as at 31 March 2011, and the income statements, statements of changes in equity and cash flow statements for the year then ended, and a summary of significant accounting policies and other explanatory notes.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in accordance with Sri Lanka Accounting Standards. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.

Scope of Audit and Basis of Opinion

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

An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting policies used and significant estimates made by management, as well as evaluating the overall financial statement presentation.

We have obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purposes of our audit. We therefore believe that our audit provides a reasonable basis for our opinion.

Opinion

In our opinion, so far as appears from our examination, the Company maintained proper accounting records for the year ended 31 March 2011 and the financial statements give a true and fair view of the


Balance Sheets

Group CompanyAs at 31 March 2011 2010 2011 2010

RestatedNote (Rs.) (Rs.) (Rs.) (Rs.)

ASSETSCash and cash equivalents 15 4,659,100,494 2,082,993,737 392,011,825 420,286,466

Short-term investments 201,698,996 87,120,332 53,754,799 21,989,988

Investment securities 16 14,451,096,680 11,610,836,345 3,564,192,696 4,717,840,030

Investment in term deposits 2,456,187,694 2,786,322,142 221,601,049 1,173,872,285

Rentals receivable on lease assets, hire purchase and operating leases 17 28,936,756,777 17,831,697,978 1,712,647,297 3,382,564,471

Advances and other loans 18 28,713,568,515 15,084,563,625 8,554,924,885 6,897,384,779

Instalment sales 19 766,007,123 2,168,424,768 766,007,123 2,168,424,768

Inventories 20 1,599,184,190 1,251,519,602 1,750,000 9,414,705

Trade and other current assets 21 5,637,082,570 4,086,755,365 1,816,916,447 3,361,838,419

Prepaid lease rentals 22 305,535,859 313,709,841 – –

Investment properties 23 439,649,668 451,743,865 247,500,000 242,274,225

Real estate stocks 16,261,676 22,930,299 – –

Timber stocks 24 3,778,893,130 3,614,748,311 – –

Immature/mature plantations 1,615,524,496 1,307,833,959 – –

Investments in joint venture companies 25 – – 136,384,471 –

Investments in associate companies 26 2,759,078,773 3,035,396,841 1,211,335,904 555,133,266

Investments in subsidiary companies 27 – 20 8,944,162,094 3,478,297,621

Deferred tax asset 28 434,654,001 774,500,366 185,030,360 430,784,145

Goodwill 29 331,713,877 151,415,234 – –

Intangible assets 30 239,531,119 228,018,510 61,011,327 64,901,354

Property, plant and equipment 31 14,472,006,950 8,480,788,032 3,283,496,368 2,812,962,226

Total assets 111,813,532,588 75,371,319,172 31,152,726,645 29,737,968,748


Balance Sheets


RestatedNote (Rs.) (Rs.) (Rs.) (Rs.)

LIABILITIES AND EQUITYLiabilitiesBank overdrafts 15 4,029,204,315 2,987,337,668 2,094,424,623 1,351,271,657

Deposits from customers 32 16,348,135,523 10,094,683,226 – –

Interest-bearing loans and borrowings 33 46,784,293,787 35,248,089,434 20,284,843,757 21,736,055,085

Provision for taxation 516,720,428 197,569,233 71,858,253 57,191,924

Trade and other payables 34 7,361,431,347 5,628,201,818 1,172,832,456 1,099,157,250

Deferred tax liability 35 872,361,434 442,464,504 – –

Deferred income 36 288,877,431 273,765,847 – –

Retirement benefit obligations 37 889,356,837 759,559,844 80,123,443 65,638,616

Total liabilities 77,090,381,102 55,631,671,574 23,704,082,532 24,309,314,532

EquityStated capital 38 475,200,000 475,200,000 475,200,000 475,200,000

Reserves 39 1,747,745,668 765,858,265 1,096,102,808 552,292,132

Retained earnings 40 10,773,393,641 6,662,696,388 5,877,341,305 4,401,162,084

Equity attributable to equity holders of the Company 12,996,339,309 7,903,754,653 7,448,644,113 5,428,654,216

Minority interest 21,726,812,177 11,835,892,945 – –

Total equity 34,723,151,486 19,739,647,598 7,448,644,113 5,428,654,216

Total liabilities and equity 111,813,532,588 75,371,319,172 31,152,726,645 29,737,968,748

These Financial Statements are in compliance with the requirements of the Companies Act No. 07 of 2007.

Mrs. S.S. Kotakadeniya Chief Financial Officer - LOLC Group

The Board of Directors is responsible for the preparation and presentation of these Financial Statements. Signed for and on behalf of the Board by,

Mrs. R.L. Nanayakkara Mr. W.D.K. JayawardenaChairperson Group Managing Director/CEO

The Accounting Policies and Notes on pages 118 through 176 form an integral part of these Financial Statements.

31 May 2011Rajagiriya (Greater Colombo)


Income Statements

Group CompanyFor the year ended 31 March 2011 2010 2011 2010

Note (Rs.) (Rs.) (Rs.) (Rs.)

GROSS REVENUE 3 32,077,327,461 14,901,831,763 6,344,360,964 6,774,470,995

Revenue 14,288,491,997 3,571,367,173 – 1,199,918,890

Less: Cost of sales (9,911,221,898) (2,869,272,589) – (1,029,853,463)

Gross profit 4,377,270,099 702,094,584 – 170,065,427

Income 4 11,943,300,157 9,941,904,483 3,511,733,478 4,552,414,083

Other income/(expenses) 5 5,845,535,307 1,388,560,107 2,832,627,486 1,022,138,022

Net interest costs 6 (6,420,587,888) (6,178,136,537) (2,384,015,349) (3,090,912,257)

PROFIT BEFORE OPERATING EXPENSES 15,745,517,675 5,854,422,637 3,960,345,615 2,653,705,275

OPERATING EXPENSES

Direct expenses excluding interest costs 7 (1,017,831,003) (542,206,499) (266,842,585) (226,022,022)

Provision for bad and doubtful debts (546,455,858) (635,976,370) (100,485,684) (447,278,102)

Staff costs 8 (1,985,476,257) (921,351,169) (341,104,639) (244,795,068)

Depreciation and amortisation (1,074,543,261) (675,884,584) (685,174,234) (589,006,764)

Other operating expenses 9 (3,275,735,920) (1,624,684,237) (673,974,788) (655,475,814)

Change in fair value of investment properties (13,549,065) 13,381,750 5,225,775 –

RESULTS FROM OPERATING ACTIVITIES 10 7,831,926,311 1,467,701,528 1,897,989,460 491,127,505

Negative Goodwill 11 271,910,632 1,423,836,934 – –

Loss on disposal of subsidiaries and associates – (167,087,952) – –

Share of profit of associate companies 178,522,137 116,336,631 – –

PROFIT BEFORE TAXATION 8,282,359,080 2,840,787,141 1,897,989,460 491,127,505

Taxation 12 (1,259,279,168) (455,381,906) (374,646,172) (164,186,875)

PROFIT AFTER TAXATION 7,023,079,912 2,385,405,235 1,523,343,288 326,940,630

Attributable to -Equity holders of the Company 3,840,227,908 1,841,808,956 1,523,343,288 326,940,630

Minority interest 3,182,852,004 543,596,279 – –

PROFIT FOR THE YEAR 7,023,079,912 2,385,405,235 1,523,343,288 326,940,630

Earnings per share 13 8.08 3.88

Dividend per share 14 – –

Figures in brackets indicate deductions.

The Accounting Policies and Notes on pages 118 through 176 form an integral part of these Financial Statements


Statements of Changes in Equity

Group

Attributable to Equity Holders of the CompanySubsidiary Future

Stated Share Revaluation Taxation Statutory Retained MinorityCapital Premium Reserve Reserve Reserve Earnings Interest Total

For the year ended 31 March 2011 (Rs.) (Rs.) (Rs.) (Rs.) (Rs.) (Rs.) (Rs.) (Rs.)

Balance as at 31.03.2009 475,200,000 536,504 105,402,842 205,000,000 243,473,120 4,981,857,005 80,008,329 6,091,477,800

Profit for the year – – – – – 1,841,808,956 543,596,279 2,385,405,235 Dividends – – – – – – – –Addition to minority through acquisition of subsidiary - (Restated) – – – – – – 10,982,840,629 10,982,840,629 Revaluations during the year – – 50,476,226 – – – 227,170,779 277,647,005 Transfers during the year – (536,504) – – 161,506,077 (160,969,573) 2,276,929 2,276,929 Balance as at 31.03. 2010 - (Restated) 475,200,000 – 155,879,068 205,000,000 404,979,197 6,662,696,388 11,835,892,945 19,739,647,598

Profit for the year – – – – – 3,840,227,908 3,182,852,004 7,023,079,912 Dividends forfeited – – – – – 1,162,576 – 1,162,576 Addition to minority through acquisition of subsidiaries – – – – – – 1,703,110,991 1,703,110,991 Change in percentage holdings in subsidiary companies – – – – – (81,314,590) (1,284,685,925) (1,366,000,515)Dividend paid to minority shareholders – – – – – – (564,719,966) (564,719,966)Share issue of subsidiary companies – – – – – – 3,845,766,667 3,845,766,667 Revaluation of investments – – 790,556,790 – – – 2,799,654,728 3,590,211,518 Revaluation of property, plant and equipment – – 546,889,277 – – – 231,141,073 778,030,350 Deferred tax on property, plant and equipment revaluation – – (4,937,305) – – – (22,200,340) (27,137,645)

Realisation of investments revaluations – – (735,975,206) – – 735,975,206 – – Transfers during the year – – – – 385,353,847 (385,353,847) – – Balance as at 31.03.2011 475,200,000 – 752,412,624 205,000,000 790,333,044 10,773,393,641 21,726,812,177 34,723,151,486

CompanyFuture

Stated Revaluation Taxation Statutory RetainedCapital Reserve Reserve Reserve Earnings Total

For the year ended 31 March 2011 (Rs.) (Rs.) (Rs.) (Rs.) (Rs.) (Rs.)

Balance as at 31.03.2009 475,200,000 105,402,842 205,000,000 219,003,446 4,097,107,298 5,101,713,586

Profit for the year – – – – 326,940,630 326,940,630

Dividends – – – – – –

Transfers during the year – – – 22,885,844 (22,885,844) –

Balance as at 31.03.2010 475,200,000 105,402,842 205,000,000 241,889,290 4,401,162,084 5,428,654,216

Profit for the year – – – – 1,523,343,288 1,523,343,288

Dividends – – – – – –

Transfers during the year – – – 48,326,643 (48,326,643) –

Revaluations during the year – 495,484,033 – – – 495,484,033

Dividends forfeited – – – – 1,162,576 1,162,576

Balance as at 31.03.2011 475,200,000 600,886,875 205,000,000 290,215,933 5,877,341,305 7,448,644,113



Cash Flow Statements


(Rs.) (Rs.) (Rs.) (Rs.)

CASH FLOW FROM OPERATING ACTIVITIESProfit before taxation 8,282,359,080 2,840,787,141 1,897,989,460 491,127,505

Adjustment for:Net (Profit)/loss on sale of property, plant and equipment 25,890,860 (54,432,364) 36,300,647 (10,271,603)

Depreciation and amortisation 1,074,543,261 675,884,584 685,174,234 589,006,764

Provision for defined benefit plans 215,070,845 25,125,609 13,197,616 9,752,577

Allowances for doubtful debts 546,455,858 635,976,370 100,485,684 447,278,102

Provision for fall/(increase) in value of investments (1,035,134,489) (97,849,681) (718,294,170) (71,115,335)

Capital gain on sale of treasury bond (550,983,898) (31,239,182) (272,172,043) (31,239,182)

Investment income (688,965,710) (49,986,556) (52,882,917) (24,469,270)

Finance cost 6,433,250,418 6,250,681,039 2,394,677,826 3,154,048,049

Interest income (12,662,530) (72,544,502) (10,662,477) (63,135,792)

Change in fair value of investment properties 13,549,065 (13,381,750) (5,225,775) –

(Profit)/loss on sale of subsidiaries, associates and shares (1,958,298,140) 34,973,457 (667,164,597) (141,528,621)

Negative Goodwill (271,910,632) (1,423,836,934) – –

Share of profit of equity accounted investees (178,522,137) (116,336,631) – –

Impairment of investments – – 29,940,752 –

Operating profit before working capital changes 11,894,641,852 8,603,820,600 3,431,364,240 4,349,453,194

Working capital changes(Increase)/decrease in trade and other receivables 127,159,537 1,533,337,923 1,552,231,698 89,359,683

(Increase)/decrease in inventories (461,748,549) 76,749,509 7,664,705 (9,414,705)

Increase/(decrease) in trade and other payables 1,471,567,280 581,174,305 219,072,176 107,622,035

(Increase)/decrease in real estate stocks 6,668,623 9,201,627 – 3,135,535

(Increase)/decrease in investment in leases, hire purchase and others (11,500,763,582) (638,467,487) 1,584,779,618 2,842,282,945

(Increase)/decrease in factoring account receivable (2,699,238,197) (1,104,599,746) (1,142,066,549) (469,142,563)

(Increase)/decrease in investment in advances and other loans (9,743,424,178) (1,415,254,957) 873,978,759 3,172,974,515

Cash generated from operations (10,905,137,213) 7,645,961,774 6,527,024,647 10,086,270,639

Finance cost paid (6,387,667,991) (6,250,681,039) (2,498,600,000) (3,487,464,625)

Income tax and Economic Service Charge paid (501,206,982) (199,109,675) (114,226,058) (70,083,301)

Defined benefit plan costs paid (109,855,568) (5,607,181) (2,880,483) (657,680)

Net cash from/(used in) operating activities (17,903,867,753) 1,190,563,879 3,911,318,106 6,528,065,033


Cash Flow Statements


(Rs.) (Rs.) (Rs.) (Rs.)

CASH FLOW FROM INVESTING ACTIVITIESInvestment in subsidiary companies – – (5,495,805,225) (497,939,562)Acquisition of minority interest (1,366,000,515) – – – Acquisition of subsidiaries net of cash (2,848,451,166) (1,339,581,567) – – Investment in equity accounted investees (2,206,647,702) (1,566,763,995) (756,202,639) (508,146,451)Investment in joint venture – – (36,384,471) –Acquisition of property, plant and equipment (2,886,588,358) (1,243,488,066) (1,647,861,464) (1,208,408,322)Acquisition of intangible assets (69,197,493) (43,621,506) (14,371,445) (42,157,136)Acquisition of investment properties – (226,077,242) – (226,077,242)Net proceeds from short-term investments (114,578,669) 609,557,837 (31,764,807) (8,625,760)Proceeds from sale of subsidiaries, associates and shares 7,116,016,375 354,859,354 1,940,420,063 545,750,364 Net additions to investments (27,293,000) (7,955,218,728) 870,858,081 (4,466,400,399)Net investment in term deposits 383,882,448 1,056,179,289 952,271,234 1,107,582,204 Proceeds from the sale of property, plant and equipment 1,087,766,387 400,356,144 931,070,610 318,552,801 Interest received 12,662,530 72,544,502 10,662,477 63,135,792 Dividend received 713,099,630 56,214,949 45,573,201 24,469,270 Rent received – 4,969,047 – –Net cash flow from investing activities (205,329,531) (9,820,069,982) (3,231,534,385) (4,898,264,441)

CASH FLOW FROM FINANCING ACTIVITIESNet cash proceeds from short-term interest-bearing loans and borrowings 1,052,499,211 6,457,176,647 (640,737,952) 2,866,740,078 Principal repayment under finance lease liabilities (466,324,628) (379,074,524) (110,691,251) (320,044,362)Net proceeds from customer deposits 6,253,452,297 4,865,762,251 – – Proceeds from long-term interest-bearing loans and borrowings 20,374,573,885 4,444,524,019 6,443,121,963 1,048,958,127 Repayments of long-term interest-bearing loans and borrowings (10,851,810,070) (6,917,441,902) (7,142,904,088) (4,799,726,125)Proceeds from issuance of debentures – 172,230,000 – – Proceeds from share issue of subsidiary companies 3,845,766,666 – – –Dividend paid to minority shareholders (564,719,966) – – – Net cash generated from financing activities 19,643,437,395 8,643,176,491 (1,451,211,328) (1,204,072,282)

Net increase/(decrease) in cash and cash equivalents during the year 1,534,240,110 13,670,388 (771,427,607) 425,728,310 Cash and cash equivalents at the beginning of the year (904,343,931) (918,014,319) (930,985,191) (1,356,713,501)Cash and cash equivalents at the end of the year 629,896,179 (904,343,931) (1,702,412,798) (930,985,191)

Analysis of cash and cash equivalents at the end of the year Cash at bank and in hand (Note 15.1) 4,659,100,494 2,082,993,737 392,011,825 420,286,466 Bank overdraft (Note 15.2) (4,029,204,315) (2,987,337,668) (2,094,424,623) (1,351,271,657)

629,896,179 (904,343,931) (1,702,412,798) (930,985,191)



Notes to the Financial Statements

1. Corporate Information1.1 GeneralLanka ORIX Leasing Company PLC (‘the Company’) is a public quoted company incorporated on 14 March 1980 and domiciled in Sri Lanka. The Consolidated Financial Statements of the Company for the year ended 31 March 2011 comprise of the Company and its subsidiaries (together referred to as the ‘Group’) and the Group’s interest in associates and jointly controlled entities.

The Financial Statements were authorised for issue by the Directors on 31 May 2011.

Lanka ORIX Leasing Company PLC does not have an identifiable parent.

1.2 Principal Activities and Nature of OperationsDuring the year, the principal activities of the Company comprised of leasing, hire purchase, loans, operating leases and factoring. Descriptions of the nature of operations and principal activities of the subsidiaries, jointly-controlled entities and associates are given in Notes 25, 26 and 27 respectively in these Financial Statements. 1.3 Directors’ Responsibility StatementThe Board of Directors takes the responsibility for the preparation of these Financial Statements.

Note Page

1. Corporate Information 1182. Accounting Policies 1193. Gross Revenue 1344. Income 1345. Other Income/(Expenses) 1356. Net Interest Costs 1357. Direct Expenses Excluding

Net Interest Costs 1368. Staff Costs 1369. Other Operating Expenses 136

10. Results from Operating Activities 13611. Negative Goodwill 13712. Taxation 13713. Earnings Per Share 13914. Dividend Per Share 13915. Cash and Cash Equivalents 13916. Investment Securities 14017. Rentals Receivable on Leased

Assets, Hire Purchases and Operating Leases 144

18. Advances and Other Loans 14619. Instalment Sales 14720. Inventories 14821. Trade and Other Current Assets 14822. Prepaid Lease Rentals 14923. Investment Properties 14924. Timber Stocks 15025. Investments in Joint Venture

Companies 15026. Investments in Associate

Companies 15127. Investments in Subsidiary

Companies 15428. Deferred Tax Asset 15729. Goodwill 158

Note Page

30 Intangible Assets 15831 Property, Plant and Equipment 16032 Deposits from Customers 16233 Interest Bearing Loans and

Borrowings 16234 Trade and Other Payables 16335 Deferred Tax Liabilities 16436 Deferred Income 16437 Retirement Benefit Obligations 16538 Stated Capital 16539 Reserves 16640 Retained Earnings 16641 Comparative Information 16742 Segmental Information 16843 Loans to Employees

(Rs. 20,000/- and above) 16944 Commitments and

Contingencies 17045 Events After the

Balance Sheet Date 17146 Related Party Disclosures 17247 Assets Pledged 176


2. Accounting Policies2.1 Statement of ComplianceThe Financial Statements of the Company and those consolidated with such are prepared in accordance with the Sri Lanka Accounting Standards laid down by The Institute of Chartered Accountants of Sri Lanka and in compliance with the Companies Act No. 07 of 2007.

Effect of accounting standards issued but not yet effective:

(a) The following standards have been issued by The Institute of Chartered Accountants of Sri Lanka.

- Sri Lanka Accounting Standard 44 Financial Instruments; Presentation (SLAS 44)

- Sri Lanka Accounting Standard 45 Financial Instruments; Recognition and Measurement (SLAS 45)

- Sri Lanka Accounting Standard 39 Share Based Payments (SLAS 39)

The effective date of SLAS 44, 45 and 39 was changed during the year to be effective for financial periods beginning on or after 01 January 2012. These three standards have been amended and forms a part of the new set of financial reporting standards mentioned under Note (b) below. In order to comply with the requirements of the two Financial Instruments Standards, the Company is in the process of assessing the effect of adoption of these two standards. Due to the complex nature of the effects of these two standards the impact of adoption cannot be estimated as at the date of publication of these Financial Statements.


(b) Following the convergence of Sri Lanka Accounting Standards with the International Financial Reporting Standards, the Council of The Institute of Chartered Accountants of Sri Lanka has adopted a new set of financial reporting standards that would apply for financial periods beginning on or after 01 January 2012. These new Accounting Standards are prefixed both SLFRS and LKAS, which correspond to the relevant IFRS and IAS. The effect of application of these new financial reporting standards is substantially different to the prevailing standards.

2.2 Basis of PreparationThe Financial Statements are presented in Sri Lankan Rupees which is the Company’s functional currency. Where appropriate, the Significant Accounting Policies have been disclosed in the succeeding Notes. The Financial Statements are prepared on the historical cost basis except Land and Building, Investment Properties and Investments in Quoted Ordinary Shares which are stated at valuation as shown in Notes 31, 23 and 16.1 respectively in the Financial Statements. No adjustment has been made for inflationary factors affecting the Financial Statements. Assets and liabilities are grouped by nature and listed in an order that reflect their relative liquidity.

The Accounting Policies have been consistently applied by the Group and are consistent with those used in the previous year. The specific policies used are explained below and relate to both the Consolidated Financial Statements and that of the Company, except stated otherwise. Previous period figures and Notes have

been reclassified and restated wherever necessary to conform to the current presentation, as explained in Note 41.

Significant Accounting Judgments, Estimates and Assumptions

The preparation of the Financial Statements in conformity with SLASs requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.

Further, the management is required to consider, key assumptions concerning the future and other key sources of estimation of uncertainty at the Balance Sheet date that may have a significant risk of causing material adjustments to the carrying amounts of assets and liabilities. The respective carrying amounts of assets and liabilities are given in the related Notes to the Financial Statements. The key items which involve these judgments, estimates and assumptions are discussed below: Impairment Losses on Loans and Advances:

In addition to the provisions made for possible loan losses based on the parameters and directives for specific provisions on Loans and Advances by the Central Bank of Sri Lanka, the Company and its subsidiaries reviews its Loans and Advances portfolio at each reporting date to assess whether a further allowance for impairment should be provided in the Income Statement. The judgments by the management is required in the estimation of these amounts and such estimations are


based on assumptions about a number of factors though actual results may differ, resulting in future changes to the provisions. Defined Benefit Plans

The cost of defined benefit plans - gratuity is determined using actuarial valuations. The actuarial valuation involves making assumptions about discount rates, expected rates of return on assets, future salary increases, mortality rates and future pension increases. Due to the long-term nature of these plans, such estimates are subject to significant uncertainty.

Deferred Tax Assets

Deferred tax assets are recognised for all unused tax losses to the extent that it is probable that taxable profit will be available against which the losses can be utilised. Significant management judgment is required to determine the amount of deferred tax assets that can be recognised, based upon the likely timing and level of future taxable profits together with future tax planning strategies.

Reviews of Impairment Losses on Other Assets

The Group determines whether assets have been impaired by performing an impairment review. This requires the estimation of the ‘value in use’ of the cash generating units. Estimating value in use requires management to make an estimate of the expected future cash flows from the cash generating unit and also to select a suitable discount rate in order to calculate the present value of the relevant cash flows. This valuation requires the Group to make estimates about expected future cash flows and discount rates, and hence, they are subject to uncertainty.


Useful Lives of Property, Plant and Equipment

The Group reviews the assets’ residual values, useful lives and methods of depreciation at each reporting date. Judgment by the management is exercised in the estimation of these values, rates and methods.

2.3 Going ConcernThe Directors have made an assessment of the Company’s ability to continue as a going concern and they do not intend either to liquidate or to cease business.

2.4 Basis of ConsolidationFinancial Statements of all Companies in the Group are prepared to a common financial year, which ends on 31 March except Maturata Plantations Ltd., Commercial Insurance Brokers, Pussellawa Plantations Ltd. and Prasac Micro Finance Company, Cambodia of which year end is 31 December. However, Management Financial Statements for the three months period ended 31 March have been considered for the purpose of Consolidated Financial Statements of the Group except for Prasac Micro Finance Company, Cambodia and Commercial Insurance Brokers.

2.4.1 Subsidiaries

The Financial Statements of the Group represent the consolidation of the Financial Statements of Lanka ORIX Leasing Company PLC and its subsidiaries as disclosed in Note 27. Subsidiaries are entities controlled by the Company. Control exists when the Company has the power, directly or indirectly, to govern the financial and operational policies of

an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that presently are exercisable or convertible are taken into account. Subsidiaries are consolidated from the date the Parent Company obtains control until such time control ceases. Acquisition of subsidiaries is accounted for using the purchase method of accounting.

The Group Financial Statements are prepared in accordance with the Sri Lanka Accounting Standard - 26 - ‘Consolidated Financial Statements‘.

Minority Interests in the net assets not owned, directly or indirectly, by the Company are presented in the Consolidated Balance Sheet within Equity, separately from the Equity Attributable to Equity Holders of the Parent (Company). Minority Interests in the profit or loss of the Group are presented separately in the Consolidated Income Statement.

2.4.2 Associates - Equity Accounted Investees

Associates are those entities in which the Group has significant influence, but not control, over the financial and operating activities.

Associates are accounted for using the equity method (equity accounted investees) and are initially recognised at cost. The Group’s investment in associate includes goodwill identified on acquisition, net of any accumulated impairment losses. The Consolidated Financial Statements include the Group’s share of the income and expenses and equity movements of equity accounted investees, after adjustments to


align the accounting policies with those of the Group, from the date that significant influence commences until the date that significant influence ceases. When the Group’s share of losses exceeds its interest in an equity accounted investee, the carrying amount of that interest (including any long-term investments) is reduced to nil and the recognition of further losses is discontinued except to the extent that the Group has an obligation or has made payments on behalf of the investee. Associate Companies of the Group which have been accounted for under the equity method of accounting are disclosed under Note 26 to these Financial Statements.

2.4.3 Jointly-Controlled Entities

Joint ventures are those entities over whose activities the Group has joint control, established by contractual agreement and requiring unanimous consent for strategic financial and operating decisions.

Jointly-controlled entities are accounted for using proportionate consolidation method, from the date that significant influence or joint control commences until the date that significant influence or joint control ceases.

Jointly-controlled entities of the Group which have been accounted for under the proportionate consolidation method of accounting are disclosed in Note 25 in these Financial Statements.

2.4.4 Business Combinations and Goodwill

All business combinations have been accounted for by applying the purchase method in accordance with the Sri Lanka Accounting Standard 25 (Revised 2004) - ‘Business Combinations’. Applying this


method involves the entity that obtains control of the other entity to recognise the fair value of assets acquired and liabilities and contingent liabilities assumed, including those not previously recognised.

Goodwill represents the excess of the cost of any acquisition of a subsidiary or an associate over the Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities acquired. When the excess is negative (negative goodwill) it is recognised immediately in the Income Statements.

Goodwill is initially recognised at cost. The Company will test the goodwill for impairment annually and assess for any indication of impairment to ensure that its carrying amount does not exceed the recoverable amount. If an impairment loss is identified, it is recognised immediately to the Income Statement. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to groups of cash-generating units that are expected to benefit from the synergies of the combination. The impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets pro-rata to the carrying amount of each asset in the unit. Where goodwill forms part of a cash-generating unit and part of the operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation.

Carrying amount of the goodwill arising on acquisition of subsidiaries and joint ventures is presented as an intangible and

the goodwill on an acquisition of an equity accounted investment is included in the carrying value of the investment.

If the Group’s interest, in the net fair value of the identifiable assets, liabilities and contingent liabilities exceeds the cost of the acquisition of the entity, the Group will reassess the measurement of the acquiree’s identifiable assets and liabilities and the measurement of the cost and recognise the difference immediately in the Consolidated Income Statement. 2.4.5 Transactions Eliminated on Consolidation

All intra-group balances, income and expenses and unrealised gains and losses resulting from intra-group transactions are eliminated in full in preparing the Consolidated Financial Statements.

2.5 Assets and Bases of their Valuation2.5.1 Cash and Cash Equivalents

Cash and cash equivalents comprise of cash in hand and cash at banks. Bank overdrafts that are repayable on demand form an integral part of the Group cash management and are included as a component of cash and cash equivalents for the purpose of the statement of cash flows.

2.5.2 Rentals Receivable on Finance Leases and Hire Purchase

Rentals receivable on leased and hire purchased assets are accounted for as finance leases, hire purchases and reflected in the Balance Sheet at balance cost recoverable after eliminating unearned income and deducting pre-paid rentals, rental collections and provision for bad and doubtful debts.


2.5.3 Advances and Other Loans to Customers

Advances and other loans to customers comprised of revolving loans, loans with fixed instalments, factoring and pawning advances.

Revolving loans to customers are reflected in the Balance Sheet at amounts disbursed less repayments and provision for doubtful debts. Loans to customers with fixed instalments are stated in the Balance Sheet net of possible loan losses and net of interest, which is not accrued to revenue.

2.5.4 Provision for Doubtful Debts

The specific provisions for doubtful debts are arrived at using the following bases:

Lanka ORIX Leasing Company PLC and LOLC Micro Credit Ltd. compute provisioning for bad and doubtful debts according to the Central Bank Direction No. 2 of 2006 of the Finance Leasing Act No. 56 of 2000.

Twenty per cent (20%) of all lease, hire purchase and loan receivables (net of unearned income) which are in arrears for a period of 6 to 12 months.

Fifty per cent (50%) of all leases, hire purchases and loan receivables (net of unearned income) which are in arrears for a period of 12 to 18 months.

One hundred per cent (100%) of all leases, hire purchases and loan receivables (net of unearned income) which are in arrears for a period of 18 months and more.


One hundred per cent (100%) of all accommodations where instalments are not paid on a monthly basis, whenever the Company has realised that instalments will not be paid on the due dates.

Additional specific provisions are made upon management review on the performance of the lease, hire purchase and loan portfolios on a case-by-case basis. Facilities that are overdue for 18 months or more and fully-provided have been written-off against the provisions made.

Lanka ORIX Leasing Company PLC and LOLC Micro Credit Ltd. compute provisioning for bad and doubtful debts on high risk micro products according to the Direction No. 3 of 2006 of the Finance Companies Act No. 78 of 1988.

The values of the following items held as collateral for a particular advance have been deducted in arriving the above provisions:

With regard to vehicles that have been repossessed by the Company and not sold, eighty per cent (80%) of the valuation obtained during the preceding 6 months from a professional valuer is being deducted in arriving at the provision for bad and doubtful debts. With regard to land and buildings, the full value, in case of a primary mortgage, such value shall not exceed the value decided by a qualified professional valuer at the time of providing the accommodation.

Lanka ORIX Finance Company Ltd. and Commercial Leasing Company Ltd. provide for bad and doubtful debts based on the Direction No. 3 of 2006 of the Finance Companies Act No. 78 of 1988.

Fifty per cent (50%) on all receivables (net of unearned income) which are in arrears for a period of 6 to 12 months.

One hundred per cent (100%) on all receivables (net of unearned income) which are in arrears for a period of 12 months and more with additional specific provisions.

Additional specific provisions are made upon management review on the performance of leases, hire purchases and loan portfolios. Facilities that are overdue for 12 months or more and fully-provided have been written-off against the provisions made.

The values of the following items held as collateral for a particular advance have been deducted in arriving at the above provisions:

With regard to vehicles that have been repossessed by Lanka ORIX Finance Company Ltd., eighty per cent (80%) of the valuation obtained during the preceding 6 months from a professional valuer. With regard to land and buildings, the full value, in case of a primary mortgage, such value shall not exceed the value decided by a qualified professional valuer at the time of providing the accommodation. Balance receivable on Terminated Contracts for Lease, Hire Purchase Advances and Loans One hundred per cent (100%) of proceeds receivables.


2.5.5 Factoring Receivables

Factoring receivables of the Group have been stated net of specific provisions based on Company provisioning policy. Any amount uncollectable is written-off against profits.

The specific provisions for doubtful debts are arrived at using the following bases:

If one hundred per cent (100%) of the sales ledger is disputed, and no further transactions have taken place for a period of 6 months, 50% of the Current Account balance is provided for, from the last date of dispute.

When this period reaches 12 months 100% is provided for.

However, if the total of settlements received within the said 3 months is less than 25% of the overdue Current Account balance, 50% of such Current Account balance is provided in 6 months and the 100% provided after 12 months as in the case of such accounts.

Further, the total portfolio is reviewed quarterly to capture any accounts that are not falling under the above criteria but are considered as ‘non-performing’. Such accounts are considered for provisioning on a case-by-case basis, under specific provisioning.

Commercial Leasing Company Ltd. makes a general provision of 0.75% of factoring receivables to absorb any losses arising from unforeseen events.


2.5.6 Inventories

Inventories are stated at the lower of cost and net realisable value after making due allowance for obsolete and slow moving items. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses.

The cost incurred in bringing inventories to its present location and condition is accounted using the following cost formula:

Type of Inventory Method of Valuation

Input Materials At total purchased cost using Weighted Average Cost Formula.

Growing Crop - Nurseries At the cost of direct materials, direct labour and appropriate proportion of directly attributable overheads less provision for over-grown plants.

Produce Stocks Produce Stocks manufactured up to the Balance Sheet date and sold since then, until the time of preparation of the Financial Statements are valued at since realised price. The balance Produce Stocks are valued at estimated selling prices. The prices are net of all attributable expenses relating to the public auction.

Spares and Consumables At purchase cost on weighted average basis.

Inventory items except finished goods and work-in-progress

First-in first-out cost (FIFO)

Finished goods and work-in-progress

Factory cost which includes all direct expenditure and production overheads based on normal operating capacity.

2.5.7 Timber Stocks

The accounting policies adopted for Timber plantations which is a consumable biological asset, is stated at fair value less estimated point-of-sale-costs. Point-of-sale-costs include all the costs that would be necessary to sell the assets, including costs necessary to get the assets to market.


The plantation companies have engaged an Independent Chartered Valuation Surveyor Mr. K.T.D. Tissera in determining the fair value of Timber Stocks and Rubber. The Valuer has valued the Timber Stocks and Rubber per tree valuation basis by using available log and tree prices in city centres less point-of-sale-costs. The plantation companies measured the Timber Stocks and Rubber as fair value less estimated point-of-sale-costs as at each Balance Sheet date.

2.5.8 Real Estate Stocks

Real estate stocks of the Group represent the purchase value of properties and any subsequent expenditure incurred on development of such properties.

2.5.9 Short-Term Investments

Short-term investment comprises of call deposits and interest earning demand deposits with banks. Call deposits and deposits with banks are stated at the amounts to be realised.

2.5.10 Investments in Term Deposits

Term deposits are stated at principal amount plus interest accrued on a time proportionate basis.

2.5.11 Investment Securities

Investment in Quoted Shares

Investments in quoted shares are stated at their respective market values on an aggregate portfolio basis. The difference between cost and the market value is charged to the Income Statement.


The quoted investments of the Browns Group are stated at the market value as at the Balance Sheet date. The excess on revaluation is credited to revaluation of investments in the statement of changes in equity.

Investment in Government Securities

Investments in Government Treasury Bonds held to maturity are reflected at the value of the Bonds purchased and the discount/premium accrued thereon and carried at these values till their maturity in the Balance Sheet. Discount received/premium paid is taken to the Income Statement based on a pattern reflecting a constant periodic rate of return.

Investment in Non-Quoted Shares

Investment in non-quoted shares are stated at cost of acquisition and adjusted for any fall in value, which are other than temporary.

2.5.12 Trade Receivables

Trade and other receivables are stated at the amounts they are estimated to realise, net of provisions for bad and doubtful receivables. A provision for doubtful debts is made when the debt exceeds 365 days, and collection of the full amount is no longer probable. Bad debts are written-off when identified.

2.5.13 Other Receivables

Other receivable balances are stated at estimated amounts receivable after providing for doubtful receivables.

2.5.14 Intangible Assets

Basis of Recognition

An Intangible Asset is recognised if it is probable that future economic benefits that are attributable to the assets will flow to the entity and the cost of the assets can be measured reliably.

Basis of Measurement

Intangible assets acquired separately are measured at initial recognition at cost. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and any accumulated impairment losses. The useful life of intangible assets is assessed to be either finite or indefinite. Intangible assets with finite are amortised over the useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the method for an intangible asset with a finite useful life is reviewed at least at each financial year end. Intangible assets with indefinite useful lives are tested for impairment annually either individually or at the cash generating unit level.

Subsequent Expenditure

Subsequent expenditure on intangible assets is capitalised only when it increases the future economic benefits embodied in these assets. All other expenditure is expensed when incurred.


Derecognition

Intangible assets are derecognised on disposal or when no future economic benefits are expected from its use. The gain or loss arising from derecognition of intangible assets are measured as difference between the net disposal proceeds and the carrying amount of the asset and are recognised in the Income Statement when the intangible assets are recognised.

Amortisation

Amortisation is based on the cost of an asset less its residual value. Amortisation is recognised in profit or loss on a straight-line basis over the estimated useful lives of intangible assets from the date that they are available for use.

The estimated useful life of each intangible asset is as follows:

Computer Software 5 yearsBrand Name 10 yearsCustomer Base 5 years

2.5.15 Investment Property

Basis of Recognition

Properties held to earn rental income, and properties held for capital appreciation have been classified as investment property. Investment properties are initially recognised at cost.

Basis of MeasurementFair Value Model

Investment properties are initially recognised at cost. Subsequent to initial recognition, the investment properties are stated at fair values, which reflect


market conditions at the Balance Sheet date. Gains or losses arising from changes in fair value are included in the Income Statement in the year in which they arise. Where Group Companies occupy a significant portion of the investment property of a subsidiary, such investment properties are treated as property, plant and equipment in the Consolidated Financial Statements, and accounted for as per SLAS 18 (Revised) - ‘Property, Plant and Equipment’.

Derecognition

Investment properties are 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 Income Statement in the year of retirement or disposal.

Subsequent Transfers to/from Investment Property

Transfers are made to investment property when, and only when, there is a change in use, evidenced by the end of owner occupation, commencement of an operating lease to another party or completion of construction or development. Transfers are made from investment property when, and only when, there is a change in use, evidenced by commencement of owner occupation or commencement of development with a view to sell.

For a transfer from investment property to owner occupied property or inventories, the deemed cost of property for subsequent accounting is its fair value at the date of change in use. If the property occupied by the Company as an owner occupied property becomes an investment property, the Company, accounts for such property in accordance with the policy stated under property, plant and equipment up to the date of change in use. For a transfer from inventories to investment property, any difference between the fair value of the property at that date and its previous carrying amount is recognised in the Income Statement. When the Company completes the construction or development of a self-constructed investment property, any difference between the fair value of the property at that date and its previous carrying amount is recognised in the Income Statement.

Determining Fair Value

An external, independent valuer, having appropriate recognised professional qualifications and recent experience in the location and category of property being valued, values the investment property portfolio every 3 years. In financial periods within that period the fair value is determined by the Directors. The fair values are based on market values, being the estimated amount for which a property could be exchanged on the date of the valuation between a willing buyer and a willing seller in an arm’s length transaction after proper marketing wherein the parties had each acted knowledgeably.


2.5.16 Property, Plant and Equipment

a. Basis of Recognition

Property, plant and equipment are recognised if it is probable that future economic benefits associated with the asset will flow to the Group and cost of the asset can be reliably measured.

b. Basis of Measurement

Items of property, plant and equipment are measured at cost/revaluation less accumulated depreciation/impairment losses.

Cost includes expenditure that is directly attributable to the acquisition of the asset. The cost of self-constructed assets includes the cost of materials and direct labour, any other costs directly attributable to bringing the asset to a working condition for its intended use, and the costs of dismantling and removing the items and restoring the site on which they are located.

When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items of property, plant and equipment.

Gains and losses on disposal of an item of property, plant and equipment are determined by comparing the proceeds from disposal with the carrying amount of property, plant and equipment and are recognised net within ‘other income’ in profit or loss. When revalued assets are sold, the amounts included in the revaluation surplus reserve are transferred to retained earnings.


Cost Model

The Group applies the cost model to all property, plant and equipment, except freehold land and buildings, records at cost of purchase together with any incidental expenses thereon less any accumulated impairment losses.

Revaluation Model

A revaluation of property, plant and equipment of Browns Group of Companies is done after a review once a year when there is a substantial difference between the fair value (market value) and the book value of the asset and is undertaken by professionally qualified valuers. Lanka ORIX Leasing Company PLC and Commercial Leasing Company Ltd. revalue their land and buildings once in three years.

When an asset is revalued, any increase in the carrying amount is transferred to a revaluation reserve, unless it reverses a previous revaluation decrease relating to the same asset, which was recognised in the Income Statement. When there is a revaluation loss it is recognised in the Income Statement unless it reverses a previous revaluation gain recognised in the revaluation reserve for the same class of asset in which case it is charged to revaluation reserve.

c. Subsequent Costs

The cost of replacing part of an item of property, plant and equipment is recognised in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the Group and its cost can be measured reliably. The carrying amount of the replaced part is derecognised.

The costs of the day-to-day servicing of property, plant and equipment are recognised in profit or loss as incurred.

d. Depreciation

Depreciation is provided from the date the asset is available for use up to the date it derecognises. The Company and its subsidiaries provide depreciation for the following assets on the straight line method over the estimated useful life stated below. Land is not depreciated.

Building 40-50 YearsPlant and Machinery 8 years Motor Vehicles 4-5 YearsFurniture and Fittings 5 -10 YearsOffice Equipment 5 YearsComputer Equipment 5 Years

e. Operating Lease Assets

Operating lease assets are motor vehicles and equipment shown under property, plant and equipment in the Balance Sheet at cost less accumulated depreciation.

The depreciable amount of motor vehicles is depreciated over the useful life of the asset. The depreciable amount is the cost of the asset less the residual value. Residual value for motor vehicles is the estimated amount to be obtained from disposal of the motor vehicle at the end of useful life which is calculated by discounting the expected realisable value by the average lending rate. The residual value is reassessed annually and the change in deprecation is adjusted prospectively. Equipment are depreciated over the lease period on straight-line basis.


f. Finance Leases

Leases in terms of which the Group assumes substantially all the risks and rewards of ownership are classified as finance leases. Assets acquired by way of a finance lease are stated at an amount equal to the lower of their fair value and the present value of minimum lease payments at the inception less accumulated depreciation.

Leasehold Rights to Bare Land of JEDB/SLSPC Estate Assets and Immovable (JEDB/SLSPC) Estate Assets on Finance Lease

Leasehold Rights to bare land of JEDB/SLSPC estate assets and immovable (JEDB/SLSPC) estate assets on finance lease obtained on a long-term basis, are stated at the recorded carrying values as at the effective date of Sri Lanka Accounting Standard 19 - ‘Leases’, in line with Ruling of the Urgent Issues Task Force of The Institute of Chartered Accountants of Sri Lanka. Such carrying amounts are amortised over the remaining lease term or useful life of such asset whichever is shorter.

g. Leasehold Property

Prepaid lease rentals paid to acquire land use rights are amortised over the lease term in accordance with the pattern of benefits provided. Leasehold properties are tested for impairment annually and are written down where applicable. The impairment loss, if any, is recognised in the Income Statement.


h. Leasehold Vehicles

Leasehold vehicles are assets obtained on finance leases facilities by the Company for the business of hiring and shown under the property, plant and equipment in the Balance Sheet at cost less accumulated depreciation.

The depreciable amount of leasehold vehicles is depreciated over the useful life of the asset. The depreciable amount is the cost of the asset less the residual value. Residual value for motor vehicles is the estimated amount to be obtained from disposal of the motor vehicle at the end of useful life which is calculated by discounting the expected realisable value by the average lending rate. The residual value is reassessed annually and the change in depreciation is adjusted prospectively. i. Leasehold Machinery

Leasehold machineries are machinery and equipment shown under property, plant and equipment in the Balance Sheet at cost less accumulated depreciation. Depreciation on leasehold machinery is computed over the lease period. j. Capital Work-in-Progress

Capital work-in-progress is stated at cost. These are expenses of a capital nature directly incurred in the construction of building.

k. Mature Plantations (Re-planting and New Planting)

Tea 33 1/3 years 3%Rubber 20 years 5%Coconut 50 years 2%

Depreciation of an asset begins when it is available for use, and ceases at the earlier of the date that the asset is classified as held for sale or the date that the asset is derecognised. Depreciation methods, useful lives values are assessed at the reporting date. Mature plantations are depreciated over their useful lives or unexpired lease period, whichever is less. No depreciation is provided for immature plantations and freehold land.

l. Amortisation

The leasehold rights of assets taken over from JEDP/SLSPC are amortised in equal amounts over the lower of lease period and economic useful life.

Depreciation rates used for the purpose are as follows:

No. of Years

Rate%

Bare Land 53 1.89

Mature Plantations 30 3.33

Buildings 25 4.00

Machinery 15 6.67

Water and Sanitation 20 5.00

Other Vested Assets 30 3.33

m. Restoration Costs

Expenditure incurred on repairs or maintenance of property, plant and equipment in order to restore or maintain the future economic benefits expected from originally assessed standard of performance is recognised as an expense when incurred.


n. Derecognition

An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of an asset is calculated as the difference between the net disposal proceeds and the carrying amount. Gains or losses on derecognition are recognised in Income Statement.

o. Permanent Land Development Costs

Permanent land development costs are those costs incurred in making major infrastructure development and building new access roads on leasehold lands.

These costs have been capitalised and amortised over the remaining lease period.

p. Immature and Mature Plantations

The total cost of land preparation, rehabilitation, new planting, re-planting, crop diversification, inter-planting and fertilizing, etc., incurred between the time of planting and harvesting (when the planted area attains maturity) are classified as immature plantations.

These immature plantations are shown at direct costs plus attributable overheads, including interest attributable to long-term loans used for financing immature plantations. Attributable overheads incurred on the plantation are apportioned based on the labour days spent on respective re-planting and new planting and capitalised on the immature areas. The remaining non-attributable overhead is expensed in the accounting period in which it is incurred.


The expenditure incurred on perennial crop (Tea/Rubber/Coconut) fields, which come into bearing during the year, has been transferred to mature plantations and depreciated over their useful life period.

q. Infilling Costs

The land development costs incurred in the form of infilling have been capitalised to the relevant mature field where infilling results in an increase in the economic life of the relevant field beyond its previously assessed standard of performance, in accordance with Sri Lanka Accounting Standard - 32 and depreciated over the useful life at rates applicable to mature plantation. Infilling costs that are not capitalised are charged to the Income Statement in the year in which they are incurred. r. Impairment of Assets

The Group 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 Group 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 fair value less costs to sell and its value in use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. Where the carrying amount of an asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. 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. Impairment losses are recognised in the Income Statement except for impairment losses in respect of property, plant and equipment which are recognised against the revaluation reserve to the extent that it reverses a previous revaluation surplus. 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. Previously recognised impairment losses other than in respect of goodwill, are reversed only if there has been an increase in the recoverable amount of the asset. Such increase is recognised to the extent of the carrying amount had no impairment losses been recognised previously.

2.6 Foreign Currency TransactionsTransactions in foreign currencies are translated to the functional currency at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated to the functional currency at the exchange rate at that date. The foreign currency gain or loss on monetary items is the difference between the original carrying amount in the functional currency and the carrying amount in foreign currency translated at the exchange rate at the end of the year.

Non-monetary items in a foreign currency that are measured in terms of historical cost are translated using the exchange rate at the date of the transaction.


Foreign currency differences arising on retranslation are recognised in profit or loss. 2.7 Liabilities and ProvisionsLiabilities are recognised in the Balance Sheet when there is a present obligation as a result of a past event, the settlement of which is expected to result in an outflow of resources embodying economic benefits. Obligations payable at the demand of the creditor or within one year of the Balance Sheet date are treated as current liabilities in the Balance Sheet. Liabilities payable after one year from the Balance Sheet date are treated as non-current liabilities in the Balance Sheet.

Provisions are made for all obligations existing as at the Balance Sheet date when it is probable that such an obligation will result in an outflow of resources and a reliable estimate can be made of the quantum of the outflow. All contingent liabilities are disclosed as a note to the Financial Statements unless the outflow of resources is remote. Contingent assets are disclosed, where inflow of economic benefit is probable.

2.7.1 Deposits from Customers

Deposits include savings deposits and term deposits. They are brought to account at the gross value of the outstanding balance. Interest for the period is charged to the profit or loss.

2.7.2 Grants and Subsidies

Grants related to property, plant and equipment are initially deferred and allocated to Income Statement on a systematic basis over the useful life of the related property, plant and equipment.


Grants related to assets, including non-monetary grants at fair value, are deferred in the Balance Sheet and credited to the Income Statement over the useful life of the related asset.

Grants related to income are recognised in the Income Statement in the period in which they are receivable as stated below:

No. of Years

Rate%

Building 40 2.5

Plant and Machinery 13 1/3 7.5

Equipment 08 12.5

Roads 50 2.0

Vehicles 05 20.0 Grants related to assets, including non-monetary grants at fair value, are deferred in the Balance Sheet and credited to the Income Statement over the useful life of the related asset. Grants related to income are recognised in the Income Statement in the period in which they are receivable. 2.7.3 Finance Leases

Property and Equipment on finance leases, which effectively transfer to the Group substantially all of the risk and benefits incidental to ownership of the leased items, are disclosed as finance leases at their cash price and depreciated over the period the Group is expected to benefit from the use of the leased assets.

The corresponding principal amount payable to the lessor is shown as a liability. Lease payments are apportioned between the finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the outstanding balance of the liability. The interest payable over

the period of the lease is transferred to an interest in suspense account. The interest element of the rental obligations pertaining to each financial year is charged to the Income Statement over the period of lease.

2.7.4 Income Tax

Income tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the Commissioner General of Inland Revenue. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted as at the Balance Sheet date. Accordingly, provision for taxation is made on the basis of the profit for the year and adjusted for the taxation purposes in accordance with provision of the Inland Revenue Act No. 10 of 2006 and amendments thereto. The rates used are specified in Note 12 to the Financial Statements.

Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted at the Balance Sheet date and any adjustments to tax payable in respect of previous years.

2.7.5 Deferred Taxation

Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognised for:

Temporary differences on the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss;


Temporary differences related to investments in subsidiaries and jointly controlled entities to the extent that it is probable that they will not reverse in the foreseeable future; and

Taxable temporary differences arising on the initial recognition of goodwill.

Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date.

Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity.

A deferred tax asset is recognised for unused tax losses, tax credits and deductible temporary differences, to the extent that it is probable that future taxable profits will be available against which they can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised.

2.7.6 Investments in Treasury Bills and Bonds of Government of Sri Lanka

Investment in Treasury Bills and Treasury Bonds are carried at the total of purchase price, accrued interest and amortisation/(accretion) of premium/(discount).

Gains/losses on disposal are measured at the difference between the sales proceeds and the carrying amount and are recognised in profit or loss.


2.7.7 Securities Sold under Repurchase Agreements

These are borrowings collateralised by sale of Treasury Bills and Treasury Bonds held by the Company to the counterparty from whom the Company borrowed, subject to an agreement to repurchase them at a predetermined price. Such securities remain on the Balance Sheet of the Company and the liability is recorded in respect of the consideration received. The difference between the sale and the purchase price represents interest expense, which is recognised in the Income Statement evenly over the period of the repurchased agreement. 2.7.8 Employee Benefits

2.7.8.1 Defined Contribution Plans

All employees of the Company are members of the Employees’ Provident Fund (EPF) and Employees’ Trust Fund (ETF), to which the Company contributes 12% and 3% of employee salaries respectively.

2.7.8.2 Defined Benefit Plans

A defined benefit plan is a post-employment benefit plan other than a defined contribution plan. The Group’s net obligation in respect of defined benefit plans is calculated by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods; that benefit is discounted to determine its present value. Any unrecognised past service costs are deducted.

The calculation is performed every three years by a qualified actuary using the projected unit credit method. For the

purpose of determining the charge for any period before the next regular actuarial valuation falls due, an approximate estimate provided by the qualified actuary is used.

When the benefits of a plan are improved, the portion of the increased benefit related to past service by employees is recognised in profit or loss on a straight-line basis over the average period until the benefits become vested. To the extent that the benefits vest immediately, the expense is recognised immediately in profit or loss.

The Group recognises all actuarial gains and losses arising from the defined benefit plan and all expenses related to defined benefit plans in personnel expenses in profit or loss. 2.7.8.3 Short-Term Employee Benefits

Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided. A liability is recognised for the amount expected to be paid under short-term cash bonus if the Company has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee, and the obligation can be estimated reliably.

2.7.9 Swap Instruments

Group in its ordinary course of business enter into transactions such as currency swaps and foreign exchange contracts and uses derivative instruments to manage exposure to currency risks. In order to account for such transactions, the Group applies hedging accounting principles based on best accounting practices.


Currency swaps are recognised as Off-Balance Sheet Assets or Liabilities. The Group’s commitment for the contracted period is converted to Sri Lankan Rupees based on the exchange rate agreed.

2.7.10 Earnings per Share

The Group presents basic earnings per share data for its ordinary shares.

Basic earnings per share is calculated by dividing the profit or loss attributable to ordinary shareholders of the Parent Company by the weighted average number of ordinary shares outstanding during the year.

2.8 Income Statement2.8.1 Gross Revenue

Gross revenue comprises of revenue, income and other income.

Income represents the gross income receivable for the year on all performing contracts, rentals on operating leases, income on factoring debtors, commission earned on insurance premiums, brokerage on share transactions and fees for IT services provided. It also includes all income related to operations such as interest on overdue rentals, profit/loss on leases and loans terminated and collections on contracts written-off. Revenue consists of results from trading activities. Other income such as interest on Treasury Bonds, profit on sale of property, plant and equipment, dividend income, gain on share revaluation etc. are also included in the gross revenue.


2.8.2 Revenue Recognition

Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group, and the revenue and associated costs incurred or to be incurred can be reliably measured. Revenue is measured at the fair value of the consideration received or receivable, net of trade discounts and value added taxes, net of sales within the Group.

2.8.3 Earned Income on Leases, Hire Purchases, Loans and Advances

The excess of aggregated contract receivable over the cost of the assets constitutes the total unearned income at the commencement of a contract.

The unearned income is recognised over the term of the facility commencing on the month on which the facility is executed in proportion to the declining receivable balance, so as to produce a constant periodic rate of return on the net investment outstanding.

Non-performing loans are those facilities where the rentals are overdue for 6 months and over. Income accrued is suspended from the date a facility is classified as non-performing and credited to the ‘Earned Income in Suspense’ in compliance with Direction No. 05 of 2005 of the Finance Leasing Act No. 56 of 2000 and Direction No. 15 of 1991 of the Finance Companies Act No. 78 of 1988. Thereafter, such income is recognised on cash basis.

Profit or loss on contracts terminated, collections on contracts written-off, interest on overdue rentals, interest on revolving loans, interest earned on property sale and buy back agreements, interest income on pawn broking are accounted for on cash basis.

2.8.4 Factoring

Revenue is derived from two sources, Funding and providing Sales Ledger Related Services.

Funding - Discount income relating to factoring transactions is recognised at the end of a given accounting month. In computing this discount, a fixed rate agreed upon at the commencement of the factoring agreement is applied on the daily balance in the Client’s Current Account.

Sales Ledger Related Services - A service charge is levied as stipulated in the Factoring Agreement.

Income is accounted for on an accrual basis and deemed earned on disbursement of advances for invoices factored, except where the account is classified as non-performing.

Income is suspended on the basis of, if 100% of the sales ledger is disputed and there are no transactions for a period of 3 months from the last date of dispute. 2.8.5 IT Service Fee

IT services fee is accounted for on an accrual basis.


2.8.6 Turnover from Sale of Solar Systems

Sundaya Lanka (Pvt) Ltd., earns revenue from sale of solar systems and it is accounted on an accrual basis. 2.8.7 Sale of Goods

Revenue from sale of goods is recognised when the significant risks and rewards of ownership of the goods have passed to buyer; with the Company retaining neither continuing managerial involvement to the degree usually associated with ownership, nor effective control over the goods sold.

2.8.8 Revenue from Accommodation Sales and Services Charge

Revenue from accommodation sales is recognised for the rooms occupied on a daily basis, together with outlet sales and other income from hotel operations.

90% of Service Charge collected from guests is distributed among the employees, retaining 10% of such service charge collected for recovery of breakages of cutlery, crockery, glassware and stainless steel ware items. Any balance amount of the retention after recovery of actual breakages is redistributed among employees at the end of each financial year.

2.8.9 Revenue from Rendering of Other Services

Revenue from rendering of services is recognised in the accounting period in which the services are rendered or performed.

2.8.10 Treasury Bond Income

Discount/premium on Treasury Bills/Bonds are amortised over the period to reflect a constant periodic rate of return. The coupon interest on Treasury Bonds is recognised on an accrual basis.

2.8.11 Other Income

Rent income, non-operational interest income and foreign exchange gains are accounted for on accrual basis.

Dividend income is recognised when the right to receive payment is established.

Profit on sales of property, plant and equipment and other non-current assets, including investments held by the Group have been accounted for in the Income Statement, after deducting from the net sales proceeds on disposal of the carrying amount of such assets.

2.8.12 Expenses

All expenditure incurred in the running of the business has been charged to income in arriving at the profit for the year.

Preliminary and pre-operational expenditure is recognised in the Income Statement.

Repairs and renewals are charged to the Income Statement in the year in which the expenditure is incurred.

2.8.13 Value Added Tax (VAT) on Financial Services

The base for the computation of Value Added Tax on Financial Services is the accounting profit before income tax adjusted for the economic depreciation and emoluments of employees computed on prescribed rate.

The VAT on Financial Services is recognised as expense in the period it becomes due. 2.8.14 The Group Profits are Stated After:

a. Providing for all bad and doubtful debts and depreciation of property, plant and equipment.

b. Charging all expenses incurred in the day-to-day operations of the business and in maintaining the property, plant and equipment in a state of efficiency.

2.8.15 Borrowing Costs

Borrowing costs are recognised as expenditure in the period in which they are incurred. However, borrowing costs that are directly attributable to the acquisition, construction or production of qualifying assets that take a substantial period of time to get ready for its intended use or sale, are capitalised as part of the assets. During the year no borrowing cost has been capitalised.

2.9 Movement of ReservesMovement of reserves is disclosed in the Statements of Changes in Equity.



2.10 Cash Flow StatementsThe Cash Flow Statements are prepared using the indirect method as stipulated in SLAS 9 - ‘Cash Flow Statements, Cash and Cash Equivalents for Cash Flow Statements’ comprise mainly of cash in hand, balances at banks and bank overdraft.

2.11 Related Party TransactionsTransactions with related parties are conducted on normal business terms. The relevant disclosures are given in Note 46 to the Financial Statements.

2.12 Segmental ReportingSegment is a distinguishable component of the Group that is engaged either in providing products or services (business segment), or in providing products or services within a particular economic environment (geographical segment), which is subject to risks and rewards that are different from those of other segments.

In accordance with the Sri Lanka Accounting Standard 28 - ‘Segment Reporting’, segmental information is presented in respect of the Group. The segment comprises of Financial services, IT services, Trading, Leisure, Plantation, Power and Energy and others are described in Note 42.

Segment results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis.

Segment capital expenditure is the total cost incurred during the period to acquire segment assets that are expected to be used for more than one period.

2.13 Events after the Balance Sheet Date All material post Balance Sheet events have been considered and where appropriate adjustments or disclosures have been made in the respective Notes to the Financial Statements. 2.14 Capital Commitments and ContingenciesCapital commitments and contingent liabilities of the Group are disclosed in the respective Notes to the Financial Statements.




(Rs.) (Rs.) (Rs.) (Rs.)

3. Gross RevenueRevenue 14,288,491,997 3,571,367,173 – 1,199,918,890

Income 11,943,300,157 9,941,904,483 3,511,733,478 4,552,414,083

Other income 5,845,535,307 1,388,560,107 2,832,627,486 1,022,138,022

Total 32,077,327,461 14,901,831,763 6,344,360,964 6,774,470,995

Revenue 14,288,491,997 3,571,367,173 – 1,199,918,890

Less: cost of sales (9,911,221,898) (2,869,272,589) – (1,029,853,463)

Gross profit 4,377,270,099 702,094,584 – 170,065,427

4. IncomeLeasing interest income 2,390,289,528 1,900,224,642 306,098,603 674,445,440

Hire purchases interest income 2,871,899,544 2,441,201,653 159,734,570 468,003,296

Advances and other loans interest income 3,498,669,764 2,741,044,079 1,075,960,268 1,426,850,929

Deferred instalment income 305,062,781 394,051,007 305,062,781 393,983,916

Operating lease and hire rental income 830,643,280 787,258,857 796,510,089 745,017,188

Overdue interest income 469,431,023 559,505,588 182,361,902 293,725,481

Debt factoring income 927,509,275 666,149,697 466,622,290 361,372,580

Insurance broking income 12,176,354 128,366,316 12,176,354 5,064,566

Securities trading and others – 9,319,949 – –

IT consultancy fees 307,625,000 96,000,000 – –

Other operational income 637,618,608 314,782,695 207,206,621 183,950,687

12,250,925,157 10,037,904,483 3,511,733,478 4,552,414,083

Inter-company income (307,625,000) (96,000,000) – –

Total 11,943,300,157 9,941,904,483 3,511,733,478 4,552,414,083




(Rs.) (Rs.) (Rs.) (Rs.)

5. Other Income/(Expenses)Rent income 7,565,793 4,969,047 – –

Net profit/(loss) on sale of property, plant and equipment (25,890,860) 54,432,364 (36,300,647) 10,271,603

Sales proceeds received in excess on re-finance – 2,534,609 – 2,534,609

Profit on sale of vehicles 4,525,772 1,192,218 – –

Dividends received 688,965,710 45,017,509 52,882,917 24,469,270

Interest received from Treasury Bills, Bonds and call deposits 1,118,583,225 822,791,377 542,932,458 274,165,872

Debenture interest income – – 84,093,924 97,343,931

Royalty income – – 6,939,260 16,073,626

Foreign exchange gain/(loss) 6,621,810 (4,975,337) 16,613,708 935,243

Capital gain on sale of treasury bonds 550,983,898 31,239,182 272,172,043 31,239,182

Adjustment for market value change in quoted shares 1,035,134,489 97,873,954 718,294,170 71,115,335

Profit on sale of quoted and non-quoted shares 1,958,298,140 132,114,495 667,164,597 141,528,621

Sundry income 414,808,397 171,436,479 421,896,123 322,991,138

Franchise fees 85,938,933 29,469,592 85,938,933 29,469,592

Amortisation of capital grants – 464,618 – –

Total 5,845,535,307 1,388,560,107 2,832,627,486 1,022,138,022

6. Net Interest CostsOverdraft and other short-term borrowings 2,451,333,422 2,697,108,769 1,501,235,594 946,545,416

Long–term borrowings 1,992,447,827 1,795,098,463 665,183,830 1,779,481,116

Finance lease interest 72,970,366 83,932,598 31,818,620 76,250,839

Debenture interest 16,874,771 14,622,369 – –

Charges on SWAPS 368,313,171 422,403,295 196,439,782 351,770,678

Interest on customer deposits 1,531,310,861 1,237,515,545 – –

6,433,250,418 6,250,681,039 2,394,677,826 3,154,048,049

Less: Interest income on US$ and EURO deposits (12,662,530) (72,544,502) (10,662,477) (63,135,792)

Total 6,420,587,888 6,178,136,537 2,384,015,349 3,090,912,257




(Rs.) (Rs.) (Rs.) (Rs.)

7. Direct Expenses Excluding Net Interest CostsValue Added Tax (VAT) on leases/general expenses and VAT on financial services 649,831,089 313,321,617 138,015,591 99,571,726

Business Turnover Tax (BTT), NBT, Insurance, debits tax and others 367,999,914 228,884,882 128,826,994 126,450,296

Total 1,017,831,003 542,206,499 266,842,585 226,022,022

8. Staff CostsSalaries and other benefits 1,628,153,494 828,650,508 275,430,731 193,943,773

Defined contribution to EPF 116,616,930 54,053,745 44,513,768 32,878,975

Defined contribution to ETF 25,634,988 13,521,307 7,962,524 8,219,743

Provision for retiring gratuity 215,070,845 25,125,609 13,197,616 9,752,577

Total 1,985,476,257 921,351,169 341,104,639 244,795,068

9. Other Operating ExpensesAdministration cost 1,287,306,110 642,832,681 373,759,295 324,695,891

Operating and marketing cost 1,783,020,530 755,996,676 287,813,516 330,700,338

Specific provisions reversals (470,061,799) (204,460,137) (366,274,425) (198,735,291)

Specific bad debts written-off 587,712,100 373,400,758 378,676,402 198,814,876

Other provisions 87,758,979 56,914,259 – –

Total 3,275,735,920 1,624,684,237 673,974,788 655,475,814

10. Results from Operating ActivitiesResults from operating activities are stated after charging all expenses including the following:


(Rs.) (Rs.) (Rs.) (Rs.)

Auditors’ remuneration and other expenses:Audit related 15,295,529 8,633,539 2,113,104 2,012,500

Non-audit related 2,763,361 650,912 561,680 277,222

Legal expenses 56,621,901 41,069,193 24,129,801 9,604,756

Donations 4,604,103 12,502,810 1,478,614 288,915

Provision for impairment of investment in subsidiary – – 29,940,752 32,059,248

Impairment loss on building revaluation 58,766,339 – 58,766,339 –

Provision for current account receivable from subsidiary – – 13,623,890 –

Provision for office equipment 7,840,721 – 7,840,721 –



11. Negative Goodwill Group Company

For the year ended 31 March 2011 2010 2011 2010

(Rs.) (Rs.) (Rs.) (Rs.)

On acquisition of subsidiaries 271,910,632 225,163,247 – –

On investment in Seylan Bank PLC and other associates – 1,198,673,687 – –

Total 271,910,632 1,423,836,934 – –

12. Taxation12.1 Major component of income tax expense for the years ended 31 March are as follows:


(Rs.) (Rs.) (Rs.) (Rs.)

Current income tax

Current income tax charge 742,937,490 255,416,695 71,266,300 55,659,614

Under/(over) provision of current taxes in respect of prior years 60,938,464 (12,648,971) 57,626,087 –

Deferred income tax

Deferred taxation charge (Note 12.3) 455,403,214 212,614,182 245,753,785 108,527,261

Income tax expense reported in the income statement 1,259,279,168 455,381,906 374,646,172 164,186,875

12.2 A reconciliation between tax expense and the product of accounting profit multiplied by the statutory tax rate is as follows:


(Rs.) (Rs.) (Rs.) (Rs.)

Accounting profit before income tax 8,282,359,080 2,840,787,141 1,897,989,460 491,127,505

Income tax expense at the statutory income tax rate of 35% 2,140,992,323 994,275,500 664,296,311 171,894,626

Tax effect of other allowable credits (5,038,274,491) (2,992,835,329) (1,547,310,984) (1,538,913,498)

Under provision for previous years 60,938,464 (12,648,971) 57,626,087 –

Tax effect on losses claimed (305,881,363) (29,527,648) (37,807,056) (29,527,646)

Tax effect on rate change (63,922,105) – (86,159,830) –

Non-deductible expenses 4,455,342,992 2,492,287,104 1,322,948,446 1,559,910,837

Social responsibility levy 1.5% 10,083,348 3,831,250 1,053,198 822,556

Income tax expense 1,259,279,168 455,381,906 374,646,172 164,186,875

Effective income tax rate 15% 16% 20% 33%

Social Responsibility Levy 1.5% of tax



12.3 Deferred Tax ExpenseDeferred tax assets, liabilities and income tax relate to the following:

Group CompanyIncome Statement Liability Asset Net Net Asset Asset

2011 2011 2011 2010 2011 2010

(Rs.) (Rs.) (Rs.) (Rs.) (Rs.) (Rs.)

Deferred tax liability

Capital allowances for tax purpose on property, plant and equipment 326,591,000 81,793,566 408,384,566 34,347,246 91,757,606 3,602,939

Capital allowances for tax purposes on lease receivables 241,212,390 (32,026,680) 209,185,709 170,177,000 (32,026,680) 79,416,719

Operating lease assets – (79,578,127) (79,578,127) 46,421,121 (79,578,127) 46,421,121

Unamortised VAT – 21,740,913 21,740,913 12,979,578 21,740,913 12,979,578

Effect of change in tax rate 89,736,434 39,245,991 128,982,426 – 34,679,850 –

657,539,824 31,175,663 688,715,487 263,924,945 36,573,562 142,420,357

Deferred tax assets

Defined benefit plans (2,496,117) 11,265,162 8,769,046 (87,467,637) 538,951 (63,655,355)

Capital allowances for tax purpose on property, plant and equipment – – – – – 234,611

Brought forward tax losses (135,420,342) 306,365,423 170,945,081 (279,668,540) 243,321,122 29,527,647

Provisions – 30,286,107 30,286,107 (31,496,000) – –

Effect of change in tax rate 1,241,534 (194,146,065) (192,904,531) – (120,836,680) –

(136,674,925) 153,770,627 17,095,702 (398,632,177) 123,023,393 (33,893,097)

Net expense 705,811,189 (134,707,232) 159,596,955 108,527,261

Effect of change in tax rate 63,922,105 – 86,156,830 –

On acquisition (287,192,435) 347,321,414 – –

Deferred tax charge 482,540,859 212,614,182 245,753,785 108,527,261

Deferred tax charge to Income Statement 455,403,214 212,614,182 245,753,785 108,527,261

Deferred tax charge to retained earnings 27,137,645 – – –

Deferred tax has been provided at the rate of 28% for the current year, due to the change of income tax rate from 35% to 28% applicable from next financial year.



13. Earnings Per ShareThe calculation of basic earnings per share is based on the profit attributable to ordinary shareholders and the weighted average number of ordinary shares outstanding during the year. The calculation of diluted earnings per share is based on the profit attributable to ordinary shareholders and the weighted average number of ordinary shares outstanding after adjusting for the effect of all potentially dilutive ordinary shares. There were no potentially dilutive ordinary shares outstanding at any time during the year/pervious year.

Basic earnings per share are calculated as follows:

Group

2011 2010

Profit attributable to ordinary shareholders for the year (Rs.) 3,840,227,908 1,841,808,956

Weighted average numbers of ordinary shares outstanding 475,200,000 475,200,000

Basic/diluted earnings per share (Rs.) 8.08 3.88

During the year the Company subdivided its existing 47,520,000 shares in the following manner:1 share into 10 sharesSubsequent to the subdivision the total number of shares of the Company is 475,200,000.

14. Dividend Per Share Group

Declared and paid during the year 2011 2010

The dividend per share is based on the dividend paid for the period covered by the Financial Statements.Dividend paid (Rs.) – –

Number of ordinary shares in issue 475,200,000 475,200,000

Dividend per share (Rs.) – –

15. Cash and Cash Equivalents15.1 Cash in Hand and Favourable Bank Balances


(Rs.) (Rs.) (Rs.) (Rs.)

Cash in hand 25,029,013 10,399,215 1,349,500 1,279,370

Balances at banks 4,634,071,481 2,072,594,522 390,662,325 419,007,096

Total 4,659,100,494 2,082,993,737 392,011,825 420,286,466

15.2 Unfavourable Bank BalancesBank overdrafts (4,029,204,315) (2,987,337,668) (2,094,424,623) (1,351,271,657)

Net cash and cash equivalents 629,896,179 (904,343,931) (1,702,412,798) (930,985,191)



16. Investment Securities Group Company

As at 31 March 2011 2010 2011 2010

(Rs.) (Rs.) (Rs.) (Rs.)

Investment in Debentures 28,000,299 29,602,301 714,400,299 715,402,301

Investment in Mudarabah deposit – – 35,000,000 35,000,000

Investment in Commercial papers 940,984,552 – – –

Investment in Repurchase agreements 2,406,486,792 3,100,000 – 3,100,000

Investment in Preference shares 21,111,110 – – –

Investment in Government bonds 34,532,933 7,957,538,601 – 3,739,032,747

Quoted ordinary shares (Note 16.1 ) 10,730,084,505 3,620,262,986 2,788,580,298 225,304,982

Non-quoted ordinary shares (Note 16.2) 289,896,489 332,457 26,212,099 –

Total 14,451,096,680 11,610,836,345 3,564,192,696 4,717,840,030

16.1 Quoted Ordinary Shares Group

2011 2010

No. of Cost Market Value No. of Cost Market ValueShares (Rs.) (Rs.) Shares (Rs.) (Rs.)

Asian Hotels Corporation PLC – – – 5,000 139,425 657,500 Asian Hotel Properties PLC – – – 300 9,150 39,450 Amaya Leisure PLC 1,000 132,467 120,100 – – – Asia Capital PLC 40 – 3,512 – – – Browns Beach Hotels PLC 326,622 4,403,226 6,957,048 154,771 4,212,660 11,220,898 Cargo Boat Development Company PLC 300 9,801 43,950 300 9,800 24,000 Central Finance Company PLC – – – 166 22,472 64,740 Ceylon Guardian Investment Trust PLC 3,360 1,239,840 1,241,520 3,360 1,685,040 1,685,040 Ceylon Theatres PLC – – – 160,000 9,668,988 8,640,000 Ceylon Insurance PLC 1,000 553,706 730,000 – – – Ceylon & Foreign Trades PLC 100,600 957,144 814,860 – – – Chemanex PLC 279,100 46,690,313 37,231,940 – – – Colombo Drydocks PLC 4,110 85,997 1,048,461 8,820 184,548 2,485,035 Confifi Hotels Holding PLC – – – 1,000 186,443 190,000 Commercial Bank of Ceylon PLC 151,000 38,478,182 40,135,800 – – – DFCC Bank PLC 3,196 3,215 549,073 99 20,028 17,870 Dialog Telekom PLC 46,990,600 546,189,177 493,401,300 9,000 274,491 60,750 Distilleries Company of Sri Lanka PLC 65,938 12,039,602 11,868,840 – – – Environmental Resources Investments PLC 18,616 36,708 1,439,017 – – – Grain Elevators PLC 104,200 12,732,485 17,516,020 – – – Hayleys PLC 2,043,624 809,747,338 800,715,429 – – – Hatton National Bank PLC 13,213,030 338,499,277 5,046,653,078 17,887,110 146,349,102 3,367,248,458 HDFC Bank PLC 946,174 423,025,112 1,065,297,308 48,400 8,013,361 6,921,200 Hotel Developers (Lanka) PLC – – – 20,000 2,418,022 2,405,000



Group

2011 2010

No. of Cost Market Value No. of Cost Market ValueShares (Rs.) (Rs.) Shares (Rs.) (Rs.)

Hemas Holdings PLC 2,022,200 94,938,529 93,021,200 – – – Hapugastenna Plantations PLC 100 1,000 7,400 – – – John Keells Holdings PLC 205 26,000 58,548 42,966 405,000 7,905,744 John Keells Hotels PLC 131,573 378,930 2,263,056 – – – Janashakthi Insurance PLC 627,600 10,077,502 10,355,400 – – – Lanka IOC PLC 27,800 750,600 489,280 10,000 270,000 182,500

The Lanka Hospital Corporation PLC 300 14,560 13,440 – – – The Finance Company PLC 1,250,000 50,000,000 46,250,000 – – – Lanka Ventures PLC – – – 10,000 96,168 177,500 Lion Brewery PLC 2,165,800 439,198,032 433,160,000 – – – Laugfs Gas PLC 1,013,500 56,022,672 44,999,400 – – – Laugfs Gas PLC (Non-Voting) 120,800 5,114,744 4,191,760 – – –Maskeliya Plantations PLC – – – 250,000 7,965,006 7,437,500 Merchant Bank of Sri Lanka PLC 66,000 3,687,847 3,049,200 – – – Nawaloka Hospitals PLC – – – 3,500,000 13,200,934 12,250,000 Nuwara Eliya Hotel Corporation PLC – – – 1,000 456,413 405,500 Nation Lanka PLC 1,000 916,035 11,100 – – – Nations Trust Bank PLC 116,100 10,272,531 8,858,430 – – – Overseas Reality Ceylon PLC 113,680 1,664,891 1,705,200 113,680 1,664,891 1,762,040 Peoples' Merchant Bank PLC 7,380,179 196,315,602 184,504,475 7,568,279 201,319,134 177,854,556 Pelwatte Sugar Industries PLC 104,600 4,230,861 3,336,740 – – – Parquet Ceylon PLC 758,300 16,592,038 16,000,130 – – – Raigam Wayamba Salterns PLC 26,200 65,500 117,900 – – – Richard Pieris and Company PLC 1,943,200 28,280,299 26,427,520 30,000 1,609,653 1,650,000 Royal Ceramics (Lanka) PLC – – – 11,000 300,000 1,243,000 Seylan Bank PLC (Voting) 24,833,998 2,183,311,137 1,867,516,650 – – – Seylan Bank PLC (Non-Voting) 7,424,300 179,264,362 291,774,990 – – – Sierra Cables PLC 30,550,900 205,190,543 164,974,860 5,400 16,200 11,880 Sunshine Holdings PLC – – – 10,000 3,395,264 3,250,000 Touchwood Investments PLC – – – 42,700 3,552,741 4,472,825 Vallible Finance PLC 24,860 248,600 1,230,570 – – – Veyangoda Textiles Mills PLC 10,300 262,060 – 10,300 262,060 – Total 5,721,648,465 10,730,084,505 407,706,994 3,620,262,986

Adjustment for change in market valueIncrease/(decrease) in market value as at 01 April 3,212,555,992 (44,845,061) On acquisition of subsidiaries – 2,947,590,824Adjustment on reclassification and disposals (2,829,465,958) –Adjustment for increase/(decrease) in market value 4,625,346,006 309,810,229Increase/(decrease) in market value as at 31 March 5,008,436,040 3,212,555,992Carrying value at the end of the year 10,730,084,505 10,730,084,505 3,620,262,986 3,620,262,986



Company

2011 2010No. of Cost Market Value No. of Cost Market Value

Shares (Rs.) (Rs.) Shares (Rs.) (Rs.)

Asia Capital PLC 40 – 3,512 – – – Browns Beach Hotels PLC 34,500 802,391 734,850 – – – Ceylon Theatres PLC – – – 160,000 9,668,988 8,640,000 Ceylon & Foreign Traders PLC 100,600 957,144 814,860 – – – Ceylon Grain Elevators PLC 104,200 12,732,485 17,516,020 – – – Chemanex PLC 95,800 15,984,038 12,779,720 – – – Confifi Hotels Holdings PLC – – – 1,000 186,443 190,000 Hayleys PLC 2,015,024 798,468,514 769,940,671 – – – HDFC Bank PLC 946,174 423,025,112 1,065,297,307 47,200 7,749,361 6,749,600 Hemas Holdings PLC 250,000 11,846,880 11,500,000 – – – Hotel Developers (Lanka) PLC – – – 20,000 2,418,022 2,405,000 Laugfs Gas PLC 1,013,500 56,022,672 44,999,400 – – – Laugfs Gas PLC (Non-Voting) 120,800 5,114,744 4,191,760 – – – Maskeliya Plantations PLC – – – 250,000 7,965,006 7,437,500 Nawaloka Hospitals PLC – – – 3,500,000 13,200,934 12,250,000 Nuwara Eliya Hotel Corporation PLC – – – 1,000 456,413 405,500 Parquet (Ceylon) PLC 758,300 16,592,038 16,000,130 – – – Pelwatte Sugar Industries PLC 104,600 4,230,861 3,336,740 – – – Pepoles' Merchant Bank PLC 7,380,179 196,315,602 184,504,475 7,568,279 201,319,134 177,854,557 Richard Pieris and Company PLC – – – 30,000 1,609,653 1,650,000 Seylan Bank PLC (Voting) 66 – 4,963 – – – Seylan Bank PLC (Non-Voting) 5,594,700 111,538,365 219,871,710 – – – Sierra Cables PLC 726,700 3,674,226 3,924,180 – – – Sunshine Holdings PLC – – – 10,000 3,395,264 3,250,000 The Lion Brewery Ceylon PLC 2,165,800 439,198,032 433,160,000 – – – Touchwood Investments PLC – – – 42,700 3,552,741 4,472,825 Veyangoda Textiles Mills PLC 10,300 262,060 – 10,300 262,060 –

2,096,765,164 2,788,580,298 251,784,019 225,304,982

Adjustment for change in market valueIncrease/(decrease) in market value as at 01 April (26,479,037) (43,042,379) Adjustment for increase/(decrease) in market value 718,294,171 16,563,342Increase/(decrease) in market value as at 31 March 691,815,134 (26,479,037) Carrying value at the end of the year 2,788,580,298 2,788,580,298 225,304,982 225,304,982



16.2 Non-Quoted Ordinary Shares Group

2011 2010No. of Cost No. of Cost

Shares (Rs.) Shares (Rs. )

Badulla Transport & Agency Company (Pvt) Ltd. 10,000 100,000 – –Browns Capital (Pvt) Ltd. 5,000,000 50,000,000 – –Browns Health Care (Pvt) Ltd. 17,500,000 175,000,000 – –Browns Hotels Ltd. 11,000 110,000 11,000 110,000 Ceylon Marine & Travel Services (Pvt) Ltd. 9,450 73,700 – –Ceylon Studios Ltd. 500 5,000 500 5,000 Confifi Finance 39,100 391,000 – –Credit Information Bureau 100 203,899 100 10,000 Equity Investments Lanka Ltd. 17,250 172,500 17,250 172,500 Expo Lanka Holdings Ltd. 1,000,000 18,000,000 – –Export International Ltd. 7,500 75,000 – –Hotel Hanthana Ltd. – – 190,000 1,000 Indo-Lanka Steel Ltd. 200,000 6,000,000 200,000 6,000,000 Lanka Glass Manufacturing Ltd. 3,000,000 3,000,000 3,000,000 3,000,000 Magpek Exports Ltd. 25,000 1,000,000 25,000 1,000,000 Malwaththavelly Plantation 500 11,412 500 11,412 Motor Marvels (Pvt) Ltd. 480,000 4,800,000 – –Polycoat Resins Ltd. 400,000 4,000,000 – –Rainforest Ecolodge (Pvt) Ltd. 17,000 470,000 – –Sri Lanka Distilleries Ltd. – – 338 22,545 Taprobane Capital (Pvt) Ltd. 4,840,000 48,400,000 – –Vallibel One Ltd. 1,568,000 39,287,099 – –Total 351,099,610 10,332,457

Less: Provision for fall in market valueBalance as at 01 April (10,000,000) (10,000,000)Provision/(reversal) made during the year (51,203,121) – Balance as at 31 March (61,203,121) (10,000,000)Carrying value at the end of the year 289,896,489 332,457



Company

2011 2010

No. of Cost No. of Cost Shares (Rs.) Shares (Rs. )

Indo-Lanka Steel Ltd. 200,000 6,000,000 200,000 6,000,000 Lanka Glass Manufacturing Ltd. 3,000,000 3,000,000 3,000,000 3,000,000 Magpek Exports Ltd. 25,000 1,000,000 25,000 1,000,000 Vallibel One Ltd. 1,045,000 26,212,099 – –Total cost of non-quoted ordinary shares 36,212,099 10,000,000

Less: Provision for fall in market valueBalance as at 01 April (10,000,000) (10,000,000)Provision/(reversal) made during the year – – Balance as at 31 March (10,000,000) (10,000,000)Carrying value at the end of the year 26,212,099 –

17. Rentals Receivable on Leased Assets, Hire Purchases and Operating Leases Group Company


(Rs.) (Rs.) (Rs.) (Rs.)

17.1 Rentals Receivable on Leased Assets Receivable from one to five yearsRentals receivable 14,254,566,569 5,687,626,038 1,184,517,921 1,473,793,528 Unearned income (3,057,716,858) (1,291,391,030) (247,133,822) (167,169,878)Provision for doubtful debts (51,826,440) (32,126,156) (5,257,883) (6,188,212)Deposits received from lessees (1,347,539,014) (609,141,454) (22,591,880) (76,184,550)

9,797,484,257 3,754,967,398 909,534,336 1,224,250,888

Receivables within one yearRentals receivable 8,085,804,215 5,337,135,991 624,087,409 1,401,259,681 Unearned income (2,675,893,458) (1,470,311,752) (125,568,210) (400,820,375)Provision for doubtful debts (73,640,308) (27,333,529) (7,917,220) (6,560,954)

5,336,270,449 3,839,490,710 490,601,979 993,878,352

Overdue rental receivableRentals receivable 370,542,420 487,635,679 70,592,215 189,555,085 Earned income in suspense (38,367,805) (76,672,764) (7,220,079) (14,280,935)Provision for doubtful debts (101,617,893) (279,809,192) (40,860,232) (140,649,648)

230,556,722 131,153,723 22,511,904 34,624,502

TotalRentals receivable 22,710,913,204 11,512,397,708 1,879,197,545 3,064,608,294 Unearned income (5,733,610,316) (2,761,702,782) (372,702,032) (567,990,253)Earned income in suspense (38,367,805) (76,672,764) (7,220,079) (14,280,935)Provision for doubtful debts (227,084,641) (339,268,877) (54,035,335) (153,398,814)Deposits received from lessees (1,347,539,014) (609,141,454) (22,591,880) (76,184,550)Balance as at 31 March 15,364,311,428 7,725,611,831 1,422,648,219 2,252,753,742




(Rs.) (Rs.) (Rs.) (Rs.)

17.2 Rentals Receivable on Hire PurchaseReceivable from one to five years

Rentals receivable 11,608,365,475 8,581,920,667 55,504,784 465,445,432

Unearned income (2,624,754,988) (2,292,075,296) (4,794,696) (64,146,326)

Provision for doubtful debts (227,364,643) (71,474,449) (1,136,163) (3,322,615)

8,756,245,844 6,218,370,922 49,573,925 397,976,491

Receivables within one year

Rentals receivable 6,686,782,003 5,143,461,183 265,897,704 872,546,073

Unearned income (1,965,442,823) (1,600,928,908) (38,908,315) (200,514,386)


4,557,510,388 3,511,862,903 220,326,544 665,194,497

Overdue rental receivable

Rentals receivable 401,370,647 520,889,164 45,081,233 122,897,873

Earned income in suspense (50,283,736) (29,759,954) (4,872,911) (13,010,402)


251,581,394 342,207,792 15,257,775 32,995,211

Total

Rentals receivable 18,696,518,125 14,246,271,014 366,483,721 1,460,889,378

Unearned income (4,590,197,811) (3,893,004,204) (43,703,011) (264,660,712)



Balance as at 31 March 13,565,337,626 10,072,441,617 285,158,244 1,096,166,199

17.3 Rentals Receivable on Operating LeasesTotal

Rentals receivable 1,792,154,119 3,598,355,475 1,789,887,230 3,598,355,475

Unearned income (1,732,672,533) (3,513,463,634) (1,732,672,533) (3,513,463,634)


Provision for doubtful debts (5,553,625) – (5,553,625) –

Balance as at 31 March 7,107,723 33,644,530 4,840,834 33,644,530




(Rs.) (Rs.) (Rs.) (Rs.)

17.4 Total Rentals Receivable on Leased Assets, Hire Purchases and Operating LeasesRentals receivable 43,199,585,448 29,357,024,197 4,035,568,496 8,123,853,147

Unearned income (12,056,480,660) (10,168,170,620) (2,149,077,576) (4,346,114,599)


Provision for doubtful debts (Note 17.5) (723,337,218) (590,334,116) (92,338,515) (240,450,879)

Deposits received from lessees (1,347,539,014) (609,141,454) (22,591,880) (76,184,550)

Balance as at 31 March 28,936,756,777 17,831,697,978 1,712,647,297 3,382,564,471

17.5 Provision for Doubtful DebtsBalance as at 01 April 590,334,116 421,674,240 240,450,879 138,803,008

Provisions made during the year - Charged against profits 446,403,174 344,371,085 85,137,556 273,072,269

- Written off during the year (313,400,072) (175,711,209) (233,249,920) (171,424,398)


18. Advances and Other LoansInstalment receivable on loans to customers 17,169,553,043 12,654,464,491 2,865,068,852 4,760,131,556

Capital outstanding of revolving loans 8,058,785,745 1,296,588,550 3,018,555,387 1,296,588,550

Advances for margin trading – 8,844,514 – –

Factoring receivable (Note 18.1) 5,690,466,719 3,001,770,480 2,736,752,654 1,564,991,242

Pawning advances 1,180,641,246 480,400,218 – –

Transferred from investment property and other accounts receivable 281,430,476 63,300,586 281,430,476 63,300,586

Overdue loan instalments 922,778,917 860,358,894 551,600,070 594,951,501


Unearned loan income (4,076,225,062) (2,756,699,171) (623,782,755) (1,068,987,201)


Total 28,713,568,515 15,084,563,625 8,554,924,885 6,897,384,779




(Rs.) (Rs.) (Rs.) (Rs.)

18.1 Factoring ReceivableFactoring receivable 5,824,454,237 3,125,216,040 2,811,441,884 1,669,375,335


Total 5,690,466,719 3,001,770,480 2,736,752,654 1,564,991,242

Provision for Doubtful Debts - Factoring

Balance as at 01 April 123,445,560 74,821,978 104,384,093 62,090,549

Provisions made during the year - Charged against profits 10,541,958 48,623,582 (29,694,863) 42,293,544

- Written-off during the year – – – –


18.2 Provision for Doubtful DebtsBalance as at 01 April 291,963,558 159,799,477 159,428,465 98,469,436


- Written-off during the year (101,596,836) (27,310,893) (77,959,614) (27,310,893)

Total 225,291,100 291,963,558 88,538,184 159,428,465

19. Instalment SalesRentals receivable on loans to customers 1,116,097,136 3,048,028,907 1,116,097,136 3,048,028,907

Overdue loan instalments 28,976,211 71,505,657 28,976,211 71,505,657


Unearned loan income (350,963,351) (896,908,631) (350,963,351) (896,908,631)


Total 766,007,123 2,168,424,768 766,007,123 2,168,424,768

19.1 Provision for Doubtful DebtsBalance as at 01 April 44,193,705 551,338 44,193,705 551,338


- Written-off during the year (55,064,891) – (55,064,891) –

Total 24,719,656 44,193,705 24,719,656 44,193,705



20. Inventories Group Company


(Rs.) (Rs.) (Rs.) (Rs.)

Raw materials 288,407,849 12,394,209 – –

Work-in-progress 31,229,424 32,473,462 – –

Finished goods 849,468,207 847,497,853 – –

Input materials 37,633,004 40,463,170 – –

Growing crop nurseries 11,303,473 9,664,456 – –

Harvested crop - Tea 271,525,801 150,031,402 – –

- Rubber 45,953,245 20,266,260 – –

- Coconut 1,016,977 774,789 – –

Consumables and spares 62,528,994 20,058,252 – –

Tractor stock, solar panels and others 74,018,262 196,924,834 1,750,000 9,414,705

Goods in transit 41,738,684 34,856,984 – –

1,714,823,920 1,365,405,671 1,750,000 9,414,705

Less: Provision for slow moving stocks (115,639,730) (113,886,069) – –

Total 1,599,184,190 1,251,519,602 1,750,000 9,414,705

21. Trade and Other Current Assets Group Company

As at 31 March 2011 2010 2011 2010

(Rs.) (Rs.) (Rs.) (Rs.)

Insurance commission receivable – 63,946,190 – –

Securities clients/ brokers receivable – 3,367,850 – –

Amount due from subsidiaries – – 1,138,017,228 2,688,094,700

Finance charges unamortised 166,570,895 176,513,013 143,887,712 176,513,013

Trade receivables 1,387,967,912 1,117,816,460 – –

Other accounts receivables 3,357,757,965 2,619,484,952 460,453,683 403,996,485

Value Added Tax (VAT) refunds due from Department of Inland Revenue 530,665,710 3,804,526 – –

Advanced Corporate Tax (ACT) recoverable 651,516 8,317,153 – –

Economic Service Charge (ESC) recoverable 193,468,572 93,505,221 74,557,824 93,234,221

Total 5,637,082,570 4,086,755,365 1,816,916,447 3,361,838,419

Above receivables are shown after deducting provisions for doubtful debts.

Finance charges unamortised include expenses incidental to obtaining long-term loans such as guarantee fees, structuring fees, placement fees and front end fees. These charges are written-off over the period of corresponding loans as the Directors are of the opinion that these are part of the financing cost of the long-term borrowings.



22. Prepaid Lease Rentals Group Company

As at 31 March 2011 2010 2011 2010

(Rs.) (Rs.) (Rs.) (Rs.)

Balance at the beginning of the year 313,709,841 – – –

On acquisition of subsidiaries – 314,888,067 – –

Additions – – – –

Disposals – – – –

Amortisation for the year (8,173,982) (1,178,226) – –

Balance at the end of the Year 305,535,859 313,709,841 – –

Leasehold right to bare land of (JEDB/SLSPC) Estates.

The leasehold right to bare land of JEDB/SLSPC Estates is being amortised by equal amounts over a 53-year period and the unexpired period of the lease as at the Balance Sheet date is 36 years.

23. Investment Properties Group Company

As at 31 March 2011 2010 2011 2010

(Rs.) (Rs.) (Rs.) (Rs.)

Balance at the beginning of the year 451,743,865 162,582,249 242,274,225 70,592,609

On acquisition of subsidiaries 104,098,250 – –

Additions – 234,982,202 – 234,982,202

Disposals – – – –

Net transfers (to)/from advances and other loans 1,454,868 (63,300,586) – (63,300,586)

Change in fair value during the year (13,549,065) 13,381,750 5,225,775 –

Balance at the end of the year 439,649,668 451,743,865 247,500,000 242,274,225

The fair value of Investment properties of the Company was assessed during the financial year 2010/2011 by professional valuers, Mr. G.J. Sumanasena and Sunil Fernando & Associates (Pvt) Ltd. The change in fair value was recognised in the Income Statement.

Information on the Investment PropertiesAs required by Section 7.6 (viii) of the Colombo Stock Exchange Listing Rules, information on the investment properties of the Company are disclosed on page 179.



24. Timber StocksThe Group has engaged an independent chartered valuation surveyor to determine the fair value of timber stock. The valuer has valued the timber stock on per tree valuation basis by using available log and tree prices in city centres less point-of-sale-costs. The Group measures the timber stock at fair value less estimated point-of-sale-costs at each Balance Sheet date.

25. Investments in Joint Venture CompaniesPrincipal Activity Group Holding Company

As at 31 March 2011 2010 2011 2010 2011 2010

(Rs.) (Rs.) (%) (%) (Rs.) (Rs.)

Hydro Power Free Lanka PLC Hydro power – – 2 – 36,384,471 –

Free Lanka Capital Holdings Investing activities – – 2 – 100,000,000 –

Total – – 136,384,471 –

The following companies have been accounted for as joint ventures of the Group:

Agrisil Holding Ltd. Free Lanka Capital Properties (Pvt) Ltd.Free Lanka Management Company Ltd. Harrison Charfield (Pvt) Ltd.Free Lanka Plantation Company Ltd. Hydro Power Free Lanka PLCFree Lanka Capital Holdings PLC Hydro Power Free Lanka 2 (Pvt) Ltd.Free Lanka Capital (Pvt) Ltd. Hydro Power Free Lanka 3 (Pvt) Ltd.Free Lanka Power 1 (Pvt) Ltd. Maturata Plantations Ltd.Free Lanka Power 2 (Pvt) Ltd. Melfort Green Teas (Pvt) Ltd.Free Lanka Power 3 (Pvt) Ltd. Pussellawa Plantations Ltd.Free Lanka Power Holding (Pvt) Ltd. The Tea Leaf Resort Holding (Pvt) Ltd.



26. Investments in Associate Companies Group Holding No. of Shares Group

As at 31 March 2011 2010 2011 2010 2011 2010

(%) (%) (Rs.) (Rs.)

Investments in Equity - Accounted Investees

Group

Unquoted investments

Commercial Insurance Brokers (Pvt) Ltd. (CIB)Investor Commercial Leasing Company PLC 40.00 40.00 240,000 240,000 800,000 800,000

PRASAC Micro Finance Institution Ltd. (PRASAC)Investor Lanka ORIX Leasing Company PLC 18.00 18.00 138,626 138,626 108,977,301 108,977,301

IG Browns Rubber Industries (Pvt) Ltd. (IGBRIL)Investor Brown & Company PLC – 10.00 – 45,000 – 450,000 Standard Finance (Pvt) Ltd. – 26.70 – 120,000 – 400,000 Browns Group Industries (Pvt) Ltd. – 1.67 – 2,500 – 25,000

– 38.37 – 167,500 – 875,000

Associated Battery Manufacturers (Cey.) Ltd. (ABM)Investor Standard Finance (Pvt) Ltd. 38.50 38.50 – 2,439,355 – 24,393,550

Browns Dimo Industrial Products (Pvt) Ltd. (BDIPL)Investor Standard Finance (Pvt) Ltd. – 45.00 – 675,000 – 6,750,000

Seylan Bank PLC (Seylan)Investor Lanka ORIX Leasing Company PLC - Non-voting shares – 9.88 – 25,050,000 – 446,155,965 Commercial Leasing Company PLC- Non-voting shares – 0.03 – 72,400 – 1,104,210 Browns Investments (Pvt) Ltd. - Non-voting shares – 2.12 – 5,378,700 – – LOLC Investments Ltd. - Voting shares – 5.13 – 13,000,000 – 488,359,374 Browns Investments (Pvt) Ltd. - Voting shares – 5.13 – 13,000,000 – 551,130,139

– 22.29 – 56,501,100 – 1,486,749,688

Galoya Plantations Ltd. (GPL)Investor Lanka ORIX Leasing Company PLC 22.05 – 24,788,235 – 247,882,353 –

Brown & Company PLC 22.05 – 22,309,412 – 248,997,882 –

44.10 – 47,097,647 – 496,880,235 –



Group Holding No. of Shares GroupAs at 31 March 2011 2010 2011 2010 2011 2010

(%) (%) (Rs.) (Rs.)

Sierra Construction (Pvt) Ltd. (SCPL)Investor Lanka ORIX Leasing Company PLC 10.00 – 12,490,250 – 600,000,000 –

Browns Investments Ltd. 10.00 – 12,490,253 – 600,903,925 –

20.00 – 24,980,503 – 1,200,903,925 –

Sierra Holdings (Pvt) Ltd. (SHPL)Investor Lanka ORIX Leasing Company PLC 10.00 – 4,496,492 – 200,000,000 –


20.00 – 8,992,984 – 399,911,042 –

Agstar Fertilizer (Pvt) Ltd. (AFPL)Investor Lanka ORIX Leasing Company PLC 10.00 – 1,825,000 – 54,476,250 –


20.00 – 3,650,000 – 108,952,500 –

Total cost to the Group 2,316,425,003 1,628,545,539

Equity Value of Investment in Associates as at 31 March 2011 - Group

CIB PRASAC IGBRIL ABM BDIPL Seylan GPL SCPL SHPL AGFL Total

(Rs.) (Rs.) (Rs.) (Rs.) (Rs.) (Rs.) (Rs.) (Rs.) (Rs.) (Rs.) (Rs.)

Equity value of investments as at 01 April 2010 50,809,436 255,729,271 7,259,080 169,451,572 32,325,750 2,519,821,732 – – – – 3,035,396,841

Acquisition during the year – – – – – – 496,880,235 1,200,903,925 399,911,042 108,952,500 2,206,647,702

Share of profits/(loss) of associate companies after tax 3,118,832 99,027,807 (1,377,610) 44,838,911 9,821,917 69,503,118 (52,581,585) 1,482,372 (5,673,091) 10,361,467 178,522,137

Dividend received (960,000) – – (23,173,920) – – – – – – (24,133,920)

Disposals during the year – – – – – (1,177,656,129) – – – – (1,177,656,129)

Negative goodwill – – – – – – – – – – –

Reclassifications/transfers – – (5,881,470) – (42,127,668) (1,411,668,721) – – – – (1,459,697,858)

Equity value of investments as at 31 March 2011 52,968,268 354,757,078 – 191,116,503 – – 444,298,650 1,202,386,297 394,237,951 119,313,967 2,759,078,773



Company Holding No. of Shares

31.03.2011 31.03.2010 31.03.2011 31.03.2010 31.03.2011 31.03.2010

(Rs.) (Rs.)

Quoted Investments

Seylan Bank PLC (Seylan) - Non-Voting Shares – 9.88% – 25,050,000 – 446,155,965

Unquoted InvestmentsPRASAC Micro Finance Institution Ltd. (PRASAC) 18% 18.00% 138,626 138,626 108,977,301 108,977,301 Galoya Plantations Ltd. (GPL) 10% – 24,788,235 – 247,882,353 – Sierra Construction (Pvt) Ltd. (SCPL) 10% – 12,490,250 – 600,000,000 – Sierra Holdings (Pvt) Ltd. (SHPL) 10% – 4,496,492 – 200,000,000 – Agstar Fertilizer (Pvt) Ltd. (AFPL) 10% – 1,825,000 – 54,476,250 –Total 1,211,335,904 555,133,266

Summarised Financial Information of Equity Accounted Investees for the year ended 31 March

CIB PRASAC ABM GPL SCPL SHPL AFPL Total2011 2010

(Rs.) (Rs.) (Rs.) (Rs.) (Rs.) (Rs.) (Rs.) (Rs.) (Rs.)

Revenue 104,515,685 2,299,680,114 1,958,102,531 21,374,921 5,709,104,760 8,849,588,081 2,918,608,986 10,092,778,011 7,810,543,894 Profit/(loss) after tax 7,797,080 550,154,482 116,464,704 (119,503,603) 132,429,826 394,036,211 239,971,151 687,342,489 54,718,226 Total assets 214,202,406 12,469,806,190 977,648,346 1,511,207,821 8,047,227,085 12,3308,098,359 2,029,879,478 23,220,091,848 15,745,831,410

Total liabilities 81,782,132 10,841,534,695 481,241,690 1,168,171,036 4,468,101,445 7,358,212,561 1,448,460,216 17,040,830,997 13,214,614,659

During the year, the Group acquired interest in GPL, SCPL, SHPL and AFPL and treated as investments in equity-accounted investee in the Group Financial Statements for the year ended 31 March 2011.

Associates Transferred to Subsidiaries during the YearFurther investments made by the Group during the year in IGBRIL and BDIPL has resulted in gaining control over those equity-accounted investees. Consequently, these are treated as subsidiaries of the Group from the date of establishing control over the respective company.

Disposal of AssociatesThe Group disposed 1,166,068 voting shares of Seylan Bank PLC during the period ended 31 March 2011. The balance amount relating to the remaining voting shares of 24,833,998 in Seylan Bank PLC is reflected as short-term investments under the investment securities in the Balance Sheet.

The reporting date of the Financial Statements of CIB and PRASAC is 31 December and the share of profit relating to year ended 31 December 2010 is reflected in the Group Financial Statements for the year ended 31 March 2011. The Company has neither contingent liabilities nor capital commitments in respect of its associates.



27. Investments in Subsidiary Companies Principal Activity No. of Shares

held by the CompanyGroup Holding

Company Holding

Investment (Company)

2011 2010 2011 2010 2011 2010 2011 2010

(%) (%) (%) (%) (Rs.) (Rs.)

CompanyLanka Orient Investment Ltd. No operations – 2 – 100 – 100 – 20 LOLC Funding One Ltd. Securitisation of lease

receivables – 7 – 100 – 100 – 700 Lanka ORIX Insurance Brokers Ltd. Insurance broking – 1,000,000 – 100 – 100 – 10,000,000 Lanka ORIX Finance Company (Pvt) Ltd.

Finance business and pawn broking 200,000,000 100,000,000 100 100 100 100 2,000,000,000 1,000,000,000

Lanka ORIX Information Technology Ltd. renamed as LOLC Investments Ltd.

Software design, development and distribution 6,000,000 2,000,000 100 100 100 100 445,000,000 20,000,000

Lanka ORIX Project Development Ltd.

Property and infrastructure 5,200,000 5,200,000 100 100 100 100 52,000,000 52,000,000

Sundaya Lanka (Pvt) Ltd. Assembling and distribution of solar systems 624,490 624,490 51 51 51 51 6,244,900 6,244,900

Commercial Leasing Company Ltd.

Leasing, hire purchasing and factoring 27,729,179 17,645,840 100 100 100 100 2,664,970,028 1,656,636,128

LOLC Micro Credit Ltd. Agro and Micro financing 40,000,000 40,000,000 80 80 80 80 460,125,000 460,125,000 Commercial Factors Ltd. No operations 1 1 100 100 100 100 10 10 LOLC Eco Solutions (Pvt) Ltd. Power generation 2,500,000 1 100 100 100 100 25,000,000 10 Brown & Company PLC Trading and

Manufacturing 4,519,200 1,874,600 56.2 52.4 6.4 2.6 711,350,616 145,350,101 Gal Oya Holding Ltd. Management Company

- Sugar plantation 1,000,000 1,000,000 100 100 50 50 10,000,000 10,000,000 LOLC Motors Ltd. Motor repair 15,000,000 15,000,000 100 100 100 100 150,000,000 150,000,000 LOLC Insurance Company Ltd. Insurance 20,000,000 – 100 – 100 – 200,000,000 –Lanka ORIX Information Technology Services Ltd.

Software design, development and distribution 1,500,000 – 100 – 100 – 15,000,000 –

Orient Academy Ltd. Consultancy, training and educational services, providing services of skilled personnel and technical support 1,500,000 – 100 – 100 – –

Browns Investments (Pvt) Ltd. Investment 240,000,000 – 40.3 – – –LOLC Leisure Ltd. Leisure and hospitality 112,430,500 – 100 – 70 – 1,980,471,500 –LOLC Land Holdings Ltd. Real estates 13,300,000 – 100 – 100 – 133,000,000 –LOLC Realty Ltd. Real estates 1 – 100 – 100 – 10 –LOLC Property Investments Ltd. Real estates 1 – 100 – 100 – 10 –LOLC Securities Ltd. Stock Broking 5,000,000 – 100 – 100 – 50,000,000 –LOLC Assets Holdings Ltd. Real estates 1 – 100 – 100 – 10 –LOLC Estates Ltd. Real estates 1 – 100 – 100 – 10 –LOLC Services Ltd. Real estates 10,300,000 – 100 – 100 – 103,000,000 –Total 9,006,162,094 3,510,356,869Provision for impairment loss (62,000,000) (32,059,248)Net carrying amount 8,944,162,094 3,478,297,621



Group Shareholding

Shares of subsidiaries held by other companies No. of Shares Group Holding2011 2010 2011 2010

(%) (%)

Group

BG Air Services (Pvt) Ltd. 50,000 50,000 100 100

Browns Battery (Pvt) Ltd. 10,000 10,000 100 100

Browns Group Industries (Pvt) Ltd. 2,800,000 2,800,000 100 100

Browns Group Motels Ltd. 399,859 330,000 67 66

Browns Investments (Pvt) Ltd. 730,000,000 45,250,000 40 50

Browns Motor (Pvt) Ltd. 5,000,000 5,000,000 100 100

Browns Thermal Engineering (Pvt) Ltd. 824,997 – 55 –

Browns Tours (Pvt) Ltd. 2,030,000 2,030,000 100 100

Central Services (Pvt) Ltd. 802 – 100 –

CFT Engineering Ltd. 3,450 3,450 95 95

Confifi Hotel Holdings PLC 5,914,169 – 53 –

Diriya Investments (Pvt) Ltd. 108,053,352 108,053,352 50 50

East West Textile Lanka Ltd. 15,405,137 15,405,137 100 100

Eden Hotel PLC – – 46 –

Engineering Services (Pvt) Ltd. 147,502 147,502 100 100

Galoya Holdings 2,000,000 2,000,000 100 100

Klevernberg (Pvt) Ltd. 3,120,000 3,120,000 60 60

KPL Spare Parts (Pvt) Ltd. – 500,000 – 100

Masons Mixtures Ltd. 4,226,390 4,226,390 98 98

Muthugala Estates (Pvt) Ltd. 960 960 80 80

Orient Academy Ltd. 1,500,000 1,500,000 100 100

Pathregalla Estates (Pvt) Ltd. 3,831 3,831 91 91

Riverina Hotel PLC 10,566,107 – 74 –

Sifang Lanka (Pvt) Ltd. 3,000,002 3,000,002 100 100

Sifang Lanka Trading (Pvt) Ltd. 2,050,000 2,050,000 100 100

Snowcem Products Lanka (Pvt) Ltd. 400,000 400,000 100 100

Southern Cleaners (Pvt) Ltd. 201,267 – 100 –

Standard Finance (Pvt) Ltd. 2,700,000 2,700,000 100 100

Taprobane Fund Management Ltd. 15,725,000 15,725,000 63 63

The Hatton Transport & Agency Company (Pvt) Ltd. 112,000 112,000 100 100

Tropical Villas (Pvt) Ltd. 6,206,580 – 60 –

United Dendro Energy (Pvt) Ltd. 1,000 1,000 75 75

Walker & Greig (Pvt) Ltd. 1 1 100 100



27.1 Acquisitions During the YearLOLC Leisure Ltd., formerly known as LOLC Securities, is a subsidiary of Lanka ORIX Leasing Company PLC with a 70% holding and the balance held by Browns Investments Ltd. LOLC Leisure Ltd. acquired 52% of Confifi Hotel Holdings PLC and 26% of Riverina Hotels PLC. Confifi Hotel Holdings PLC acquired a further 23% of Riverina Hotels PLC and Riverina Hotels PLC acquired a further 25% of Confifi Hotel Holdings PLC in July 2010.

The acquisition had the following effect on the Group’s assets and liabilities on acquisition date:Recognised values

on acquisition as at 01.07.2010

(Rs.)

Property, plant and equipment 4,789,339,335

Investment securities 27,293,000

Investment in term deposits 53,748,000

Inventories 50,060,858

Trade and other receivable 1,354,813,309

Cash and cash equivalents 41,948,448

Interest-bearing loans and borrowings (1,071,460,000)

Retirement benefit obligation (24,581,716)

Deferred taxation (287,192,435)

Provision for taxation (16,492,223)

Trade and other payables (232,353,982)

Bank overdraft (56,927,099)

Total identifiable net assets 4,628,195,495

Minority interest (1,703,110,991)

Fair value of the assets and liabilities acquired 2,925,084,504

Goodwill on acquisition 180,298,643

Negative goodwill on acquisition (271,910,632)

Purchase consideration 2,833,472,515

Less: cash received from subsidiaries (14,978,651)

Acquisition of subsidiaries, net of cash 2,848,451,166

The assets and liabilities as at the acquisition date are stated at their provisional fair value and may be amended in accordance with SLAS 25 (Revised 2004) - ‘Business Combinations’.



Group Company2011 2010 2011 2010

(Rs.) (Rs.) (Rs.) (Rs.)

28. Deferred Tax AssetDeferred Tax Assets and LiabilitiesUnrecognised Deferred Tax Assets

Deductible temporary differences 197,015,260 169,167,922 – –

Tax losses 635,094,319 622,001,445 – –

832,109,579 791,169,367 – –

Deferred Tax AssetsDeferred Tax assets and liabilities relate to the following:

Deferred Tax Liability

Capital allowances for tax purposes on property, plant and equipment 108,227,214 26,433,648 95,360,545 3,602,939

Capital allowances for tax purposes on lease receivables 54,290,571 86,317,251 54,290,571 86,317,251

Operating lease assets 19,691,525 99,269,652 19,691,525 99,269,652

Unamortised VAT 5,950,323 (15,790,590) 5,950,323 (15,790,590)

188,159,633 196,229,961 175,292,964 173,399,252

Deferred Tax Assets

Defined benefit plans 36,204,222 47,469,384 22,434,564 22,973,515

Brought forward tax losses 585,399,520 891,764,943 337,888,760 581,209,882

Provisions 1,209,892 31,496,000 – –

622,813,634 970,730,327 360,323,324 604,183,397

Net deferred tax asset 434,654,001 774,500,366 185,030,360 430,784,145



29. Goodwill Group Company

2011 2010 2011 2010

(Rs.) (Rs.) (Rs.) (Rs.)

Balance as at 01 April 151,415,234 151,415,234 – –

Acquisition of Confifi Group 180,298,643

Balance as at 31 March 331,713,877 151,415,234 – –

There has been no impairment of goodwill as the recoverable amount is higher than the carrying amount as at the Balance Sheet date. Method used in estimating recoverable amount is based on the value in use calculations. Value in use was determined by discounting the future cash flows generated from the continuing use of the cash-generating unit. Key assumptions used are given below:

Business growth - Based on historical growth rate Inflation - Based on the current inflation rate Discount rate - Average market borrowing rate adjusted for risk premium

30. Intangible Assets Group Company

2011 2010 2011 2010

(Rs.) (Rs.) (Rs.) (Rs.)

Brand value (Note 30.1) 85,306,451 94,784,945 – –

Customer base (Note 30.1) 39,537,319 49,421,649 – –

Computer software (Note 30.2) 114,687,349 83,811,916 61,011,327 64,901,354

Total 239,531,119 228,018,510 61,011,327 64,901,354




30.1 Brand Value and Customer BaseBrand Value Customer Base

(Rs.) (Rs.)

Group

Cost/ValuationBalance as at 01 April 2010 94,784,945 49,421,649

Additions – –

Disposals – –

Balance as at 31 March 2011 94,784,945 49,421,649

Accumulated AmortisationBalance as at 01 April 2010Amortisation during the year 9,478,495 9,884,330

Amortisation on disposal – –

Balance as at 31 March 2011 9,478,495 9,884,330

Written down valueAs at 31 March 2011 85,306,451 39,537,319

As at 31 March 2010 94,784,945 49,421,649

30.2 Computer Software Group Company

2011 2010 2011 2010

(Rs.) (Rs.) (Rs.) (Rs.)

Balance at beginning of the year 134,162,755 86,333,230 99,095,685 56,938,549

Additions during the year 69,197,493 43,621,506 15,090,195 42,157,136

Disposal during the year (718,750) – (718,750) –


Transfers/re-classifications (5,667,916) (2,254,415) – –

196,973,582 134,162,755 113,467,130 99,095,685

Amortisation

Balance at beginning of the year 50,350,839 27,148,728 34,194,331 16,066,439


Transfers/disposals – (414,853) – –

Amortisation during the year 31,935,394 21,359,774 18,261,472 18,127,892

Total amortisation at the end of the year 82,286,233 50,350,839 52,455,803 34,194,331

Carrying amount at the end of the year 114,687,349 83,811,916 61,011,327 64,901,354

Brand value and customer base were recognised upon the acquisition of Commercial Leasing Company Ltd.


31. Property, Plant and EquipmentLand & Motor Leasehold Furniture Office Computers Leasehold Assets for Capital Work-in- Leasehold Plant & Other Tangible Total

Buildings Vehicles Motor Vehicles & Fittings Equipment Machinery Operating Leases Progress (CWIP) Buildings Machinery Assets

(Rs.) (Rs.) (Rs.) (Rs.) (Rs.) (Rs.) (Rs.) (Rs.) (Rs.) (Rs.) (Rs.) (Rs.) (Rs.)

GroupCost/ValuationBalance as at 01 April 2010 5,193,603,883 775,337,618 820,357,932 425,387,884 310,319,656 302,645,788 40,259,639 1,911,883,441 106,465,371 182,622,874 864,912,435 180,849,070 11,114,645,591Additions 1,700,169,419 749,393,762 123,015,384 56,631,793 89,801,132 38,145,921 – 117,109,144 12,564,116 9,078,667 21,400,583 108,443,717 3,025,753,638Disposals (382,415,568) (47,409,898) (508,075,199) (314,112) (11,966,373) (18,614,506) – (892,983,010) (6,311,586) – (49,166,245) (2,695,989) (1,919,952,486)Revaluations 581,292,236 – – – – – – – – – – – 581,292,236 Transfers (226,285,912) 8,311,250 (8,311,250) – (452,611) (16,429,990) (7,893,631) – (77,446,958) – (1,573,254) (101,225,036) (431,307,391)Acquisition of subsidiaries 4,691,412,926 22,983,651 2,626,407 322,414,234 17,218,503 168,490 15,258,097 – 333,902 – 300,058,599 157,456,146 5,529,930,955 Transferred from CWIP 77,446,958 – – – – – – – – – – – 77,446,958Balance as at 31 March 2011 11,635,223,942 1,508,616,383 429,613,274 804,119,799 404,920,307 305,915,703 47,624,105 1,136,009,575 35,604,845 191,701,541 1,135,632,118 342,827,906 17,977,809,500

Accumulated DepreciationBalance as at 01 April 2010 162,830,690 377,835,025 462,497,669 236,795,645 173,650,202 210,019,033 9,425,364 553,644,058 – 111,935,475 304,290,004 30,934,394 2,633,857,559Charge for the year 80,932,145 203,236,845 44,053,659 79,927,904 49,087,880 40,578,901 4,418,060 363,485,800 – 8,493,055 79,699,625 23,229,861 977,143,735Depreciation on disposals (73,349,538) (23,238,540) (283,775,656) (233,210) (1,516,210) (18,614,506) (1) (386,439,718) – – (17,390,851) (2,455,757) (807,013,987)Depreciation on transfers (13,376,761) 4,519,159 (4,519,160) – (452,611) (10,339,749) 1,169,826 – – – (15,777,079) – (38,776,375)Acquisition of subsidiary 65,519,234 21,276,590 46,052 254,356,995 14,752,623 57,117 3,315,469 – – – 257,670,605 123,596,933 740,591,618 Balance as at 31 March 2011 222,555,770 583,629,079 218,302,564 570,847,334 235,521,884 221,700,796 18,328,718 530,690,140 – 120,428,530 608,492,304 175,305,431 3,505,802,550

Carrying AmountAs at 31 March 2011 11,412,668,172 924,987,304 211,310,710 233,272,465 169,398,423 84,214,907 29,295,387 605,319,435 35,604,845 71,273,011 527,139,814 167,522,476 14,472,006,950As at 31 March 2010 5,030,773,193 397,502,593 357,860,263 188,592,240 136,669,454 92,626,756 30,834,275 1,358,239,383 106,465,371 70,687,398 560,622,431 149,914,676 8,480,788,032

Land & Motor Leasehold Furniture Office Computers Assets for Capital Work-in- TotalBuildings Vehicles Motor Vehicles & Fittings Equipment Operating Leases Progress (CWIP)


CompanyCost/ValuationBalance as at 01 April 2010 636,013,927 497,942,138 754,931,311 198,949,939 188,564,321 149,489,809 1,591,972,651 59,084,725 4,076,948,821 Revaluations 436,717,695 – – – – – – – 436,717,695

The carrying value of land and buildings of the Company, if carried at cost less accumulated depreciation would amount to Rs. 755,878,090/- as at 31 March 2011 (31 March 2010 - Rs. 294,886,900/-).

Information on the freehold land and buildings of the Company As required by Section 7.6 (viii) of the Colombo Stock Exchange Listing Rules, information on the freehold land and buildings of the Company are disclosed on page 179.

Additions 660,564,673 649,254,514 115,197,771 12,067,160 42,828,015 51,992,408 107,909,144 8,047,778 1,647,861,463 Disposals (265,980,530) (27,574,520) (501,392,038) – (19,000) (15,051,630) (669,475,656) – (1,479,493,374)Adjustments (25,894,166) – – – – – (4,666,666) (30,560,832)Transferred from CWIP 67,132,503 – – – – – – (67,132,503) –Balance as at 31 March 2011 1,508,554,102 1,119,622,132 368,737,044 211,017,099 231,373,336 186,430,587 1,025,739,473 – 4,651,473,773

Accumulated DepreciationBalance as at 01 April 2010 21,395,047 192,428,353 412,850,231 97,953,259 108,250,166 91,170,793 339,938,746 – 1,263,986,595 Adjustments (25,894,166) – (20,444,597) – – – (4,461,073) – (50,799,836)Charge for the year 5,293,503 167,189,315 56,284,916 31,394,601 30,330,050 25,839,440 350,580,939 – 666,912,764 Depreciation on disposals – (14,257,601) (235,081,521) – (1,541) (4,872,808) (257,908,647) – (512,122,118)Balance as at 31 March 2011 794,384 345,360,067 213,609,029 129,347,860 138,578,675 112,137,425 428,149,965 – 1,367,977,405

Carrying AmountAs at 31 March 2011 1,507,759,718 774,262,065 155,128,015 81,669,239 92,794,661 74,293,162 597,589,508 – 3,283,496,368As at 31 March 2010 614,618,880 305,513,785 342,081,080 100,996,680 80,314,155 58,319,016 1,252,033,905 59,084,725 2,812,962,226

During the year, the Company revalued its land and buildings and consequently a revaluation gain on land amounting to Rs. 495,484,034/- was recognised in the revaluation reserve and an impairment loss on building amounting to Rs. 58,766,339/- was charged to the Income Statement.



32. Deposits from Customers Group Company

As at 31 March 2011 2010 2011 2010

(Rs.) (Rs.) (Rs.) (Rs.)

Deposits maturing within one year 12,590,283,288 8,414,114,075 – –

Deposits maturing after one year 3,757,852,235 1,680,569,151 – –

Total 16,348,135,523 10,094,683,226 – –

33. Interest Bearing Loans and BorrowingsCommercial papers 3,063,700,795 2,121,499,253 2,025,012,091 1,574,141,412

Short-term loans and others 14,574,822,384 14,457,894,714 7,726,250,000 8,817,858,631

Debentures 165,600,000 172,230,000 – –

Finance lease liabilities (Note 33.1) 369,696,813 480,215,487 182,019,206 292,710,457

Long-term borrowings (Note 33.2) 28,610,473,795 18,016,249,980 10,351,562,460 11,051,344,585

46,784,293,787 35,248,089,434 20,284,843,757 21,736,055,085

Commercial papers issued by the Company includes guaranteed and unguaranteed CP’s to the value of Rs. 900,000,000/- and Rs. 1,125,012,091/- respectively.


(Rs.) (Rs.) (Rs.) (Rs.)

33.1 Finance Lease LiabilitiesGross lease rentals payable as at 01 April 633,876,495 728,445,173 333,646,526 726,890,404


Leases obtained during the year 529,050,726 54,291,071 115,141,675 –

Lease rentals paid during the year (619,985,636) (395,394,940) (233,458,880) (393,243,878)

Gross lease rentals payable as at 31 March 542,941,585 633,876,495 215,329,321 333,646,526

Less: Interest in suspense (173,244,772) (153,661,008) (33,310,115) (40,936,069)

Net lease liability 369,696,813 480,215,487 182,019,206 292,710,457

Repayable within one year

Gross lease rentals payable 158,434,292 251,369,108 126,448,109 228,420,935



Repayable after one year

Gross lease rentals payable 384,843,318 382,507,395 88,881,211 105,225,592



Total 369,696,813 480,215,487 182,019,206 292,710,457



33.2 Long-Term Borrowings Group Company

As at 31 March 2011 2010 2011 2010

(Rs.) (Rs.) (Rs.) (Rs.)

Balance as at 01 April 18,016,249,980 18,608,262,277 11,051,344,585 14,802,112,583

On acquisition of subsidiaries 1,071,460,000 1,880,905,586 – –

Received during the year 20,374,573,885 4,444,524,019 6,443,121,963 1,048,958,127

Repaid during the year (10,851,810,070) (6,917,441,902) (7,142,904,088) (4,799,726,125)

Balance as at 31 March 28,610,473,795 18,016,249,980 10,351,562,460 11,051,344,585

Long-term borrowings - current 5,737,421,018 5,141,854,096 3,563,534,904 3,673,834,481

Long-term borrowings - non-current 22,873,052,777 12,874,395,884 6,788,027,556 7,377,510,104

Total 28,610,473,795 18,016,249,980 10,351,562,460 11,051,344,585

Analysis of non-current portion of long-term borrowingsRepayable within 3 years 17,109,761,985 9,407,709,087 5,648,166,932 6,390,884,545

Repayable after 3 years 5,763,290,792 3,466,686,797 1,139,860,624 986,625,559

Total 22,873,052,777 12,874,395,884 6,788,027,556 7,377,510,104

34. Trade and Other Payables Group Company

As at 31 March 2011 2010 2011 2010

(Rs.) (Rs.) (Rs.) (Rs.)

Accounts payable 4,696,041,819 4,083,893,517 789,588,904 712,855,782

Creditors for leased equipment 2,152,267,791 1,280,777,334 18,599,730 41,711,002

Amount due to subsidiaries – – 250,884,814 159,042,067

Clients payable 228,551,605 40,247,917 – –

VAT payable 41,175,053 74,384,351 947,162 47,955,286

Other tax payable 213,587,928 116,492,589 110,094,472 116,491,254

Insurance premium payable 18,496,680 18,429,642 – 18,429,642

Unclaimed dividends 11,310,471 13,976,468 2,717,374 2,672,217

Total 7,361,431,347 5,628,201,818 1,172,832,456 1,099,157,250



35. Deferred Tax Liabilities Group Company

As at 31 March 2011 2010 2011 2010

(Rs.) (Rs.) (Rs.) (Rs.)

Deferred tax assets and liabilities relate to the following:

Deferred tax liability

Capital allowances for tax purposes on property, plant and equipment 336,132,881 9,541,881 – –

Capital allowances for tax purposes on lease receivables 680,352,682 439,140,293 – –

1,016,485,563 448,682,174 – –

Deferred tax assets

Defined benefit plans 8,703,787 6,217,670 – –

Brought forward tax losses 135,420,342 – – –

144,124,129 6,217,670 – –

Net deferred tax liability 872,361,434 442,464,504 – –

36. Deferred Income Group Company

As at 31 March 2011 2010 2011 2010

(Rs.) (Rs.) (Rs.) (Rs.)

Capital grants 284,756,521 269,644,937 – –

PHDT lease rentals 4,120,910 4,120,910 – –

288,877,431 273,765,847 – –

The above represents the following:

I. (The funds received from the Plantation Housing and Social Welfare Trust (PHSWT), MTIP and PHDT are for the development of workers welfare facilities and improvement in institutional facilities.

II. The funds received from the Tea Board is for the construction of the CTC Tea Factory at Delta Estates.

III. The funds received from the Plantation reform project is for the Development of Forestry Plantations.

IV. Subsidy received from the Rubber Control Department is for Rubber Replanting.

The amount spent is capitalised under that relevant classification of property, plant and equipment and corresponding grant component is reflected under deferred income and is being amortised over the useful life span of the related assets.



37. Retirement Benefit Obligations Group Company

As at 31 March 2011 2010 2011 2010

(Rs.) (Rs.) (Rs.) (Rs.)

Movement in the present value of the defined benefit obligations

Defined benefit obligation as of 01 April 759,559,844 74,349,053 65,638,616 51,819,459 On acquisition/merger of subsidiaries 24,581,716 665,692,363 4,167,694 – Benefits paid by the plan (109,855,568) (5,607,181) (2,880,483) (657,680)Current service cost 177,015,763 11,522,060 6,398,398 6,738,368 Interest cost on benefit liability 20,565,888 17,694,942 7,737,491 11,390,791

Past service cost/(Curtailment gain) – – 60,206 –

Actuarial (gain)/losses 17,489,194 – (998,479) –

Transitional difference (over provision) recognised during the year – (4,091,393) – (3,652,322)

Defined benefit liability as at 31 March 889,356,837 759,559,844 80,123,443 65,638,616

Expense recognised in the Income StatementCurrent service costs 177,015,763 11,522,060 6,398,398 6,738,368 Interest on obligation 20,565,888 17,694,942 7,737,491 11,390,791 Past service cost /(curtailment gain) – – 60,206 –

Actuarial (gain)/losses 17,489,194 – (998,479) –

Transfer of gratuity liability – – – (4,724,260)Transitional difference (over provision) recognised during the year – (4,091,393) – (3,652,322)Total 215,070,845 25,125,609 13,197,616 9,752,577

Key assumptions used in the above valuation are as follows:Discount rate 9%-12.35% 11%-12.35% 9.3% 12.35%Salary increment rate 8%-10.75% 9%-10.75% 8.0% 10.75%

The retirement benefit obligation of some companies in the Group are based on the gratuity formula in Appendix E of SLAS 16 - Employee Benefits and the requirement of the Gratuity Act No. 12 of 1983.

38. Stated Capital Group Company

As at 31 March 2011 2010 2011 2010

(Rs.) (Rs.) (Rs.) (Rs.)

Issued and Fully PaidAt the beginning of the year - 47,520,000 shares 475,200,000 475,200,000 475,200,000 475,200,000

At the end of the year - 47,520,000 shares subdivided into 10, equalling to 475,200,000 shares 475,200,000 475,200,000 475,200,000 475,200,000



39. Reserves Group Company

As at 31 March 2011 2010 2011 2010

(Rs.) (Rs.) (Rs.) (Rs.)

Share premium of subsidiary – – – –

Future taxation reserve 205,000,000 205,000,000 205,000,000 205,000,000

Statutory reserve - reserve fund 732,934,122 404,979,197 272,356,156 241,889,290

- investment fund 57,398,922 17,859,777

General reserve – – – –

Revaluation reserve 752,412,624 155,879,068 600,886,875 105,402,842

Total 1,747,745,668 765,858,265 1,096,102,808 552,292,132

Investment Fund ReserveThe reserve is created in accordance with the Central Bank guidelines issued to create an Investment Fund Reserve. 8% of the profits liable for VAT on financial services is transferred to this reserve monthly when the payment of VAT on financial services for such month becomes due .

Reserve FundThe Reserve Fund of the Company and subsidiaries involved in leasing business was created according to the Direction No. 5 of 2006 issued by the Central Bank of Sri Lanka under Section 34 of the Finance Leasing Act No. 56 of 2000. The Reserve Fund of Lanka ORIX Finance Company Ltd. was created in accordance with Finance Companies (Capital Funds) Direction No. 1 of 2003 issued by the Central Bank of Sri Lanka.

40. Retained Earnings Group Company

As at 31 March 2011 2010 2011 2010

(Rs.) (Rs.) (Rs.) (Rs.)

Balance brought forward 6,662,696,388 4,981,857,006 4,401,162,084 4,097,107,298 Dividends forfeited 1,162,576 – 1,162,576 –Change in percentage holdings in subsidiaries (81,314,590) – – –Transfers to statutory reserves - reserve fund (327,954,925) (160,969,574) (30,466,866) (22,885,844) - investment fund (57,398,922) – (17,859,777) – Net profit for the year 3,840,227,908 1,841,808,956 1,523,343,288 326,940,630 Realisation of revaluations 735,975,206 – – –Balance at the end of the year 10,773,393,641 6,662,696,388 5,877,341,305 4,401,162,084



41. Comparative Information Reclassification The presentation and classification of the following comparative information in these Financial Statements were amended as follows:

Group CompanyAs at 31 March 2010 2010 Change 2010 2010 Change

(Rs.) (Rs.) (Rs.) (Rs.) (Rs.) (Rs.)Current

presentationAs reported

previouslyCurrent

presentationAs reported

previously

Advances and other loans 15,084,563,625 14,766,056,041 318,507,584 6,897,384,779 6,578,877,195 318,507,584Other account receivables under trade and other current assets 2,619,484,952 2,874,691,950 (255,206,998) 403,996,485 659,203,483 (255,206,998)Investment Properties 451,743,865 506,139,491 (54,395,626) 242,274,225 296,669,851 (54,395,626)Land & building under property, plant and equipment cost 5,193,603,884 5,202,508,844 (8,904,960) 636,013,927 644,918,887 (8,904,960)Property, plant and equipment 8,480,788,032 10,236,820,666

(After above reclassification)

(1,756,032,634) – – –

Immature/mature plantations 1,307,833,959 – 1,307,833,959 – – –Timber stock 3,614,748,311 3,166,549,636

(After restatement)448,198,675 – – –

36,752,766,628 36,752,766,628 – 8,179,669,416 8,179,669,416 –

Immature/mature plantations which was previously classified under property, plant and equipment was reclassified as a separate line item on the Balance Sheet during the year. Further, timber component of rubber plantations previously shown under immature/mature plantations was reclassified as Timber Stocks to ensure appropriateness of classification. Other reclassifications were made to ensure comparability and appropriateness of classification.

Restatement During the year a joint venture of the Group, Pussellawa Plantation Ltd., corrected an error in timber valuation for the financial year 2009, resulting in an increase in the value of timber stock by Rs. 563,932,612/-.

Since the joint venture was acquired as part of acquiring the Brown & Co. PLC Group in January 2010, this revision in valuation results in an increase of minority interest on acquisition date by an amount of Rs. 281,966,306/-.

The error was corrected retrospectively and the restatement had the following effect on the Financial Statements.

Amount as previously reported

Restated

2010 2010 Change

Financial Statement Financial Statement Caption (Rs.) (Rs.) (Rs.)

Balance Sheet Timber stocks 2,884,583,330 3,166,549,636 281,966,306Minority interest 11,553,926,639 11,835,892,945 281,966,306

Statement of Changes in Equity Addition to minority through acquisition of subsidiary 10,700,874,323 10,982,840,629 281,966,306



42. Segmental Information Financial Insurance IT Services Trading Leisure Plantation Power & Other TotalServices Broking Energy


2010/11

Total revenue 17,863,966,191 9,701,446 321,049,727 10,318,536,846 1,358,691,213 5,106,494,154 73,854,557 229,857,276 35,282,151,410

Inter-group revenue (2,186,782,760) – (279,655,400) – – (193,717,576) – (544,668,213) (3,204,823,949)

Revenue - external 15,677,183,431 9,701,446 41,394,327 10,318,536,846 1,358,691,213 4,912,776,578 73,854,557 (314,810,937) 32,077,327,461

Net interest cost (5,782,053,651) – (231,645) (304,426,822) (130,358,841) (169,514,494) (3,293,388) (30,709,047) (6,420,587,888)

Cost of sales (41,875,309) – (19,039,333) (7,198,147,586) (256,438,947) (2,337,254,470) – (58,466,253) (9,911,221,898)

Profit before operating expenses 9,853,254,471 9,701,446 22,123,349 2,815,962,438 971,893,425 2,406,007,614 70,561,169 (403,986,237) 15,745,517,675

Operating expenses (4,657,474,878) (4,455,481) (134,201,315) (1,708,384,073) (752,915,943) (446,326,281) (50,355,730) (159,477,663) (7,913,591,364)

Results from operating activities 5,195,779,593 5,245,965 (112,077,966) 1,107,578,365 218,977,482 1,959,681,333 20,205,439 (563,463,900) 7,831,926,311

Negative goodwill – – – – – – – – 271,910,632

Profit/(Loss) disposal of associates and subsidiaries – – – – – – – – –

Share of profit of associate companies – – – – – – – – 178,522,137

Profit before taxation 5,195,779,593 5,245,965 (112,077,966) 1,107,578,365 218,977,482 1,959,681,333 20,205,439 (563,463,900) 8,282,359,080

2009/10

Total revenue 12,559,350,570 123,725,780 128,183,120 1,845,146,244 5,464,455 721,897,018 18,092,596 65,069,076 15,466,928,859

Inter-group revenue (469,097,096) – (96,000,000) – – – – – (565,097,096)

Revenue - external 12,090,253,474 123,725,780 32,183,120 1,845,146,244 5,464,455 721,897,018 18,092,596 65,069,076 14,901,831,763

Net interest cost (6,040,678,212) 3,585,541 – (109,480,057) – (18,519,392) (1,387,030) (11,657,387) (6,178,136,537)

Cost of sales (1,029,853,463) – (56,552) (1,286,268,742) – (508,597,785) (2,894,343) (41,601,704) (2,869,272,589)

Profit before operating expenses 5,019,721,799 127,311,321 32,126,568 449,397,445 5,464,455 194,779,841 13,811,224 11,809,985 5,854,422,637

Operating expenses (3,736,034,327) (126,113,154) (67,994,543) (349,149,846) (5,239,273) (72,842,033) (4,727,474) (24,620,459) (4,386,721,109)

Results from operating activities 1,283,687,472 1,198,167 (35,867,975) 100,247,599 225,182 121,937,808 9,083,750 (12,810,474) 1,467,701,528

Negative goodwill – – – – – – – – 1,423,836,934

Profit/(Loss) disposal of associates and subsidiaries (167,087,952) – – – – – – – (167,087,952)

Share of profit of associate companies – – – – – – – – 116,336,631

Profit before taxation 1,116,599,520 1,198,167 (35,867,975) 100,247,599 225,182 121,937,808 9,083,749 (12,810,474) 2,840,787,141



Financial Insurance IT Services Trading Leisure Plantation Power & Other TotalServices Broking Energy


2010/11

Capital expenditure 1,767,717,265 – 10,676,648 269,417,068 34,400,859 1,133,127,908 24,119,445 2,935,121 3,242,394,314

Depreciation and amortisation 753,926,528 – 5,740,040 60,079,759 108,914,695 90,787,100 13,657,810 41,437,329 1,074,543,261

Provision for bad and doubtful debts 533,393,901 – – 1,501,357 6,468,920 – – 5,091,680 546,455,858

Adjustments for increase/(decrease) in market value of quoted shares (15,263,865) – – 1,714,800 – – – – 13,549,065

Retirement benefit obligations 23,472,136 – 981,729 25,992,923 8,237,071 154,366,723 468,443 1,551,820 215,070,845

2009/10

Capital expenditure 1,192,915,120 – 3,154,920 16,946,316 – 28,950,394 27,392 1,493,924 1,243,488,066

Depreciation and amortisation 644,331,777 – 3,971,500 21,838,555 229,000 19,708 1,686,227 3,807,818 675,884,584

Provision for bad and doubtful debts 635,976,370 – – – – – – – 635,976,370

Provision/(reversal) for fall in value of investments 970,942,054 – – 2,241,613,938 – – – – 3,212,555,992

Retirement benefit obligations 19,170,334 882,134 917,180 3,869,217 46,000 33,868 – 206,876 25,125,609

As at 31 March 2011

Total assets 78,489,561,275 209,393,289 55,968,720 13,397,616,846 4,853,881,167 12,605,687,760 472,059,008 1,729,364,523 111,813,532,588

Total liabilities 69,022,320,065 1,518,084 28,335,343 2,975,533,954 1,642,877,487 2,124,630,709 85,664,045 1,209,501,415 77,090,381,102

As at 31 March 2010

Total assets 58,759,720,110 128,148,017 627,188,519 9,306,716,775 71,320,930 3,702,318,543 295,435,363 2,480,470,915 75,371,319,172

Total liabilities 49,793,992,645 46,228,991 11,685,068 2,724,213,541 30,227,836 2,085,638,417 44,567,201 895,117,875 55,631,671,574

43. Loans to Employees (Rs. 20,000/- and above) Group Company

As at 31 March 2011 2010 2011 2010

(Rs.) (Rs.) (Rs.) (Rs.)

Balance as at 01st April 87,333,087 99,072,708 72,295,067 77,206,776

Loans granted during the year 184,572,544 46,616,254 94,870,176 33,148,760

Recoveries during the year (80,475,764) (58,355,875) (42,366,406) (38,060,469)

Balance as at 31st March 191,429,867 87,333,087 124,798,837 72,295,067



44. Commitments and Contingencies Group Company

2011 2010 2011 2010

(Rs.) (Rs.) (Rs.) (Rs.)

Contingent liabilities

Bank guarantees 1,538,987,284 371,752,221 1,500,000,000 –

Loan borrowed jointly from foreign funding agency transferred to subsidiary to grant loans to Microfinance clients 598,547,038 – 598,547,038 –

Commitments

Capital commitments 133,456,600 – 73,456,600 –

Forward exchange contracts 12,147,143,462 7,736,040,853 5,615,638,725 4,899,855,113

Letters of credit opened 94,724,861 7,952,023 46,205,504 7,952,023

Facility limits not utilised 1,531,604,468 1,074,745,695 1,194,934,635 852,339,772

On the commitment for forward exchange contracts the Group will receive US$ 67,377,174, EUR 26,087,199, AU$ 1,460,000 and GBP 1,300,000 on the conversion and the Company will receive US$ 27,705,460 and EUR 15,732,324 on the conversion. The maturity of the forward exchange contracts are as follows:

Group Company2011 2010 2011 2010

Maturing within 0-6 monthsUS$ 35,504,924 44,920,633 15,008,210 28,850,633

EURO 10,366,510 10,830,870 6,451,610 6,785,970

AUD 960,000 1,200,000 – –

GBP 1,300,000 575,000 – –

Maturing within 6-12 months US$ 19,822,250 2,500,000 7,697,250 2,500,000

EURO 12,720,689 – 9,280,714 –

AUD 500,000 – – –

GBP – – – –

Maturing within 12-18 months US$ 7,050,000 – 5,000,000 –

EURO – – – –

AUD – – – –

Maturing within 18-24 months US$ 5,000,000 – – –

EURO 3,000,000 – – –



Litigation against the CompanyIn the normal course of business the Company is involved in various types of litigation with borrowers or others who have asserted or threatened claims/counter claims against the Company. 23 cases have been filed against the Company. The Company is in the view that these cases would not have any material impact on the Financial Statements.

Assessments raised against the CompanyAt the year end there were pending assessments made by the Inland Revenue for the year 2008/09 amounting to Rs. 503 Mn, on which the Company has appealed against. The Company is confident of the appeal made and believes that no additional payment will result on this assessment based on this view, no provisions have been made in these Financial Statements.

45. Events After the Balance Sheet DateThere have been no material events occurring after the Balance Sheet date that require adjustment to or disclosure in the Financial Statements, other than the following:

1. LOLC requested approval from the Central Bank of Sri Lanka to not renew its leasing license following the decision by the Company to convert itself to a Holding Company. The Central Bank of Sri Lanka approved the request made by LOLC and the leasing license of the Company has not been renewed.

2. Subsequent to announcing itself as a Holding Company, LOLC sold its factoring business to its fully-owned subsidiary LOLC Factors Ltd.

3. The Company will issue unlisted debentures of Rs. 500,000,000 in June 2011. The Company will be issuing listed debentures up to the value of Rs. 1,000,000,000 subsequently.

4. Following the Direction from the Central Bank of Sri Lanka that all Registered Finance Companies should be listed on the Colombo Stock Exchange (CSE), LOLC’s fully owned subsidiary Lanka ORIX Finance Company Ltd. will apply for listing on the CSE by way of an introduction. LOLC will divest of 10% the holdings in the subsidiary to meet the listing requirements of the CSE.

5. Confifi Hotel Holdings PLC (Club Palm Garden Hotel), Riverina Hotels PLC (Riverina Hotel) and Tropical Villas (Pvt) Ltd. which were acquired by the LOLC Group during the year, were closed for business from 1st May 2011 onwards in order to complete an accelerated refurbishment programme.

6. The salaries of employees of the plantation sector of the Group were revised in accordance with requirements stipulated by the Government of Sri Lanka.



46. Related Party Disclosures Details of significant related party disclosures are as follows:

GroupTransactions with Associate and Joint Venture Companies

GroupRelationship Nature of transaction 2011 2010

(Rs.) (Rs.)

Joint Venture Loan obtained 110,976,404 148,164,500 Interest paid 20,664,903 4,595,569 Repayment of finance lease and loans obtained 43,207,178 – Rent and management fees received 167,876,000 – Vehicle hire income 240,000 – Trading transactions - Sales 183,500 – - Purchases 61,721,000 – Purchase of commodities 79,625 – Purchase of land 80,000,00 – Term deposit/savings 137,500,000 – Deposit interest income 1,977,740 – Dividend income 40,569,000 – Expenses incurred on behalf of/by Company 22,352,500 – Other operating expenses 26,545,500 –

Associate Insurance commission received 6,109,928 5,181,301 Cash and cash equivalents – 3,658,696 Interest-bearing loans and borrowings – 3,500,936,568 Short-term investment – 16,298,994 Term deposit 498,815,217 323,837,302 Repayments of finance leases obtained 15,564,299 62,591,783 Share of Group overheads – 1,114,000 Trading transactions - Sales 2,161,016,433 1,705,055,000 - Purchases 132,841,202 96,273,305Company secretarial services – 285,000 Dividend income received – 8,800,000 Rent and management fees received – 3,000,000 Interest paid/received 125,630,589 – Fund transfers 78,233,663 – Loans granted 761,800,000 – Expenses shared 1,115,741 –



CompanyTransactions with Subsidiaries, Associates and Joint Ventures

The following table provides the transactions which have been entered into with related parties for the relevant financial year:

CompanyRelationship Nature of transaction 2011 2010

(Rs.) (Rs.)

Subsidiaries Fund transfers in 31,306,783,120 2,985,042,073 Fund transfers out 34,213,911,311 1,521,419,532 Expenses shared 1,317,147,190 489,121,574 Rendering of services received 94,434,997 79,697,623 Asset hire income 35,624,049 123,955,558 Interest received 119,933,399 435,421,133 Debenture investment – 685,800,000 Debenture interest received 83,579,449 97,343,931 Regular Treasury management and advisory fee received 300,378,935 158,491,274 Royalty received 6,415,960 16,073,626 Project loan given – 50,516,175 Investment in subsidiary companies 3,987,220,040 –Treasury bond transfer 2,575,252,804 1,037,204,135 Fixed assets purchased 252,468,877 –Loan granted 822,668,356 53,196,476 Loan transfer to subsidiary 820,968,356 –Supply of lease vehicles – 9,744,115 Repayments of finance leases and loans obtained 148,151 –

Associates Fund transfers in 78,233,663 – Cash and cash equivalents – 3,658,696 Interest-bearing loans and borrowings – 2,750,936,568 Short-term investment – 16,298,994 Term deposits – 323,837,302 Repayments of finance leases and loans obtained 15,564,299 62,591,783 Loan granted 761,800,000 1,927,811 Operating lease granted – 8,893,679 Interest received 99,752,718 4,880,791 Expenses shared 1,115,471 –

Joint Ventures Loans granted 9,219,808 235,000,000 Repayments of finance leases and loans obtained 37,681,632 – Interest received 22,755,017 7,504,590 Purchase of commodities 159,250 – Purchase of land 160,000,000 –

Balance outstanding on facilities granted to related parties as at 31 March

Subsidiaries Finance leases and loans obtained 1,551,849 – Associates Finance leases and loans obtained 796,235,701 50,000,000 Joint Ventures Finance leases and loans obtained 135,388,809 160,561,420



Outstanding balances as at the year end with regard to the related parties are disclosed as below:

CompanyAs at 31 March 2011 2010

(Rs.) (Rs.)

Amount due from Related Parties

Lanka ORIX Insurance Brokers Ltd. – 40,180,257

Lanka ORIX Finance Company Ltd. 644,562,624 301,431,448

Lanka ORIX Information Technology Ltd. renamed as LOLC Investments Ltd. – 402,237,818

Lanka ORIX Information Technology Services Ltd. 26,519,579 –

Lanka ORIX Project Development Ltd. – 12,770,693

Sundaya Lanka (Pvt) Ltd. 4,157,388 4,125,229

Gal Oya Holdings (Pvt) Ltd. – 170,683,182

Commercial Leasing Company Ltd. 278,993,550 1,736,466,083

LOLC Eco Solutions Ltd. – 20,199,990

LOLC Micro Credit Ltd. 145,657,483 –

LOLC Insurance Company Ltd 4,509,229 –

Brown & Company PLC 7,303,638 –

United Dendro Ltd. 16,304,234 –

LOLC Services Ltd. 9,514,000 –

Eden Hotels Ltd. 295,503 –

LOLC Factors Ltd. 200,000 –

1,138,017,228 2,688,094,700

Amount due to Related Parties

LOLC Micro Credit Ltd. – 19,337,568

LOLC Motors Ltd. 30,268,302 139,704,489

Commercial Factors Ltd. – 10

Lanka ORIX Information Technology Ltd. renamed as LOLC Investments Ltd. 41,160,377 –

Lanka ORIX Insurance Brokers Ltd. 106,934 –

LOLC Eco Solutions Ltd. 4,875,000 –

LOLC Leisure Ltd. 160,506,311 –

LOLC Securities Ltd. 13,963,840 –

Commercial Factors Ltd. 10 –

LOLC Land Holdings Ltd. 4,000 –

LOLC Realty Ltd. 10 –

LOLC Property Investment Ltd. 10 –

LOLC Asset Holding Ltd. 10 –

LOLC Estates Ltd. 10 –

250,884,814 159,042,067




Transactions with Key Management PersonnelKey Management Personnel (KMPs) are defined as those persons having authority and responsibility for planning, directing and controlling the activities of the Company as well as the subsidiaries, directly or indirectly. The Key Management Personnel of the Company and Group are the Board of Directors of the Company and personnel holding designation Deputy General Manager and above in the Company. Independent Transactions with KMPs and transactions with the Close Family Members (CFMs) of the KMPs, if any, also have been taken into consideration in the following disclosure:

Key Management Personnel Compensation Group Company

2010/11 2009/10 2010/11 2009/10

(Rs.) (Rs.) (Rs.) (Rs.)

Short-term employment benefits 213,821,556 193,680,864 174,867,936 135,072,718Includes: - Directors’ fees 40,282,878 20,498,436 38,387,878 18,870,936 - Directors’ emoluments 41,093,178 31,089,610 19,396,918 17,846,880

Other Transactions Group Company

2010/11 2009/10 2010/11 2009/10

(Rs.) (Rs.) (Rs.) (Rs.)

Advances granted – 15,689,869 – 15,689,869Deposits held with subsidiaries 516,251,281 133,907,755 – –Interest paid 35,749,864 9,325,881 – –Interest payable 13,483,774 1,790,490 – –Land and building purchased 110,000,000 – 110,000,000 –Operating lease facility granted 6,111,876 – 6,111,876 –Rentals paid during the year (691,528) – (691,528) – Balance rentals outstanding 5,420,348 – 5,420,348 –

Transactions with Other Related PartiesTransactions, arrangements and agreements involving KMPs and their CFMs and Entities which are controlled, jointly controlled or significantly influenced by the KMPs and their CFMs or shareholders who have either control, joint control or significant influence over the entity.

Group Company2010/11 2009/10 2010/11 2009/10

(Rs.) (Rs.) (Rs.) (Rs.)

Ishara TradersLease vehicle and fixed assets purchased 388,375,000 296,637,433 330,050,000 225,367,432

Opening balance 01 April 1,539,090,987 1,226,102,079 764,708,631 1,226,102,079 Loans obtained during the year 4,300,579,120 1,195,528,790 1,000,000,000 367,119,758 Loan settled during the year (1,980,815,335) (882,539,882) (1,764,708,631) (828,513,206)Closing balance 31 March 3,858,854,772 1,539,090,987 – 764,708,631 Interest Paid 422,825,591 253,712,001 104,051,420 226,206,403


47. Assets Pledged The following assets have been pledged as security for liabilities:

Group CompanyNature of Assets Nature of Liability Carrying Amount Pledged Carrying Amount Pledged

2011 2010 2011 2010

(Rs.) (Rs.) (Rs.) (Rs.)

Government Treasury Bonds

Secured against the Repo instrument borrowings – 4,990,000,000 – 3,800,000,000

Foreign currency term deposits

Interest-bearing loans and borrowings 2,862,886,491 2,703,634,619 245,366,725 1,186,770,985

Lease, hire purchase and loans receivables

Interest-bearing loans and borrowings 21,192,989,226 19,276,146,707 8,597,310,764 14,384,188,630

Marketable shares and loans and buildings

Term loan/bank overdrafts/short-term loan/field and processing developments and other 3,761,387,771 1,188,050,748 – –

Leasehold right Bank overdrafts/term loans/ investments in field developments 646,803,409 582,574,058 – –

Leasehold properties/ vehicles Finance leases 205,078,015 820,793,106 155,128,015 342,081,080

Office premises/shares Term loan/loans – 1,237,462,000 – –

Stock and book debts Term loan 940,000,000 – – –


Annexes

Statement of Maturity Analysis of Assets and Liabilities 178

Ten Year Summary 180

Summarised Quarterly Statistics 182

Value Addition 184

Awards and Accolades 186

Milestones 187

Group Companies 190

Share Information 196

Glossary 198

Board of Directors 200

Corporate Management Team 207

Operational Management Team 213

Notice of Meeting 218

Corporate Information 219

Form of Proxy Enclosed

Annexes








Financial Review 72





Annexes 177


COmPAny maturity period

Statement of maturity Analysis of Assets and Liabilities 0-12 months

12-36 months

36-60 months

more than 60 months

Total

(Rs. ’000) (Rs. ’000) (Rs. ’000) (Rs. ’000) (Rs. ’000)

(a) Interest Earning Assets

Investments in Government securities – – – – –

Investments in CBSL securities – – – – –

Fixed deposits and savings deposits with banks/ finance companies 275,356 – – – 275,356

(b) Loans and Advances Net of Provisions and Income in Suspense

Leasing 513,114 889,476 20,058 – 1,422,648

Hire purchase 235,584 32,891 16,683 – 285,158

Loans to real estate/housing – – – – –

Advances and other loans 3,576,886 1,178,034 1,063,252 – 5,818,172

Instalment sales 766,007 – – – 766,007

Operating leases 4,841 – – – 4,841

Factoring 2,736,753 – – – 2,736,753

(c) Non-Interest Earning Assets

Cash and bank balances 392,012 – – – 392,012

(d) Investments in -

Subsidiary company – – – 8,944,162 8,944,162

Associate company – – – 1,211,336 1,211,336

Joint ventures – – – 136,384 136,384

Dealing securities 2,814,792 – – – 2,814,792

Debentures 28,000 – 686,400 – 714,400

Stock (vehicles/real estate/machineries etc.) 1,750 – – – 1,750

Investment in properties – 247,500 – – 247,500

Other investments 35,000 – – – 35,000

(e) Fixed Assets – – – 3,283,496 3,283,496

Other intangible assets – – – 61,011 61,011

(f) Other Current Assets

Amount due from subsidiaries 1,138,017 – – – 1,138,017

Deferred tax assets 185,030 – – – 185,030

Other current assets 678,902 – – – 678,902

Total assets 13,382,044 2,347,901 1,786,393 13,636,389 31,152,727

Statement of maturity Analysis of Assets and Liabilities


maturity period Statement of maturity Analysis of Assets and Liabilities 0-12

months 12-36

months 36-60

months more than 60

months Total

(Rs. ’000) (Rs. ’000) (Rs. ’000) (Rs. ’000) (Rs. ’000)

(a) Interest Bearing Liabilities Bank overdrafts 2,094,425 – – – 2,094,425 Bank loans - Short-term loans 7,726,250 – – – 7,726,250 - Commercial papers 2,025,012 – – – 2,025,012 Redeemable preference shares – Debentures – Long-term borrowings 3,563,535 5,648,167 1,139,861 – 10,351,563 Finance lease liabilities 110,439 71,580 – – 182,019 (b) Non-Interest Bearing LiabilitiesAmount due to subsidiaries/associates 250,885 – – – 250,885 (c) Other Liabilities – Leased equipment creditors 18,600 – – – 18,600 Taxation payable 71,858 – – – 71,858 Trade and other payables 903,348 – – – 903,348 Retirement benefit obligation – – – 80,123 80,123 Provision for possible losses – – – – – (d) Shareholders funds (excluding redeemable preference shares) – – – 7,448,644 7,448,644 Total liabilities 16,764,352 5,719,747 1,139,861 7,528,767 31,152,727

Information on the Freehold Land and Buildings of the CompanyAddress Building Extent Land Cost/

Sq. Ft. Extent Valuation(Rs.)

1. no. 100/1, Sri Jayawardenapura mawatha, Rajagiriya 51,800 1A-0R-04.86P 685,000,000 2. no. 100 A, Sri Jayawardenapura mawatha, Rajagiriya 0A-2R-20.00P 245,000,000 3. no. 25/7, Wimalawatta Road, mirihana, nugegoda 0A-0R-33.40P 20,000,000 4. no. 156, Kolonnawa Road, Gothatuwa 69,121 1A-1R-33.71P 165,000,000

Land and building purchased during the yearno. 103, Sri Jayawardenapura mawatha, Rajagiriya 0A-1R-12.50 P 166,399,000 no. 28A, Badulla Road, nuwara Eliya 5,426 0A-0R-21.03 P 114,399,000 no. 62/40, Stanley Road, Jaffna 0A-0R-37.31 P 64,630,000 no. 241 A, maithreepala Senanayake mawatha, Anuradhapura 0A-0R-13.01P 18,807,102 no. 240, moragahayata,Colombo Road, Ratnapura 7,920 0A-0R-15.80 P 29,319,000

1,508,554,102

Information on the Investment Properties of the CompanyBuilding Extent Land Cost/ Value

Address Sq. Ft. Extent Valuation of Land(Rs.) (Rs.)

no. 305/5, Rajagiriya Road, nawala – 0A-3R-19.14P 234,982,202 236,500,000no. 246/56, Kandy Road, Eldeniya, Kadawatha 1,640 0A-0R-23.37P 7,292,023 11,000,000

242,274,225 247,500,000

Statement of maturity Analysis of Assets and Liabilities


For the year ended 31 march (Rs. ‘000) 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

GROUP

OPERATInG RESULTSRevenue – – – – – – – 3,495,607 3,571,367 14,288,492 Cost of sales – – – – – – – (2,993,076) (2,869,272) (9,911,222)Income 1,190,859 1,284,498 1,695,600 1,930,019 2,586,502 3,950,751 5,934,772 9,843,454 9,941,904 11,943,300 Other income/(expenses) 74,476 37,548 78,323 121,410 55,571 207,675 313,376 282,660 1,388,560 5,845,536Interest costs (621,505) (537,538) (552,770) (617,597) (895,570) (1,787,751) (3,403,965) (6,441,182) (6,178,137) (6,420,588)Profit before operating expenses 643,830 784,508 1,221,153 1,433,832 1,746,503 2,370,675 2,844,183 4,187,463 5,854,422 15,745,518Other operating expenses (419,741) (494,562) (814,162) (855,600) (1,037,153) (1,372,936) (1,880,700) (3,080,622) (4,386,721) (7,913,592)Results from operating activities 224,089 289,946 406,991 578,232 709,350 997,739 963,483 1,106,841 1,467,701 7,831,926 negative goodwill – – (4,550) (6,429) – – 131,293 – 1,423,837 271,911 Profit/(loss) on disposal of subsidiaries and associates – – – – – – – – (167,088) –Share of profit of associate companies – – – – – – 88,277 140,458 116,337 178,522 Profit before tax 224,089 289,946 402,441 571,803 709,350 997,739 1,183,053 1,247,299 2,840,787 8,282,359 Income tax expense (6,064) (11,833) (11,832) 3,553 (20,762) 52,443 160,443 (192,122) (455,382) (1,259,279)net profit after tax 218,025 278,113 390,609 575,356 688,588 1,050,182 1,343,496 1,055,177 2,385,405 7,023,080

As at 31 marchASSETSnet lending portfolio 4,241,235 4,668,719 5,853,064 7,173,915 11,123,245 16,103,706 21,434,958 32,697,993 35,084,686 58,416,332 Total assets 6,208,850 7,038,427 8,986,749 10,706,443 16,226,692 24,483,950 32,994,258 46,287,066 75,371,319 111,813,532

LIABILITIESTotal liabilities 4,678,240 5,272,820 7,063,271 8,342,029 13,295,525 20,659,031 27,816,389 40,195,588 55,631,672 77,090,381

SHAREHOLDERS’ FUnDSShare capital 237,600 237,600 475,200 475,200 475,200 475,200 475,200 475,200 475,200 475,200 Reserves 1,243,478 1,471,054 1,386,382 1,863,134 2,424,847 3,309,657 4,649,019 5,536,270 7,428,554 12,521,139 minority interest 49,532 56,953 61,896 26,080 31,120 40,062 53,650 80,008 11,835,893 21,726,812 Shareholders’ funds 1,530,610 1,765,607 1,923,478 2,364,414 2,931,167 3,824,919 5,177,869 6,091,478 19,739,647 34,723,151

InVESTOR RATIOSReturn on assets (%) 4 4 5 6 5 5 5 3 4 8Return on equity (%) 15 17 21 27 26 31 30 19 26 37

OTHER InFORmATIOnno. of branches 8 9 12 12 16 18 22 26 48 73 no. of LIOC/mini branches – – – – – – 10 14 13 22 no. of service centres – – – – – – – 11 36 72 no. of subsidiary companies 5 5 6 7 8 8 9 9 41 48 no. of associate companies – – – – – – 2 2 7 7 no. of joint ventures – – – – – – 1 1 15 18

Ten year Summary


Ten year Summary

For the year ended 31 march (Rs. ‘000) 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

COMPANY

OPERATInG RESULTSIncome 1,062,137 1,130,880 1,401,776 1,566,952 1,908,291 3,034,110 4,960,979 6,626,308 4,722,479 3,511,733 Other income/(expenses) 69,862 32,679 97,806 145,294 93,449 291,840 261,254 71,445 1,022,138 2,832,627 Interest costs (566,914) (492,557) (493,338) (532,298) (703,399) (1,442,881) (2,972,057) (4,205,474) (3,090,912) (2,384,015)Profit before operating expenses 565,085 671,002 1,006,244 1,179,948 1,298,341 1,883,069 2,250,176 2,492,279 2,653,705 3,960,345 Other operating expenses (352,377) (415,469) (588,339) (617,719) (621,628) (972,865) (1,408,840) (1,910,159) (2,162,578) (2,062,356)Results from operating activities 212,708 255,533 417,905 562,229 676,713 910,204 841,336 582,120 491,127 1,897,989 Profit before tax 212,708 255,533 417,905 562,229 676,713 910,204 841,336 582,120 491,127 1,897,989 Income tax expense – – – – (12,701) 76,390 217,901 (76,532) (164,187) (374,646)net profit after tax 212,708 255,533 417,905 562,229 664,012 986,594 1,059,237 505,588 326,940 1,523,343

As at 31 marchASSETSTotal assets 5,527,821 5,980,825 7,616,680 8,746,741 13,297,988 20,888,694 28,996,068 31,335,180 29,737,969 31,152,727

LIABILITIESTotal liabilities 4,063,613 4,302,665 5,772,331 6,438,611 10,447,735 17,194,407 24,233,931 26,233,467 24,309,315 23,704,083

SHAREHOLDERS’ FUnDSShare capital and reservesShare capital 237,600 237,600 475,200 475,200 475,200 475,200 475,200 475,200 475,200 475,200 Reserves 1,226,608 1,440,560 1,369,149 1,832,930 2,375,053 3,219,087 4,286,937 4,626,513 4,953,454 6,973,444 Shareholders’ funds 1,464,208 1,678,160 1,844,349 2,308,130 2,850,253 3,694,287 4,762,137 5,101,713 5,428,654 7,448,644

InVESTOR RATIOSBonus issues – – – – – – – – – – Gross dividends 77,220 77,220 92,664 110,009 142,560 71,280 106,920 133,056 – –

Total assets to shareholders’ funds (times) 4 4 4 4 5 6 6 6 5 4 Return on assets (%) 4 4 6 7 6 6 4 2 1 5 Return on equity (%) 15 16 24 27 26 30 25 10 6 24

OTHER InFORmATIOnno. of employees 179 201 259 269 346 414 521 664 787 848


Income Statements (Rs.’000)

2010/11 2009/10

For the 3 months ended 30-June 30-Sep. 31-Dec. 31-mar. 30-June 30-Sep. 31-Dec. 31-mar.

COMPANY

Gross Income 965,505 842,464 805,030 898,734 1,377,308 1,160,328 1,080,664 1,104,179

Other income/(expenses) 711,751 635,358 321,124 1,164,394 168,910 301,940 48,373 502,915

Interest costs (505,958) (578,932) (632,349) (666,776) (938,660) (814,006) (824,729) (513,517)

Profit before operating expenses 1,171,298 898,890 493,805 1,396,351 607,558 648,262 304,308 1,093,577

Other operating expenses (545,791) (577,463) (431,882) (507,220) (445,253) (485,152) (535,700) (696,472)

Results from operating activities 625,507 321,427 61,923 889,132 162,305 163,110 (231,392) 397,105

Income tax expense (40,800) (40,800) (56,269) (236,777) (10,000) (40,000) – (114,187)

net profit after tax 584,707 280,627 5,654 652,355 152,305 123,110 (231,392) 282,918

Balance Sheets (Rs.’000)As at 30-June 30-Sep. 31-Dec. 31-mar. 30-June 30-Sep. 31-Dec. 31-mar.

Assets 28,744,921 35,001,430 34,901,357 31,152,727 33,054,574 32,753,452 33,255,887 29,737,969Liabilities 22,731,560 28,707,441 28,601,714 23,704,083 27,797,245 27,373,013 28,106,840 24,309,315net assets 6,013,361 6,293,989 6,299,643 7,448,644 5,257,329 5,380,439 5,149,047 5,428,654

Share capital and reserves 6,013,361 6,293,989 6,299,643 7,448,644 5,257,329 5,380,439 5,149,047 5,428,654Share capital 475,200 475,200 475,200 475,200 475,200 475,200 475,200 475,200Reserves 5,538,161 5,818,789 5,824,443 6,973,444 4,782,129 4,905,239 4,673,847 4,953,454

Summarised Quarterly Statistics


Summarised Quarterly Statistics

Income Statements (Rs.’000) 2010/11 2009/10

For the 3 months ended 30-June 30-Sep. 31-Dec. 31-mar. 30-June 30-Sep. 31-Dec. 31-mar.

GROUP

Revenue 2,961,378 4,336,940 5,292,002 1,698,172 843,314 371,088 2,137 2,354,828

Cost of sales (2,256,469) (2,790,898) (3,486,344) (1,377,511) (717,382) (325,548) (1,556) (1,824,787)

Income 2,849,441 2,873,526 3,034,545 3,185,788 2,386,300 2,301,231 2,455,806 2,798,567

Other income/(expenses) 95,049 2,681,963 1,444,327 1,624,197 262,673 618,553 169,899 337,435

Interest costs (1,276,163) (1,812,108) (1,807,290) (1,525,027) (1,663,231) (1,506,823) (1,424,381) (1,583,701)

Profit before operating expenses 2,373,236 5,289,423 4,477,240 3,605,619 1,111,674 1,458,501 1,201,905 2,082,342

Other operating expenses (1,279,525) (1,893,936) (1,903,687) (2,836,443) (743,209) (916,231) (957,767) (1,769,514)

Results from operating activities 1,093,711 3,395,487 2,573,553 769,176 368,465 542,270 244,138 312,828

negative goodwill – – – 271,910 – – – 1,423,837

Profit/(loss) on disposal of subsidiaries and associates – – – – – – – (167,088)

Share of profit of associate companies 57,276 (17,340) 31,461 107,125 30,458 21,805 13,230 50,844

Profit before tax 1,150,987 3,378,147 2,605,014 1,148,211 398,923 564,075 257,368 1,620,421

Income tax expense (295,211) (379,164) (442,166) (142,738) (62,725) (155,233) (196,842) (40,582)

net profit after tax 855,776 2,998,983 2,162,848 1,005,473 336,198 408,842 60,526 1,579,839

Balance Sheets (Rs.’000)As at 30-June 30-Sep. 31-Dec. 31-mar. 30-June 30-Sep. 31-Dec. 31-mar.

Assets 81,534,628 98,418,312 107,951,923 111,813,532 52,349,023 52,094,099 57,521,787 75,371,319

Liabilities 59,816,837 73,313,020 80,706,001 77,090,381 45,744,562 45,122,820 50,489,982 55,631,672

net assets 21,717,791 25,105,292 27,245,922 34,441,185 6,604,461 6,971,279 7,031,805 19,739,647

Share capital, reserves and minority interest 21,717,791 25,105,292 27,245,922 34,723,151 6,604,461 6,971,279 7,031,805 19,739,647

Share capital 475,200 475,200 475,200 475,200 475,200 475,200 475,200 475,200

Reserves 8,174,413 10,103,889 10,838,695 12,521,139 5,856,224 6,249,214 6,295,150 7,428,554

minority interest 13,068,178 14,526,203 15,932,027 21,726,812 273,037 246,865 261,455 11,835,893


2010/11 2009/10(Rs.) (%) (Rs.) (%)

GROUP

Value Added

Income 16,320,570,256 10,643,999,067 Other income 5,845,535,307 1,388,560,107 Cost of borrowings and services (11,820,615,592) (9,603,598,263)Provisions 546,455,858 635,976,370 Goodwill on consolidation 271,910,632 1,423,836,934 Share of profits of associate companies 178,522,137 116,336,631 Loss on disposal of subsidiaries and associates – (167,087,952)Value added tax 755,680,247 1,083,608,100

12,098,058,845 5,521,630,994

Distribution of Value Added

To Employees 1,985,476,257 16 921,351,169 17 Remuneration and other benefits 1,985,476,257 921,351,169

To Government 2,014,959,415 17 1,538,990,006 28 Indirect taxes 755,680,247 1,083,608,100 Direct taxes 1,259,279,168 455,381,906

To Providers of Capital 3,568,205,851 30 705,102,356 12 Dividends to shareholders – –minority interest 3,182,852,004 543,596,279 Reserves 385,353,847 161,506,077

To Expansion and Growth 4,529,417,322 37 2,356,187,463 43 Retained profits 3,454,874,061 1,680,302,879 Depreciation and amortisation 1,074,543,261 675,884,584

12,098,058,845 100 5,521,630,994 100

Value Addition


Value Addition

2010/11 2009/10(Rs.) (%) (Rs.) (%)

COmPAnyValue Added

Income 3,511,733,478 4,722,479,510

Other income 2,832,627,486 1,022,138,022

Cost of borrowings and services (3,520,578,315) (4,866,966,297)

Provisions 100,485,684 447,278,102

Value added tax 433,689,641 500,484,717

3,357,957,974 1,825,414,054

Distribution of Value Added

To Employees 341,104,639 10 244,795,068 13

Remuneration and other benefits 341,104,639 244,795,068

To Government 808,335,813 24 664,671,592 36

Indirect taxes 433,689,641 500,484,717

Direct taxes 374,646,172 164,186,875

To Providers of Capital 48,326,643 2 22,885,844 1

Dividends to shareholders – –

Reserves 48,326,643 22,885,844

To Expansion and Growth 2,160,190,879 64 893,061,550 50

Retained profits 1,475,016,645 304,054,786

Depreciation and amortisation 685,174,234 589,006,764

3,357,957,974 100 1,825,414,054 100


Awards and Accolades

national Business Excellence Awards 2010 - conducted by the national Chamber of Commerce of Sri Lanka - Gold Award for ‘Diversified Group of Companies Sector’, Silver Award for Best ‘Capacity Builder’ and Bronze Award for ‘Extra Large Sector’. LOLC Leisure Ltd. was awarded Silver for ‘Hospitality’ for Eden Resorts and Spa.

Among the Top 20 Corporates of Sri Lanka 2009/10.

Al-Falaah’s inaugural Annual Report won the Bronze Award presented by the League of American Communications Professionals LLC (LACP) at the Vision Awards 2009.

most Outstanding Financial Performer 2010/11 in the Global ORIX network, an honour bestowed by the ORIX Corporation of Japan.

LOITS was the sole winner at the ISACA Security Awards 2010 in the programme and application security category.


1992 Launched its first subsidiary, LOFAC

1995 First branch office opened in Kandy

negotiated the first long-term Rupee loan from FmO

1996 The first to extend Dollar denominated

leases to BOI companies

1997 The first to introduce export factoring

through LOFAC

Branch office opened in matara

1998 Branch offices opened in Badulla and

Ratnapura

milestones

1999 LOFAC enters into strategic alliance

with Dunn and Bradstreet

Branch office opened in Anuradhapura

Launched its insurance subsidiary, LOIB

2000 negotiated the second tranche of

long-term Rupee loan from FmO

Branch office opened in Kochchikade

2001 Launched its finance subsidiary, LOFC

Branch offices opened in Kurunegala and Kalutara

2002 The first leasing company to be

recognised as a Participating Financial Institution for the Indian Line of Credit

Branch office opened in Galle

2003 Received the first US Dollar long-term

Loan from OPEC Fund

The first to win the Leasing Category ‘Award for Excellence in Annual Reports and Accounts’ conducted by The Institute of Chartered Accountants of Sri Lanka

negotiated the third tranche of long-term Rupee loan from FmO

Branch offices opened in nuwara Eliya and Kiribathgoda

2004 Entered into stock broking through

LOSEC

Launched LOITS, the Information Technology arm

The first to win the ‘non-Banking Sector Award’ at the South Asian Federation of Accountants (SAFA) for Best Presented Accounts Competition

Branch office opened in Gampaha


milestones

2005 The first Leasing Company to be

ranked among the Top 10 Brands by Sting Consultants Brand Power Index

Launched LOPD, the project development subsidiary

LOLC cricket team emerged mercantile ‘C’ Division Champions

negotiated the second tranche of long-term US Dollar Loan from OPEC Fund

negotiated the fourth tranche of long-term Rupee loan from FmO

negotiated the long-term US Dollar Loan from Praparco.

Branch offices opened in Kegalle, Embilipitiya and Polonnaruwa.

2006 negotiated the long-term US Dollar

Loan from DEG

negotiated the long-term US Dollar Loan from OPEC Fund

Branch office opened in Wattala

The first Regional Expansion to Cambodia through 18% holding of PRASAC

First to introduce a branded product ‘Guardian’ range from an insurance broker, through LOIB

Won the Leasing Category ‘Award for Excellence in Annual Reports and Accounts’ conducted by The Institute of Chartered Accountants of Sri Lanka for 2005/06

2007 Branch offices opened in Chilaw and

mahiyangana

Ranked among the Top 50 brands by Super Brands

Launched the new Strategic Plan for the Company and its Subsidiaries

Opened the first Hospital Savings Centre in Oasis

Opened the first Student Savings Centre at Royal College - Polonnaruwa

LOFC operations expanded to Wattala, Kegalle, mahiyangana, mount Lavinia and Chilaw

LOPD received Cabinet sub-committee approval for the project on Off-Shore Sand mining, Washing, Sieving and Grading to supply construction and related industries

Signed up with LIOC to establish LOLC sub-branches at LIOC filling stations

LIOC Centres opened in morawaka and Trincomalee

Set up the Islamic BU with an in-house Shari’ah Supervisory Board

Dairy farmer loans, cultivation loans, business set up loans and skills enable loans were introduced

Partnered with GTZ for capacity building of the microfinance staff, setting up low cost branch network and development of a microbanking system

2008 Launched a lottery for customers with

a house as the prize

Launched Western Union money transfer services at LOLC branches

Entered into a joint venture agreement with Agri Tec for manufacture of precipitated silica and allied products using rice husk ash

LIOC Centres opened in Pilimathalawa, Seeduwa, Aluthgama, Kadawata, Ambalangoda, Debarawewa, Beliatta and Talawakelle

Won Bronze Award at Effie Awards 2008, in the Financial Services/Products Category

Spin-off of micro Finance Business Unit as LOLC micro Credit Ltd. (LOmC) together with FmO

LOLC micro Credit Ltd. was appointed as the only representative from the private sector to the micro Finance Steering Committee appointed by the Department of Development Finance attached to ministry of Finance and Planning

Won the International Assets and Liability management competition held by FmO and DEG

Joined with Sri Lanka Post to open up Isuru Diriya Centres at post offices and sub-post offices


2009 Opened 40 Service Centres in Post

Offices around the country consequent to the agreement with Sri Lanka Post, to offer products of LOLC micro Credit Ltd. to the rural community

Opened branches in Jaffna, Ampara, Batticaloa, Vavuniya and Trincomalee, thereby making our services available to the northern and Eastern Regions of the country

Opened the first dedicated Shari’ah finance branches in Kathankudi, Oddamavadi and Kalmunai.

Selected as the Winner of the Specialised Banking and Finance Category at the national Business Excellence Awards

Received BOI status for Lanka ORIX Information Technology Services Ltd. (LOITS - the IT arm)

IT arm, Lanka ORIX Information Technology Services Ltd. earns ‘ISO/IEC 27001:2005’ certification for its enterprise data and software development functions

Ranked amongst the Top 20 Brands in Sri Lanka by Brand Finance Lanka

Won Best Annual Report Award and a merit Award for Best Website from ADFIAP (Association of Development Finance Institutions in Asia and the Pacific)

Won the Silver Award at the Sri Lankan HR Awards 2010 organised by the Association of HR Professionals Sri Lanka together with the Hewitt Associates, India

milestones

LOLC micro Credit Ltd. (LOmC) received a total of $14 mn from Symbiotics and Three Triodos Funds to expand microfinance Operations in Sri Lanka

Lanka ORIX Finance Company Ltd. started to transact in international financial markets via SWIFT

Received a USD 5.0 mn guarantee facility from USAID

Invested in United Dendro Energy (Pvt) Ltd. through LOLC Eco Solutions Ltd.

2010 Opened 29 Service Centres in Post

Offices around the country

Opened branches in Avissawella, Pettah, moneragala, Trincomalee, matugama, Homagama, nawalapitiya, Kohuwala, Hatton, Ambalangoda and Elpitiya

Acquisition of Confifi Hotel Holdings PLC, Riverina Hotels PLC and Tropical Villas (Pvt) Ltd.

national Business Excellence Awards 2010 - conducted by the national Chamber of Commerce, Sri Lanka - Gold Award for ‘Diversified Group of Companies Sector’, Silver Award for Best ‘Capacity Builder’ and Bronze Award for ‘Extra Large Sector’. LOLC Leisure Ltd. was awarded Silver for ‘Hospitality’ for Eden Resorts and Spa.

IT arm - Lanka ORIX Information Technology Services Ltd. (LOITS) earns re-certification for its conformance with the ISO/IEC 27001:2005, covering ‘The management of Information Security for Providing IT Services at Enterprise Data Center.’

LOITS was the only winner in the category of programme and application security at the ISACA Security Awards last year.

Investments made in Sierra Holdings, Sierra Constructions and Agstar Fertilizers.

Received a long-term loan from Symbiotics

Received a long-term loan from Triple Jump

Received a long-term loan from minlam

Received a long-term loan from Praparco

Received a long-term loan from Triodos

most Outstanding Financial Performer 2010/11 in the Global ORIX network

Top 20 most Valuable Stocks in the Colombo Bourse


Group Companies

Lanka ORIX Finance Company Ltd.[Directors]

mrs. R.L. nanayakkaramr. I.C. nanayakkaramr. W.D.K. JayawardenaDeshamanya m.D.D. Pieris mrs. K.U. Amarasinghemr. R.n. Asirwathammr. B.C.G. de ZylvaDr. H. Cabral

LOLC micro Credit Ltd.[Directors]

mrs. R.L. nanayakkaramr. I.C. nanayakkaramr. W.D.K. Jayawardenamrs. K.U. Amarasinghe mr. R.D. Tissera Dr. P. Kooi

Commercial Leasing Company Ltd.[Directors]

mrs. R.L. nanayakkaramr. I.C. nanayakkaramr. W.D.K. Jayawardenamrs. K.U. Amarasinghe

LOLC Factors Ltd.[Directors]

mr. W.D.K. Jayawardena mrs. K.U. Amarasinghe

LOLC Insurance Company Ltd.[Directors]

mr. W.D.K. Jayawardenamrs. K.U. Amarasinghe

LOLC Leisure Ltd. [Directors]


Lanka ORIX Information Technology Services Ltd.[Directors]

mr. F.K.C.P.n. Diasmr. K.A.K.P. Gunawardena

LOLC motors Ltd.[Directors]


Lanka ORIX Insurance Brokers Ltd.

Company was voluntarily wound up w.e.f. 25 October 2010

LOLC Securities Ltd.[Directors]

mr. W.D.K. Jayawardena mrs. K.U. Amarasinghe

LOLC Investments Ltd.[Directors]

mr. K.A.K.P. Gunawardena mr. P.D.G. Jayasena mr. W.B.J. Kelegama

LOLC Eco Solutions Ltd.[Directors]

mr. K.A.K.P. Gunawardenamr. P.D.G. Jayasena

Brown & Company PLC[Directors]

mrs. R.L. nanayakkaramr. n.m. Prakashmr. S.V. Somasunderammr. A.L. Devasurendramr. I.C. nanayakkaramr. R.n. Asirwathammr. H.P.J. de Silva

Browns Investments (Pvt) Ltd.[Directors]

mrs. R.L. nanayakkaramr. n.m. Prakashmr. I.C. nanayakkara mr. R.P. Sugathadasamr. P.R. Saldinmr. A.L. Devasurendramr. D.S.K. Amarasekeramr. S. Furkhanmr. A.G. Weerasinghemr. n. Fernando

Taprobane Fund management Company Ltd.[Directors]

mrs. R.L. nanayakkaramr. A.L. Devasurendramr. I.C. nanayakkaramr. S. Somasunderam


Group Companies

Riverina Hotels PLC[Directors]

mr. I.C. nanayakkaramr. W.D.K. Jayawardenamrs. K.U. Amarasinghemr. D.S.K. Amarasekeramr. A.L. Devasurendramr. J.m. Swaminathanmr. R.n. Asirwatham

Tropical Villas (Pvt) Ltd.[Directors]

mr. m. Pandithagemr. S. Ganegodamr. S. Wijesinghemr. I.C. nanayakkaramr. W.D.K. Jayawardenamrs. K.U. Amarasinghemr. D.S.K. Amarasekeramr. A.L. Devasurendra

Confifi Hotel Holdings PLC[Directors]

mr. I.C. nanayakkaramr. W.D.K. Jayawardenams. K.U. Amarasinghemr. D.S.K. Amarasekeramr. A.L. Devasurendramr. J.m. Swaminathanmr. R.n. Asirwatham

Eden Hotels Lanka PLC [Directors]

Prof. m.T.A. Furkhanmr. S. Furkhanmr. I.C. nanayakkaramr. W.D.K. Jayawardenamrs. K.U. Amarasinghemr. D.S.K. Amarasekeramr. A.L. Devasurendramr. J.m. Swaminathanmr. R.n. Asirwatham

PRASAC mFI[Directors]

mr. S. Harpemr. R.m.S. Fernandomr. H. Halbertsmamr. I.C. nanayakkaramr. J. Hoessmr. O.S. Oeunmr. P. Touch

Pussellawa Plantations Ltd.[Directors]

mr. K. Aloysiusmr. G.A. Aloysius mr. J.m.S. de melmr. G.D. Seatoamr. G.J. Aloysiusmr. I.C. nanayakkaramr. J.H.A. Jayamaha

maturata Plantations Ltd.[Directors]

mr. K. Aloysiusmr. G.A. Aloysiusmr. I.C. nanayakkaramr. S. Gunawardena

LOLC micro Finance Fund Ltd.[Directors]

mr. K.A.K.P. Gunawardena mr. R.D. Tissera

LOLC Asset Holdings Ltd.[Directors]

mr. K.A.K.P. Gunawardena mrs. J. Lord

LOLC Realty Ltd.[Directors]


LOLC Estates Ltd.[Directors]


LOLC Land Holdings Ltd.[Directors]


LOLC Property Investments Ltd.[Directors]


LOLC Services Ltd. [Directors]

mr. A.W.A.L. Dharmaprema mrs. J. Lord


Lanka ORX Project Development Ltd. [Directors]

mrs. R.L. nanayakkaramrs. K.U. Amarasinghemr. K.A.K.P. Gunawardena

United Dendro Energy (Pvt) Ltd.[Directors]

mr. W.D.K. Jayawardena mrs. K.U. Amarasinghemr. D.T. Karunanayake mr. H. Karunanayake mr. K.A.K.P. Gunawardenamr. P.D.G. Jayasena

Orient Academy Ltd.[Directors]

mr. F.K.C.P.n. Diasmr. K.A.K.P. Gunawardena

Commercial Insurance Brokers Ltd.[Directors]

mr. A.L Gooneratnemr. m.P. Jayawardenamr. D.m.D.K. Thilakaratne

Associated Battery manufacturers (Ceylon) Ltd.

[Directors]

mr. W. Wongmr. P.K. Katakymr. A.K. mukherjeemr. A. Sahamr. K. Ganeshanmr. n.m. Prakashmr. S.V. Somasunderammr. A.L. Devasurendra

Diriya Investments (Pvt) Ltd.[Directors]

mr. I.C. nanayakkaramr. A.L. Devasurendra

Galoya Holdings Ltd.[Directors]

mr. n.m. Prakashmr. I.C. nanayakkara mr. P.R. Saldinmr. A.L. Devasurendramr. n.T.K.A. Adikaramamr. H.n.S. Kumaramr. R.m.G.K.B. Ratnayakemr. W.G.L. Dharmakeerthi

Free Lanka Plantation Company Ltd.[Directors]

mr. K. Aloysiusmr. G.A. Aloysiusmr. G.J. Aloysiusmr. J.m.S. de melmr. D.S.K. Amarasekera

Free Lanka Power Holdings (Pvt) Ltd.[Directors]

mr. K. Aloysiusmr. G.A. Aloysiusmr. G.J. Aloysiusmr. J.m.S. de melmr. D.S.K. Amarasekeramr. U.K. Devasurendra

Free Lanka management Company Ltd.[Directors]

mr. K. Aloysius mr. J.m.S. de mel mr. D.S.K. Amarasekera mr. C.J. Chaytormr. H. Ramasamymr. G.A. Aloysiusmr. G.J. Aloysiusmr. G.D. Seatonmr. A.J. Chaytor

Hydro Power Free Lanka PLC[Directors]

mrs. R.L. nanayakkara mr. G.A. Aloysiusmr. J.m.S. de mel mr. D.S.K. Amarasekera mr. R.m.S. Fernandomr. K. Aloysiusmr. G.J. Aloysiusmr. U.K. Devasurendra mr. n.m. Prakashmr. A.U. Weerasinghe mr. T. Senthilverl

Free Lanka Capital Holdings PLC [Directors]

mr. K.A. Aloysiusmr. G.A. Aloysiusmr. G.J. Aloysiusmr. I.C. nanayakkaramr. A.L. Devasurendramr. J.m.S. de melmr. D.S.K. Amarasekeramr. n.m. Prakashmr. P.R. Saldinmr. D.C. Wimalasenamr. A.I. Fernando

Group Companies


Free Lanka Capital (Pvt) Ltd.[Directors]

mr. K. Aloysiusmr. G.A. Aloysiusmr. J.m.S. de melmr. U.K. Devasurendra

Free Lanka Capital Properties Ltd.[Directors]

mr. G.A. Aloysiusmr. J.m.S. de melmr. D.S.K. Amarasekeramr. n.m. Prakashmr. P.R. Saldin

Free Lanka Power 1 (Pvt) Ltd.[Directors]

mr. K. Aloysiusmr. G.A. Aloysius mr. G.J. Aloysiusmr. U.K. Devasurendramr. J.m.S. de melmr. D.S.K. Amarasekera





Hydro Power Free Lanka 2 (Pvt) Ltd.[Directors]


Hydro Power Free Lanka 3 (Pvt) Ltd.[Directors]


Rain Forest Eco Lodge Ltd.[Directors]

mr. P. Cooray mr. H. Cooray mr. G. Pereramr. J. Kehelpannamr. S. Amleanmr. m. Hapugodamr. G. Alloysiusmr. D. Fernandomr. A. Esufally mr. S. mittapala (Alternate Director to mr. A. Essufally)

mutugalla Estates (Pvt) Ltd.[Directors]

mrs. R.L. nanayakkaramr. A.L. Devasurendramr. S. Somasunderam

Pathregalla Estates (Pvt) Ltd.[Directors]

mrs. R.L. nanayakkaramr. S. Somasunderammr. A. Dassanayake

Browns Thermal Engineering (Pvt) Ltd. (formerly known as Browns Dimo Industrial Products (Pvt) Ltd.

[Directors]

mr. n.m. Prakashmr. K.D.P. Fernandomr. A.K.D. munidasa

masons mixture Ltd.[Directors]

mrs. R.L. nanayakkaramr. n.m. Prakashmr. S.V. Somasunderammr. A.L. Devasurendra

Engineering Services (Pvt) Ltd.[Directors]

mrs. R.L. nanayakkaramr. n.m. Prakashmr. S.V. Somasunderammr. R.T. Devasurendramr. A.L. Devasurendra (Alternate Director to mr. R.T. Devasurendra)mrs. R.n.A. nanayakkaramr. I.C. nanayakkara (Alternate to mrs. R.n.A. nanayakkara)

Group Companies


Browns Battery (Pvt) Ltd.[Directors]

mrs. R.L. nanayakkaramr. n.m. Prakashmrs. R.n.A. nanayakkaramr. I.C. nanayakkara (Alternate to mrs. R.n.A. nanayakkkara)

Browns motor (Pvt) Ltd.[Directors]

mr. R. nanayakkaramrs. I. nanayakkaramrs. R.n.A. nanayakkaramr. I.C. nanayakkara (Alternate to mrs. R.n.A. nanayakkara)

Browns Group motels Ltd.[Directors]

mrs. R.L. nanayakkaramr. n.m. Prakashmr. S.V. Somasunderammrs. R.n.A. nanayakkaramr. I.C. nanayakkara (Alternate to mrs. R.n.A. nanayakkara)

B G Air Services (Pvt) Ltd.[Directors]


Browns Group Industries (Pvt) Ltd.[Directors]


Browns Tours (Pvt) Ltd.[Directors]

mrs. R.L. nanayakkaramr. n.m. Prakashmr. S.V. Somasunderammr. R.B. Seniviratnemrs. R.n.A. nanayakkaramr. I.C. nanayakkara (Alternate to mrs. R.n.A. nanayakkara)

CFT Engineering Ltd.[Directors]


East West Textile Lanka Ltd.[Directors]

mr. W.D.L.D. Perera

Klevernberg (Pvt) Ltd.[Directors]

mr. m. Balasubramaniammr. P. Balasubramaniammr. n.m. Prakashmr. S.V. Somasunderammrs. R.n.A. nanayakkaramr. I.C. nanayakkara (Alternate to mrs. R.n.A. nanayakkara)

Standard Finance (Pvt) Ltd.[Directors]

mrs. R.L. nanayakkaramr. n.m. Prakashmr. S.V. Somasunderammr. R.T. Devasurendramr. A.L. Devasurendra (Alternate to mr. R.T. Devasurendra)mrs. R.n.A. nanayakkaramr. I.C. nanayakkara (Alternate to mrs. R.n.A. nanayakkara)

Snowcem Products Lanka (Pvt) Ltd.[Directors]

mr. S.V. Somasunderammr. n.m. Prakashmrs. R.n.A. nanayakkaramr. I.C. nanayakkara (Alternate Director to mrs. R.n.A. nanayakkara)

The Hatton Transport & Agency Company (Pvt) Ltd.

[Directors]

mrs. R.L. nanayakkaramr. S.V. Somasunderammr. n.m. Prakashmrs. R.n.A. nanayakkaramr. I.C. nanayakkara (Alternate Director to mrs. R.n.A. nanayakkara)

Sifang Lanka (Pvt) Ltd.[Directors]

mrs. R.L. nanayakkaramr. S.V. Somasunderammr. n.m. Prakashmrs. R.n.A. nanayakkaramr. I.C. nanayakkara (Alternate Director to mrs. R.n.A. nanayakkara)mr. Z. Haifengmr. H. yilin

Group Companies


Sifang Lanka Trading (Pvt) Ltd.[Directors]

mrs. R.L. nanayakkaramr. S.V. Somasunderammr. n.m. Prakashmrs. R.n.A. nanayakkaramr. I.C. nanayakkara (Alternate Director to mrs. R.n.A. nanayakkara)mr. Z. Haifengmr. H. yilin

Walker & Greig (Pvt) Ltd.[Directors]

mrs. R.L. nanayakkaramr. S.V. Somasunderammr. n.m. Prakashmrs. R.n.A. nanayakkaramr. I.C. nanayakkara (Alternate Director to mrs. R.n.A. nanayakkara)

I G Browns Rubber Industries (Pvt) Ltd.[Directors]

mrs. R.L. nanayakkaramr. n.m. Prakashmr. W. menzemr. m. menze

Sierra Constructions Company Ltd.[Directors]

mr. F.A.W. Irugalbandaramr. D.n.n. Lokugemr. E.A.T.B. Pereramr. W.A.P. Pereramr. J.H.P. Rathnayakemr. E.m.m. Boyagodamr. I.C. nanayakkaramr. A.L. Devasurendra

Sierra Holding Company Ltd.[Directors]

mr. F.A.W. Irugalbandaramr. D.n.n. Lokugemr. E.A.T.B. Pereramr. W.A.P. Perera

Agstar Fertilizers (Pvt) Ltd.[Directors]

mr. n.G.R. Karunaratnemr. D.n.n. Lokugemr. W.A.P. Pereramr. A.P. Weerasekeramr. D.S.K. Amarasekeramr. I.C. nanayakkara

Central Services (Pvt) Ltd.[Directors]

mr. D.S.K. Amarasekeramr. K.A.K.P. Gunawardenamrs. J. Lord

Southern Cleaners (Pvt) Ltd.[Directors]

mr. D.S.K. Amarasekeramr. K.A.K.P. Gunawardenamrs. J. Lord

Sundaya Lanka (Pvt) Ltd.[Directors]

mr. m.R. Ademamr. R.D. Tisseramr. T.S.R. Visweswaranmr. K.A.K.P. Gunawardena mr. J.B.W. Kelegama

Commercial Factors Ltd.[Directors]

mr. K.A.K.P. Gunawardena mr. D.m.D.K. Thilakaratne

Agrisil Holdings Ltd.[Directors]

mrs. R.L. nanayakkaramr. I.C. nanayakkaramr. n.K.S.m.C. mendis mr. G.R. Wellenmr. C.W. Wellenmr. W. Verbrugghe

melfort Green Tea Ltd.[Directors]

mr. K. Aloysiusmr. G.A. Aloysiusmr. H.D.A.D. Pereramr. L.T.D. Peirismrs. R.V. Perera

Tea Leaf Resort Ltd.[Directors]

mr. W.A.P. Pereramr. G.A. Aloysiusmr. D.S. Pandithamr. D.S.K. Amarasekeramr. J.m.S. de mel mr. n.m. Prakashmr. G.J. Aloysius

Group Companies


Share Information

1. Shareholding Information

1.1 Shareholding as at 31 march 2011 2010

no. of Shares % of Shares no. of Shares % of Shares

Residents 330,653,340 69.58 33,158,140 69.78

ORIX Corporation 142,560,000 30.00 14,256,000 30.00

Other foreign investors 1,986,660 0.42 105,860 0.22

475,200,000 100.00 47,520,000 100.00

1.2 Analysis of Ordinary Shares as at 31 march 2011 2010

Range no. of Shareholders

no. ofShares

% ofShares

no. ofShareholders

no. ofShares

% ofShares

1 - 1,000 2,404 1,131,866 0.24 1,126 312,981 0.66 1,001 - 10,000 1,258 4,927,081 1.04 414 1,388,077 2.92

10,001 - 100,000 418 13,140,523 2.76 90 2,299,060 4.84 100,001 - 1,000,000 72 17,815,610 3.75 11 2,645,794 5.57

Over 1,000,000 Shares 19 438,184,920 92.21 6 40,874,088 86.01 4,171 475,200,000 100.00 1,647 47,520,000 100.00

1.3 Highest, Lowest and Closing Share Prices as at 31 march2011 2010

Highest (Rs.) 1,600.00 183.00

Lowest (Rs.) 114.00 70.00

Closing (Rs.) 119.60 165.00


Top 20 Shareholders 2011 2010*

no. of % of Issued no. of % of Issuedname of Shareholder Shares Capital Shares Capital

1. ORIX Corporation 142,560,000 30.00 14,256,000 30.00

2. mr. R.m. nanayakkara 141,433,220 29.76 14,143,322 29.76

3. mr. I.C. nanayakkara 59,895,500 12.60 5,989,550 12.60

4. mrs. K.U. Amarasinghe 52,432,000 11.03 5,243,200 11.03

5. Sri Lanka Insurance Corporation Ltd. - Life Fund 11,797,060 2.48 1,242,016 2.61

6. mrs. I. nanayakkara 5,215,020 1.10 521,502 1.10

7. Employees’ Provident Fund 5,000,000 1.05 – –

8. Employees’ Trust Fund Board 3,166,900 0.67 349,200 0.74

9. Perpetual Asset management (Pvt) Ltd. 2,723,900 0.57 – –

10. mr. G.G. Ponnambalam 2,089,920 0.44 208,992 0.44

11. HSBC/C.P. de Silva 2,000,000 0.42 200,000 0.42

12. Bank of Ceylon - no. 2 A/C 1,546,000 0.33 – –

13. mr. m. Radhakrishnan 1,500,000 0.32 150,000 0.32

14. HSBC/R.C. de Silva 1,479,000 0.31 200,000 0.42

15. Aviva nDB Insurance PLC - A/C no. 07 1,141,100 0.24 94,900 0.20

16. Capital Development & Investment Company PLC - A/C 1,091,000 0.23 – –

17. Bank of Ceylon - no. 01 Account 1,083,900 0.23 – –

18. Swastika mills Ltd. 1,028,400 0.22 144,900 0.31

19. DPmC Financial Services (Pvt) Ltd. - Account no. 01 1,002,000 0.21 416,000 0.88

20. HSBC/ C.L. de Silva 822,000 0.17 200,000 0.42

439,006,920 92.384 – –

Others 36,193,080 7.616 – –

Total 475,200,000 100.000 – –

The Public Holding percentage as at 31.03.2011 was - 15.498%.

* Comparative shareholdings as at 31 march 2010 of the twenty largest shareholders as at 31 march 2011.

Share Information


Glossary

TermsAccrual Basis Recognising the effects of transactions and events when they occur, without waiting for receipt or payment of cash or cash equivalent.

AmortisationAmortisation is the systematic allocation of the depreciable amount of an intangible asset over its useful life.

AssociateAn associate is an entity, including an unincorporated entity such as a partnership, over which the investor has significant influence and that is neither a subsidiary nor a joint venture.

Cash Basis Recognising the effects of transactions and events when receipt or payment of cash or cash equivalent occurs.

Cash Equivalents Short-term highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk in change in value.

Consolidated Financial Statements Financial Statements of a Group presented as those of a single Company.

Corporate Governance The process by which corporate entities are governed. It covers the way in which power is exercised over the management and direction of entity, the supervision of executive actions and accountability to owners and others.

DepreciationDepreciation is the allocation of the depreciable amount of an asset over its estimated useful life. Depreciation for the accounting period is charged to profit or loss for the period either directly or indirectly.

ExecutionsAdvances granted to customers under leasing, hire purchase, instalment sales and loan facilities.

Fair ValueFair value is the amount for which an asset could be exchanged or a liability settled between knowledgeable, willing parties in an arm’s length transaction.

Finance LeaseA lease that transfers substantially all the risks and rewards incidental to ownership of the asset to the lessee. Title may or may not eventually be transferred.

GoodwillAny excess of the cost of the acquisition over the acquirer’s interest in the fair value of the identifiable assets and liabilities acquired as at the date of the exchange transaction and is recognised as an asset.

Gross DividendThe proportion of profit distributed to shareholders inclusive of tax withheld.

Gross PortfolioTotal rental instalment receivable of the advances granted to customers under leasing, hire purchase, instalment sales and loan facilities.

Hire PurchaseA Hire Purchase is a contract between hirer and financier where the hirer takes on hire a particular article from the financier, with the option to purchase the article at the conclusion of the agreed rental payments.

Intangible AssetAn intangible asset is an identifiable non-monetary asset without physical substance held for use in the production or supply of goods or services, for rental to others, or for administrative purposes.

Interest Cost The sum of monies accrued and payable to the sources of borrowed working capital.

Interest in Suspense Interest income of non-performing portfolio; these interests are accrued but not considered as part of income.

Investment PropertyInvestment property is property (land or a building - or part of a building - or both) held (by the owner or by the lessee under a finance lease) to earn rentals or for capital appreciation or both, rather than for use in the production or supply of goods or services or for administrative purposes; or sale in the ordinary course of business.

Joint VentureA joint venture is a contractual arrangement whereby two or more parties undertake an economic activity which is subject to joint control.

LeaseA lease is an agreement whereby the lessor conveys to the lessee in return for a payment or series of payments the right to use an asset for an agreed period of time.

minority Interest Part of the net results of operations and of net assets of a subsidiary attributable to interests who are not owned, directly or indirectly through subsidiaries, by the Parent.

negative Goodwill Any excess, as at the date of the exchange transaction, of the acquirer’s interest in the fair values of the identifiable assets and liabilities acquired over the cost of the acquisition and is treated as income in the period it arises.

net PortfolioTotal rental instalment receivable excluding interest of the advances granted to customers under leasing, hire purchase, instalment sales and loan facilities.

non-Performing Portfolio Facilities granted to customers who are in default for more than six months.

Operating Lease An operating lease is a lease other than a finance lease.


Glossary

Provision Amounts set aside against possible losses on net receivable of facilities granted to customers, as a result of them becoming partly or wholly uncollectible.

Related Parties Parties are considered to be related if one party has the ability to control the other party or exercise significant influence over the other party in making financial or operating decisions.

Related Party Transactions A transfer of resources or obligations between related parties, regardless of whether a price is charged.

Residual Value The estimated amount that is currently realisable from disposal of the asset, after deducting estimated costs of disposal, if the asset was already of the age and in the condition expected at the end of its useful life.

Revenue Reserve Reserves set aside for future distribution and reinvestment.

Segmental Analysis Analysis of information by segments of an enterprise, specifically the different industries and the different geographical areas in which it operates.

Shareholders’ Funds (Equity) Total of issued and fully-paid ordinary share capital and reserves.

Stated Capital All amounts received by the Company or due and payable to the Company (a) in respect of the issue of shares, (b) in respect of calls on shares.

Subsidiary Company Subsidiary is a Company that is controlled (power to govern the financial and operating policies of an enterprise so as to obtain benefits from its activities) by another Company known as the Parent.

Substance Over FormThe consideration that the accounting treatment and the presentation in Financial Statements of transactions and the events should be governed by their substance and financial reality and not merely by legal form.

Value Addition Value of wealth created by providing leasing and other related services considering the cost of providing such services.

Ratiosmethod of Computation and Indicates

Cost to Income Ratio Operating expenses excluding provision for bad and doubtful debts as a percentage of total operating income, net of interest cost. Efficiency of cost management in generating income.

Debt to Equity (Gearing) Ratio Total debts divided by equity. The extent to which debt contributes to fund total assets, compared to the contribution from equity.

Dividend Cover Profit attributable to ordinary shareholders divided by gross dividends of ordinary shares. number of times dividend is covered by current year’s distributable profits.

Dividend Per Share (DPS) Value of the dividend proposed and paid out to ordinary shareholders divided by the number of ordinary shares in issue. Share of current year’s dividend distributable to an ordinary share in issue.

Earnings Per Share (EPS) Profit attributable to ordinary shareholders divided by the weighted average number of ordinary shares outstanding during the year. Share of current year’s earnings attributable to an ordinary share in issue.

Interest Cover Earnings before interest and tax divided by interest charges. Ability to cover or service interest charges of the debt holders.

market Capitalisation no. of ordinary shares in issue multiplied by market value of a share. Total market value of all ordinary shares in issue.

net Asset Value Per Ordinary Share Ordinary shareholders’ funds divided by the number of ordinary shares in issue. Book value of an ordinary share.

non-Performing Facilities Ratio Total gross non-performing portfolio divided by total gross portfolio. Percentage of total gross non-performing portfolio against the total gross portfolio.

Price Earning Ratio (PER Ratio) market price of a share divided by Earnings Per Share (EPS). number of years that would be taken to recoup shareholders’ capital outlay in the form of earnings.

Return On Assets (ROA) net profits expressed as a percentage of average total assets. Overall effectiveness in generating profits with available assets; earning power of invested total capital.

Return On Equity (ROE) net profit, less preference share dividends if any, expressed as a percentage of average ordinary shareholders’ funds. Earning power on shareholders’ book value of investment (equity).


Board of Directors

mrs. R.L. nanayakkara

Chairperson

mrs. Rohini nanayakkara was appointed to the Board of Directors of the Company as an independent non-Executive Director in August 2004 and assumed duties as Chairperson of LOLC and its subsidiaries. She holds a second Class BA Honours Degree from the University of Peradeniya, Sri Lanka. She also holds a Diploma in French from the Chamber of Commerce, Brussels. She is a Fellow of the Institute of management and the Institute of Bankers, Sri Lanka. She was also a past President of the Sri Lanka Banks Association, Association of Professional Bankers, a member of the Commission of the University of Colombo, Sri Lanka and of the Task Force set up by the Government for Tsunami re-construction.

She was the first woman executive to join a commercial bank, namely Bank of Ceylon, with the rare distinction of becoming the first woman General manager/CEO of a Bank in Sri Lanka and the Asian Region.

She was also Chairman/Director of several financial institutions such as the national Development Bank, DFCC Bank, merchant Bank of Sri Lanka and the First Capital Group of Companies. She has served as Director/General manager/CEO of one of the largest private banks namely, Seylan Bank PLC.

She is presently the President of the United nations Association of Sri Lanka and also the Chairperson of the Browns Group of Companies, nDB Venture Investments (Pvt) Ltd., Ayojana Fund (Pvt) Ltd. and Taprobane Investment Group of Companies. She is also a Director of Overseas Realty (Ceylon) PLC, mireka Homes (Pvt) Ltd, Trans Asia Hotels PLC and Eastern merchants PLC.


Board of Directors

mr. I.C. nanayakkara

Deputy Chairman

mr. Ishara nanayakkara is an astute businessman who holds Directorial positions in many Corporates and Conglomerates in Sri Lanka. He ventured into the arena of financial services with the strategic investment in the LOLC Group and was appointed to the Board of LOLC in 2002.

mr. nanayakkara holds a Diploma in Business Accounting from Australia and is a Director of Ishara Traders Group. He serves as the Deputy Chairman on the Board of LOLC and on that of most of its subsidiaries and associate companies, including Commercial Leasing Company. His business philosophy based on sustainable development has made LOLC enter into many new business ventures with high potential for growth in all three spheres - namely, economic, social and environmental.

He was appointed to the Board of Seylan Bank PLC in September 2009 and has contributed to designing the new strategic direction of the Bank.

He is also a Director of Colombo Land Exchange and the Taprobane Group, focusing on primary markets. mr. nanayakkara is a Director of the Browns Group of Companies, a Conglomerate with leading market positions in trade, leisure, manufacturing, consumer appliances and agricultural equipment.

With the exposure in the SmE sector and going further into the micro sector, he is a Director of the Companies he spearheads - LOLC micro Credit Company Ltd. - the only private sector microfinance institution with foreign equity in the country, and PRASAC - the largest microfinance Company in Cambodia.

His passion for sustainable investment is reflected through his involvement in renewable energy, forestry and plantations. mr. nanayakkara is a Director of maturata, Pussellawa and Gal Oya Plantations, the first Public - Private Partnership for sugar production with

the Government of Sri Lanka; Sundaya Lanka (Pvt) Ltd. - a leading solar panel manufacturing company; United Dendro Energy (Pvt) Ltd. - renewable energy through bio mass; Agstar Fertilzers - a leading agri inputs & fertilizer company; and Hydro Power Free Lanka - mini-hydro projects across the island.

mr. nanayakkara is also focused on the immense opportunities presented by the leisure sector. Following the acquisition of some of the leading hotels in the Southern Coast, mr. nanayakkara is the Chairman the Confifi Group of Hotels which comprises of Eden Resort and Spa, Riverina Hotel and Club Palm Garden Hotel, and also a Director of Tropical Villas (Pvt) Ltd.

His recent entry into the Construction trade through Sierra Constructions (Pvt) Ltd., is proof of his perpetual interest in the growth sectors of the Sri Lankan economy.


mr. W.D.K. Jayawardena

Group Managing Director/CEO

mr. Kapila Jayawardena was appointed as the Group managing Director/CEO of LOLC in June 2007. He holds a mBA in Financial management; is an Associate of the Institute of Cost and Executive Accountants and was awarded Fellowship of the Institute of Bankers (IBSL) in 2006.

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

mr. Jayawardena was appointed as the Chairman of the Sri Lanka Banks’ Association (SLBA) in 2003/04 and served as President of the American Chamber of Commerce in Sri Lanka in 2006/2007. He served as a Director of Lanka Clear, national Institute of Business management (nIBm) and The Institute of Bankers (IBSL).

mr. Jayawardena was appointed to the Financial Sector Reforms Committee (FSRC) by the Prime minister and is a member of the Finance Sector and Capital markets cluster of the national Council of Economic Development (nCED). He was a key member of the inaugural sovereign rating team and sovereign debt for Sri Lanka appointed by the Governor of the Central Bank.

He was presented with the prestigious Combined Support Group Award by the US navy for services rendered after the Tsunami in 2005.

mr. Jayawardena has over 27 years’ experience in all areas of banking, out of which nine years was in the capacity of CEO/Country Head CitiBank Sri Lanka and the maldives. He was the first Sri Lankan to be appointed as a senior credit officer (SCO) by CitiBank in Sri Lanka. During his leadership, CitiBank in Sri Lanka was rated AAA by Fitch Ratings in Sri Lanka. CitiBank Sri Lanka was the first foreign Bank to obtain an AAA rating.

mr. Jayawardena is the Chairman of LOLC Insurance Company Ltd., LOLC Securities Ltd. and LOLC motors Ltd.

With LOLC‘s recent venture into the leisure sector, the acquisition of Confifi Hotels Holdings PLC in the ‘golden mile‘ of Southern Sri Lanka, mr. Jayawardena was appointed as Chairman of LOLC Leisure Ltd.

He is also on the Boards of Lanka ORIX Finance Company Ltd., LOLC micro Credit Ltd., LOLC Eco Solutions Ltd., Commercial Leasing Company Ltd. and United Dendro Energy (Pvt) Ltd., which are subsidiaries of the LOLC Group. mr. Jayawardena is also a Director of Sundaya Lanka (Pvt) Ltd. and People’s merchant Bank.

mr. Jayawardena was nominated by the Government of Sri Lanka to serve on the Board of Directors of the United States - Sri Lanka Fulbright Commission in July 2010 and was also appointed to the Council of the national Chamber of Commerce of Sri Lanka on 27 January 2011.

Board of Directors


Deshamanya m.D.D. Pieris

Non-Executive Director

Deshamanya Dharmasiri Pieris is a graduate of the University of Ceylon (Peradeniya); Fellow of the Chartered management Institute, UK and has been conferred the Degree of Doctor of Letters (Honoris Causa) by the University of Colombo and the title of Honorary Senior Fellow by the Postgraduate Institute of medicine.

Deshamanya Pieris is an illustrious retired civil servant, who in the course of his distinguished career in the public service has held several important posts, including that of Secretary to the Prime minister; Secretary, ministry of Public Administration, Provincial Councils and Home Affairs; Secretary, ministry of Agriculture, Food and Co-operatives; Secretary, ministry of Education and Higher Education and Chairman and Director General of Broadcasting. He has also acted on several occasions in addition to his duties, in the posts of Secretary to the ministry of Defence and External Affairs; and Secretary to the ministry of Trade and Shipping.

He has at various times been the Chairman of the national Institute of Education; Chairman - Board of management of the Sri Lanka Institute of Development Administration; and Chairman of the Agrarian Research and Training Institute.

He has also served on the Governing Councils or Boards of management of several Universities and Postgraduate Institutes.

He has served as a member of the national Salaries Commission and as a member of the Presidential Commission on Finance and Banking.

Within the LOLC Group, he has also served as Director on the Board of Lanka ORIX Finance Company Ltd. as well as some subsidiaries of the LOLC Group. He also serves on the Executive Committee, Integrated Risk management Committee, Audit Committee and the Remuneration Committee, whilst Chairing the Corporate Governance Committee and the nomination Committee.

Currently, he also serves as Deputy Chairman - mercantile merchant Bank Ltd., mmBL Logistics (Pvt) Ltd., mmBL money Transfer (Pvt) Ltd., mountain Hawk Express (Pvt) Ltd. and Pathfinder Holdings (Pvt) Ltd.

Deshamanya Pieris also serves on the Boards of a few Postgraduate Institutes of Universities and is the Chairman Pro-tem of the S.W.R.D. Bandaranaike national memorial Foundation responsible for the management of the B.m.I.C.H./B.C.I.S. Complex.

He is also a member of the Governing Board of the Regional Centre for Strategic Studies.

Board of Directors


mr. R.m. nanayakkara


mr. Rajah nanayakkara is the founder and Executive Chairman of Ishara Traders (Pvt) Ltd., a business which pioneered the import and sale of new and reconditioned motor vehicles. Thirty years later, this organisation remains an industry leader. He was also the Founder Chairman of the motor Vehicle Importers’ Association of Sri Lanka, and continues to play a significant role.

mr. nanayakkara is also the Chairman of Ishara Plantations (Pvt) Ltd. an award winning Estate of Tea and Spices - and Chairman of Ishara Property Development, a Company which has been involved in construction for the past 18 years.

mr. R.A. Fernando


mr. Ravi Fernando has an mBA from the University of Colombo and is a Fellow of the Chartered Institute of marketing (UK). He holds a Diploma in International management and completed the Advanced management Programme at the InSEAD Business School in France. He is an Alumni of the University of Cambridge Programme for Sustainable Leadership having completed the Climate Leadership Programme in 2007 and the Postgraduate Certificate in Sustainable Business at Cambridge University in 2008 with Distinction.

He is the United nations Global Compact Focal Point for Sri Lanka and on the Boards of LOLC, World Vision, Environmental Foundation, Ceylon Asset management Ltd., He is a Trustee of the mother Sri Lanka Foundation. His career with multinationals - Unilever, Sterling Health, Smithkline Beecham International and Reckitt Benckiser covered Africa, middle East and Asia in CEO/marketing management positions. He was the former CEO, SLInTEC (Sri Lanka Institute of nanotechnology).

In Academia, he is a faculty member of the InSEAD Advanced management Programme from 2005-2010 and an Executive in Residence at the InSEAD Social Innovation Centre from 2010. He is also a visiting faculty member at the Deusto Business School & Universtat of Pompeu Fabra Spain and University of Colombo mBA. In September 2007, he won a “Global Strategy Leadership Award” at the World Strategy Summit for his work on Ethical branding for the Sri Lankan Apparel and Tea sectors.

Board of Directors


mr. R.n. Asirwatham


mr Rajan Asirwatham is a Fellow of the Institute of Chartered Accountants of Sri Lanka.

He has gained experience as Chairman of the Financial Services Stability Committee at the Central Bank of Sri Lanka. He was a member of the Presidential Commission on Taxation appointed by His Excellency the President.

He joined the Board of Directors of the Company on 26 August 2009. He also serves as a Director of Lanka ORIX Finance Company Ltd. a subsidiary of the LOLC Group.

mrs. K.U. Amarasinghe

Executive Director

mrs. Kalsha Amarasinghe holds an Honours Degree in Economics. She serves on the Board of all the LOLC Group of Companies including the Commercial Leasing Group. She also serves as a Director on the Boards of Ishara Traders (Pvt) Ltd., Ishara Property Development (Pvt) Ltd. and Ishara Plantations (Pvt) Ltd. With the acquisition of Confifi Hotels Holdings PLC, mrs. Amarasinghe was appointed as a Director of the Confifi Group.

mr. H. Ichida


mr. Hideo Ichida joined ORIX in 1982. He became the General manager of the Aircraft Group in the Investment Banking Headquarters in October 2004. After being appointed the Deputy Head of the Alternative Investment and Development Headquarters in July 2007, mr. Ichida was promoted to Deputy Head of the Global Business and Alternative Investment Headquarters in January 2009.

In January 2010, he was made an Executive Officer and was appointed Head of Global Business & Alternative Investment Headquarters in January 2011. He was also appointed the General manager of the China Business Division in April 2011.

Board of Directors


mr. K. Okimoto


mr. Kazunori Okimoto holds a master’s Degree in Business Administration from the national Taiwan University - College of management, Taiwan. He joined ORIX Corporation in 1981.

He was appointed as Senior manager of Aerospace Dept. in 1993. He also served as Chairman and President in ORIX Auto Leasing Taiwan and ORIX Taiwan Corporation, Senior Vice President in ORIX USA Corporation, President and CEO in ORIX Global Finance LLC. He was appointed as managing Director of ORIX Asia Limited in 2003 and was promoted as Chairman and CEO in 2007. In February 2011, he was appointed Executive Vice President and Deputy Head of the Global Business & Alternative Investment Headquarters of ORIX Corporation. He joined the Board of Directors of LOLC on 23 February 2011.

miss C.S. Emmanuel

Company Secretary

miss Chrishanthi Emmanuel is a Fellow of the Institute of Chartered Secretaries and Administrators - UK and a Fellow of the Institute of Chartered Corporate Secretaries (Sri Lanka). She is Company Secretary of most subsidiaries within the LOLC Group. She is also Secretary of the Leasing Association of Sri Lanka.

Board of Directors


Brindley de Zylva

Managing Director/Chief Executive Officer LOFC

Joined in 2003. Counts over 27 years of experience in the non-Banking Financial Services Sector. Currently serves the industry as a Vice Chairman of the Finance Houses Association of Sri Lanka, Council member of the Sri Lanka Institute of Credit management and a Director of The Financial Ombudsman Sri Lanka (Guarantee) Ltd.

Anura L. Dharmaprema

Corporate Executive Officer - Recoveries

Joined in 1998. Counts over 22 years of experience in Recoveries in the Financial Services Industry. Was previously Senior Collections manager of a leading finance company.

Conrad Dias

FCmA (UK), FCmA (Sri Lanka), mBCS (UK), mBA (University of Leicester)

Managing Director/Chief Executive Officer LOITS

Chief Information Officer LOLC Group

Joined in 2006. Counts over 20 years of experience in Information Technology, Software Engineering, Project management, Strategic & Investment Planning, Finance management, Corporate Restructuring and Unit Trust & Fund management. Possesses domain expertise in sectors such as Trading, Banking & Finance, Asset management and manufacturing.

Corporate management Team


Dharini Fernando

Chartered Insurer, Associate of the Chartered Insurance Institute of London (ACII)

Chief Operating OfficerLOLC Insurance

Joined in December 2010. Counts 18 years of experience in both General and Life Insurance. Has work experience with a number of leading multinational insurance companies in varying roles at senior management level. Wide exposure and experience in managing Reinsurance, Property, General Accident and Casualty lines of business, Life Assurance and has been closely involved in the implementation of insurance systems in multinational companies.

Kithsiri Gunawardene

Attorney-at-Law, Postgraduate Diploma in marketing management (PIm, Sri.J)

Chief Operating Officer LOLC

Chief Legal OfficerLOLC Group

Joined in 2004. Counts over 20 years of experience as a Lawyer. Held a number of important positions in the State, including the office of State Counsel attached to the Attorney General’s Department, the office of Director-Legal of the Securities and Exchange Commission and the Insurance Board of Sri Lanka and was involved in setting up the Consumer Affairs Authority as its first Director General.

Gunendra Jayasena

General Manager - LOLC Ventures

Joined in 2007. Counts over 18 years of experience in manufacturing, Human Resource management, Renewable Energy and Plantation management.



Solomon Jesudason

Chief Officer - Marketing Operations

Joined in 1988. Counts over 23 years of experience in the Leasing Industry in Finance, marketing and Operations.

Currently responsible for the Customer Servicing Operations, which includes Application Processing for Finance Leases, Hire Purchases, Loans, LC Facilities, Insurance, Savings, FD Operations, RmV Operations, Working Capital and microfinance.

Jayantha Kelegama

BA (Hons) University of Delhi, Institute of Bankers of Sri Lanka - Intermediate.

Chief Credit Officer

Joined in 2005. Counts over 16 years of experience in Leasing, Asset Financing, Credit Risk management and Banking.

Sunjeevani Kotakadeniya

FCmA (UK), mBA (Col)

Chief Financial OfficerLOLC Group

Joined in 2005 and counts over 23 years of experience in Financial management and General management including Financial Accounting, Strategic Planning, Insurance, Fund management & Administration, IT management, Treasury management, new Business Set up, Process Re-engineering, Change management, ERP Implementation and Project management.



Jacqueline Lord

Chief Human Resources Officer LOLC Group

Joined in 2006. Counts 20 years of experience in diverse business sectors entailing the development and execution of human resource strategies and business plans, HR budgeting, setting up of HR systems for new business ventures whilst engaging in the implementation of strategic initiatives including restructuring automation of HR processes, service campaigns, etc. External to the Human Resource field, she has gained expertise in the field of Infrastructure management, Procurement, Risk management, Insurance and Health and Safety.

Ashan nissanka

Dipm CIm (UK), mBA

Chief Officer - Branch NetworkLOLC

Joined in 1998. Counts over 19 years of experience in marketing, Credit, Branch management, Channel Development/management and General management in the Banking and Finance Sectors.

Graham Lawrence

Chief Executive Officer - Working Capital

Chief Officermetropolitan Branch network - LOLC

Joined in 1992. Counts over 23 years of experience in the Financial Services Sector. Began his career as a Banker and has evolved to general management having covered marketing, Credit and Recovery of diverse financial products, including Leasing and Factoring.



Ravi Tissera

Chartered Institute of marketing, UK

Director/Chief Executive Officer LOmC

Joined in 1993. Counts 20 years, experience in Banking and Leasing Sector. A development finance specialist. Instrumental in conceptualising and introducing microfinance to LOLC.

Krishan Thilakaratne

Chief Executive OfficerCLC

Chief Executive Officer Islamic Business Unit

Joined in 1995. Counts over 20 years of experience in Banking, Credit, Leasing, Factoring and Branch management. Conceptualised and introduced Islamic Finance to LOLC in 2007.

Rohan Perera

mBA, Edith University of Perth, Australia

Group Treasurer

Joined in 2007. Over 25 years of experience concentrated on Banking and Corporate Treasuries with expertise in Treasury management including Strategic Risk management and Cash management. Competent in operational management with capacity in handling financing of high value projects. Starting his career as a banker and particularly in its treasuries; from thereon moved to Corporate Treasuries. Pioneered the concept of corporate treasuries in Sri Lanka. Involved in setting up of the Corporate Treasurers’ Association as its Founder President.



Sharmini Wickremasekera

Chief Risk OfficerLOLC Group

Joined in 1983. Counts 28 years of experience in Finance, Accounting, Credit, Internal Auditing, Information Systems Auditing and Governance, Enterprise-wide Risk management, Business Continuity management and Business Process Re-engineering. Certified in Risk & Information Systems Control (CRISC), Certified Information Systems Auditor (CISA), member and a Past President of ISACA Sri Lanka Chapter.



Operational management Team

Gayani de Silva

Head of SME Development Finance and CRMLOLC

Jithendra Gunatilake

DGM - Finance OperationsLOLC

Rohana Kumara

DGM - MicrofinanceLOmC

Chrishanthi Emmanuel

Company Secretary

Susaan Bandara

Head of MarcomLOLC Group

Chandana Jayanath

DGM - RecoveriesLOLC


mehra mendis

AGM - Fleet ManagementLOLC

Sujeewa Vidanapathirana

AGM - Sales (General) LOLC Insurance

nihal Weerapana

AGM - Legal & Recoveries CLC

Heshan Ferdinand

AGM - General (Technical & Operations)LOLC Insurance

Saliya Dias

AGM - Life/Technical and OperationsLOLC Insurance

Jude Anthony

AGM - Branch NetworkCLC



Roshani Weerasekera

AGM - MarketingLOFC

Ajit Jayemanne

Director Operations

nilantha Rupasinghe

General Manager - Club Palm Garden

Tilak S. Selviah

Consultant/General Manager

LOLC Leisure Ltd.



Pathakkuddy nallathamby

Company Secretary

nishantha Jayasinghe

Head of Human Resources

Jayantha De Silva

Head of Sales & Marketing

Eksath Wijeratne

Acting General Manager - Eden Resort & Spa

nimal Sangakkara

General Manager - Riverina Hotel

Cyril Fernando

Manager - Tropical Villas



Haresh Karunanayake

Managing Director

Ishara Bibile

Head of Operations - Auto Service Centre

LOLC motors Ltd. United Dendro Energy (Pvt) Ltd.

Alex Thirimanne

Head of Finance



notice of meeting

nOTICE IS HEREBy GIVEn THAT THE AnnUAL GEnERAL mEETInG of the Company will be held on 27 July 2011 at 10.30 a.m. in the LOLC Auditorium, for the following purposes:

1. To receive and consider the Report of the Directors and Statement of Accounts for the year ended 31 march 2011 with the Report of the Auditors thereon.

2. To re-elect as a Director mr. H. Ichida, who retires by rotation in terms of Article 84 of the Articles of Association of the Company.

3. To re-elect as a Director, mr. I.C. nanayakkara who retires by rotation in terms of Article 84 of the Articles of Association of the Company.

4. To re-elect as a Director mr. K. Okimoto who retires by rotation in terms of Article 91 of the Articles of Association of the Company.

5. To re-elect as a Director mrs. R.L. nanayakkara, who retires in terms of Section 210 of the Companies Act no. 07 of 2007. Special notice has been received from a shareholder of the intention to pass a resolution which is set out below in relation to her re-election (see note 4 below).

6. To re-elect as a Director mr. R.m. nanayakkara, who retires in terms of Section 210 of the Companies Act no. 07 of 2007. Special notice has been received from a shareholder of the intention to pass a resolution which is set out below in relation to his re-election (see note 5 below).

7. To re-elect as a Director Deshamanya m.D.D. Pieris, who retires in terms of Section 210 of the Companies Act no. 07 of 2007. Special notice has been received from a shareholder of the intention to pass a resolution which is set out below in relation to his re-election (see note 6 below).

8. To reappoint as Auditors messrs Ernst & young Chartered Accountants at a remuneration to be fixed by the Directors.

9. To authorise the Directors to make donations.

By ORDER OF THE BOARD

Chrishanthi EmmanuelSecretary

Rajagiriya (in the Greater Colombo)1 July 2011

note:1. A member entitled to attend and vote at

the meeting is entitled to appoint a Proxy to attend and vote instead of him/her. A Proxy need not be a member of the Company.

2. The completed Form of Proxy should be deposited at the Registered Office of the Company, 100/1, Sri Jayewardenapura mawatha, Rajagiriya, not later than 10.30 a.m. on monday, 25 July 2011.

3. A Form of Proxy accompanies this notice.

4. Special notice was received by the Company from a shareholder of the Company giving notice of intention to move the following Resolution at the above Annual General meeting:

“Resolved that mrs. R.L. nanayakkara who is 75 years be and is hereby re-elected a Director of the Company and it is further specifically declared that the age limit of 70 years referred to in Section 210 of the Companies Act no. 07 of 2007 shall not apply to the said Director, mrs. R.L. nanayakkara.”


“Resolved that mr. R.m. nanayakkara who is 71 years be and is hereby re-elected a Director of the Company and it is further specifically declared that the age limit of 70 years referred to in Section 210 of the Companies Act no. 07 of 2007 shall not apply to the said Director, mr. R.m. nanayakkara.”


“Resolved that Deshamanya m.D.D. Pieris who is 74 years be and is hereby re-elected a Director of the Company and it is further specifically declared that the age limit of 70 years referred to in Section 210 of the Companies Act no. 07 of 2007 shall not apply to the said Director, Deshamanya m.D.D. Pieris.”


Corporate Information

name of the CompanyLanka ORIX Leasing Company PLC

Country of IncorporationSri Lanka

Date of Incorporation14 march 1980

Legal FormA quoted public company with limited liability.

Company Registration no.PQ 70

Stock Exchange ListingThe ordinary shares of the Company are listed on the Colombo Stock Exchange of Sri Lanka.

Registered Officeno. 100/1, Sri Jayewardenepura mawatha, Rajagiriya, Sri Lanka

Head Officeno. 100/1, Sri Jayewardenepura mawatha, Rajagiriya, Sri LankaTel: 011-5880880 Fax: 011-2865606 (Gen.)Website: www.lolc.com

Company SecretaryChrishanthi S. Emmanuel, FCIS, FCCS

AuditorsErnst & youngChartered Accountants

LawyersJulius & Creasynithya Partners

RegistrarsP.W. Corporate Secretarial (Pvt) Ltd. 3/17, Kynsey Road, Colombo 8.

Principal ActivitiesAsset FinanceFinance Leases, Hire PurchaseConsumer FinanceOperating LeasesFleet managementLoansFactoringmicro FinanceDevelopment Finance

BankersBank of Ceylon, People’s Bank, Standard Chartered Bank, CitiBank n.A., Hatton national Bank PLC, Hongkong & Shanghai Banking Corporation, national Savings Bank, Deutsche Bank AG, nations Trust Bank PLC, DFCC Vardhana Bank PLC, Commercial Bank of Ceylon PLC, nDB Bank PLC, Public Bank of Berhad, Sampath Bank PLC, Seylan Bank PLC, Pan Asia Banking Corporation PLC, Union Bank PLC, ICICI Bank, mCB Bank, State Bank of India, Indian Overseas Bank, Indian Bank


notes

Annual Report 2010/11 | Lanka ORIX Leasing Company PLC |

Form of Proxy

I/We .......................................………............................................................................................................................................................................... of

................................................................................................................................................................................... being a member/members of the

Company hereby appoint ............................................................................................................................................................................................ of

.................................................................................................................................................................................................................... whom failing

mrs. Rohini Lettitia nanayakkara of Colombo or failing her mr. Ishara Chinthaka nanayakkara of Colombo or failing himmr. Waduthantri Dharshan Kapila Jayawardena of Colombo or failing himDeshamanya minuwanpitiyage Dharmasiri Dayananda Pieris of Colombo or failing himmr. Rajah mahinda nanayakkara of Colombo or failing himmrs. Kalsha Upeka Amarasinghe of Colombo or failing hermr. Rajanayagam nalliah Asirwatham of Colombo or failing himmr. Ravindra Ajith Fernando of Colombo

as my/our proxy to represent me/us* and vote on my/our behalf at the Annual General meeting of the Company to be held on Wednesday, 27 July 2011 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 Statement of Accounts for the year ended 31 march 2011 with the Report of the Auditors thereon.

2. To re-elect as a Director, mr. H. Ichida who retires by rotation in terms of Article 84 of the Articles of Association of the Company.

3. To re-elect as a Director, mr. I.C. nanayakkara who retires by rotation in terms of Article 84 of the Articles of Association of the Company.

4. To re-elect as a Director, mr. K. Okimoto who retires by rotation in terms of Article 91 of the Articles of Association of the Company.

5. To re-elect as a Director, mrs. R.L. nanayakkara, who retires in terms of Section 210 of the Companies Act no. 07 of 2007. Special notice has been received from a shareholder of the intention to pass a resolution in relation to her re-election.

6. To re-elect as a Director, mr. R.m. nanayakkara, who retires in terms of Section 210 of the Companies Act no. 07 of 2007. Special notice has been received from a shareholder of the intention to pass a resolution in relation to his re-election.

7. To re-elect as a Director, Deshamanya m.D.D. Pieris, who retires in terms of Section 210 of the Companies Act no. 07 of 2007. Special notice has been received from a shareholder of the intention to pass a resolution in relation to his re-election.

8. To re-appoint as Auditors, messrs Ernst & young, Chartered Accountants at a remuneration to be fixed by the Directors.

9. To authorise the Directors to make donations.

Dated this ……….………………….. day of July, Two Thousand and Eleven.

..................................................... Signature of Shareholdernote:1. A Proxy need not be a member of the Company.2. If you wish your Proxy to speak at the meeting you should insert the words ‘and to speak’ immediately before the word ‘and vote’ marked*

and initial the alteration.3. Instructions as to completion appear on the reverse hereof.


Instructions as to Completion1. Please return the completed Form of Proxy after filling in legibly your full name and address,

signing on the space provided and filling in the date of signature.

2. The completed Form of Proxy should be deposited at the Registered Office of the Company, 100/1, Sri Jayawardenapura mawatha, Rajagiriya not less than 48 hours before the time appointed for the holding of the meeting.

Form of Proxy

Annual Report of the Board of DirectorsThis has been a year of significant growth and change for the LOLC Group, and sees the next step in a progression from a pioneer leasing company, to a total financial services provider, to a diversified conglomerate.

We hope that this Annual Report of the Board of Directors of the Company has given you a clear picture of the performance and activities of the Company and its Group for the year to 31 March 2011, and excited you about what lies ahead.

All regulatory requirements with regard to disclosures have been met in the reviews (pages 56 to 81), Board sub-committee Reports (pages 90 to 93) and other Reports. Whether you are a shareholder, a financier or any other stakeholder, this Report would have provided you with a comprehensive overview of the Group.

The Financial Statements together with the Notes thereon, found on pages 112 to 176, are in compliance with the Sri Lanka Accounting Standards, the requirements of the Companies Act No. 07 of 2007 and all other applicable regulations.

The Directors profiles are found on pages 200 to 206.

Going ConcernThe Directors are of the opinion that the Company is in a position to continue its operations in the foreseeable future.

Accordingly, the Financial Statements are prepared on the basis that the Company is a going concern.

Auditors The Auditors, Messrs Ernst & Young retire, and offer themselves for reappointment. The Board recommends their reappointment for the year 2011/12 at a fee to be decided upon by the Board.

The fees paid to the Auditors are disclosed in the Notes to the Accounts on page 136.

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

The Report of the Auditors is given on page 111.

Donations During the year under review, LOLC made donations amounting to less than Rs. 1.5 Mn. Donations are made very selectively. Among others, donations were made to the National Forum of the visually handicapped women of Sri Lanka, flood victims in Batticaloa, and the Disabled Soldiers’ Society. A convective warmer was donated to the National Hospital.

Post-Balance Sheet Events Over the years, the LOLC Group had been making related diversifications. Further growth came through strategic investments. After much thought, the Board came to the conclusion that the time had come when the LOLC Group needed to position itself as a diversified conglomerate. LOLC would now be the holding company of this conglomerate.

As the country prepares to enjoy the fruits of peace, the Group now readies itself to serve the people and the nation in a manner that promises sustainable, lasting and significant benefits for all.

We look forward to your continuing with us on this journey into the future.

On behalf of the Board of Directors

Mrs. Rohini NanayakkaraChairperson

Mr. Kapila JayawardenaGroup Managing Director/CEO

Linking Themes & Visuals

10th Tuesday, May 2011

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In producing a cover that would do justice to the dramatic dawning of peace in Sri Lanka, the creative team arranged photography across a timeline that captures well the breaking of dawn over the Colombo Harbour.

The visual icons running throughout this Report consists of wood carvings and paintings. The moulding of wooden figurines highlight the process of LOLC’s evolving conglomerate and also lend visual connection to the sectors served by LOLC. The painted visuals that from the backdrop to these carvings depict the unfolding vistas of a future Sri Lanka.

This Lanka ORIX Leasing Company PLC Report has been produced by Smart Media - The Annual Report Company whose greenhouse gas emissions resulting from the writing, designing, photography, production, project management, usage of paper and printing are offset using verified carbon offsets.

No. 100/1, Sri Jayawardenepura Mawatha, Rajagiriya, Sri Lanka.

+94 (0) 2 865 606 www.lolc.com+94 (0) 5 880 880

the lolc saga is that of a dynamic group having the vision ... · solutions to an eager market....

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