vision - lolc · interest cover 1.26 1.22 1.32 1.38 1.52 1.85 2.06 1.96 1.63 1.30 dividend cover...

VISIONTo be the most preferred financial solutions provider

MISSIONAssist those driven by the spirit of enterprise to reach greater heights, through our innovative,

personalised and wide-ranging financial solutions

OUR VALUESCreate long-term value to all stakeholders and build lasting relationships with them

Inculcate a 'service-first' mindset across the organisation and go the extra mile to provide

innovative financial solutions to our customers

Nurture an enterprising spirit through the generation and power of ideas

Respect diversity in the workplace, provide dignity and purpose and collectively share talents to

attain the corporate vision as well as to achieve departmental and individual goals, objectives

and aspirations

Be a model corporate citizen by maintaining the highest professional and ethical standards

CONTENTS

ACRONYMS

ACJU All Ceylon Jamiyyathul Ulama

ADB Asian Development Bank

AML Anti Money Laundering

ATM Automated Teller Machine

BIO Belgian Investment Organisation

BU Business Unit

CBSL Central Bank of Sri Lanka

CSE Colombo Stock Exchange

CLC Commercial Leasing Company PLC

ERM Enterprise Risk Management

FMO Netherlands Development Finance Company

GDP Gross Domestic Product

GTZ German Technical Co-operation

HR Human Resource

HRIS Human Resource Information System

IFC International Finance Corporation

IT Information Technology

KYC Know Your Customer

LIOC Lanka India Oil Company

LOFAC Lanka ORIX Factors

LOFIN Lanka ORIX Finance Company

LOIT Lanka ORIX Information Technology

LOLC Lanka ORIX Leasing Company

LOPD Lanka ORIX Project Development

LOSEC Lanka ORIX Securities

MFI Micro Finace Institution

PRASAC Programme de Rehabilitation et d'Appui au Secteur

Agricole du Cambodge

PROPARCO French Development Agency

RERED Renewable Energy for Rural Economic Development

SAFA South Asia Federation of Accountants

SIDA Swedish International Development Agency

SLIBA Sri Lanka Insurance Brokers Association

TIL Touchwood Investments Limited

VAT Value Added Tax

This Annual Report is published within three months of the Balance Sheet date and the HTML version in addition to the PDF version is also published on-line on the same dateas the date of issue of this Report (www.lankaorix.com).

Financial Highlights 3

Chairperson's Statement 6

Deputy Chairman's Review 10

Board of Directors 14

Corporate Management Team 18

Operational Management Team 20

Group Managing Director's Review 22

Business Impact Report 25

Group Operations Structure 36

Community and Environment 38

Human Resources 42

Expanding Our Reach 45

Enterprise Governance 46

Risk Management Report 54

Financial Review 59

Financial Report 66

Audit Committee Report 67

Remuneration Committee Report 67

Annual Report of the Directors on the Affairs of the Company 68

Directors' Responsibility for Financial Reporting 75

Chief Executive Officer's and Chief

Financial Officer's Responsibility Statement 76

Report of the Auditors 77

Income Statements 78

Balance Sheets 79

Statements of Changes in Equity 80

Cash Flow Statements 81

Notes to the Financial Statements 82

Milestones 113

Ten year summary 114

Summarised Quarterly Statistics 115

Value Addition 116

Subsidiary Companies 118

Investor Information 120

Economic and Financial Indicators 122

Glossary 123

Notice of Meeting 126

Form of Proxy 127

Corporate Information - Inner back cover

FINANCIAL HIGHLIGHTS

3LOLC Annual Report 2007/08

COMPANY

For the year ended 31 March 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

PERFORMANCE INDICATORS

(Rs. Mn)

Net Profit After Tax 144 118 181 213 256 418 562 664 987 978

New Executions 1,893 2,152 2,437 2,242 3,189 4,427 4,972 8,858 12,068 12,127

Gross Portfolio (Rentals receivables) 5,229 5,432 6,018 6,052 6,757 8,082 9,144 12,858 19,851 24,357

Net Portfolio (Net investment) 4,136 4,215 4,550 4,570 5,129 6,193 7,088 9,653 13,547 16,295

Outstanding Borrowings 3,976 3,939 3,915 3,751 4,113 5,396 6,025 9,824 16,250 21,752

Non-Performing Portfolio 337 378 556 715 815 883 865 113 137 443

Interest in Suspense 34 45 68 87 101 107 149 18 14 47

Provision 85 107 338 389 485 608 645 61 45 116

KEY INDICATORS

(Rs. per share)

Earnings per share 3.04 2.49 3.81 4.48 5.38 8.79 11.83 13.97 20.76 20.58

Dividends per share 2.50 2.25 3.00 3.25 3.25 1.95 2.32 3.00 1.50 2.25

Market Price per share 47.00 22.50 21.50 51.00 73.50 60.00 85.00 101.00 107.50 150.00

Book Value per share 27.91 29.84 28.00 30.81 35.31 38.81 48.57 59.98 77.74 98.29

(Times)

Adj.Price Earnings Ratio 15.49 9.04 5.64 11.39 13.67 6.82 7.18 7.23 5.18 7.29

Debt to Equity Ratio 3.00 2.78 2.97 2.56 2.45 2.93 2.61 3.45 4.40 4.66

Interest Cover 1.26 1.22 1.32 1.38 1.52 1.85 2.06 1.96 1.63 1.30

Dividend Cover 5.34 4.42 2.54 2.75 3.30 4.50 5.09 4.64 13.86 9.15

ORIX Corporation was established in 1964 in Osaka, Japan as Orient Leasing Co., Ltd. by three trading companies and five banks, as apioneer of leasing. Since its inception, ORIX has been on the leading edge of financial innovation and attributes its success to the abilityto respond rapidly to changes in the market place. ORIX's growth strategy has involved expansion strategically and geographically, witha boldness and scope that put it in a class by itself among major Japanese financial-services firms in recent years. ORIX has a diverserange of revenue streams, from operating and financing leases - its core, low-margin business, focused on auto and equipment leasing- to insurance, corporate rehabilitation, loan servicing, real-estate-related and other specialised finance, investments and retail bankingand value-added services. The company's name was changed to ORIX Corporation in 1989 to reflect its increasingly international profileinto financial services other than leasing and is listed in the Tokyo and New York Stock Exchanges.

Today, ORIX Corporation is the single largest leasing Company in the world and the second largest financial solutions provider in Japanand has a global network of 187 consolidated subsidiaries and 85 affiliates throughout 26 countries worldwide. It has 1,193 offices inJapan, with 266 locations throughout the United States, Asia, Oceania, Europe, the Middle East, and Northern Africa.

Lanka ORIX Leasing Company (LOLC) being the third Joint Venture of ORIX with the International Finance Corporation (IFC), hasrelentlessly added value to ORIX with its long track record of successful business innovation and diversification. LOLC's dynamicdiversification strategy is based on the driving principle that “expansion into new areas will increase our specialisation andcompetitiveness, which will then create new value for our customers.” This strategy draws inspiration from the 'ORIX-way' and enablesit to sustain Group synergy, professionalism, expertise, technology, innovative products and services and a dynamic corporate culture.

In addition to the parental guidance LOLC constantly receives from ORIX, it also benefits from the global ORIX network by way ofknowledge transfer, technical expertise and compliance standards through its regular reviews and participation in ORIX conferences.

While LOLC gained pioneering status as a leasing entity in Sri Lanka 28 years ago, the Group has now morphed into a Total FinancialSolutions Provider with an array of services beyond leasing such as insurance, factoring, savings and fixed deposits, pawning, microfinance, mortgage loans, islamic finance, working capital, and stock brokering. The Group has also invested into other business streamsin line with its long term Business Goals.

Whilst striving to play a more prominent role in the country's economy, LOLC is also focusing on regional expansion opportunities witha view to facilitating cross-border knowledge and technology transfer, which will enable it to become a financial services leviathan.

LOLC will continue to follow in the footsteps of ORIX while pursuing its management strategy to contribute to the betterment of societyand provide greater long-term benefits to its stakeholders by keeping abreast of market trends to continue to create new value.

Global ORIX Network

Building a SocietyFrom financing solar powered home systems for ruralcommunities to micro-finance loans for dairyfarming, cultivation and skills enabled businesses;we endeavour to do all we can towards the socialdevelopment of our nation and its people.

CHAIRPERSON’S STATEMENT

6 LOLC Annual Report 2007/08

It gives me great pleasure to present to you the Annual

Report and Audited Accounts for the Financial Year

2007/08. For LOLC, it has been an exceptional year of

achievement not only from a financial perspective but

more so from an operational perspective as we unveiled

a series of activities and initiatives keeping in line with

our strategic direction. However, let us take a closer

look at the global, and the local economic and financial

market activity so as to set the stage for the operational

environment within which our business functioned

during the year.

Global Economic & Financial Market Overview

After four years of robust GDP and trade growth,

conditions in global financial markets have turned from

favorable to less stable and less predictable. Global GDP

growth eased to 3.6% in 2007 from 3.9% in the preceding

year. However, developing economies grew 7.4% in 2007.

On average, developing countries were affected only

modestly by the economic slowdown in the United States

during the year 2007, which is now anticipated to

continue in 2008. Therefore, GDP growth among low- and

middle-income economies eased only by approximate 0.1

percentage points in 2007 from the strong 7.5% recorded

in 2006.

The global oil crisis exerted inexplicable pressures on all

economies except those oil producing nations that

flourished in the year. Hitting an all time high USD 120

a barrel in March 2008, price speculation is expected to

drive prices up to as much as USD 200 in the coming

year. Continued high and increasing oil prices have

stimulated the utilisation of food crops for bio-fuels

without the consideration of a sustainable balance as

world food stockpiles drastically diminished.

Consequently, prices of maize and vegetable oils

increased by 33% and 50% respectively, during 2007.

" We hold a premier position in

the financial services segment.

Careful monitoring of credit

policies and risk mitigation

strategies has enabled us to build

a business model that is unique

in itself”


Wheat production fell short of consumption partly due to adverse

weather conditions. As a result, stocks reached historic lows, and

wheat prices increased by 30%. Rice prices hit an all time high of

USD 1,000 a ton as panicking suppliers scrambled to secure supplies

exacerbating tightness provoked by export restrictions imposed by

Vietnam, India, Egypt, China and Cambodia.

From a macroeconomic perspective, the effects on low-income

countries have the most adverse effect resulting in a terms-of-trade

loss equal to 0.5 percentage points of their GDP, with the poorest

urban and non-farming rural segments of the population bearing the

greatest burden.

Moreover, the financial turbulence that emerged by mid 2007

demonstrated how sudden and pervasive the effects of adjustments in

financial markets could be. But capital flows to developing countries

helped to soften effects of the market disruptions. Emerging markets

rebounced and out-paced gains in mature markets. Following the

sudden and sharp drop in market valuations of U.S. mortgage-backed

securities in mid-2007, global markets entered a phase of heightened

uncertainty. Furthermore, the sub-prime market effects have been

reflected globally in increased volatility in equity markets, commodity

prices, and exchange rates. We at LOLC expect this scenario, in

particular the resultant credit crunch to impact negatively on our

foreign funding in the up coming year.

Sri Lankan Economy & Financial Market Overview

The Sri Lankan economy grew by 6.8% in the year 2007, down

marginally from the 7.4% growth in 2006. However, official statistics

indicate that the annual average rate of unemployment reached 6%,

an all time low - while per capita income increased to settle at USD

1,617 during the year. Complimenting the figures stated by the Central

Bank of Sri Lanka (CBSL), the Census and Statistics Department's five

year household income and expenditure survey indicate a drop in the

number of people below the official poverty line to 15% from 22.7%

in 2002.

The monetary policy strategy of the CBSL with a focused quantitative

target approach was more effective in containing monetary

expansion, thereby curtailing demand-pull inflation. However, global

rising oil, commodity and food prices propelled top-line inflation to the

region of 18% by the end of 2007, thereby rapidly increasing the cost

of living and propelling interest rates upwards which constrained both

corporate and personal borrowings due to high cost of debt servicing.

The growth in reserve money was contained well within the targets

and restricted to 10.2%, the lowest growth in the last five years. This

assisted in neutralizing almost fully, the borrowings by the

government from the banking sector, which increased significantly in

2006, but remained within the budgeted level during 2007.

The financial sector remained resilient and stable in 2007, despite

increased pressures from external and domestic macroeconomic and

financial market developments. The key financial institutions

maintained their soundness through high profitability, increased

capital adequacy levels and improved asset quality within an

enhanced regulatory and supervisory framework, which strengthened

their resilience and risk absorption capacity.

During 2007, the reach of the banking sector in the country improved

with the expansion of the branch network of both Licensed

Specialized Banks (LSB) and Licensed Commercial Banks (LCB).

The supervisory and regulatory framework governing the financial

sector was upgraded with several directives and measures introduced

to strengthen the soundness of both banks and non-bank financial

institutions. Furthermore, the preparatory work for the implementation

of the BASEL II Capital Adequacy Framework for banks from 2008 was

completed. The adoption of BASEL II is expected to improve the

soundness and risk management of banks by better aligning the

bank's capital with its risk profile and by providing more

comprehensive capital coverage for credit, market and

operational risks.

A direction on Corporate Governance for banks was issued by CBSL

and a mandatory code for companies listed on the CSE was issued by

the Securities and Exchange Commission (SEC) with the aim of further

tightening the regulatory framework of publicly quoted companies.

The latter part of the year 2007, witnessed the Sri Lankan Rupee

stabilizing against the USD. LIBOR declined impacting on LOLC's

foreign borrowings positively, however from a totality imports

decreased as a result of decreased economic earnings whilst exports

lost competitiveness due to a strong Rupee.



LOLC: A Clarion Call for Change

As the regulatory framework tightens with increased focus by the

authorities to monitor provisions and liquidity ratios of all financial

ratios, we at LOLC make a clarion call for a level operational playing

field. Our greatest concern at this point in time remains the fact that

despite being governed and regulated within the realm of the

regulatory framework in place for Commercial Banks, from an

operational perspective we continue to be curtailed by the scope of

permissible business as a financial institution with the restrictions

imposed on us in relation to deposit mobilisation.

The continued and escalating conflict in the North persists in

constraining business potential. However, we are confident that as in

the East - where we have witnessed the gradual return to normalcy

and a democratic process of governance after twenty five years - that

the liberation of the people of the North, will enhance the macro-

economic situation. We are confident that such a situation will enable

us to actively assist the population of the North to recommence their

livelihood in a sustainable manner.

Inflation and Interest rates pose the greatest danger to LOLC as it

does to other financial institutions. As disposable incomes fall due to

an increasing cost of living, borrowings for investment will continue to

decline exacerbated by rising costs of debt servicing. The long term

balance of priorities therefore is a question to be reckoned with.

Moreover, our funding base to critical masses such as the Micro-

Finance and SME sector will continue to face increasing pressures in

debt servicing. As a result, it is pertinent for the Government to

consider a solution to the current interest rate scenario.

During the year, financial institutions performed commendably as is

reflective in LOLC's top-line growth of 50% over that of 2006/2007.

However, the high costs of funds had a negative effect on the

bottom line.

I am extremly happy to inform you, our shareholders that all

businesses recorded healthy growth in top line contributing well

towards Groups’ performance. Despite the increases seen in

operating expenses, the Group, through effective management of

expenses was able to record healthy bottom line growth.

The Group Profit After Tax increased to Rs. 1.3 Bn, a 25% growth over

the last year. This includes goodwill on consolidation of Rs. 131.2 Mn,

on account of Touchwood Investments Ltd and Sundaya Lanka

(Pvt) Ltd.

The profits of the Company remained at the same level as last year

mainly due to the investments made in the new acquisitions,

capitalization of the 100% owned subsidiaries and increase in

borrowing costs. The Profit After Tax of the Company was lower at

Rs. 977 Mn compared with Rs. 986 Mn recorded for the previous year.

As a result, the Return on Equity for the Company declined by 5% and

was 25% at the year end. The total equity of the Company grew to

Rs. 4.3 Bn. The gearing ratio of the Company at 5.1 times is on the

increase due to higher borrowings supporting the higher executions

and investments of the Company. However, this is well within the

stipulated limits by the CBSL and is superior compared with similar

financial institutions.

An interim dividend of Rs. 2.25 per share was paid during the year.

LOLC's shares traded between Rs.81.00 and Rs.167.50 increasing the

market capitalization to Rs. 5.6 Bn at the year end.

The Company's rating remained stable at A(lka) while the Company's

fully owned subsidiary LOFIN's rating also remained stable at

BBB+(lka).

Future Direction

We hold a premier position in the financial services segment. Careful

monitoring of credit policies and risk mitigation strategies has enabled

us to build a business model that is unique in itself. Our concentration

on SME's and a dedicated finance line for Micro Finance has added to

the individuality of this model, thereby allowing us to differentiate

from the traditional operations of a financial services institution.

Our regional development policy - as evident through our recent

agreement with Lanka Indian Oil Company (LIOC) - to increase

accessibility to the grass roots whilst also propelling revolutionary

services to the SME and Micro Finance segment is a key to our

differentiation strategy of sustainable business, an ethos that has


been moulded through the years, through the association of our

funding partners and support extended by ORIX Corporation.

In implementing our three year strategic plan, Business Units (BUs)

will align with greater fervour towards the business functions as the

years progress, creating synergies and exploring opportunities, as has

been evident in 2007/2008's initial implementation of the plan. The

centralised service units are already reaping the benefits of greater

synergy and efficiency and effectiveness improvements.

Going forward, LOLC will progress towards accelerating development

in the impoverished areas especially in the Eastern Province where

speedy infrastructure and livelihood development are a prerequisite

for the people of the province to break free from the shackles of

prolonged conflict.

Our ethical investment strategy will be a key to our future growth.

Much like our investments this financial year into TIL and Sundaya as

well as our foray into the region through investments into PRASAC

Micro Finance Institution, Cambodia we will continue to employ

investment as a growth strategy.

It is in line with this long term growth strategy that we acquired a

67% stake of Commercial Leasing Company PLC in May 2008, which

we believe will add synergetic benefits to the Group.

The strength of ORIX coupled with our more than respectable ratings

for LOLC and LOFIN will, we believe pave the way in building a strong

foundation for LOLC in the future. By sharing best practices in

governance, enterprise risk management as well as practices in

operational excellence with ORIX we offer an unblemished pillar of

strength to our customer base and this will continue to be our

infallible strength in the years to come.

In Conclusion

I would like at this stage to welcome yet another stalwart from Sri

Lanka's financial circles, our new Group Managing Director/Chief

Executive Officer Kapila Jayawardena who joins us from Citibank

after a 28 year tenure with the global financial giant. I believe, as he

has told me personally, many a time that he was inspired to join a

leading organisation in Sri Lanka that has the vision and the capability

to make a difference to the Sri Lankan economy and her people. I can

assure Mr. Jayawardena that he is with the right institution and I

warmly welcome him to our team.

I wish to thank Mr. Y. Uchida and Mr. M. Shioda, Alternate Directors

who resigned from the Board and the Chairman, Board of Directors

and Senior Management of ORIX Corporation for their continuous

support and guidance.

I wish to place on record my sincere appreciation to the foreign

Directors of the company Mr. N. Esaki & Mr. M. Shioda Alternate

Director who resigned from the Board during the year for being very

close to us and for their valuable contribution. I would also like to

thank Mr. Y. Uchida and Mr. E. Mutsumoto who resigned as Alternate

Directors for their contribution. I would like to warmly welcome Mr. K

Fushitani who joins our Board from this year as a representative of

ORIX Corporation of Japan.

Our people are the very force behind LOLC. I express my earnest

gratitude to the corporate management team and the staff for their

invaluable support which paved the way for superior performance of

the Group.

Our ability to grow our business as desired was made possible by the

ready support and confidence placed on us by the local commercial

banks and our foreign funding partners. I wish to extend my sincere

gratitude to these institutions.

I wish to extend my sincere appreciation, to our stakeholders and the

supportive shareholders who have placed their confidence in us.

Thank you for making LOLC what it is today and let us continue to

reach new heights in the years ahead.

Mrs. Rohini Nanayakkara

Chairperson



DEPUTY CHAIRMAN’S REVIEW


The previous financial year was a year in which LOLC

laid firm foundations for exciting new avenues of

enterprise and growth. Building on these foundations,

the year 2007/08 has been one in which we have

accelerated growth initiatives to new heights. I am

pleased to say that LOLC's strategic direction is now

well embedded in an ethos of sustainable development.

Very simply, our future lies in how best we manage our

resources for the future. By this I refer to more than just

the LOLC Group. It is a principle, which if practiced by

all, will ensure that economic development is

maintained within acceptable levels of global resource

depletion and environmental pollution. This is the only

solution for sustainable growth.

In this sense, our vision has moved beyond that of the

traditional and conventional corporate expectation. We

operate in a new realm; we embrace the next paradigm

shift where corporates will lead the way in shaping

tomorrow's world through poverty alleviation and

environmental balance.

Let us face it. Across the world there is evidence of a

growing gap between the rich and the poor. In Sri Lanka,

a critical issue has been the rapid broadening of this

gap. As a financial services provider primarily set up to

develop the SME sector, we have identified the need to

be involved progressively and to act as a catalyst in

changing the prevalent pattern. We were instrumental

in spearheading the revolution of the SME sector, by

providing them with the required financial solutions over

"Our vision has moved

beyond that of the traditional

and conventional corporate

expectation. We operate in a

new realm; we embrace the

next paradigm shift where

corporates will lead the way

in shaping tomorrow's world

through poverty alleviation

and environmental balance"


the last twenty eight years, and the company is enriched with this

expertise. We will continue to serve this sector meeting with the

challenges of a dynamic environment by introducing innovative

financial solutions with enhanced service efficiency.

Now we are moving on to the next level, the mammoth Micro sector.

We are addressing many of the issues faced by this sector by

facilitating entrepreneurship at grass root levels. Our proactive and

growing emphasis on the Micro Finance sector to facilitate farmer-

based, agri-related industries and skill-enabled financing will

eventually contribute in two ways towards our goal. Firstly, it will

without doubt address the issue of poverty alleviation and self

sustenance from a community perspective. Secondly, as is very

evident today, to combat global scarcity of food resources, it is

incumbent of both governments and corporations to work together to

address the global food crisis. What we are experiencing today is

possibly the tip of the iceberg; the true impact of the food crisis, I

believe, will be experienced by global economies in the years to come.

LOLC's approach in providing financing to agri-business is fuelled by

the determination to overcome the impending issues of the next

decade and to support the Micro sector with necessary capital to

move the nation towards self sufficiency and to be equipped to face

this challenge.

LOLC first entered the Micro Finance sector through the Renewable

Energy for Rural Economic Development (RERED) project, a solar

financing project initiated by the World Bank for rural electrification.

Accordingly We are a preferred financial institution for solar

financing, a clear market leader in volumes. The experience gained

through this project has placed LOLC in a stronger position to enter

into the Micro Finance sector with a better understanding of the

segment's needs, as well as having the reach and infrastructure

to support.

During the fiscal year, we turned our attention to identified segments

of the Micro Finance market. Women are typically targeted for Micro

Finance initiatives as this promotes gender equality within a country,

stability of the family unit, as well as positively impacting the desirous

goal of poverty alleviation. We have also experienced that women are

more attuned to the concept of micro entrepreneurship and better

adapted to resourcefully utilising the services we provide.

Dairy farming has been another area of focus for LOLC. We are

working on multiple strategies to achieve our goal and we have

entered into the agri-dairy sector with a view to revive the ailing

industry. Going beyond the conventional financier's role, we have

invested in providing advice and technical know-how to the farmer on

a variety of areas across the value chain in order to ensure that the

farmer receives his rightful share of returns. A similar program is in

place for paddy farming.

Providing financing for farming equipment has been a key business for

LOLC in the past. With the rejuvenated initiatives in the Micro Finance

business we are witnessing quantum growth in this sector. Also with

numerous strategic partnerships along the value chain, both sides

have emerged winners. All in all, the acceptance of Micro Finance by

the targeted segments has been very encouraging.

From an international perspective, in 2007/08, to propel our learnings

in Micro Finance and for greater knowledge sharing of Micro Finance

strategies, LOLC was actively involved with PRASAC in Cambodia,

capitalising on the investment the Company made in the

previous year.

PRASAC is considered to be one of the leading Micro Finance

institutions in Asia and has a reputation as a leader in Best Practices

of Micro Finance. Together with a consortium of international

investors - Dragon Capital Group, The Netherlands Development

Finance Company (FMO), Belgium Investment Organization (BIO) and

Oikocredit, we invested in PRASAC with the intention of expanding

our business horizon and creating a two-way learning stream for

both entities.

PRASAC supports 16 provinces in and around Phnom Penh for projects

in the agricultural sector and is rich with expertise from whom LOLC

can benefit significantly. Cambodia we feel, with a population of

15 Mn people provides us with great potential for expansion.

Further, it is our intention to capitalise on the expertise that we have

gained from the RERED project in Sri Lanka, for rural electrification in

Cambodia. Our investment of 51% in one of Sri Lanka's largest and

most prolific solar systerm manufacturing and servicing entities,

Sundaya Lanka will enable us to successfully penetrate the market not

only in terms of selling panels but also to be part of the entire value

network in the future.




In our pursuit of sustainable development, having outlined our efforts

in poverty alleviation, let’s now move on to the other crucial area of

contention - that of the environment and the increasingly critical need

to manage environmental pressures from pollution, deforestation and

upsetting of eco-systems as a result of economic activity.

There is without doubt a crisis in climate change - the direct impact of

what we all know as global warming - which has already started

taking its toll on humanity and mother earth. As a corporate, our

approach to environmental wealth creation has been through ethical

investment strategies, strengthened by the best practices adopted

from the positive influences of our global financiers and partners. The

most prominent of these strategies adopted in the financial year

2007/2008 was the investment in Touchwood Investments Limited

(TIL) acquiring an approximately 29% stake.

Originally incorporated in Sri Lanka in June 1999, TIL was later listed

on the Colombo Stock Exchange. The company has established more

than 20 greenfield sites in Sri Lanka, and LOLC's strategic intent with

regard to the company is to rapidly expand the size and scope of the

business so that large scale reforestation of greenfield sites will be

achieved in the upcoming year and the years to come. We foresee

great promise in the venture both from a financial as well as a societal

perspective, as this program can contribute to a reduction in carbon

emissions and the resultant damage.

Similarly, the Gal Oya Plantations, formerly known as Hingurana

Sugar Industries, progressed into cultivation of sugar cane during the

year. For those of our shareholders who may not be so well informed

of the project, let me elaborate. Incorporated in 1991 to manage the

country's first large scale sugar plantation in the Ampara district,

Hingurana Sugar Industries was essentially inoperative for over a

decade. LOLC together with Brown & Company, signed a public

private partnership with the Government to reactivate the plant

in 2007.

Placed in the previously conflict ridden East, the plant's revival is

considered one of the very first steps taken by both the public and the

private sector to breath a new life into the province. Moreover with

over 4,000 families dependent, directly and indirectly, the plant has

been a catalyst in changing the lives of the people.

Poised to produce not only sugar, the plant will also produce ethanol

as a bio-fuel as a by product of sugar production, fuelling the

generation of electricity through a 6 MW power plant. It is expected

that this will assist in relieving the strain and dependency of the area

on the national grid whilst increasing the efficiency of the overall

plant. In addition, this will contribute to reducing the country's

dependency on imported fossil fuel, as most of the country's thermal

power plants are operated on fossil fuel, the price of which during

recent times have risen to record levels given the global demand for

energy. Further, farmers and the peripheral community will have

access to fodder - again a by product from the sugar production

process - for dairy farming.

As I noted previously, LOLC's investments in Sundaya Lanka will see

a greater focus towards renewable energy. As proponents of

renewable energy sources we will actively propagate the use of solar

energy amongst rural communities to assist in farming methodologies

and to decrease their dependency on less efficient/more expensive

fossil fuel energy sources.

In the previous year we embarked on another visionary project under

the purview of LOPD - to manufacture Precipitated Silica using Rice

Husk Ash - which was further developed during the year. LOPD

acquired patent rights and technology from AgriTec Incorporated, in

Houston, U.S.A. for use of the technology in seventeen rice growing

countries. Precipitated Silica has a world market value of USD 2 Bn.

The conversion of rice husk ash to Precipitated Silica is far more

energy efficient compared to the conventional production of

Precipitated Silica. The fact that it is manufactured from rice husk -

which is waste normally disposed of in land fills, further substantiates

the eco-friendliness of the product and the process. The first project

is planned to be implemented in Thailand.

These numerous investments made in sustainable development have

opened up avenues for the Company to enter the market of carbon

trading, a completely new market created following the Kyoto

Protocol. LOLC's investments in such ventures are aligned to an

objective towards a sustainable environment, also guided by a

detailed environmental policy laid down by the Company.



Thus, for LOLC, this past year has been a hallmark year. It has been a

year in which we have stretched our limits and embarked on

initiatives which will not only shape our future but also the future of

many Sri Lankans.

The active involvement and participation in sustainable development

programs by the Company has made LOLC a conduit to achieve the

development goals of our funding partners. The Company's superior

performance has enhanced their confidence and prompted them to

channel their development finance over and over again through LOLC.

With their association we ourselves have moulded our own identity

through strategic alignment. We are pleased, that in the current

context, our relationship has progressed to one of partnership,

wherein we work as one to take forward this philosophy to those who

really matter - you, our shareholders, our customers, our employees

and of course the planet and her people.

Ishara Nanayakkara

Deputy Chairman

BOARD OF DIRECTORS


1 ROHINI NANAYAKKARA Chairperson

2 ISHARA NANAYAKKARA Deputy Chairman

3 KAPILA JAYAWARDENA Group MD/CEO

4 KALSHA AMARASINGHE Director

5 RAJAH NANAYAKKARA Director

6 RAVI FERNANDO Director

BOARD OF DIRECTORS


7 LAL FERNANDO Director

8 Deshamanya DHARMASIRI PIERISDirector

9 TUSHAN WICKRAMASINGHE Director

10 YUKI OSHIMA Director

11 KIYOSHI FUSHITANIDirector

12 CHRISHANTHI EMMANUEL Company Secretary

BOARD OF DIRECTORS


1 Mrs. R. L. Nanayakkara Rohini Nanayakkara obtained her BA Second Class Honours Degree from the University of Peradeniya, Sri Lanka and a Diploma in Frenchfrom the Chamber of Commerce, Brussels. She is a Fellow of the Institute of Management and the Institute of Bankers, Sri Lanka.

She has been the General Manager of the Bank of Ceylon, CEO of the Private Sector Infrastructure Development Fund, a World Bank fundedproject, Director/CEO of Seylan Bank and Chairman/Director of several other financial institutions and business organizations.

In January 2005, H.E. the President of Sri Lanka appointed her as a Member of the Task Force to Rebuild the Nation (TAFREN).

2 Mr. I. C. NanayakkaraIshara Nanayakkara holds a Diploma in Business Accounting from Australia. He worked in Japan for two years with the largest exporter ofreconditioned motor vehicles - Yamagin Corporation, Tokyo.

Mr. Nanayakkara chairs the Board of Touchwood Investments Limited and is also the Managing Director of Ishara Traders, the pioneeringimporter of reconditioned motor vehicles in Sri Lanka. In September 2005, he was appointed a Director of Brown & Company Ltd. - a longestablished diversified conglomerate with 20 subsidiaries involved in finance, travel and leisure, industrial products andengineering services.

3 Mr. W. D. K. JayawardenaKapila Jayawardena holds a MBA in Financial Management from the American University of Asia. He is also a Fellow Member of theInstitute of Bankers and an Associate of the Institute of Cost and Executive Accountants, London. He served as Country Head and CEO (Sri Lanka and Maldives) of Citibank N A from 1999 to 2007.

He has varied experience in the fields of Banking Operations, Audit, Relationship Management, Corporate Finance, Corporate Banking andTreasury Management. with Citibank, of which 8 years were as CEO .

Mr. Jayawardena was appointed as the Chairman of the Sri Lanka Bankers’ Association (SLBA) in 2003/04. He has also served as thePresident of the American Chamber of Commerce in Sri Lanka and was appointed to the Financial Sector Reforms Committee (FSRC) by thePrime Minister and is a member of the Finance Sector and Capital Markets Cluster of the National Council of Economic Development (NCED).

He joined LOLC in the year 2007 as Group Managing Director and CEO. He is also on the Boards of Lanka ORIX Factors Ltd., Lanka ORIXInsurance Brokers Ltd, Lanka ORIX Finace Company Ltd., Lanka ORIX Information Technology Ltd. and LOIB Financial Services Ltd., which aresubsidiaries of the LOLC Group.

Mr. Jayawardena is also a Director of Touchwood Investments Ltd., Sundaya Lanka (Pvt) Ltd. and Peoples’ Merchant Bank.

4 Mrs. K. U. AmarasingheKalsha Amarasinghe holds an Honours Degree in Economics. She serves on the Board of all the LOLC Group Companies, on the Board ofIshara Traders (Pvt) Ltd and its Group Companies and also on the Board of Touchwood Investments Ltd .

5 Mr. R. M. NanayakkaraRajah Nanayakkara is the founder and Executive Chairman of Ishara Traders (Pvt) Ltd., a business which pioneered the import and sale ofnew and reconditioned Motor Vehicles. Thirty years later, this organization remains an industry leader. He was also the founder Chairman ofthe Motor Vehicle Importers Association of Sri Lanka, and continues to play a significant role.

Mr. Nanayakkara is also the Chairman of Ishara Plantations - an award winning Estate of Tea and Spices - and Chairman of Ishara PropertyDevelopment, a company which has been involved in construction for the past 18 years.

6 Mr. R. A. FernandoRavi Fernando holds a MBA from the University of Colombo and is a Fellow of the Chartered Institute of Marketing(UK). He holds a Diploma inInternational Management (1999) and completed the Advanced Management Program(2001) at the INSEAD Business school in France. He is anAlumni of the University of Cambridge University Programme for Industry having done the Climate Leadership Programme in 2007.

Ravi started his career at Unilever (Sri Lanka) as a Management Trainee (Marketing) and left as Senior Brand Manager (DT Foods) in 1987.He commenced his International Career with Sterling Winthrop as Regional Marketing Director East Africa ,moved to General Manager GulfRegion and Regional Marketing Director Middle East to Chief Resident Representative/ Operations Director of Smithkline BeechamInternational Vietnam during the period of 1988 to 1999. Between 2000-2002, he was Managing Director/CEO of Reckitt Benckiser (Lanka)Ltd and is currently Director Corporate Branding & Strategic CSR at MAS Holdings Ltd and on the Board of MAS Fabric Park .He is the UnitedNations Global Compact Focal point for Sri Lanka and on its Barcelona Centre and Asian Faculty on “Progress and Values” .He is on theBoards of LOLC,World Vision ,Habitat for Humanity, Environmental Foundation of Lanka and the Duncan White Sports Foundation. He is aGuest lecturer on Strategic CSR at the Advanced Management Programs at INSEAD (France) since 2005 and leads the course AdvancedBrand Management at the University of Colombo MBA program. He functions as Marketing advisor to the Hayleys group affiliate Mabroc /Kelani Valley plantations. In September 2007 he won a “Global Strategy Leadership award” at the World Strategy Summit for his work onEthical branding for the Sri Lankan Apparel and Tea sectors.

BOARD OF DIRECTORS


7 Mr. M. T. L FernandoLal Fernando is a Fellow of the Institute of Chartered Accountants, England & Wales and Sri Lanka. He was the Precedent Partner of Ernst& Young, Sri Lanka for over 30 years.

He has served on the Board of the Colombo Stock Exchange and was a Member of the Council of the Institute of Chartered Accountants ofSri Lanka, Past Chairman - Taxation Committee and a Committee Member of the Ceylon Chamber of Commerce.

Deshamanya M. D. D. PierisDharmasiri Pieris is an illustrious retired civil servant, who in the course of his distinguished career in the public service has held severalimportant posts, including 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 DirectorGeneral of Broadcasting.

He also serves as Director in Lanka ORIX Factors Ltd., Lanka ORIX Insurance Brokers Ltd., Lanka ORIX Finance Company Ltd., Lanka ORIXInformation Technology Ltd., LOIB Financial Services Ltd. which are subsidiaries of the LOLC Group.

He is a Fellow of the Chartered Management Institute, U.K., and has been conferred the degree of Doctor of Letters (Honoris Causa) by theUniversity of Colombo.

9 Mr. T. H. M. WickramasingheTushan Wickramasinghe has over 16 years of extensive experience in a wide range of financial services. He has over 11 years experience inthe area of education and is the Founder Chairman of Shakthi Institute (Pvt) Ltd. a leader in the Field of Education.

He currently serves as the Managing Director of Lanka ORIX Securities (Pvt) Ltd.

10 Mr. Y. OshimaYuki Oshima, who graduated from the Waseda University School of Commerce in 1971, joined ORIX the same year. He was made DeputyPresident of Korea Development Leasing Corporation in April 2000. In June 2002, he became the Deputy Head of the InternationalHeadquarters and in June 2005 Mr. Oshima was made the Head of the International Headquarters and an Executive Officer.

11 Mr. K. FushitaniKiyoshi Fushitani is Bachelor of Arts in Economics. He joined ORIX Corporation, Tokyo in 1998.

12 Miss. C. S. EmmanuelChrishanthi Emmanuel is a Fellow of the Institute of Chartered Secretaries and Administrators - UK. She is Company Secretary of allcompanies within the LOLC Group, including Touchwood Investments Ltd. and Sundaya Lanka (Pvt) Ltd. She is also Secretary of the LeasingAssociation of Sri Lanka.

8

CORPORATE MANAGEMENT TEAM


JAYANTHA KELEGAMAChief Credit Officer

Joined LOLC in 2005. Has over 15 yearsexperience in Leasing & Asset Financing,Credit Risk Management and commercialBanking.

Director of Leasing Association of Sri Lanka.

BRINDLEY DE ZYLVAManaging Director/Chief Executive Officer - Lanka ORIX Finance Co. Ltd

Joined LOLC in 2003. Counts over 24 years ofexperience in both Registered FinanceCompanies and Finance LeasingEstablishments. Member of the Council ofManagement of the Finance HousesAssociation since 2005.

ANURA DHARMAPREMA Corporate Executive Officer - Recoveries

Joined LOLC in 1998. He has over 19 years ofexperience in recoveries in the financialservices industry. Was previously SeniorCollections Manager of a leading FinanceCompany

CONRAD DIASManaging Director/Chief Executive Officer - Lanka ORIX Information Technology Ltd., Chief Information Officer, LOLC Group

Joined the LOLC Group in 2006. Counts over 17years of experience in both Finance and ITManagement in Trading, Banking & Financeand Manufacturing sectors.

KITHSIRI GUNAWARDENE Chief Operating Officer & Chief Legal Officer

Joined LOLC in 2004. Counts over 18 years ofexperience with the state as well as the privatebar. Held a number of important positions in thestate including the office of State Counselattached to the Attorney General'sDepartment, the office of Director, Legal of theSecurities and Exchange Commission and theInsurance Board of Sri Lanka and was involvedin setting up the Consumer Affairs Authority asits first Director General.

GUNENDRA JAYASENA General Manager - LOLC Ventures

Joined LOLC in 2007. Counts over 15 years ofexperience in Manufacturing, Human ResourceManagement, General Trading & PlantationManagement.

SANJIV KEERTHIRATNE Chief Executive Officer - Lanka ORIX Insurance Brokers Ltd.

Joined LOLC in 1999 and played a key role insetting up Lanka ORIX Insurance Brokers Ltd.Counts over 20 years of experience in theInsurance Industry. Council Member of the SriLanka Insurance Brokers Association and SriLanka Insurance Institute.

SUNJEEVANI KOTAKADENIYA Chief Financial Officer, LOLC Group

Joined in 2005. Counts over 20 years ofexperience in financial management ininsurance, asset management and financialservices. Many years of experience in strategicand business planning, treasury management,project management, IT, administration andERP solutions implementation.

CORPORATE MANAGEMENT TEAM


JACQUELINE LORD Chief HR Officer

Joined in 2006. Counts over 17 years ofexperience in Human Resource Managementand Development, including HR strategy,restructuring automation of HR processes andadministration.

NIMAL MENDIS Chief Executive Officer - Lanka ORIX Project Development Ltd.

Joined LOLC in 2005. Possess 38 years experiencein General Management, Engineering, Project -Contracts - Construction & MaintenanceManagement. 23 years at overseas locations andbalance in Sri Lanka. A professional Civil, Building& Building Services Engineer.

ROHAN PERERA Group Treasurer

Joined LOLC in 2007. Counts over 20 years ofexperience in Treasury Management in Banking& Corporate sector, including strategic RiskManagement & Cash Management. Pioneerin introducing the concept of corporateTreasury in Sri Lanka. President of theAssociation of Corporate Treasurers in Sri Lanka and involved in setting up theAssociation as its first President.

KRISHAN THILAKARATNE Chief Executive Officer - Auto Finance and Lanka ORIXFactors Limited

Joined LOLC in 1995. He counts over 16 yearsexperience in Banking, Credit, Leasing andBranch Management. Conceptualized andintroduced Islamic Finance to LOLC.

RAVI TISSERA Chief Executive Officer - Micro Finance

Joined LOLC in 1993 and has experience inBranch Management, Strategic Partnerships,commercial banking and Credit PolicyFormulation. Conceptualised and introducedMicro Finance to LOLC in 2003.

Member of the steering committee onPromotion of the Micro Finance sectorPROMIS.

TUSHAN WICKRAMASINGHE Managing Director - Lanka ORIX Securities (Pvt) Ltd

Joined the LOLC Group in 2002. Chairman ofShakthi Institute (Pvt) Ltd. and Director ofseveral other companies. Counts 16 years ofexperience in Financial Services.

SHARMINI WICKREMASEKERA Chief Risk Officer

Counts 24 years of experience coveringFinance, Accounting, Credit, Auditing, RiskManagement and Business Process Re-engineering. Introduced the concept ofInsurance Broking and IT Auditing to LOLC.President of the ISACA (USA) - Sri LankaChapter and she is the first female to head aprofessional IT Association in Sri Lanka. Shealso sits on the Boards of SLCERT and Infotel.

OPERATIONAL MANAGEMENT TEAM


GAYANI DE SILVA Head of Corporate MARCOM& CRM

CHRISHANTHI EMMANUEL Company Secretary

JITHENDRA GUNATILAKAAGM - Finance Operations

CHANDANA JAYANATH AGM - Recoveries

SOLOMAN JESUDASONHead of Marketing Operations

ROHANA KUMARAAGM - Micro Finance

GRAHAM LAWRENCE Head of Metropolitan Branch Network

DILUM MAHAWATTE AGM - Finance, Corporate

MEHRA MENDIS AGM - Fleet Management

ASHAN NISSANKA Head of Regional Branch Network

SUJEEWA VIDANAPATHIRANA AGM - Insurance

Enriching a NationFrom investing in leading micro-finance companiesoverseas to bring back invaluable knowledge andexpertise; to entering into joint ventures with globalbodies to introduce solar powered products to ruralhouseholds, and investing in reforestation projects,we have committed our resources towards theenrichment of our country as a whole.

GROUP MD’S REVIEW


“Inspired change - laying the foundations for an

inspired tomorrow”

2007/08 has been an iconic year. It has been a year

where every facet of our business has undergone

strategic change. Building on 28 years of admirable

corporate performance, LOLC has over the years

embraced change and introduced change as a lead

catalyst of not only our own business but also that of

many enterprising businesses across the nation.

Adopting a mind-set conducive to change and believing

that change is an avenue for opportunity, our approach

during the year has been anticipative and creative.

This is especially true in light of the fact that the year in

review was the foremost year for the implementation of

the strategic plan conceptualised in the recent past.

With a number of strategic changes put in place during

the year, the most significant of which was the

institutionalisation of Business Units, and the alignment

of the Group's support functions to a centralised shared

services platform, LOLC boldly stepped into a new era of

operational efficiency.

Greater focus on long term strategic direction of the

Group fuelled by short term strategies for aggressive

growth resulted in the vigorous pursuit of the Micro and

SME business through an offer of innovative financial

services.

It is indeed my pleasure to review the year from an

operational perspective. From a personal standpoint it

was a hallmark year for me, as I immersed myself in the

values and the overall ethos of LOLC. The year’s

operations are indeed a true reflection of the outcomes

of the careful and meticulous implementation of a long-

term vision. 2007/08 has, I believe, given true meaning

to the values of LOLC.

“The focus of the year’s

operations lay on three

fundamentals: enhanced

accessibility to customers,

creation of a strong pipeline

of funding and promotion of

innovation as a business

differentiator.”

GROUP MD’S REVIEW

Let me elaborate; by executing the strategic plan and thereby re-

engineering the business process, LOLC has put in place a confident

strategy for creation of long-term value to all stakeholders. The

strategic plan has laid the foundation for enhancement of the

“service-first” mindset and set the stage for pervasive progression of

this concept across all functions and business entities. Innovation has

been fuelled, an enterprising spirit nurtured and the power of ideas

given precedence as the core of each Business Unit's future growth

intent.

The focus of the year's operation lay on three fundamentals: enhanced

accessibility to customers, creation of a strong pipeline of funding

and promotion of innovation as a business differentiator.

Enhanced accessibility to customers has been a priority for LOLC.

Moreover, a greater strategic intent on Micro and SME business has

meant that the Group has had to look beyond the conventional sales

and distribution model to reach the remote and rural customer bases.

Keeping in line with these needs, LOLC in the year under review,

entered into a strategic alliance with LIOC to forge an innovative

partnership, by setting the stage for LIOC fuel and service centres to

act as points of accessibility for LOLC. We identified the potential for

this distribution concept to be a low cost catalyst in customer

outreach. Thus far, the Group expanded reach and accessibility to over

10 centres in areas that is considered to be strategic to the growth of

the Micro and SME sectors. These include Morawaka, Trincomalee,

Pilimathalawa, Seeduwa, Aluthgama, Kadawatha, Ambalangoda,

Deberawewa, Thalawakele and Beliatta. In the pipeline are six more

outlets which will rapidly accelerate LOLC's outreach to Sri Lanka's

rural and suburban communities.

Furthermore, Agriculture and Micro Finance which are our main areas

of focus will greatly benefit from this arrangement with LIOC, as

LIOC's 153 fuel outlets are dispersed around the country covering all

regions. Thus, this will enable LOLC to reach the grass-root-level

customers more effectively. I am confident that this partnership will

redefine and metamorphose the way in which Sri Lanka's financial

services industry views accessibility and reach to potential customers.

It will possibly pave the way for future expansion of services across

the width and breadth of the country. As pioneers of the concept, LOLC

can only be proud to have contributed not only to the customer

through service innovation but also to the entire financial services

industry through path breaking leadership.

In the pursuit of expanding the customer contact points and collection

systems, the Company entered into a cash management arrangement

with Citi Bank and Bank of Ceylon (BOC) where our customers can

access any BOC branch and deposit cash on behalf of LOLC. This will

immensely support the rural clients of our micro business who were

earlier serviced directly by LOLC branches.

Funding remains a key area of priority to LOLC. As a total financial

services provider, we rely on external sources of funding as the

backbone for the lending operations of our business. We seek to

source funding from local commercial banks as well as foreign

bilateral and multilateral funding agencies (refer page 34-35 for more

information on international funding partners). LOLC has been one of

the few Preferred Financial Institutions appointed for many

development funding/ refinancing facilities granted by funding

agencies and the Central Bank of Sri Lanka. In the year 2007/08, LOLC

pursued a strategy aimed at accelerating the inflow of funding, with a

view to support the Group's strategic intent of further growth in Agri

and Micro Financing. As such we have been able to procure a strong

pipeline of funding for future growth estimated at USD 30 Mn.

Innovation personifies LOLC. It is, I believe, our unique value

proposition. It defines who we are and who we will be. At LOLC, the

promotion of innovation has been the lifeline of the business and will

continue to be the reason for its continued success. Consistent value

creation through innovation is the way forward for the future. As such

in the year under review, the Group continued to invest in innovative

product development and service enhancing strategies. With an

expected high Return on Investment (ROI), LOLC looks to the future

with confidence in the knowledge that cutting edge financial service

solutions and innovative service enhancements will lead the way,

inspiring change for a better tomorrow.

Some of the initiatives that were implemented during the yearare already benefiting the group.

• Expansion of distribution network with LIOC service stations

• Extended service hours at all outlets of LOLC

• Savings accounts offered at OASIS Hospital

• Shari'ah approval for Islamic financing products

• Loans for permit holders

• Lottery of a house as a value addition to the customer

• Western Union services offered at the branches

• Factoring business expansion in the regions

• Enhanced collection and cash management system with Citi

Bank and BOC


GROUP MD’S REVIEW

External environmental factors and resulting strain on economic

activity triggered stress on collections during the year. The first

quarter of the year experienced a downward momentum with a

decline in collections, however, this was corrected towards the latter

part of the financial year with a strong thrust on recovery efforts,

positively impacting the collections and the Non Performing Loan

(NPL) ratio. It is our belief that superior collections are a result of

effective customer reach and better management of early arrears. The

service centres at LIOC, and BOC/CitiBank collection systems will

further strengthen the flow of collections in the years ahead.

From a Business Unit perspective, Working Capital and Savings &

Deposits performed exceptionally well during the year. In fact almost

all Business Units performed above average and as a result, the

cumulative effect of a sound Group performance was evident by a

50 % top line growth. The profits recorded are considered very

healthy considering the negative external pressures of the

environment, especially the high interest rates prevalent during the

year affecting the borrowing costs. Provisions for bad and doubtful

debts were contained at an acceptable level despite the negative

economic scenario. Operating expenses were managed well within

budgets. The group saw healthy growth in profits of 25% compared

with previous year.

The year also saw the commencement of the inaugural Branch

Performance Award, a recognition mechanism held every quarter of

the year. Kurunegala and Ratnapura branches were recognised for

their performance and productivity during the course of the year. It is

hoped that the awards will foster a culture of inspired change

amongst all branches, towards greater performance and service

orientation.

Ours is a future moulded by actions that we take today. We believe in

harnessing the power of today to create a better tomorrow. Our future

strategies are based on this premise. We will view potential

acquisitions and mergers with an open mind, in our pursuit for

accelerated growth. The recent acquisition of Commercial Leasing

Company PLC is seen as an ideal opportunity for the Group to harness

market leadership in leasing and derive synergetic benefits from

aligning operations of the two companies for higher performance and

long term business and asset growth.

By enhancing the Group's product and service portfolio whilst working

within the periphery as set out by the regulators, we envision

ourselves as a financial services “hypermarket” of the future.

As an employer of choice, LOLC has always respected diversity in the

workplace. In the year under review, core common practices such as

Human Resource Development have worked hand in hand in adding

value to talent management. The Group's belief in ethical and

sustainable business has, I believe, been renewed in 2007/08, thereby

inspiring the LOLC team to not only maintain the highest professional

and ethical standards but to take on the role of model corporate

citizens by emulating the business, social and environmental

sustainability practices that the Group passionately pursues.

Our vision for the people of Sri Lanka is one that is part and parcel of

our vision for the Group - we will create a better tomorrow for the

nation by creating a prosperous future today.

Kapila Jayawardena

Group Managing Director/Chief Executive Officer


BUSINESS IMPACT REPORT


A Philosophy for a better tomorrow

At LOLC our business philosophy is one that is inspired today, for a

better tomorrow. With a vision to be the most innovative financial

services provider, we endeavour to create a powerful thrust into all

regions of Sri Lanka, touching lives and catalyzing change amongst all

Sri Lankans. By reaching out to the most rural of communities we have

earned a reputation for building a business concept that is in the

truest sense sustainable.

For us sustainability means a lot more than maintaining our

marketability. It is about doing business in a manner in which we

mould a better tomorrow through sustainable livelihood enhancement,

engaging in ethical investments that propel the adoption of best

practices and know-how to create a more environmentally sustainable

future not just for Sri Lanka but also the region.

Strategic Realignment

LOLC for the last twenty eight years has been a front runner in

financial services. Whilst at the inception its most dominant

commercial operation revolved around leasing, in the last decade the

company has morphed into one that specializes in an array of financial

services. Now looking to the future with a vision to be a total financial

solutions provider not only to Sri Lanka but also to the region, the

company will continue to focus and move purposefully towards

targeting quantum growth in Micro Finance, Agro and Development

sectors, identified as the key growth sectors for the next few years,

while capitalising on the existing business segments.

To further facilitate the company's vision a strategic realignment was

initiated in the year 2006/07 with a view to accelerate its growth

momentum. Individual companies of the LOLC Group are now aligned

to a BU structure, thereby moving away from an individual legal entity

business model. This we believe, has lent us the ability and tenacity

to give greater focus to the BUs to focus on business strategy and

product development, better anticipate customer requirements, and

clarity in directing each business unit in alignment with the overall

Group strategic interest.

In the year 2007/08, the strategic realignment bore substantial fruit,

demonstrating the initial signs of success in shifting the legal entity

model. With all access points of LOLC delivering every aspect of

LOLC's total financial services package, the realignment has truly

impacted on the lives of our customers. The one contact point: all

financial services offer has thrust our customers to a new realm of

experience in financial services and given us the ability to grow our

market presence with greater vigor.

The strategic alignment not only aligned the BUs to cater to the

customer needs and improved reach, but made the company more

effective and efficient in its business operations. The centralisation of

all the service units providing synergetic services to all BU’s are

already reaping benefits for the whole Group with potential to realise

more benefits in the coming years.

Innovative Offerings

Aiding this growth momentum has been the alliance between LOLC

and LIOC during the year. The alliance will enable LOLC to increase its

reach to all regions of the country and serve grass roots level

customers more efficiently. During the year in review service centers

commenced operations in Morawaka, Trincomalee, Pilimatalawa,

Aluthgama, Seeduwa, Kadawatha, Ambalangoda, Debarawewa,

Beliatta and Thalawakele.

LOLC Service Center at LIOC fuel station - Morawaka

Mask Manufacturer in Ambalangoda - funded by Micro Finance Loan



In line with the long term need for managing sales and distribution

costs which are ever increasing, the company also laid the foundation

to establish a low cost sales channel, which will initially sell savings

and insurance products. These business associates will add further

value to the existing branch network's capability of satisfying

customers' total financial needs.

Further the company has entered into an agreement with Citi Bank to

join with BOC Branches to offer our customers the ability to make

payments for LOLC, at BOC branches, further widening the reach of

our services.

The year under review saw the formation of the Islamic Business Unit

under the finance company, LOFIN. The unit worked in close

collaboration with and under the guidance of the All Ceylon

Jamiyyathul Ulama (ACJU), the official proponent of the Shari'ah Law

Supervisory in Sri Lanka. LOLC's Islamic Business Unit now offers the

following products to customers.

Mudharabah - Profit sharing Investments

Ijarah - Leasing

Murabaha - Trade Finance

Diminishing Musharakah - Property Development Finance

The year evidenced significant growth of business from this sector

and the company expects quantum growth in the coming years.

Internal process reviews and alignment were key within the

operations teams, with further focus on customer service. All

centralized operations teams carried out detailed process reviews and

aligned their functions to support the front end sales and channels

with delegated authority and autonomy at the branches being the

priority.

During the year, the Company committed further in financial and other

resources into its Information and Communication Technology

infrastructure to support the implementation of new strategies

targeting business growth and expansion. We have strengthened our

data center and Online Disaster Recovery Center by investing in state-

of-the-art technology and introducing carefully planned and

documented processes. Significant improvements were made to

connectivity with the distribution channels. Plans are under way to

implement a redundancy network connection to serve our customer

with zero interruptions.

New business systems were introduced to support the new initiatives

and Islamic Finance, Working Capital and Savings & Deposits, saw

significant process automation and integration enabling the business

to be agile and competitive.

During the next few months, the company will launch Automated

Teller Machine (ATM) services for our savings customers by

commissioning our first ATM installed at our head office in Rajagiriya.

Further, the Group is planning to invest in an e-commerce and mobile

commerce platform that will enable us to serve our customers faster,

at a lower cost.

Plans are in place to obtain ISO certification for IT infrastructure and

Security which will standardize and formalize our approach to

information security.

OPERATIONAL REVIEWS OF FINANCIAL SERVICES BUs

AUTOThe Auto BU overlooks a variety of services and products that are

essentially auto financing or facilities with auto being the collateral.

Whilst traditionally the unit focused on Finance Leasing, more recently

it has enhanced its business scope to a portfolio of approximately 18

products which caters to different needs of our customers.

The auto portfolio is the highest revenue earner for the group with

leasing still contributing the highest. However, loans and hire

purchase products are becoming more and more popular, driven by

pricing as well as the economic changes steering the vehicle industry

into more used vehicles than unregistered/brand new vehicles.

The portfolio of Development Finance managed under the Auto BU

Paddy husk heated boiler - Katana: funded under e-friends scheme



saw tremendous growth during the past year and has great potential

in the coming years. Through Development Finance, LOLC offers most

of the low cost refinance (funding) loan schemes to the SME and

targeted sectors in the manufacturing and plantation sectors. As a

Participating Credit/Financing Institution, LOLC disbursed

approximately Rs. 500 Mn during the year through the following

development finance loans schemes:

• Tea Development Project : Private Tea Factory owners and Tea

Small Holders.

• Plantation Development Project: Regional plantation companies.

• E-friends: Industries investing in environmentally friendly

projects.

• European Investment Bank Post Tsunami Credit Line: Industries

directly & indirectly affected by the Tsunami.

• European Investment Bank Post Tsunami Credit Line: Industries

directly affected by the Tsunami.

• Perennial Crop Development Project - Small and Medium scale

perennial crop growers.

In addition, LOLC followed a policy of value addition to development

finance by playing an advisory role to support the sustainability of

customer's individual business. For LOLC, its role in Development

Finance goes beyond the gambit of loan provision to being a stimulant

for activation of the sector, in a bid to benefit the sustainable

development of the Sri Lankan economy.

Looking to the future, Auto Business foresees a scenario where

taxation and duties on automotives on the rise, leasing reaching a

point of market saturation and hire purchase becoming more popular,

with the market moving towards used vehicles. The unit will continue

to forge partnerships in a bid to expand the business and is currently

pursuing an aggressive strategy for geographic expansion. The LIOC

alliance serves as a benchmark for future growth strategies given the

strategic fit between the BU and the business model of the LIOC.

MICROWith the realignment of strategic focus, the Micro Finance sector was

identified as an area of key importance to LOLC. Essentially, the scope

of business extends to lending small value loans to individuals and

groups in rural areas.

Over the years, LOLC as the pioneering leasing company has assisted

SME’s to realise their business potential. Now leveraging on the

expertise gained in the SME sector, LOLC strives to fuel economic

development through the empowerment of the rural sector. As such,

the primary objective of the Micro Finance BU is to provide

opportunities through products and services to customers who

otherwise have limited or no access to mainstream financial services.

LOLC's foundations in Micro Finance hark from a history of providing

solar home systems to rural households who have no access to

national grid electricity. Having gained Participatory Credit Institution

status for the Renewable Energy for Rural Economic Development

(RERED) project of the World Bank, LOLC is now among the largest

private sector financiers of solar home systems in Sri Lanka. Todate ,

LOLC has financed over 16,000 solar systems to customers who are

predominately engaged in agricultural activities in the rural sector.

The year 2007/2008 was a defining year for the Micro Finance BU. The

strategic re-alignment of the Business infused greater strategic intent.

In effect the BU posted a growth of 67% from that of the previous

year. Numerous capacity building activities were conducted during the

year, especially with respect to knowledge enhancement and

knowledge management, to enable the sales force across the length

and breadth of the organization to not only be conversant with the

products on offer but also to be competent in advising potential and

existing customers.

The year was also one of relationship building, with the fomalisation

of working alliances established with many bilateral agencies such as

the GTZ and the USAID.

Micro Finance recipient - Dairy Farmer, Polonnaruwa



From an operational perspective, the BU established 20 rural internet

centres under the aegis of the Last Mile Initiative of USAID. Agro

loans were provided to farmers through tri-party agreements signed

with agro processing companies such as Prima & Hayleys Agro. The

year also evidenced the establishment of a centre for Micro Finance

activities in Medabedda, Balangoda and the joint venture with

Sundaya Lanka Limited, a solar component assembly and marketing

facility.

The Micro Finance BU has so far disbursed approximately Rs. 2 Bn

worth of micro finance facilities under the flagship of LOLC.

Outreach, sustainability of operations and achieving greater

operational efficiencies that will benchmark the BU as the best in

South Asia are a few of the future objectives of the BU.

However, the company is looking forward to establishing a business

with the support of a reputed AAA rated development financial

institution in Europe in the coming year. The roadmap for the coming

3 years ahead spells out the leadership position that LOLC hopes to

achieve - to be the premier private Micro Finance company in Sri

Lanka. As such, the Micro Finance BU will press ahead extending

outreach which also includes special focus in the Eastern Province

through its proposed fully fledged branches in Ampara and service

centres in Trincomalee, Batticaloa and Kalmunai and Dambulla.

SAVINGS Lanka ORIX Finance Company Limited (LOFIN) is the Registered

Finance Company (RFC) of the LOLC Group which is registered with

and licensed by the Monetary Board of the CBSL to mobilize public

deposits. As an RFC, LOFIN complies with the stringent controls

imposed by the CBSL - the regulatory body for the sector. LOFIN holds

the accolade of being the only Sri Lankan Finance Company with a

direct association with a reputed global financial entity. Operating

with a Fitch Rating of BBB+ (lka), LOFIN is perceived as a financial

institution of strength and stability.

During the financial year 2007/2008, LOFIN performed commendably

with its deposit base recording a growth of over 90%, whereas the

growth of the Savings & Fixed Deposit market comprising Commercial

Banks and other licensed financial institutions including RFCs was

less than 20%.

Five key initiatives that contributed towards this exceptional

performance are,

• Six new branches, thereby operating from the entire branch

network of the LOLC Group,

• A Hospital Savings Center through which a 24 X 7 service is

offered for the convenience of our savings account holders and

medical practitioners alike, the first such operation established

by any financial institution,

• A Students Savings Center, in Polonnaruwa, to inculcate the

habit of Savings amongst rural youth,

• Two Service Station Savings Centers at LIOC fuel stations and,

• A unit to provide personalised services to the high net-worth

customers.

The restructuring of the LOLC Group, the strong Brand equity of LOLC,

and the association with ORIX Corporation of Japan, were also key

factors that contributed to the growth of the Deposit base.

Opening of Student Savings Unit at Royal College, Polonnaruwa

Solar powered home system funded under RERED program



The product range offered by us encompasses all customers ranging

from Minors (with the ORIX Champ Savings accounts which offer

attractive gifts when the balance reaches predetermined slabs),

Senior Citizens (with a higher rate of interest linked to an emergency

medical service), Corporate entities (with both Super Savings

accounts in which the rate increases in relation to the balance) and

Corporate Fixed Deposits (which offer a premium rate), and the Rural

Community (with Micro Savings accounts specially tailored to cater to

their needs).

In looking to the future, LOFIN will continue to add value to Savings

and Deposits with innovative features that will leverage on par with

all other financial service providers. A tie-up with an ATM/Debit card

network is currently in the pipeline and is an initiative that will afford

all LOFIN savings account holders the convenience of easy access to

their funds.

The landmark achievement during the year under review was the

approval obtained from the CBSL to set up an Islamic Business Unit

(IBU) through which we now offer the opportunity for investors to

make Mudarabah Investments. This is the only such approval granted

by the CBSL. These investments offer investors a share of profits of

the IBU and have the approval of the Shari'ah Board of the Company

and the CBSL. LOFIN is the only such Financial Institution that is

registered with the Central Bank.

The challenge that requires tactful management is the necessity to

control the cost of deposits in a market where 'price war' is

the norm.

INSURANCE The Insurance Business Unit credits its self as a front-runner in the

Insurance Brokering arena, with the Insurance Board of Sri Lanka

validating LOIB's, position in its annual report 2007 ranking the BU as

number 3 in premium value when compared with over 55 registered

insurance brokers operating in Sri Lanka. The Insurance BU, is an

Honorary Council Member of Sri Lanka Insurance Brokers Association

(SLIBA) and an Honorary Council Member of Sri Lanka Insurance

Institute (SLII). With a Gross Written Premium of approximately Rs.

867 Mn per annum, this BU is also looking at promoting offshore

insurance products through a fully owned subsidiary.

The Insurance BU posted a 30% top line growth in 2007/08. Falling in

line with the objectives of the overall strategic re-alignment, the

company shifted focus to garner a greater share of the external,

corporate customer segment. As a result, LOIB registered a 200%

growth in market share and thereby reduced its dependency on the

internal group for business. In doing so, the key challenge for the

company was to successfully differentiate itself both from the

mainstream insurance providers as well as insurance brokers.

Going forward, the BU will seek to create a greater interaction with

clients through enhanced process management and customer reach.

Its future strategic direction rests surely on a 3-year plan to phase out

tangible documentation to an electronic documentation system,

thereby becoming paperless. The initiative will optimize the efficiency

of the company and enhance its ability to offer more timely, effective

and precise service delivery.

With a view to becoming the “Insurance Specialist”, the BU will

aggressively market its existing portfolio of products, especially its

Guardian co-branded range, with product innovation as its selling

proposition, thereby overriding a scenario of price war in the market

place.

FLEET MANAGEMENT Fleet Management as the name implies is the management of a fleet

of motor vehicles which are offered as short and long term hires. The

service provided helps to relieve our clients of the burden of managing

their own fleet of motor vehicles. The intention of the BU is to replace

the transport division of a corporate by offering an economical

alternative and the opportunity to concentrate on their core business

activities.

A Poster publicity campaign of the Company



This is largely an untapped market, dominated by small rent-a-car

operators. LOLC has taken the necessary steps to make use of this

opportunity and expects rapid growth in the Fleet Management

business. The investment in its own work shop cum repair facility will

be the key to future growth. It is intended that the workshop will

benefit the customer, enhance efficiencies, decrease costs and

increase the service orientation of the unit.

In 2007/08, a significant achievement of the BU was the procurement

and provisioning of a locomotive to a corporate client. It is believed

that this is the first time that such an initiative has been made in Sri

Lanka and is a first in the history of a leasing company where a

locomotive has been hired to a corporate entity. The success of this

kind of business venture is a precursor to LOLC venturing into

equipment hires.

The total vehicle fleet managed by LOLC presently is over 900

vehicles, a significant number compared to established rent-a-car

companies who have been in this business far longer than LOLC.

WORKING CAPITAL The Working Capital Business Unit of LOLC was established when we

identified the potential in non-securitised assets and the need for

cash flow based financing rather than conventional asset back

financing. This BU makes LOLC one of the few companies that has a

specialised factoring operations. LOLC's Working Capital solutions

enables the SME sector entrepreneurs to generate a steady cash flow

for growth and expansion. The unit's spectrum of services includes

factoring and invoice discounting, receivables management, sales

ledger administration and collection, information and data sharing.

The BU recorded impressive gains during the year under review in top

line growth as well as bottom line growth. It successfully grew its

market share as a result of a progressive market penetration strategy.

Moving away from the conventional Colombo market (which in

essence is deemed to be the most lucrative for factoring), the

company recognised the latent potential of suburban and rural

markets. Hence, like all other product offerings of LOLC, factoring too

is now been made available to clients through the branch network in

selected cities. The strategic re-alignment of the BU proved to pave a

new path of success with its access to twenty two direct channels

across the country enabling it to secure a number of priority clients in

the suburban and rural sectors.

Despite intense competition, the BU continued to achieve operational

efficiencies through internal reorganization of functions together with

cost control measures. However, high cost of borrowing during the

year pushed lending rates upwards.

From a future strategic perspective, we will continue to focus on

regional expansion as a means to greater growth in turnover and

market share. Market expansion strategies will continue to focus on

assisting the SME customer-base through both working capital

solutions and advisory services.

STOCK BROKERING A Member of the Colombo Stock Exchange (CSE), Lanka ORIX

Securities (pvt) Ltd operates with a team of 35 stock brokers who have

successfully structured and executed many strategic transactions in

the CSE during their careers.

LOLC is the registered broker in Sri Lanka for Citigroup Global Markets

Limited and possesses a global client portfolio consisting of fund

managers such as the reputed Galleon Group, New York, BNP Paribas

Asset Management, UK and Lionhart Investment, UK.

In the local market scenario, this BU represents a client base that

exceeds 50,000 comprising of most of Sri Lanka's high net worth

Individuals and local institutions as well as retail clients from across

the island. It has five branches, in Kandy, Matara, Negombo,

Kurunegala and Kalutara and all branches are ranked among the top

two according to monthly turnover.

During the year 2007/2008, the BU's strategic intent was to increase

foreign institutional market share - a goal met successfully. It has

remained within the top three stock broking firms in Sri Lanka during

the last five yearsAn Outdoor Street Promotion of the Company



Looking to the future, BU plans to optimize its operations to ensure

that it retains its position as a top broking firm, and hence it looks to

maintain its momentum of growth equally in the foreign, local

institutional, high net worth and retail segments.

OPERATIONAL REVIEWS OF OTHER SUBSIDIARIES

INFORMATION TECHNOLOGYLanka ORIX Information Technology Company (LOIT) supports and

services all Business Units and Subsidiaries of the Group with all ICT

requirements whilst focusing on providing Application Systems and

Business Intelligence Solutions for banking and financial

services sector.

Business Intelligence and Data Warehousing (BI & DW) is the key

focus area for strategic growth of the company. BI & DW solutions

remains relatively new to the Sri Lankan and global markets, and will

be focal investment of large corporates, especially in the banking and

finance sector over the next two to three years. The company is

confident of securing a significant share of the market in this area

through strategic investment into product and partnerships. With the

experience of the pioneering leasing company of Sri Lanka and the

global best practices of the ORIX Corporation of Japan, the IT business

pioneered a leasing and loans management solution for Sri Lanka's

leasing industry. Leveraging on this position, LOIT believes it will be

able to provide best of breed applications solution for financial

services sector and become a leader in the BI & DW.

LOIT has in the past engaged in strategic partnerships with global

leaders in technology and business solutions such as Oracle and

Microsoft, and will continue to secure partnerships for the focus areas

of BI & DW in the coming years.

In the long-term, the company envisions being a leader in BI & DW,

Banking and Financial Services Solutions and Consultancy in

the region.

PROJECT DEVELOPMENTLOLC established a dedicated projects development company Lanka

ORIX Project Development Co. (LOPD) in 2005 to pursue two key

objectives: (a) source and partner with reputed, experienced foreign

organizations and (b) participate in infrastructure and related projects

in Sri Lanka and regional countries.

In the year 2007/2008, LOPD made further progress on two innovative

and ambitious projects which have great potential for the group.

The first of these projects pertains to off-shore sand mining, washing

sieving & supply to the construction industry. Given the ill impacts of

river based sand mining on the eco systems of water ways, the

Government of Sri Lanka banned river mining. LOPD recognised the

potential of the next best alternative as proposed by experts and

embarked on an initiative to mine sand off-shore, wash, sieve and

supply to the construction industry.

LOPD in a joint venture with Dredging International, NV of Belgium -

the No 1 dredging reclamation, marine engineering and off-shore

contactor in the world, looks to cater to the burgeoning sand

requirement of Sri Lanka's construction sector. The requirement of

sand for the construction industry is approximately 10 Mn metric tons

per annum. It is forecasted that this quantity will increase

exponentially in the future due to development of new infrastructure

facilities, island wide.

During the year the Land Reclamation & Development Corporation

allocated 48 Acres of developed land at Muthurajawela for this

project. Further Off-Shore mining areas have been identified at five

locations for future expansion. The project which is a private public

sector partnership is due to commence commercial operations in the

near future. The Government of Belgium has pledged to finance this

project of national importance.

LOPD's second project - the manufacture of Precipitated Silica using

Rice Husk Ash, was further developed during the year. LOPD acquired

patent rights from US-based AgriTec for use of their technology in

seventeen countries, Sri Lanka, Thailand, China, Vietnam, Philippines,

Cambodia, Laos, Indonesia, Myanmar, Bangladesh, India, Pakistan,

Malaysia, Australia, Japan, South Korea and Singapore.

Precipitated Silica is used in the manufacture of tires, rubber goods,

cosmetics, tooth paste, chocolates, biscuits, computer chips, aircraft

components and on many other manufacturing applications. The scale

and scope of the usages and demand for the material poses great

opportunities for LOPD, especially given the low cost of converting

rice husk to precipitated silica.

Identifying Thailand as the most suitable location, given that the

country has more than 18 rice de-husking plants where rice husk ash

is a growing concern for plant owners due to a lack of disposal

methods - LOPD joined hands with a company in Surin, Thailand to

obtain 20,000 tonnes of rice husk ash per annum, to manufacture

precipitated Silica & allied products.

During the year negotiations were completed for construction of the

first production facility. The plant will near completion by end 2010

and commercial production will commence 03 months thereon. Six

more production facilities will follow in Laos, Cambodia and Vietnam.

SUNDAYA LOLC bought a controlling interest of Sundaya Lanka Pvt. Ltd. during

the financial year under review. Sundaya Lanka, is a solar

manufacturing and trading company and is one of the largest solar

manufacturing company in Sri Lanka. With the expertise LOLC has

gained in the financing of home solar systems through the RERED

project, LOLC sought to support the rural customer base of the

company with solar systems. The systems will also be serviced by the

company, a departure from the practice of the past where there was

no after sales support available for solar systems provided by other

vendors.

Sundaya Lanka is currently in the process of establishing its workshop

in Pannala and is hoping to be the number one solar panel

manufacturer in the country with aggressive growth plans being

drawn to expand into the region in the near future.

PRASACLOLC acquired a stake of 19% of PRASAC Micro Finance Company of

Cambodia in 2006, in its pursuit to expand business operations in the

region. LOLC saw the future potential for Micro Finance business in

Cambodia as well as in Sri Lanka which is untapped to a great extent.

The investment in PRASAC has brought in technical expertise in Micro

finance business for LOLC and also opened avenues for many business

opportunities for LOLC in Cambodia.

PRASAC with the capital infusion and restructure that took place in

2006 and 2007 has shown significant growth in business and

generated 60% top line growth compared with the previous financial

year. The change in business strategy also delivered 297% growth in

profits. The growth in the asset book of the company was an

impressive 150%. The net assets recorded a healthy growth of 140%

during the last financial year.

LOLC was accepted by The National Bank of Cambodia as one of the

two influential shareholders of PRASAC Micro Finance Company and

will actively participate in growing Micro Finance Business in

Cambodia.

TOUCHWOOD Touchwood Investments Ltd. (TIL) pioneered Sri Lanka's forestry

plantation, management and investments sector. LOLC identified TIL

as a long term strategic fit for the group in terms of a sustainable

business model and during 2007/2008, acquired 29.18% of

Touchwood by initiating an investment into the company which

believes in the triple bottom line; Planet, People and Profit. For both

entities - Touchwood and LOLC - this investment is considered to be a

symbiotic relationship which will deliver value in the medium and long

term. TIL is in the business of managing foresty plantations for

customers who invest in foresty for the long term investment growth.

During the year under review, from a performance perspective,

Touchwood experienced moderate growth. LOLC's investment adds



PRASAC branch office in Kampong Chhnang province, Cambodia

Micro Finance funded pottery project - Cambodia



great value to Touchwood in enhancing its image and is expected to

positively contribute to register robust growth in the coming year.

The future plans of Touchwood include rapid expansion of the forestry

and plantation cover. In the coming financial year, in excess of 1000

acres of forestry are planned to be planted. It is also hoped that the

business proposition will be widened to reach a greater target

audience using the LOLC distribution network. The association with

LOLC will also allow the company to pitch its offer to international

multilateral funding agencies. As a true triple bottom line operator,

Touchwood operates with true sustainable principles embedded into

the business.

Young Mahogany plantation


GLOBAL ALLIANCES AND FUNDING PARTNERS

Over its twenty eight years, LOLC has evolved as a total financial

solutions provider and is recognized today as a significant player in

the industry. The Company's long term vision of sustainable growth

and development of the SME and Micro sectors is a vision that is

aligned very clearly with the goals of many multilateral and bilateral

agencies. LOLC would not have been able to realise its dreams and

successes if not for the backing of these funding institutions which,

having understood the vision of the company, have supported us with

long term funding solutions at attractive terms and conditions.

In 1994, LOLC for the first time secured a long term funding line from

FMO - the Development Finance Company of the Netherlands,

marking the beginning of its success at securing many more such

funding lines for SME and Micro Financing activities. Today, LOLC is

one of a handful of Sri Lankan private sector entities that partners

many of these funding institutions around the world in providing long

term funding. The full list of LOLC's partner funding institutions is

given below.

LOLC's vision for sustainable development, its drive to develop the

SME and the Micro sectors and its superior performance have

convinced many funding institutions to consider LOLC, as their

preferred local partner to fulfill their developmental goals, that cover

attractive long term funding and on capacity building and technical

assistance.

In addition to providing funding for lending to the customer, these

agencies have driven LOLC to reach the highest standards of ethics,

transparency and accountability; they ensure that LOLC follows

internationally accepted guidelines such as Anti-Money Laundering

(AML) policies, Know Your Client (KYC) policies, and environmental

protection procedures and also ensures that the company manages

risks involved in its business effectively. They have been instrumental

in providing expertise and know how for the implementation of the

environmental and AML policies at LOLC which have enabled us to

enhance our knowledge and in turn, support our clients better. The

agencies' expertise has been transferred to LOLC, with support to

train our staff, knowledge transfer and even IT systems support for the

development of risk management tools.

While the foreign bilateral and multilateral agencies support the

business with attractive funding options, the local commercial banks

too play an equal important role in having confidence in LOLC and

extending support with further funding lines for business expansion,

over the years.

These long-term mutually beneficial partnerships between LOLC and

our funding institutions not only provide long term funding solutions to

us, but also provide LOLC with a total solution that helps us ingrain

best practices into our operations.




Institution Type of Facility Purpose of funding Value addition

OPEC Fund for US$ long-term loan SME sector financing International and developmentDevelopment

FMO Long-term rupee loan SME sector financing Environmental and development policy; Anti Money

Laundering policy

Afd PROPARCO Long-term US$ loan Tsunami affected Environmental (French Development SME sector financing policy; Anti Money Agency Group) Laundering policy

DEG Long-term US$ loan SME sector financing Environmental and development policy; Anti Money

Laundering policy, Liquidity risk management technology

Belgium Investment Long-term US$ loan SME sector financing Environmental Organisation (BIO) and development policy; Anti Money

Laundering policy

Overseas Private Investment Risk Sharing Facility with SME sector financing and Environmental policy; Corporation(OPIC) Citi Bank, Colombo development Anti Money

Laundering policy

USAID Portable Guarantee scheme Micro Finance Sector Environmental policy; development in Eastern Anti Money and Uva province Laundering policy

Finn Fund Long-term US$ loan SME sector financing and Environmental policy; development Anti Money

Laundering policy

European Investment Long-term Rupee/Euro Tsunami affected SME Environmental policy; Bank (EIB) Refinancing scheme sector development and Anti Money

support in tourism sector Laundering policy

World Bank Long-term Refinancing Refinancing of rural sector Environmental policy; rupee loan renewable energy Anti Money

development Laundering policy

Japan Bank for Long-term Rupee loan/ Develop the plantation Environmental policy; International Refinancing scheme sector in enhancing Anti Money

Corporation (JBIC) profitability and to Laundering policyimprove the living and working conditions of the estate workforce

ADB Long-term Rupee loan/ Tea smallholders income Environmental policy; Refinancing scheme improvement and Anti Money

development Laundering policy

GTZ Technical assistance Development of Promotion of Microfor Micro Finance Micro Finance Sectors Finance Sector

Export Development Long-term US $ loan SME Sector financing & Corporation Canada Development with

Canadian Imports



Group Operations Structure

Preserving LifeFrom continuing to support existing CSR initiativesboth large and small, to evaluating and investing instrategic CSR opportunities – such as Touchwoodinvestments, we are dedicated towards promotingenvironmental sustainability and the preservation oflife for future generations.

COMMUNITY AND ENVIRONMENT

Sustainable Development:

The crux for a better tomorrow

Sustainable Development has been defined as “Development that

meets the needs of the present without compromising the ability of

future generations to meet their own needs” in the report of the World

Commission for Environment and Development (Bruntland report-

1987). This definition echoes the very premise upon which LOLC's

Sustainability Vision is founded.

Sustainability at LOLC is a way of life. It is embedded into the

business's philosophy and dictates the way in which the Group

operates, the decisions it makes for the future, and its pragmatic

approach to business. At LOLC, our business model is one that looks

beyond the “short term economic value” to one of “long term societal

and environmental value”. We are perceptive of the need to balance

commercial and financial objectives by considering and undertaking a

holistic, strategic and sustainable approach in doing business. We

believe that sustainability has to go beyond the scope of donations

and charity to sustainable livelihood development aimed at self-

sustenance and poverty alleviation.

In essence, both our business and sustainability ethos go hand in

hand. Our ultimate objective is to enhance the quality of life for the

nation's rural communities whilst also ensuring that our natural

habitat and eco-systems are protected for the future. As such LOLC

has over the years adopted a business protocol led by an

environmentally viable lending policy.

United Nations Global Compact

In the past decade the United Nations has embarked on many

initiatives focused on sustainable development shifting its focus in the

1980s and early 1990s from the “Environment” to a more holistic and

comprehensive approach. The Global agenda set by the United

Nations has two major initiatives towards championing sustainable

development through achievement of Millennium Development Goals

and through the adoption of ten universally accepted principles in the

areas of human rights, labour, the environment and anti-corruption .

The Global Compact is a framework for businesses that are committed

to aligning their operations and strategies with ten universally

accepted principles. As the world's largest, global corporate

citizenship initiative, the Global Compact is first and foremost

concerned with exhibiting and building the social legitimacy of

business and markets.

The Global Compact involves all the relevant social actors:

governments, who define the principles on which the initiative is

based; companies, whose actions it seeks to influence; labour, in

whose hands the concrete process of global production takes place;

civil society organizations, representing the wider community of

stakeholders; and The United Nations, the world's only truly global

political forum, as an authoritative convener and facilitator.

In March 2008, LOLC joined the membership of the United Nations

Global Compact with a view to demonstrating its leadership in

advancing responsible corporate citizenship and by producing

practical solutions to contemporary problems related to globalisation,

sustainable development and corporate responsibility. It believes that

by aligning with the ten principles of the Global Compact it will be

better poised to manage future risks by taking a proactive stance on

critical issues.

Sustaining lives through sustainable business

From a sector perspective, the Group has pioneered sustainable

development in a myriad of areas. To give greater focus to the adopted

approaches and to systemize the sustainability effort, this report

seeks to project the main areas within which LOLC has undertaken

innovative yet sustainable business practices.

“ Light of the future”

LOLC is a pioneer in introducing rural communities to renewable

energy. In Sri Lanka over 15-20 % of rural communities have no access


Micro Finance funded Horticulture project - Bandarawela

RERED funded solar home lighting system - Monaragala


to grid electricity. Dependent on paraffin lamps for night light, rural

communities are often devastated by paraffin related accidents that

lead to not only destruction of property but to also of life.

By successfully gaining the preferred financial institution status for

World Bank's Renewable Energy for Rural Economic Development

(RERED) Grant, LOLC has grown to be one of the largest private sector

financiers of solar home systems in Sri Lanka. To date the Group has

financed over 16,000 solar systems to rural families who are

predominately engaged in agricultural activities.

The Group perceives its role as a facilitator to rural communities, who

not only provides financial access that affords families the ability to

enhance their lifestyles but also one that is committed to the long

term maintenance of this lifestyle. As such in 2007/2008, LOLC

invested in a 51% stake of Sundaya Lanka Ltd, a fully owned

subsidiary of Sundaya International, a reputed manufacturer of solar

components. Sundaya Lanka Ltd is one of the largest solar panel

service providers in Sri Lanka, which ensure a long term sustenance of

people's dependence on solar as opposed to a short term financing

solution.

The Group's involvement in solar has given new light to thousands of

rural families, minimized the human-elephant conflict and created

pervasive commitment towards renewable energy as an alternative

energy form.

“Towards a national strategy of self sustenance”

Over 80% of Sri Lanka's demand for Milk is met by imports basically

in the form of Full Cream Milk Powder (FCMP); In other words, Sri

Lanka currently produces only 20% of the nation's total milk

requirement. Imports therefore, determine market prices as an excess

demand situation propels market forces. Moreover, imports are

predominantly in the powdered form, which invariably means that the

nutritional value is lower than that of fresh milk.

In recognition of the issues that surround the need for dairy

development, LOLC undertook certain initiatives to revive the ailing

national dairy industry. The adoption of a national strategy that

echoes much LOLC's vision for the industry has eased the progression

of the Group's efforts towards dairy development.

By giving farmers the required investment to purchase cattle, LOLChas renewed an interest in the sector. However, noting the need for afacilitator that adds value across the value chain of the industry, LOLChas taken upon itself the role of a counselor to the farming community.By lending support through technical and marketing know-how, it hasassisted the dairy farmer community to increase efficiencies. Thisincludes enhanced animal productivity, fodder and nutritionalefficiency through bio-genetics and efficiency in collection, storageand distribution.

Operating in a private-public partnership, LOLC is currently pursuing a

strategy that aims to encase the sustainability cycle of the sector -

social and environmental - through the establishment of a bio-digestor

programme. By pursuing such a strategy, the dairy farmer community

will have access to bio-fuel through the use of cattle manure, thus,

enhancing their return on investment.

“Empowering the paddy farmer”

LOLC's integration into the paddy farming practice has been a key to

its outreach to SME and Micro Financing. A service that the Group has

established over the years, financing solutions for two wheel tractors,

mainly used for paddy cultivation, has gained popularity amongst

paddy farmers due to the offer of structured rentals that the Group

has designed according to the seasonal income patterns.

By making available and giving access to two wheel tractors, the

Group has witnessesed a marked increase in the efficiency of

cultivation and harvest as the tractor facilitates farmers to increase

yield by enhancing the productivity of the available paddy land.

LOLC remains one of the largest and leading Micro Financiers of two

wheel tractors in Sri Lanka. Given its success in enabling farmers to

enhance the crop production, the Group looks to lead this to an

outgrower programme in the future.

Internet for the outskirts - “Last Mile Initiative”

Under the aegis of an international USAID initiative, LOLC together

with other implementing partners Qualcomm, Dialog Telekom,

Microsoft InfoShare and National Development Bank came together

to take the “Last Mile Initiative” to Sri Lanka's rural communities. The

initiative consists of a series of dedicated cyber-centers that link

international and local businesses to bring modern information

technology to some of the furthest reaches of Sri Lanka.

The centers provide rural residents a chance to acquire employment

skills through online training, search for new jobs and receive micro-


Micro Finance funded dairy cow - Polonnaruwa


loans and other banking services in addition to calling relatives

overseas at low rates.

The project goes beyond charity to value added service. It takes the

internet and the world to communities who have no access to

technology. Moreover the “Last Mile Initiative” (LMI) presents itself

as a business venture where there is a high demand for the services

offered by the implementing partners. In effect the initiative has

provided farmers and rural communities with services that they would

otherwise not have access to.

Currently 15 LMI centres are operational across the nation and provide

farmers with access to commodity prices, weather patterns and of

course required financial assistance for future growth.

“Supporting the woman entrepreuner”

Micro Finance significantly facilitates women's empowerment at the

individual, intrahousehold, and community levels. Women's status,

both in their homes and in their communities, is elevated when they

are responsible for managing loans and savings. The ability to

generate and control their own income can further empower them.

Research shows that credit extended to women has a significant

impact on their families' quality of life, especially their children.

Globally it is accepted that women also tend to have the best credit

ratings demonstrating a likelihood to default on loans far less often than

men. In view of the multiple positive effects of female gender aimed

Micro Finance, LOLC has enhanced its focus on the woman as a potential

Micro Finance client. This is also in the hope that by striking a better

gender balance, the micro finance business will grow with greater

servicing rates, thus bring sustainability of the business model both to

the financier as well as the recipient.

In keeping with the aim of meeting the United Nations Millennium Goalsby 2010, LOLC is confident that its foray in gender based Micro Financingwill assist Sri Lanka to address poverty reduction by giving women ofrural households the ability to lead their families into self-sustenance.

The Group is cognizant of the need to establish market linkages across

the business and value cycles of each recipient so as to further their

business prospects for the future. Therefore, by integrating with each

recipients business model, LOLC goes beyond the mere role of

financier/investor to partner in aiding with better production

technologies, know-how, product packaging, advice and marketing.

This level of involvement and commitment LOLC believes, is a

necessity to drive Sri Lanka's rural and impoverished communities to

be self-sustainable, thus eradicating the poverty line.

Reforestation - “greening the nation”

With an investment strategy that is strongly skewed towards

sustainable investments, LOLC in the year 2007/2008 invested into

Touchwood; a business model that evolved from the need to address

the global deforestation issue leading to loss of habitat for many

endemic bio- resources and contributing to global warming.

Touchwood Investments Limited (TIL) was originally incorporated in

Sri Lanka in June 1999, later to be listed on the Colombo Stock

Exchange. The company has over 20 greenfield sites in Sri Lanka and

other parts of Asia.

The Touchwood Group brings together the skills of forestry specialists

from leading Universities in Asia and the USA with dynamic and

innovative management to ensure that their reforestation efforts and

plantations are managed in manner in which they integrate and co-

exist with natural forest cover in the best possible manner.

In Sri Lanka, Touchwood maintains over 1200 acres of forestry and

intends to grow another 1000 acres in the upcoming year. The value of

the concept goes beyond future value of the timber to one of reversing

the adverse effects of global warming and deforestation on the eco-

systems of Sri Lanka bringing bio-diversity balance to best suit the

planet and its people.

“Developing the communities across tea plantations”

“Sweet Sustenance”

Hingurana Sugar Industries was incorporated in 1991 to manage the

country's first large scale sugar plantation in the Ampara district.

However due to numerous operational issues the factory remained

closed since 1996 for over a decade, with a production capacity of

2000 tons of cane per day. In recognition of the value of the plant to

Sri Lanka's national development, LOLC together with Brown &

Company bought into the publicly owned plant through the plantation

management company, Galoya Holdings (pvt) Ltd. Galoya Plantations

is operational since the latter half of the year 2007/2008 with the first

production pitched to occur end of 2009.

The factory has a plantation of 7,658 hectares, of which over 5,000

hectares were allotted to 4,000 farmers to cultivate sugarcane. _The


LMI Center set up under USAID project


rest of the acreage includes land for planting of seed cane, factory

buildings, housing complexes and associated infrastructure.

LOLC's investment into the business is one that has been propelled by

many, interlinked factors. Foreseeing the plant as a catalyst in

national and economic revival, LOLC is confident that its role as a

facilitator in the re-awakening of the previously conflict ridden Eastern

province will be critical to the development of the communities in the

area. The plant affects the lives of over 4000 families, through direct

and indirect employment. With the re-opening of the plant it is

expected that all farmer families will be positively benefited. Thus,

the project's contribution to poverty alleviation and economic revival

goes beyond quantifiable measures.

Sri Lanka's annual sugar consumption is 625,000 metric tons and the

country has been importing 80% of its sugar requirement from India

and many other countries. With currently only 10% locally produced,

LOLC is confident that with the plant fully operational in 2009, the

import substitution will create a perceptible dent on the outflow of

foreign exchange.

Moreover, the potential for the plant to act as an alternative energy

source for Sri Lanka is one that needs to be further explored. The

company hopes to use the facility to produce bio-ethanol for bio-gas

from the by-product of sugar production. As such with the production

of “green fuel” the plant will enhance the energy sources for Sri

Lanka's national consumption. Complimenting all of these activities

will be a 6MW power plant which will generate electricity and supply

to the national grid.

Residue from the production process will also act as a fodder source

for animals thus enabling farming communities to enhance farm

productivity. In essence, the project is billed to be a developmental

force for Sri Lanka.

“A model for knowledge transfer”

The PRASAC (Programme de Rehabilitation et d'Appui au Secteur

Agricole du Cambodge) Project started in 1995 in Cambodia as a

support program for the agricultural sector. Now covering sixteen

provinces around Phnom Penh, it services agriculture, rural

infrastructure, community development, institutional strengthening,

and credit and micro-enterprise components. The organization

contributes to sustainable rural economic development in order to

improve the living standards of the rural people through creation of

sustainable access to financial services for rural communities and

micro-enterprises.

PRASAC is considered to be one of the leading Micro Finance

institutions in Asia and has a reputation as a leader in the Best

Practices of Micro Finance. LOLC together with a consortium of

international investors - Dragon Capital Group, The Netherlands

Development Finance Company and Oikocredit bought into PRASAC,

in which the Company holds a stake of 19%.

It is LOLC's intention to use PRASAC as a learning tool for Sri Lanka,

such that the best practices established in the Cambodian market can

be transferred to Sri Lanka in an effort to give a fillip to the infantile

Micro Finance sector in Sri Lanka, thus benefit the many millions of

rural communities who are yet deprived of mainstream financial

services.

Building relations with peripheral communities

LOLC is a firm believer in the need to integrate with its immediate

surroundings. In an effort to establish cordial relations it engages in

specific community development projects on an ongoing basis.


CSR project at Samagipura Children’s home - Ratnapura

The implementation of the new strategic plan aimed at the realization

of the Company's vision in 2010, has presented the LOLC team, the

challenge of transforming itself into a multi skilled workforce. It is a

challenge that each of our employees has taken on, in true LOLC spirit

- with a grit and determination to be the best.

Our Human Resource is by far, our most valuable asset; and LOLC's

focus demonstrates a commitment to “continuously appreciate the

human asset by keeping the staff happy, productive and progressive,

thereby improving the quality of their lives.”

The employees' contribution to the Company is evident in our

financials; Revenue per Employee stands at Rs. 7.7 Mn and Net Profit

per Employee is a healthy Rs. 1.7 Mn, while we recorded Rs. 212 Mn

as Value Added to Employees.

Wide ranging changes brought about by the new structure in both

business, and HR related policies and processes were implemented

during the year. These laid emphasis on nurturing and harnessing

employees' existing capabilities in order to enable them to promote

the entire portfolio of LOLC's financial products and services. The

enhancement of skills and expertise was followed by strategic

delegation and greater empowerment, creating a newly energized

workforce, with a keener focus on delivery and performance.

We have continued with targeted recruitment over the year, acquiring

key technical and management assets that complement the

Company's future direction. At year end, our workforce was 747-

strongh, a growth in numbers of 16% during the year. Our aim is to

create a diverse and talented multi-disciplinary pool of resources that

has the capacity to fuel both top- and bottom-line growth.

The training and development arena was intensified for employees

throughout the organisation addressing a number of identified

training needs, with over Rs 6 Mn spent on 76 training programmes.

Employees participated in fourteen overseas training programmes

were conducted during the year, with key funding partners bearing

part of the investment in human capital development.

A customised training programme was formulated aimed at unleashing

employee potential through unlearning, team building and mindset

change. The programme which was conducted for selected teams

helped participants appreciate their role in the revitalized organization

and brought about tangible positive change in the working

environment. We also conducted training of frontline staff in service

excellence, walking the talk of our culture of service orientation. The

year also saw us delivering the second edition of the Management

Development Training Programme for staff in management grades as

well as those identified to move into that grade.


HUMAN RESOURCES

Orientation programme for new recruits

Team - building exercise for employees

We are continuously improving our performance oriented HR

architecture to incorporate new trends and best practices. The

performance management module continues to be enhanced and was

brought into greater alignment with the strategic plan, motivating the

staff to push for new heights in excellence. Reward and recognition

initiatives have been designed in line with this model ensuring greater

transparency in the process. With the roll out of the new performance

appraisal scheme, steps were taken to formally train all assessors at

regional training programmes, in order to ensure conformity of

assessment. In a bid to drive performance, we also introduced a team

award called the “Branch Performance Award”, which recognizes the

branches that achieve and exceed their set targets.

During the year, we commissioned a Human Resource Information

Systems (HRIS) to automate the core HR processes that were

strengthened last year. The Employee Self Service portal, and leave

and attendance modules of the HRIS were rolled out. This has enabled

HR to decentralize operational aspects of HR management and we

envisage the automation leading to improved efficiency, allowing

more focus for HR strategy implementation. The transition from a

manual environment to an automated one has also made visible

improvements in the productivity of line managers and employees.

Yet another factor contributing to gains in productivity has been the

ongoing extension and refurbishment of the head office complex,

which employees themselves acknowledge has already had a positive

impact. The refurbishment project was undertaken with expert advice

on how best the interior design would be a driver of operational

efficiency and better inter-departmental communication.

The work life balance of our employees has always been a priority at

LOLC, and it is the mandate of SPIRIT, our Sports Club, to initiate such

activities. Spirited activities included the annual company trip where

the entire Group's staff and their families were hosted by the company

for three days at four leading hotels in Habarana and Dambulla,

building comradeship in the LOLC family. The extended LOLC family

were also treated to fun and fellowship at events such as the Kiddies

Party. Also among the many occasions designed to strengthen bonds

and the spirit of camaraderie among employees were this year's

dinner dance and Wind Down Day.

Our employees flew the LOLC flag high by representing the company

at several events, including mercantile cricket and badminton, dancing

and Karaoke competitions and the Sri Lanka Master Minds Quiz

Competition.

We believe that the sustainability ethos of the company must be a

value shared by all its employees, and therefore encourage employees

to initiate community service projects. During the year, employees

organized and participated in a number of CSR projects.

• Maintenance of 'Punchi Uyana' Children's park in Rajagiriya.

This is done with the objective of providing recreational activity

for children and inculcating good morals through the display of

messages.

• Sponsored the Sarasavi SC football team (of the neighbourhood)

in the finals of the premier league football Championship.


HUMAN RESOURCES

Outbound Training Programme for Employees

Community centre renovation project - Medabedda

HUMAN RESOURCES

• Carrying out a security awareness campaign in Public transport

in the areas of Mt Lavinia and Ratnapura.

• Providing lunch and donating blood for the cancer patients in the

Maharagama Cancer Hospital.

• Repairing and Painting of the Samagipura children's home in

Ratnapura.

• An alms giving at the Jayanthi children's home Colombo 07.

• Donation of essential goods to the Anuradhapura Military

Hospital.

• Renovating and upgrading the community centre donated by

LOLC some years ago in the village of Medabedda.

In all, its been an eventful and progressive year for the LOLC family -

an year during which we marked our transformation into a total

financial solutions provider. Armed with a strategic plan that pitches

us towards greater success both locally and regionally, LOLC stands

poised to grow, and in all certainty, each of our employees will grow

with us.


Staff at the Annual Company Trip

EXPANDING OUR REACH


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Current branch locations

Branches to be opened shortly

LOLC Branches

1. Rajagiriya

2. Kandy

3. Kegalle

4. Matara

5. Badulla

6. Ratnapura

7. Embilipitiya

8. Polonnaruwa

9. Anuradhapura

10. Kochchikade

11. Colombo 7

12. Kurunegala

13. Kalutara

14. Galle

15. Nuwara Eliya

16. Gampaha

17. Kiribathgoda

18. Wattala

19. Chilaw

20. Mahiyanganaya

21. Mount Lavinia

22. Union Place

23. Homagama

24. Ampara

25. Dambulla

26. Horana

LOLC Service Centres

27. Morawaka

28. Trincomalee

29. Pilimathalawa

30. Seeduwa

31. Aluthgama

32. Kadawatha

33. Ambalangoda

34. Debarawewa

35. Beliatta

36. Thalawakele

37. Panadura

38. Batticaloa

39. Padukka

ENTERPRISE GOVERNANCE

LOLC has made every effort to institute practical enterprise

governance within the Company, and over the past year has made

great strides in the direction of Enterprise Governance, linking

entrepreneurial performance with disciplined conformance. We are

committed to further improvements as we constantly review our

governance policies and processes to take into account evolving

best practices.

Detailed below are the corporate governance principles advocated by

the Institute of Chartered Accountants of Sri Lanka and the Company's

compliance thereto.


Governance Principle Conformance

BOARD OF DIRECTORS

Composition of the Board The Board comprises 10 Directors and the ex-officio Managing Director. A further two Directorshave been appointed as alternates to two Directors based overseas.

The names of the Directors and their profiles are given on pages 14 to 17

In accordance with best practices, the majority of the Directors are non-executive. The requirements of the Corporate Governance Rules of the Colombo Stock Exchange

pertaining to the number of independent Directors have been observed. Details of the Directorscan be found on page 16 in the Annual Report of the Directors.

Procedure for appointment of new Directors In view of the role of Directors, it is believed that the appointment of a new Director - consciousof the attendant responsibilities and duties - is a matter which requires the consideration of thewhole Board. To strengthen the process of appointing the most suitable Director, a NominationCommittee has been appointed, comprising three Independent Directors and one ExecutiveDirector. This Committee will make recommendations to the Board, which will take the finaldecision.

Directors are selected for their skills, and this can be seen in the present Board of Directors,who between them give the Company the benefit of expertise in marketing, financialmanagement, business management and entrepreneurial leadership. They also bring a wealthof experience which spans several years and also several diverse sectors and industries. All ofthis is of immense value to the Company which, besides being a pioneer in leasing is now inthe forefront of provision of a diversified range of financial products and services.

The caliber of the Director is also taken into consideration, so that all stakeholders can be re-assured that the Directors, who remain in control of the Company, are those who will ensure proper conduct of business and safeguarding of all assets.

Disclosure of details of new Directors to Appointments of Directors are promptly disclosed to the Colombo Stock Exchange forshareholders dissemination to the public. A brief resume of the Director is also publicised, with details of

qualifications and experience. The Central Bank of Sri Lanka is also notified of the appointment, and full disclosure is made of other directorates and significant shareholdings.

Holding of regular Board meetings Board Meetings are held every month. Comprehensive Board papers are sent out in advance, which cover the performance of the Company, confirmations of compliance with applicable statute and regulation, selected divisional reviews and periodic special reports. Minutes of the Audit Committee Meetings and the Executive Committee Meetings are also included, so that the whole Board is kept well informed of the affairs of the Company.


Availability of formal schedule of matters The role of the Board has been documented. The Board believes that it represents the Company specifically reserved for the decision to the stakeholders, and represents the stakeholders to the Company. Making of the Board Where necessitated for operational optimization, authority has been delegated. Such

delegation is accompanied by clearly defined limits and controls.

The Board remains responsible for:

• Formulating the strategy, vision, values and ethics of the Company

• Appointing the CEO and key senior officers

• Approving budgets and targets

• Monitoring performance against the budgets and targets

• Ensuring that controls are implemented, including an adequate risk management system and monitoring these controls

• Ensuring compliance with statutory and regulatory requirements

• Obtaining periodic reports on issues in the micro and macro environment which could impactthe Company

• Approving investments, acquisitions and diversifications

• Approving policies and procedures

• Approving shareholder communication including interim and annual financial statements

Obtaining of independent professional advice The Board seeks the independent professional advice of third parties, including the Company's lawyers, auditors and tax consultants, at the Company's expense, whenever the need arises.

Independent Judgement The Directors are mindful of their fiduciary duty to all stakeholders, and bring to bear their skill set and experience when taking decisions. Should they have any interest in an issue under discussion, this is disclosed and they do not participate in the decision. All interests are disclosed and recorded at Board Meetings.

Dedication of adequate time and effort Board meetings are held monthly, and adequate time is devoted to discussion required for decision making. As papers are sent out in advance, informed decisions can be taken. In between meetings, Board approval is sought by circulation. Board papers bear the recommendation of the CEO and the Executive Directors, and Senior Management are available to provide clarifications. Matters which require detailed discussion or third party consultation are referred to sub committees for study and recommendation.

Training for Directors Directors are selected on the basis of expertise and experience and it is believed that training need only take the form of provision of information, and opportunities for further development. Accordingly, papers and discussions will provide information on specific issues and also on the environment within which the Company operates.

Financial acumen There is a sufficient amount of financial acumen and knowledge available among the Directors. The advice of the auditors and tax consultants is called for when required.

Balance of the Board/ independence of Directors The majority of the Directors are non-executive. The Independent Directors and the Non Executive Chairperson participate actively in discussion and decision making.

Audit and Remuneration Committees In accordance with the Corporate Governance Rules of the Colombo Stock Exchange, the Audit Committee and the Remuneration Committee comprise only independent Directors. The composition of the Audit Committee and Remuneration Committee are given on pages 52 and 53 respectively and the reports of the Audit Committee and the Remuneration Committee appear on page 67.



Independent Director Mr. M. T. L. Fernando has served as a Director of the Company for more than nine years. It is the opinion of the Board that this period of service does not affect Mr. Fernando's ability to function as an Independent Director.

Mr. Fernando serves on the Boards of several companies, including other listed companies. He has conducted himself in a manner which has established his independence. Further, he meets the other qualifying criteria necessary to be considered an Independent Director. The Board is therefore of the view that Mr. M. T. L. Fernando should be considered an Independent Director.

Supply of quality information Comprehensive Board papers provide information on the operational and financial performance of the Company. Formats agreed to by the Board ensure that all relevant information is captured and presented in a manner which facilitates analysis, awareness and comparisons with targets, with previous periods and with industry trends.

Availability of management information Additional information called for by the Board can be provided during the meetings, or be made available by circulation subsequently.

Re-election of Directors With the exception of the Executive Managing Director, all Directors retire by rotation, and offer themselves for re-election.

Appraisal of Board performance The Board formulates and monitors the Company's strategy. Accordingly, it reviews itsperformance by the Company's growth and enhancement of shareholder value.

A Nomination Committee was appointed this year, comprising three Independent Directors and one Executive Director. This committee will assist the Chairman in reviewing Board performance as laid down in the documented role of the Board.

COMPANY SECRETARY

Company Secretary The Company Secretary is a qualified Chartered Secretary, with several years' experience. She convenes and covers all Board and Board sub committee meetings. Her advice and support can be sought by any Director, and she is the contact point for any shareholder. She advices the Board on statutory and regulatory requirements. The removal of the Company Secretary is a matter for the whole Board.

CHAIRPERSON AND CEO

Clear division of responsibilities In keeping with best practice, the roles of Chairperson and Chief Executive Officer are separate and distinct. This ensures a balance of power.

Role of the CEO Group Managing Director/CEO, who is an Executive Director, is responsible for the operational functioning of the Company and its performance, adherence to Board approved policies and procedures and compliance with statute and regulation.

Role of the Chairperson The Non-Executive Chairperson ensures that all Directors are provided with equal and adequate information, that they contribute to discussion and decision making and that they add value to the Company

Appraisal of CEO/Managing Director The Managing Director is entrusted with the operational and financial performance of theCompany, while ensuring regulatory compliance and maintenance of high ethical standards. Hisperformance is measured against the achievement of objectives approved by the Board at thebeginning of the financial year. The profile of the Managing Director is found on page 16.



DIRECTOR'S REMUNERATION

Directors remuneration policy The remuneration policy was recommended by the Remuneration Committee and approved bythe Board. In accordance with this policy, Directors remuneration is linked to their skills andexperience, and is a reflection of the contribution they make. Remuneration as recommendedby the Committee is approved by the Board for implementation.

The Remuneration Committee comprises of Independent Directors. The Non-ExecutiveChairperson is invited to attend meetings.

The Remuneration Committee Report is on page 67

Disclosure of remuneration The Directors remuneration is disclosed on page 111 (Note No 44)

RELATIONSHIP WITH SHAREHOLDERS

Constructive use of shareholder meetings Notice of shareholders meetings is given 21 clear days prior to the Meeting, as prescribed bythe Companies Act. With the changes to this Act, the notice period of 15 market days will beadhered to.

A shareholder who is unable to attend is given the opportunity to convey his views through a proxy. Two way proxies enable all shareholders to communicate their wish on any decision submitted for their approval.

Each decision voted on separately Each item on the agenda is taken up separately for discussion and voting.

Procedures for voting The outcome of each decision put to the shareholders for approval is declared by the Chairperson at the close of the voting on a show of hands. Should a poll be called for, the auditors will be available to oversee the counting of the poll votes, after which the Chairpersonwill declare the result.

The Board encourages shareholders to actively participate at all shareholder meetings. Senior Management is also present at such meetings, giving shareholders the opportunity to discuss the Company's operations in detail.

Availability of sub committee chairmen As the entire Board is present at Meetings, those of the Directors who serve as Sub Committee Chairmen are also available at shareholder meetings.

Disclosure of major transactions Material information is disclosed to the Colombo Stock Exchange in a timely fashion, enabling swift dissemination of the information. There have been no major transactions, but should there be any, they will be disclosed in accordance with the law.

Enhancing shareholder value The Board is always mindful of enhancing shareholder value and retaining stakeholderconfidence.

As at 31st March 2008, the Company's market capitalization was Rs.7.12 Bn. The share price asat end of trading on 31st March, 2008 was Rs.150.

An interim Dividend of Rs 2.25 cts per share was paid in June 2007.



FINANCIAL REPORTING

Timely reporting to stakeholders Interim financial statements are issued within the stipulated timelines. The Annual Reportcontains comprehensive financial reports. These financial statements are prepared inaccordance with the Company's Act No. 7 of 2007, the Rules of the Colombo Stock Exchangeand Sri Lanka Accounting Standards.

Reports required by the Central Bank of Sri Lanka or the Colombo Stock Exchange are submitted in the manner required. The Board monitors compliance with statutory and regulator requirements. All price sensitive information is disclosed promptly, and interim financial statements are sent out as required. The Annual Report contains detailed reviews of all the operations of the Company and also all Group companies.

Declaration by the Directors The Annual Report of the Directors on the affairs of the Company is found on page 109

The Directors have disclosed their interests in contracts with companies of which they are Directors and /or significant shareholders. Such disclosures have been tabled and Minuted at Board Meetings.

Statement on responsibility for The statement by Directors on their responsibility for preparation and presentation of financialfinancial statements statements is on page 75

Management reports Management discussions and reviews are on pages 25 to 36

Going concern The declaration by the Board that the business is a going concern is included in the Annual Report of the Directors on page 71

Summoning an EGM if assets fall below There has been no such situation. However, if such a situation should arise, the statutoryhalf shareholders funds procedure will be complied with.

INTERNAL CONTROLS

Periodic review of controls Internal controls are reviewed periodically by the Enterprise Risk Management (ERM) division,the senior management, the Executive Managing Director the Audit Committee and the Board.

These controls ensure the management of risk, costs, human capital and other resources of theCompany. They also ensure that all opportunities are maximized, all resources utilized and allsynergies leveraged to optimize productivity and profitability.

Quarterly risk reviews are submitted to the Board covering the different risks faced by the Company. The monthly Board papers also contain confirmations of compliance with allapplicable requirements.

Enterprise Risk Management Division (ERM) The ERM Division carries out regular reviews on all operations of the business to ensure strict compliance with procedures and guidelines. Further, the ERM Division is requested by the Board to carry out ad hoc reviews, whenever a need for such review is identified. Additionally, whistle blowing policies are in place to handle fraud and mismanagement issues promptly.

ALCO In view of the need to be proactive and agile in a dynamic economic environment, the Board has delegated authority to the Executive Managing Director to decide on rates for borrowing and lending activities, through an Assets and Liabilities Committee (ALCO). This ALCO also includesthe Chief Financial Officer, the Chief Credit Risk Management Officer and the Head of Treasury.

Recoveries Authority has also been delegated to the Deputy Chairman and the Executive Managing Directorto monitor collections of dues and review all lending which is in arrears. Swift action is takento protect the asset and to work with the client to prevent further deterioration of the situation



Reporting to the shareholders on risks The Risk Management review is on page 54

AUDIT AND AUDITORS

Audit committee The Audit Committee comprises three Independent Directors. The Committee is chaired by aperson with accounting qualifications and experience. The Chairperson, Chief Ececutive Officerand Chief Financial Officer are invited to attend Meetings of the Committee. The AuditCommittee Charter details the role of the Committee.

The Audit Committee meets quarterly to review the financials and also study reports of the ERM Division and make recommendations to the Board for implementation by the Executive Managing Director. Should the need arise, additional meetings are held. Minutes of the Audit Committee Meetings are copied to all Directors and tabled at Board Meetings.

Relationship with external auditors The Audit Committee also meets with the External Auditors to review the audits and theobjectivity and independence of the auditors.

The Audit Committee Report is on page 67

CORPORATE GOVERNANCE PRACTICES

Compliance The Company ensures compliance with the Corporate Governance Rules of the Colombo StockExchange. It also benchmarks its governance practices against the Code of Corporate Governance for Banks and other Finance Institutions issued by the Central Bank of Sri Lanka, the Code of Corporate Governance issued by the Institute of Chartered Accountants of Sri Lanka and OECD principles.

The Board has commissioned a Corporate Governance Rating by an independent rating agency.The preliminary reports received indicate that the Company has identified the key corporategovernance risks faced and has addressed most of them. While deriving immense satisfactionfrom knowing that the Company is moving steadily in the correct direction, the Board has takencognizance of the areas noted for improvement and has already commenced reviewing andrectifying these areas.

The Company complies with all requirements of the Central Bank of Sri Lanka applicable tocompanies registered under the Finance Leasing Act No 56 of 2000, the Listing Rules of theColombo Stock Exchange, the Companies Act No. 7 of 2007, the Financial TransactionsReporting Act, the Anti Money Laundering Act and all other applicable laws and regulations.

In keeping with world trends, the Company is moving towards enterprise governance, whichcovers both conformance and performance.

SELF GOVERNANCE INITIATIVES BY THE COMPANY

Code of Ethics Codes of Ethics have been formulated, for Directors and for employees. The standards andvalues expected from the practice of these ethics are captured in the bi annual performance appraisals, which means that adherence is rewarded and deviation noted for corrective action

Financial Ombudsman of Sri Lanka The Company is a member of The Financial Ombudsman Sri Lanka (Guarantee) Ltd. AComplaint's officer has been appointed for the Head office and every branch location. ThisOfficer is available to meet with any client who is dissatisfied with the Company's service.

Dealings in shares by Directors, CEOs and The Company has adopted the Voluntary Code on dealings by Directors, CEOs and connected connected parties parties issued by the Colombo Stock Exchange . For several years now, such transactions,

when they occur, have been disclosed to the CSE, for publicising.



Amendment of Articles in compliance with The Directors have reviewed the Company's articles in the light of the new Companies ActCompanies Act No. 7 of 2007 (“Act”) No. 7 of 2007. Having obtained the approval of the Central Bank of Sri Lanka, amendments to

these Articles are being submitted for shareholder approval at an Extraordinary GeneralMeeting to be held at the conclusion of the Annual General Meeting on 30th June, 2008.

Obtaining of insurance cover as provided As provided for by this Act, the Company has obtained insurance cover for Directors and keyfor by the Act officials of the Company.

Intensifying of focus on development activities The Company was established in 1980 to pioneer leasing, which was a keenly felt need fordevelopment at that time. The Company continues to be attuned to the development needs ofthe community. Accordingly, the focus on small and medium sized enterprises has nowexpanded to include micro finance, and alternative sources of energy. To this end, the Companyis engaged in financing of solar panels, reforestation (through an associate company),cultivation (also through an associate company) and dairy farming.

Environmental impact The funding decisions of the Company are also influenced by the impact the applicant'soperations have on the environment. As a further development to this, the Company hasformulated an environmental policy, and clients are evaluated and advised based onrecommended practices.

Directions of the Central Bank of Sri Lanka The Company complied with the directive of the Central Bank of Sri Lanka to establish areserve fund.

Additional Board sub-committees A Group IT Steering Committee, comprising the Chairperson, Executive Director, ChiefInformation Officer and Chief Risk Officer meets periodically to review IT developments withinthe group and connected controls. This Committee also discusses available technology andmakes recommendation to the Board on improving systems.

Anti Money Laundering policy The Company was proactive in taking cautionary measures with funding , and was one of thefirst to issue an Anti Money Laundering Policy . This policy, recently reviewed, includesprocedures to be followed. Provisions of this policy are built into credit appraisals.

Corporate Social Sustainability A policy on Corporate Social Sustainability was recently reviewed. With the group's increasingfocus on sustainability it is envisaged that there will be more initiatives next year.

BOARD SUB-COMMITTEES

Audit Committee The Audit Committee comprises of the following Independent Directors: M. T. L. Fernando - ChairmanM. D. D. PierisR. A. Fernando

The Chairperson, Chief Executive Officer, Chief Financial Officer and Chief Risk Officer attend byinvitation.

The Audit Committee meets quarterly to review the interim financial statements prior todispatch, and also discuss reports of the Enterprise Risk Management Division .

The Audit Committee, after discussion with the External Auditors and Chief Risk Officer, andreview of all their respective reports, makes recommendations to the Board which, through theExecutive Committee, ensures that the recommended corrective actions or controls areimplemented and monitored.

The Audit Committee Report is on page 67

Corporate Governance Committee A Corporate Governance Committee has been appointed, comprising the following IndependentDirectors and chaired by the Non Executive Chairperson, Mrs R L Nanayakkara . M. T. L. Fernando M. D. D. PierisR. A. Fernando

The CEO attends by invitation.



The Corporate Governance Committee, which has a documented charter, will review theCompany's compliance with all applicable legislation and regulations and ensure that periodicreports are submitted to the Board confirming compliance.

The committee meets annually.

Executive Committee The Executive Committee comprises the following :

R. L. Nanayakkara - Non Executive Chairperson, I. C. Nanayakkara - Executive Deputy Chairman. M. D. D. Pieris - Independent Director K. U. Amarasinghe - Executive Director W. D. K. Jayawardena - Executive Managing Director and Group CEO

The Senior Management attends by invitation.

This Committee, which meets monthly, has been delegated authority to oversee more routineoperational issues. This includes approving facilities over designated limits, changes tooperational procedures, purchases which exceed the limits delegated to the MD and reviewinggroup performance. This delegation enables decisions to be taken speedily, while alsopermitting issues to be deliberated in detail and at length by this Sub Committee. The CorporateManagement and Senior Officers are invited to be present at this Meeting, and theircontributions ensure that any issue is considered from all angles. The Corporate Managementand Senior Oficers' profiles are provided on pages 18 to 20 The Minutes of these Meetings aretabled at Board Meetings, ensuring that the entire Board is kept informed of the decisionstaken.

The Executive Committee meets monthly.

Remuneration Committee The Remuneration Committee comprises the following Independent Directors:

R. A. Fernando - ChairmanM. T. L. Fernando M. D. D. Pieris

The Non-Executive Chairperson and CEO are invited to attend meetings.

The Committee, which meets annually, recommends the remuneration policies and practiceswith regard to Directors.

The Remuneration Committee Report is on page 67

Nominations Committee The Nomination Committee comprises the following Independent Directors and one Executive

Director.

M. T. L. Fernando - ChairmanM. D. D. PierisR. A. FernandoI. C. Nanayakkara (Executive Deputy Chairman)

This Committee, which meets annually, makes recommendations to the Board on itscomposition, identifying and evaluating potential candidates who may be suitable as Directors.The nominations committee is thus tasked with recommending succession planning within theLOLC Board.


RISK MANAGEMENT REPORT

At LOLC, risk is defined as “any thing which hinders the achievement

of our corporate objectives”. Having understood the myriad of risks

and their inter-related nature, LOLC took a strategic decision in 2007

to change the focus from traditional risk management to enterprise

level risk management. LOLC has adopted enterprise risk management

through the development of a risk management framework that is

effective in providing assurance over strategy delivery,

implementation of plans and change management initiatives. This

approach allows the Group to pull together all of the elements

required to integrate the risk management initiatives in to everyday

management of the business.

As such, at LOLC we strive to inculcate a culture where

responsiveness to risk pervades across the organizational hierarchy, at

all levels of operations. Therefore, the ensuing risk visibility allows for

decisions to be taken with a consciousness of potential outcomes that

the business will encounter, which will lead to reasonable assurance

that adequate measures are in place to control the risks within

acceptable levels .

The Enterprise Risk Management (ERM) division was formed by

synergizing the resources of the Internal Audit, IT Audit and Risk

Management functions, to facilitate the aforesaid organizational

strategy. The division's primary responsibility lies in providing the

Board and the Audit Committee with a reasonable assurance that

LOLC's risk control framework is consistent and effective against the

identified profile of risks.

Risk Management Framework

The Risk Management framework is formulated encompassing the

Business Units, Sales and Channels and Corporate Solutions whilst

keeping the risk ownership with them. The frame work addresses both

macro and micro level risks.

LOLC handles all risks at three levels

1. Enterprise Level Risks Policy level Decisions to mitigate risk

2. Management Level Risks Formulation of Internal Controls

3. Compliance Level Procedures & Staff Guidelines

The main objective of the aforesaid strategy is to lower the risks to a

compliance level where proper mitigation mechanisms are

formulated. The risk owners are then required to comply with the laid

down controls in order to mitigate the risks at an acceptable level

within the risk appetite of the organization. Due to the dynamic nature

of the business' operational environment, once the control frame work

is established, the documented business processes have a document

life of one year. Upon expiry of this term, the risk owners are required

to sign off on the status of the business or operational processes,

thereby giving leeway to adjust for changes and to assess and

formulate countermeasures if new risks emerge. Further the risk and

compliance reviews on a process requires the internal audit arm of the

Enterprise Risk Management division to validate the existing

operational processes and internal controls.




The Risk Management Process at LOLC Risk Assessment

The ERM division adopts a three pronged approach to risk

assessment.

• Self Risk Assessment by the risk owners

The self risk assessment by the risk owners is an essential

feature since the primary responsibility of risk mitigation is

vested with the risk owners and a formalized process is in

place that all internal controls formulated through self

assessments are validated by the ERM division for

adequacy as well as validity.

• Risk Assessment by the Internal Audit /ERM

Any risk review by internal audit/ERM requires

documenting the process map of the risk sources under

review, or validation of the existing process map against

the current business environment and operational

practices to ensure that all subsequent changes and

amendments are taken in to consideration during the risk

assessment stage.

• Perceived risk by the stake holders

The Internal Audit/ERM interviews the stakeholders who

have no direct involvement in the process to understand

their perceived levels of risks with regard to the risk

sources being reviewed. This allows for a 360 degree view

of the risk profile.

Risk Categorization & Prioritization

LOLC adopts a two dimensional risk categorization matrix which is

customized to profile risks both on a qualitative aspect as well as a

quantitative aspect.

Given that historical data is not available or relevant for all situations,

we have developed a risk matrix which is capable of rating risk

qualitatively or quantitatively. The same matrix is enhanced to

function as a risk scoring model which the Enterprise Risk

Management division uses to rate the processes on risk and to decide

on the audit frequency of the same.

Risk Score Qualitative Measure Rank Priority for action

1-3 Negligible/low Acceptable risk

4-5 Low /Medium Risk 5

6-8 Medium Risk 4

9-12 High Risk 3

13-20 Critical 2

20> Catastrophic 1

Risk Control & Monitoring

In addition to management involvement in risk control and monitoring

activities by the risk owners, ERM adopts a two tier approach

• Risk Reviews by the Internal Audit /ERM (Primary)

The Internal Audit carries out its review function of the internal

control framework and reports to the Audit Committee, the

weaknesses on the internal control structure with their

recommendations. Weaknesses identified and established by

the internal Audit/ERM will necessitate the risk owners to

specify an action plan and a date of implementation or give their

counter proposal to mitigate the risk element identified or to

rectify the internal control weaknesses. The same is monitored

by Internal Audit/ERM in their follow up reviews.

• Monthly Reporting Line to ERM (Secondary)

Risk owners including branch offices have a compulsory

reporting requirement to ERM where they report on Operational

Risk, Information System Risks as well as any other important

matter or perceived risk. The report has to be submitted to ERM

immediately or minimum, on a monthly basis, based on the

severity of the event being reported.

The Recommendations made by ERM/Internal Audit based on the risk

reviews which resulted in implementation level decisions are

categorized and depicted in the graph below, based on the three levels


of risk mitigation practiced by LOLC. 5% of these measures resulted in

process improvements and cost reduction capitalizing on the

opportunities emerged (upside Risk Management).

Risk Reporting

ERM conducts its risk audits and report to the Audit Committee.

Reporting mechanism constitutes of a three tier approach

• Pre Planned Reviews within the annual Plan of ERM

• Reviews initiated by ERM based on emerging risks and changing

business and operational practices

• Investigative & forensics oriented reviews & reviews requested

by the management.

Risk Profile of LOLC

EERM updates and maintains the risk register based on the reviews

carried out listing the risk, risk category and the internal control

available. This is still at the formulation stage and we hope to

complete this exercise within the next financial year. The broad

categorization of the risk profile of LOLC is depicted in the table

over leaf.



Risk Risk Primary Secondary Control Confidence

Category Impact Impact Level

Financial Liquidity Solvency Sustainability • Maintenance of the appropriate asset & liability High

mix & maturity structure via constant monitoring

by ALCO

Interest Rate Profitability Cost of funds • Maintenance of matching interest rate maturity Medium

structure

• Negotiating Long term funding lines High

• Maintenance of an appropriate volume of floating

rate assets High

Balance Sheet Financial • Maintenance of appropriate asset & liability mix High

Structure Leverage • Asset Securitisation High

• Constant Monitoring by ALCO High

Income and Profitability • Strategic steering of the business High

profitability • Maintenance of a diverse product portfolio High

structure risk • Diversification of income generation activities Medium

Capital Adequacy Borrowing • Constant monitoring & maintenance of a High

healthy gearing ratio

• Asset securitization High

Credit Asset Quality • Credit Policy High

and Profitability • Delegated Lending Limits V. High

• Monitoring of credit concentration High

• Constant credit monitoring V. High

• Aggressive recovery mechanisms V. High

• Collateral based lending V. High

Investment Asset Value Return on assets • Diversified investments Medium

• Marking to market & prudent provisioning policies V. High

Operational Failure of internal Operational Reputation • Internal control framework High

controls effectiveness & Image • Internal control reviews V. High

• Review by external auditors High

Technology Operational Availability • Implementation of a proper ICT

Effectiveness security infrastructure High

• Recovery Strategies High

• IT audit reviews High

Mismanagement Finance Reputation & • Fraud Management Policy & Guidelines V. High

& Fraud Image • Zero Tolerance on fraud & abuse V. High

• Corporate whistle blowing hot line & witness High

protection program

• Management insight High



Risk Risk Primary Secondary Control Confidence

Category Impact Impact Level

Business Business Strategy Market Profitability • Regular review of the Strategic Plan High

Share • Aggressive marketing strategy V. High

• Market research & intelligence High

Legal Regulatory Reputation & • Anti Money Laundering policies High

Image • 100% regulatory compliance V. High

• Constant monitoring of the legal environment & V. High

regulatory requirements

Image & Public Reputation • Corporate Governance policy V. High

Reputation Confidence • Code of ethics V. High

• Strategic CSR Medium

Event Disaster Availability Sustainability • Disaster recovery & business continuity Medium

Recovery planning framework & periodic testing

• Reduction of inter-dependancy of High

branch network & Head office

We believe the ultimate risk management strategy is to inculcate an organization culture where every employee consciously appraises and

manages the risk on activities performed within their scope of operations which will invariably enhance value creation at LOLC


FINANCIAL REVIEW


Industry

The financial year 2007/08 has been a year where the global financial

sector was rattled by the US sub prime mortgage crisis, soaring

commodity prices and increasing operating expenses, with key global

finance houses suffering massive losses.

The key challenges faced by the local financial sector were highly

volatile and increasing interest rates, intense competition, a saturated

market as well as increasing commodity prices and rising inflation.

The high level of inflation left the financial sector having to face the

daunting task of containing non performing loans arising from non

settlement of dues, caused by an overall reduction in disposable

income.

Intensified war efforts in the North and East together with security

concerns in other areas of the country hampered the economic

development of the country.

The credit ratings of a number of financial institutions were

downgraded by rating agencies due to the rise in non performing

loans, high exposure to interest rate risk, narrowing margins and

reduced profitability amidst rising operational costs.

The Agro and Micro financing sectors received a lot of attention

during the year with state patronage for efforts to develop the rural

economy. Competition in this sector increased with the two state

banks entering the fray, offering agricultural loans at subsidised rates.

Group

2007/08 has been an extremely challenging year for LOLC with the

Group having to face many external as well as internal pressures.

Taking the unfavourable market condition as an opportunity, where

most financial institutions were unwilling to move forward, the Group

was able to forge ahead and report a net profit of Rs.1.3 Bn for the

year. This is an increase of 21% over the previous year.

During the year, the Group's income increased by 50% over theprevious year to Rs.5.9 Bn. Considering the high volatilty of interestrates, regular price reviews as well as effective changes to theproduct mix were critical aspects considered in maintaining top line growth.

The Group's borrowing cost increased by 90% over the previous yeardue to the sharp increase in cost of funds during the year, as well asthe quantum growth in borrowings in line with the aggressive growthin Group assets.

The total receivables of the Group increased by 26% over the previousyear while the increase in total assets was 38%.

Significant investments were made in developing and modernisingoffice infrastructure, refurbishing branch offices and expanding thehead office building.

FINANCIAL REVIEW


In addition, to expand the reach and deliver greater convenience to ourcustomers, LOLC entered into a strategic alliance with LIOC toestablish LOLC service points at LIOC filling stations. Ten such servicepoints were opened during the year.

The Group strategic plan was rolled out during the year, moving into aBusiness Unit structure that allows specialised units to concentrateon market and customer development. Support functions werecentralied to increase efficiencies and eliminate duplication ofresources, thereby reducing the Group's overhead cost. The mostcritical aspect of the new structure is the centralisation of the salesand distribution channels, resulting in all branches being able to offerthe entire range of LOLC products and services.

Taking an affirmative stride in the direction of sustainabledevelopment, the Group made a number of investments inenvironmentally friendly ventures locally as well as overseas. Theseinclude a 29.2% investment in Touchwood Investments Ltd., a forestrycompany; Agritech Inc, which explores the production of precipitatedsilica and generation of electricity from paddy husk; and the purchaseof a 51% stake in Sundaya Lanka (Pvt) Ltd, a company involved inassembly of solar systems.

Rs. 58 Mn has been recognised as post aquisition profit share fromTouchwood. The investment in PRASAC, the micro finance company inCambodia, in which LOLC holds a 19% stake, contributed Rs. 37 Mnas share of profit to the Group. The profit from PRASAC is recognisedon equity basis of accounting as LOLC has been appointed theinfluential shareholder by PRASAC as per requirements of theNational Bank of Cambodia.

Goodwill of Rs. 126 Mn on account of Touchwood, and Rs. 5 Mn onaccount of Sudaya, has been recognised, the basis of which isexplained in detail in the notes to the financial statements.

The Group's interest cover dropped to 1.3 times from 1.6 times at theend of the previous year due to the higher interest cost.

The earnings per share increased by 22% to Rs. 26.69 from Rs. 21.91last year.

LOLC Company

LOLC continued its trend of recording strong top line growth with anyear on year income growth of 48%, income increasing from Rs. 3.0 Bn to Rs. 4.4 Bn. The holding company's income did not recordthe same breathtaking top line growth as the previous year, but thisyear's figures were a tremendous achievement, given the challengingenvironment that all financial institutions were operating within.

The contribution of income from leases reduced to 31% from 35%during the year as a result of leases becoming less attractive tocustomers because of the Value Added Tax that lease rentals attract.Income from leases, although representing a smaller portion of theCompany's income when compared with the previous year, increasedby 31% over the previous year and was the main contributor to theCompany’s income.

Income from loans increased by 57% over the previous year andconstituted 28% of the income. Income from hire purchase tooshowed a strong growth, increasing by 58% over the previous year.

Income from micro financing products increased by 103% whencompared with the previous year, in line with the emphasis that theCompany is placing on developing this sector.

Although the top line of the Company showed strong growth, thebottom line of the Company remained at the same levels due toincreased borrowing costs arising from high interest rates.

FINANCIAL REVIEW


The borrowing costs increased by 92% to end the year at a very highlevel of Rs. 2.8 Bn.

In addition, the Company was further affected by the increase inoperating expenses as well as higher provisioning for doubtful debt,leading to a drop of 38% in operating profit .

Due to the prevalent weak macro economic conditions, the Companyplaced strong emphasis on maintaining a healthy collection ratio. Non-performing loans have been contained within manageable levelsthrough strict controls on credit, coupled with strong recovery efforts.The Company's provisioning for bad and doubtful debt was aconservative Rs. 108 Mn. Specific bad debts of Rs. 41 Mn were writtenoff during the year in line with the Company’s write off policy . TheCompany's ratio of non performing loans at the end of the financialyear was 0.7%, well above industry average.

The cost to income ratio increased by 5 percentage points over theprevious year. This relatively low increase, amidst an annual averageinflation of 19% is attributable to the positive impact fromcentralisation of shared services, as well as planned expensemanagement initiatives.

The Company capitalised its fully owned subsidiaries LOFIN andLOFAC supporting their business growth.

During the year, the Company acquired 29.2% of TouchwoodInvestments Ltd., the pioneering forestry company in Sri Lanka.

The Company acquired 19.9% of People's Merchant Bank Ltd. duringthe year. Further, a strategic investment was made in Gal OyaHoldings (Pvt) Ltd. for the purpose of investing in Gal Oya Plantations,formerly known as Hingurana Sugar Company.

Other income for the year, including income from strategicinvestments as well as royalty income and treasury management feesfrom subsidiaries was Rs. 441 Mn, an increase of 51% from theprevious year. A significant portion of this income was attributable toan increase in the market price of the People's Merchant Bankinvestment, which is marked to market.

The negative effects of the increase in interest cost as well asoperating expenses were off-set by the increase in other income,which includes income from strategic investments, resulting in a ProfitAfter Tax of Rs. 978 Mn for the year.

The Company made a provision of Rs. 88 Mn as corporate tax and Rs. 151 Mn as deferred tax. The Company recognised the balance50% of the tax asset fo this year in line with the previous yearsrecognition of the tax asset having a net tax impact of positive Rs. 182Mn on the Profit After Tax.

The total portfolio grew by 20% during the year to Rs. 16.2 Bnfollowing the aggressive marketing strategy adopted by the Company.In addition, the Company's operating lease fleet too grew by 25% toRs. 1.7 Bn during the year. The growth of operating leases is expectedto slow down following the change in tax legislation.

FINANCIAL REVIEW


The Company's aggressive expansion was supported throughborrowings from local commercial banks as well as borrowings fromforeign bilateral and multilateral funding agencies. In line with thetreasury strategy of the Company, LOLC's foreign currencydenominated debt has been fully hedged, thereby eliminating anyexposure to movements in exchange rates. Part of the foreign currencyexposure was hedged through back to back borrowings in localcurrency by collateralising the foreign currency borrowings. As astrategy to reduce the Company's borrowing cost, the Group treasurywas able to negotiate foreign currency swaps through localcommercial banks.

The Company's debt to equity ratio at the end of the financial yearwas at a healthy 4.7 times, well below the statutory ceiling of 10 times.

The Company’s debt to equity ratio excluding the back to backbrrowings on account of foreign currency loans, is at 3.8 times.

The higher quantum of borrowing at high rates had a negative impacton the Company's interest cover. The interest cover dropped to 1.3 timesfrom 1.6 times by the end of the year. As the Company continues toexpand its reach and increase its lending volume, we anticipate that theinterest cost will be the main cost element in the coming year as well.

The return on equity was adversely affected by the steep increase inborrowing costs. The return on average equity dropped to 23% duringthe year. Total assets of the company increased by 32% from theprevious year to Rs. 28 Bn as a result of aggressive marketingstrategies adopted by the company.

The return on assets decreased to 4.0% from 5.8% the previous year.

Lanka ORIX Finance Company Ltd (LOFIN)

2007/08 was a year of tremendous growth for LOLC's fully ownedsubsidiary, LOFIN, a finance company licensed by the CBSL.Continuing with the growth momentum of the previous year, theincome of the company increased by 115%. Income for the year wasRs. 725 Mn.

The Company's product mix and income composition too changed fromthe previous year, marking the transition from a company with apredominant leasing portfolio to a mature company with a balancedportfolio of products.

Income from leases was 30% of the total income for the year,whereas it was 57% of the gross income during the previous year.Interest income on loans increased to 39% of the gross income from10% the previous year. Income from hire purchases constituted 19%of the gross income of the Company.

The Company's leasing income increased by 14% from the previousyear and the income from hire purchases increased by 98% whencompared with the previous year. The income from loans grew by Rs. 247 Mn and constituted the largest share of the Company'sincome. Growth in income from margin trading advances was amarginal 4% due to the low level of activity at the bourse. Incomefrom pawning was Rs. 15 Mn.

FINANCIAL REVIEW


The main strategy of LOFIN during the year was to increase its depositmobilisation through a mix of savings and fixed deposit products. Withthe concurrence of the CBSL, LOFIN’s presence has been establishedat each of LOLC's 22 branches and some of the LIOC outlets island wide.

LOFIN's total deposit base increased to Rs. 3.3 Bn during the yearfollowing the aggressive deposit mobilisation campaign carried out bythe Company. This was a growth of 91% when compared with theCompany's deposit base at the end of the previous year.

With the increase in the deposit base, the Company's debt to equityratio was 3.8 times compared to 2.3 times at the end of the previousyear, which is well within the statutory ceiling of 10 times. LOFIN hasthe distinction of being one of the highest capitalised financecompanies in Sri Lanka with a stated capital of Rs. 800 Mn, providinga stable foundation for growth in deposit mobilisation.

Due to the high interest rates prevalent in the country and theincrease in LOFIN's deposit base, LOFIN's interest cost saw a steepincrease compared with the previous year. LOFIN's operating coststoo increased during the year as the Company increased its reachthroughout the country.

LOFIN recorded a pre tax profit of Rs. 100 Mn for the year and theProfit After Tax for the year was Rs. 50 Mn. Rs. 50 Mn has beenprovided as taxes and deferred taxes. Although the interest rateswere extremely high during the year, LOFIN's interest cover improvedto 1.2 times from 1.1 times last year through diligent management ofinterest rate risk.

The company's portfolio of income generating assets changed incomposition during the year from a portfolio dominated by facilitiesexecuted at fixed rates, to one with a balance between fixed andflexible rate income generating assets. The Company is financedmainly through customer deposits with a tenure of up to one year, thisshift in portfolio composition reduces the Company's exposure tochanges in interest rates.

Lanka ORIX Factors Ltd (LOFAC)

In keeping with the growth momentum of the rest of the Companies inthe Group, the income of LOFAC, a fully owned subsidiary of LOLC, toorecorded an income of Rs. 471 Mn, an increase of 46% over theprevious year.

Income from factoring activities increased by 30% when comparedwith the previous year. However the strongest growth in income wasfrom loans granted for working capital requirements, income fromwhich increased by 67% when compared with the previous year.

The income composition of the current financial year saw the incomebeing almost equally split between loans and factoring.

The net interest cost of the Company increased by 47% during theyear due to the growth of its lending portfolio as well as the increasein cost of funds. Despite this, the Company was able to maintain itsinterest cover at the same level as the previous year at 1.1 times. TheCompany posted a healthy bottom line with Profit Before Tax of Rs. 16Mn. The company's Profit After Tax is Rs. 9 Mn after providing Rs. 7 Mn for taxation.

A total of Rs.93 Mn was paid to the Parent Company as royalty andtreasury management fees.

As a result of the aggressive marketing campaign carried out by theCompany, the factoring portfolio grew by 45% whilst the strongestgrowth was in the working capital loan portfolio, which increased by74%. This change in the composition of the portfolio has nowconverted LOFAC from a predominantly factoring company to aworking capital solutions provider.

FINANCIAL REVIEW

The capital structure of the Company was strengthened with an equityinfusion of Rs. 205 Mn, during the year, increasing the stated capitalof the Company to Rs. 282 Mn and total share holders' funds to Rs. 330 Mn. This strengthening of the Company's capital structure willprovide a firm foundation for the Company to expand its activities andgrow further.

The capital infusion also contributed towards a significant reductionin the Company's gearing, resulting in the debt to equity ratio of theCompany coming down to 2.8 times at the end of the year from 6.9times last year.

In September, LOFAC acquired 51% of Sundaya Lanka (Pvt) Ltd., acompany engaged in assembly and distributing solar systems, aninvestment in line with the Group's policy of sustainable ruraldevelopment. Sundaya's profit after tax for the year was Rs. 0.3 Mn.

Lanka ORIX Insurance Brokers (LOIB)

The year 2008 was another year of growth for LOIB, with total grosswritten premiums increasing by 30% over the previous year to Rs. 867 Mn. The total value of premiums included the sales of LOIB'sown Guardian range of products.

The highest premium collection for the year was from Colombo,followed by Kandy and Negombo.

LOIB's commission income for the year was Rs. 109 Mn, an increaseof 9% over the previous year. The company reported a Profit BeforeTax of Rs.12 Mn for the year and Rs. 5 Mn has been provided for astax. During the year, the Company contributed Rs. 11 Mn as royalty tothe parent company.

Lanka ORIX Information Technology (LOIT)

The Company currently engaged in providing IT support internally tothe Group, has made a significant contribution by deploying effectiveIT solutions, thereby enhancing customer services as well asimproving the quality of information. The income of the companyincreased by 48% over the last year to Rs. 74 Mn.

Efforts have been made to ensure that necessary resources requiredto cater to the demands of the Group are in place for theimplementation of the strategic plan. Accordingly, investments weremade by the Company in its human capital by way of developing andstrengthening the skills of the staff as well as in acquiring newmembers to the staff. The total staff cost of the Company increasedby 62% over the previous year.

The Company reported a profit of Rs. 33 Mn for the year.

Lanka ORIX Securities (Pvt.) Ltd. (LOSEC)

LOSEC recorded Rs. 134 Mn as commission income during the year.The Company continues to enjoy the position of being one of the twotop stock brokering companies in the country in terms of turnover.LOSEC contributed Rs. 16 Mn as royalty to the Holding Company.

Lanka ORIX Project Development Ltd (LOPD)

LOPD was at the forefront of the Group's Sustainable Developmentinitiatives, forging alliances with local and overseas partners.

The Company still in its early years incurred project development andsetting up expenses of Rs. 14 Mn for the year and is yet to generatean income, therefor recorded a loss of Rs. 14 Mn for the year.


Financial Report


FINANCIAL REPORT

FINANCIAL CALENDAR

Contents

Audit Committee Report 67

Remuneration Committee Report 67

Annual Report of the Directors on the Affairs of the Company 68

Directors responsibility for Financial Reporting 75

Chief Executive Officer's and Chief Financial Officer's

Reponsonsibility Statement 76

Report of the Auditors 77

Income Statements 78

Balance Sheets 79

Statements of Changes in Equity 80

Cash Flow Statements 81

Notes to the Financial Statements 82

2007/08

1st Quarter Results 2007/08 released on 21 August 2007

2nd Quarter Results 2007/08 released on 21 November 2007

Interim Dividend-Rs 2.25 per share- paid on 30 June 2007

3rd Quarter Results 2007/08 released on 19 February 2008

Annual Report for 2007/08 released on 06 June 2008

29th Annual General Meeting on 30 June 2008

2006/07

1st Quarter Results 2006/2007 released on 23 July 2006

2nd Quarter Results 2006/2007 released on 27 November 2006

Interim Dividend of 15% paid on 16 January 2007

3rd Quarter Results 2006/07 released on 21 February 2007

Annual Report for 2006/07 released on 06 June 2007

28th Annual General Meeting on 29 June 2007

AUDIT COMMITTEE REPORT


The Audit Committee consists of 3 Non-Executive Directors of the Company, one of whom is a Chartered Accountant, who are appointed by theBoard, with the Company Secretary functioning as its Secretary. The Chairman, Executive Deputy Chairman and the Managing Director are invitedto attend meetings, while the heads of the various departments are invited as and when required.

The Audit Committee which has written Terms of Reference examines matters relating to the financial reporting system of the Company. Its dutiesinclude detailed review of the financial statements, accounting policies and compliance with Accounting Standards. It also reviews the adequacyof the Internal Control procedures.

The reports of the internal auditors covering all departments and branches were reviewed by the Committee. The internal auditors who were MSLManagement Audit Services (Pvt) Limited resigned during the year to 31st March, 2008, and the internal audit is now conducted by an independentsection within the Company, supervised by a qualified and experienced person.

The Company's quarterly and annual financial statements were reviewed by the Committee and approved by the Board prior to their issuance. TheCommittee met on ten occasions including meetings with the external auditors. The meetings with the external auditors were to review the scopeof the audit and the Management Letter of the Company. They also reviewed the action taken by the management in respect of the ManagementLetter. It recommends the payment and fees to the external auditors and has given consideration to the independence of the external auditors.

The Committee assessed the business and control risks prevalent in the Company and has advised the Board on action to be taken whereweaknesses were observed.

The Audit Committee has recommended to the Board of Directors that Messrs Ernst & Young be appointed as Auditors for the financial year endingMarch 31, 2009. The appointment of the Audit Firm and acceptance of its fee will be subject to the approval of the shareholders at the AnnualGeneral Meeting to be held on 30th June, 2008.

Mr. M. T. L. FernandoChairmanAudit Committee.

REMUNERATION COMMITTEE REPORT

Following the introduction of the new Corporate Governance Rules of the Colombo Stock Exchange, the Remuneration Committee was re-constituted. The Remuneration Committee now comprises three Independent Directors - Mr R A Fernando (Chairman of the Committee) Mr M TL Fernando and Deshamanya M D D Pieris .

The Committee reviewed and re-drafted the remuneration policy, which they then submitted to the Board. Based on the recommendation of theCommittee, the Board approved the adopting of the policy.

The policy covers remuneration to Executive and Non Executive Directors, including the Non-Executive Chairperson and the Executive ManagingDirector/Group CEO. Under the terms of this policy, remuneration will be related to performance and contribution.

Mr. R. A. FernandoChairmanRemuneration Committee.

ANNUAL REPORT OF THE DIRECTORS ON THE AFFAIRS OF THE COMPANY


The Directors take pleasure in presenting their report together with

the audited financial statements for the year ended 31st March, 2008.

Principal activities

The principal activities of the Company are the provision of financial

services, including finance and operating leasing, mortgage finance ,

loans and hire purchase.

Group companies offer Shari’ah compliant financing, factoring, fixed

and savings deposits, pawning, margin trading financing, insurance

broking and trading in equity and debt securities. With the

sharpening of the Group's focus on Micro Finance and alternative

energy sources, there have been strategic investments in companies

engaging in re-forestation, cultivation and provision of solar power.

Directorate

The Directors of the Company during the year under review are as

follows:

Mrs. R. L. Nanayakkara - Non Executive Chairperson

Mr. I. C. Nanayakkara - Executive Deputy Chairman

Deshamanya M. D. D. Pieris - Independent Director

Mr. M. T. L. Fernando - Independent Director

Mr. R. A. Fernando - Independent Director

Mrs. K. U. Amarasinghe - Executive Director

Mr. T. H. M. Wickremasinghe - Non-Executive Director

Mr. R. M. Nanayakkara - Non-Executive Director

Mr. W. D. K. Jayawardena - Executive Managing Director -

Group CEO

Mr. Y. Oshima - Non-Executive Director

Mr. K. Fushitani - Non-Executive Director

(appointed w.e.f. 28.11.07)

Mr. N. Esaki

(resigned w.e.f. 28.11.07)

Alternates to Mr Oshima

Mr.Y. Uchida (resigned w.e.f 28.11.07)

Mr. E. Matsumoto (appointed w e f 28.11.07)

Alternate to Mr Fushitani

Mr. M. Sekimoto (appointed w.e.f 28.11.07)

Alternates to Mr N Esaki

Mr. M. Shioda (resigned w.e.f. 08.05.07)

Mr. M. Sekimoto (appointed w.e.f. 08.05.07 and resigned

w.e.f. 28.11.07)

The profiles of the Directors are given on pages 14 to 17

Mr. M. T. L. Fernando has served as a Director of the Company for

more than nine years. It is the opinion of the Board that this period of

service does not affect Mr Fernando's ability to function as an

independent Director. Mr Fernando serves on the Boards of several

companies, including other listed companies. He has conducted

himself in a manner which has established his independence. Further,

he meets the other qualifying criteria necessary to be considered an

independent Director. The Board is therefore of the view that

Mr. M. T. L. Fernando should be considered an Independent Director

Directors’ Meetings

The Directors meet monthly. Board decisions are also obtained by

Circular Resolutions. Minutes of Board sub committee Meetings are

tabled at Board Meetings, to ensure that all Directors are kept well

informed. The Directors based overseas, while not in a position to

attend every month's Board meeting, ensure that they are present for

Board meetings on a regular basis. Further, they receive monthly

Board papers, inclusive of copies of minutes of Meetings of the

Board and Board sub committees.

Re-ellection of Directors

In terms of Article 84 of the Articles of Association of the Company,

Messrs R M Nanayakkara and Y Oshima retire by rotation and seek

re-election. The Board of Directors recommends their re-election.

In terms of Article 91 of the Articles of Association of the Company,

Mr. K. Fushitani retires by rotation and seeks re-election. The Board of

Directors recommends his re-election.

The Company has received notices from shareholders of their

intention in terms of Section 210 of the Companies Act No. 7 of 2007

to propose the re-elections of Mrs. R. L. Nanayakkara, Mr. M. T. L.

Fernando and Mr. M. D. D. Pieris, all of whom are over 70 years of age.

The Board of Directors recommends their re-election.



Directors’ interests in shares

The Directors’ interests in shares as at 31st March, 2008 were asfollows:

As at As at

31.03.2008 31.03.2007

Mrs. R. L. Nanayakkara - -

Mr. I. C. Nanayakkara 5,989,550 5,989,550

Deshamanya M. D. D. Pieris - -

Mr. M. T. L. Fernando 76,844 76,844

Mr. R. A. Fernando 1,500 1,500

Mrs. K. U. Amarasinghe 5,243,200 5,243,200

Mr. T. H. M. Wickremasinghe - -

Mr. R. M. Nanayakkara 14,598,122 14,456,724

Mr. W D K Jayawardena - -

Mr. Y. Oshima - -

Mr. K Fushitani (appointed w.e.f. 28.11.07) - -

Mr. N Esaki (resigned w.e.f. 28.11.07) - -

Alternate Directors

Alternate to Mr Y OshimaMr. E Matsumoto ** - -

Mr.Y Uchida (Resigned w.e.f 28.11.07) - -

Alternate to Mr K Fushitani Mr. M. Sekimoto (Appointed w.e.f 28.11.07) - -

Alternate to Mr N Esaki Mr. M. Shioda (resigned w.e.f. 08.05.07) - -Mr. M. Sekimoto (Appointed w.e.f. 08.05.07 and

resigned w.e.f. 28.11.07) - -

** Mr Matsumoto, who was appointed Alternate Director to Mr Y Oshima on 28.11.07 resigned with effect from 22.04.08 andMr. T Mori was appointed Alternate Director to Mr. Y. Oshima witheffect from the same date. Mr Mori holds no shares in LOLC .

Shareholdings

The stated capital of the Company is Rs 475,200,000/- , divided into47,520,000 shares. The shareholding structure is given on pages 120to 121, together with the 20 largest shareholders. During the year,the share price ranged from Rs. 81.00 to Rs. 167.50. As at the end oftrading on 31st March, 2008, the share price was Rs.150.00.

Equitable treatment of shareholders

The Directors have made every endeavour to ensure the equitabletreatment of all shareholders, and are committed to maximisingshareholder wealth.

Notice of shareholders’ Meetings are sent out as required by the

Companies Act No. 7 of 2007, and by the Company’s Articles of

Association . Two way proxies enable all shareholders to indicate

their consent or dissent on any decision, even if they are unable to

be present at the meeting.

Dividends

An interim Dividend of Rs. 2.25 per share (2007 - 15%) was paid on

20th June, 2007.

Earnings per share (EPS)

Earnings per share is shown on page 91 along with the Income

Statements, and the basis of computation of EPS is shown in Note 13

to the Financial Statements on page 91.

Property, Plant & Equipment

The details of Property, Plant and Equipment of the Company and the

Group are shown in Note 23 to the Financial Statements on page 100.

Capital Expenditure

The total capital expenditure of the Group incurred on the acquisition

of Property, Plant and Equipment during the year which is given in

Note 23 to the Financial Statements on page 100 amounts to

Rs. 810,380,004.

Events after the balance sheet date

On 9th May, 2008 the Company purchased 66.15% of the stated

capital of Commercial Leasing Co Ltd (CLC) . The activities of CLC

closely match those of the Company and its group companies .

Synergies can be leveraged and resources optimized. Accordingly, it

is expected that client needs can be met with even greater levels of

satisfaction, and market penetration enhanced , which in turn will

enhance value to all stake holders.

Notice of Meeting

The notice of Meeting is found on page 126 If you are unable to be

present, please complete and return the Form of Proxy.

Human Resources

The Company promotes a culture of teamwork, integrity and

dedication. Employees periodically remind themselves of the

Company’s code of ethics by signing acceptance .

Remuneration is linked to performance, and bi-annual performance

appraisals capture both the qualitative and the quantitative

performance of all employees. Employees are encouraged to use the

appraisal discussions to reinforce company values, review and



revalidate Group and personal goal alignment and set objectives that

help in personal development and the growth of both the employee

and the Group.

The appraisals also help with identifying technical or other training

needs. Staff are provided with periodic training both internal and

external. On the job training is also carried out. Employees identified

for promotion to managerial grades are provided with

managerial training.

Directors’ interests in contracts

The Directors have made the declarations required by the Companies

Act No. 7 of 2007. These have been entered into the Interest Register

which is maintained by the Company.

Lists of other companies on which these Directors serve are included

at the end of this report on pages 72 to 74.

Directors’ remuneration

The Directors’ remuneration is disclosed on page 111.

Board sub committees

The Board has established sub committees for better monitoring and

guidance of different aspects of operations and control. These

Committees are the Executive Committee, the Audit Committee and

the Remuneration Committee. During the year under review, a

Corporate Governance Committee and a Nomination Committee were

also established. Details of these committees can be found in the

Report on Enterprise Governance found on page 46 to 53.

The Board has delegated authority to the Managing Director / Group

CEO to meet with an Assets and Liabilities Committee (ALCO ) to

regularly review and set borrowing and lending rates for all group

companies.

The Chairperson and one Executive Director meet quarterly with the

Chief Information Officer, the Chief Financial Officer, the Chief Risk

Officer and the Managing Director / Group CEO to discuss group IT

issues. This “Group IT Steering Committee” also reviews licensing, IT

security, and ensures that resources are optimized across the Group.

Review of business

Following the implementation of the Strategic Plan, the Group

structure was revised. To optimize resources and harness synergies,

support functions such as finance, treasury, legal, recoveries , human

resources, risk management and corporate communications were

centralised. Key management personnel now provide their services

across the Group, facilitating operations and strengthening controls.

Products offered by Group companies are now placed under Business

Units. These BU's, freed from “back office “ functions are tasked

with ensuring that market needs are met with innovative, tailor-made

solutions .

The BU's are supported by a streamlined, multi trained marketing

staff who focus on market penetration and customer development.

A desire to cater to all sections of society in all areas of Sri Lanka

has led to the growth of the branch network and great variety in the

methods used for customer interfacing and communication.

The focus on Micro Finance has seen the Company moving towards

strategic acquisitions and alliances with like minded companies .

Re-forestation, solar power and other alternative sources of energy,

and generation of electricity are some of the areas into which the

Company is moving.

The statements of the Chairperson, Deputy Chairman and Group

Managing Director / CEO (found on pages 6,10 and 22 respectively)

cover the Company's review of performance and plans for the future.

The Business Impact Report and Financial Review found on pages 24

to 36 and pages 59 to 64 contain further details on activities of the

Company and its subsidiaries.

Directors' responsibility for financial reporting

The Directors are responsible for the preparation of Financial

Statements of the Company to reflect a true and fair view of the state

of its affairs .The Directors are of the view that the Financial

Statements (appearing on pages 78 to 112) have been prepared in

accordance with the requirements of the Sri Lanka Accounting

Standards, the Companies Acts No. 17 of 1982 and No. 7 of 2007

(for the relevant periods of the financial year) , the Finance Leasing

Act No 56 of 2000 and all relevant directions of the Central Bank of

Sri Lanka .

In accordance with the Listing Rules of the Colombo Stock Exchange ,

interim financial statements are dispatched to all shareholders

following each of the first three quarters of the financial year. The

Company sends out its annual report (with a review of the entire

financial year) within three months of the financial year end, thus

making dispatch of last quarter accounts unnecessary.

Responsibility statements

The Chief Executive Officer's and Chief Financial Officer's

responsibility statement appears on page 76. The Directors

responsibility statement appears on pages

Going concern

The Directors believe 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.

Financial Statements

The financial statements are given on pages 78 to 112.

Income

The income of the Company was Rs 4,480,432,084/- (2007

Rs 3,034,110,432/-) . The income of the Group was Rs 5,934,772,221/-

(2007 - Rs 3,950,751,220/-)

Profit

Despite difficulties faced due to increasing cost of funds, the Company

made a profit of Rs. 999,768,142/- (2007 Rs.986,593,585/-) . The profit

of the Group was Rs.1,307,535,141/- (2007 - Rs.1,050,181,256/-)

PROFIT AND APPROPRIATIONS

2007/08 2006/07

Rs . Rs .

Net profit of the Group for the year after providing for all expenses, known liabilities and depreciation of property, plant & equipment 650,107,421 790,064,000

to which income earned on other activities is added 313,375,519 207,674,719

Goodwill on consolidation is added 131,292,503 -

Share of Profit ofAssociate Companies 88,276,885 -

and income tax and deferred taxon Group Profit has to be added 87,737,153 52,442,537

leaving the Group with a Profit after taxation of 1,270,789,481 1,050,181,256

from which the amount attributable to minority interest is adjusted (2,616,118) (8,941,198)

and transfer to Reserve Fund (71,692,027) (70,284,593)

and deduct the payment of the

final divedend of 15% for 2005/2006

on a share capital of Rs.475,200,000 - (71,280,000)

and deduct the payment of the interim

Dividend of Rs 2.25 per share for

2007/2008 on a Stated Capital of

Rs. 475,200,000/- (106,720,000) (71,280,000)

(2006/2007 - 15% on a Stated

Capital of Rs. 475,200,000/-)

leaving a sum of 1,089,561,336 828,395,465

to be carried forward out of the year's

profit which when added to the

profit brought forward from

previous years of 2,980,546,405 1,961,594,070

and transferring to/from Reserve Fund - 204,399,402

leaves an unappropriated profit of 4,070,107,741 2,994,388,937

Prior year adjustments to subsidiary

retained earnings - (13,842,532)

after these appropriations,

the total reserves of the

Group stand at 4,576,313,598 3,309,657,333

Significant accounting policies

The significant accounting polices adopted when preparing these

financial statements and any changes thereof if applicable are given

on pages 78 to 112.

Statutory Payments

For the year under review, all known statutory payments have been

made and all retirement gratuities have been provided for .Further , all

management fees and payments to related parties for the year under

review have been reflected in the accounts . Details are given in Note

No. 12 of page 91.

Donations

During the year under review, the Company and the Group made

donations amounting to Rs.118,000 and 169,800 (2006/07 Company -

Rs. 249,499 and Group - Rs.299,699)

Auditors

The Auditors, M/s KPMG Ford Rhodes Thornton and Company retire

at the conclusion of this AGM.

M/s KPMG Ford Rhodes Thornton and Company have been auditors of

the Company since its incorporation. The Directors take this

opportunity to place on record their gratitude for the services

rendered by the Auditors over the past years .

During the year under review, the Auditors were paid Rs 1 Mn as

audit fees . They were paid a further amount of Rs 216,758 for

provision of non audit services.

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.

In accordance with best practices, which recommends periodic

changes of auditors, the Board recommends that M/s Earnst & Young

be appointed auditors for the year 2008/2009, at a fee to be decided

upon by the Board.

Auditors Report

The Auditors report appears on page 77.

Internal Controls

An ERM Division has been established which regularly reviews the

procedures and practices of all operations of the Company and Group.

Their reports are tabled at Audit Committee meetings and

recommendations are implemented and monitored through the Board

and other sub committees. Periodic reports are also submitted on

credit risk and corporate compliance. The Risk Management Report

on pages 54 to 58 and the Enterprise Governance Report on pages 46

to 53 give further details.

Compliance with laws and regulations

The Company has not engaged in any activity that contravenes any

applicable law or regulation.

Corporate Governance

The Board delegates authority with responsibility, and puts in place

reporting lines and internal controls that ensure that the Company's

objectives are met in a manner that is ethical and socially responsible.

Details of steps taken in this connection are given in the Enterprise

Governance Report found on pages 46 to 53.

Adoption of applicable regulatory and statutory requirements

Following the implementation of the Companies Act No. 7 of 2007,

the Company reviewed its Articles of Association . The appropriate

amendments were submitted for the approval of the Central Bank of

Sri Lanka. Having obtained their consent these amendment are being

submitted for shareholder approval at the Extraordinary General

Meeting scheduled to take place immediately following the Annual

General Meeting on 30th June, 2008.

The Board also reviewed existing governance, in the light of the new

Corporate Governance Rules of the Colombo Stock Exchange.

Compositions of Board Sub Committees were revised and new Sub

Committees set up. Committee charters and other documents

detailing roles, functions and duties were reviewed and updated.

The Company complies with all direction and regulations of the

Central Bank of Sri Lanka on management of companies engaged in

leasing. The Group complies with any such direction or regulation on

leasing and also those applicable to finance companies. Monthly

compliance reports are submitted to the Board.

The Company was one of the first to adopt an Anti Money Laundering

Policy. The AML Policy , reviewed and updated this year, also contains

the procedures and processes to be followed. This policy is also being

adopted by all Group Companies. This will strengthen controls:

Interests in contracts

The Directors are to be regarded as interested in any contracts

entered into with the following companies on the Boards of which

they serve in the capacities referred to :

Mrs. R. L. Nanayakkara Chairperson of:

NDB Venture Investment (Pvt) Ltd.

Ayojana Fund Management (Pvt) Ltd.

Brown & Co Ltd

Browns Group Industries Limited

Browns Tours Limited

Badulla Transport & Agency Ltd

Ceylon Marine & Travel Services (Pvt) Ltd

C F T Engineering Ltd

Polycoat Resins Ltd

Engineering Services Ltd

Hatton Transport and Agency Ltd

I.G Browns Rubber Industries Ltd

Lanka ORIX Finance Co Ltd

Lanka ORIX Factors Ltd

Lanka ORIX Insurance Brokers Ltd

LOIB Financial Services Ltd

Lanka ORIX Information Technology Ltd

Lanka ORIX Project Development Ltd

Lanka ORIX Securities (Pvt) Ltd

Masons Mixture Ltd,

Mutugala Estates Ltd

Pathregalla Estates Ltd

Sundaya Lanka (Pvt) Ltd

Standard Finance Ltd

Taprobane Investment Group of Companies

Director of:

Mireka Capital Land (Pvt) Ltd

Mireka Homes (Pvt) Ltd

Overseas Realty Ltd.

Trans Asia Hotels Ltd



Mr. I. C. Nanayakkara Chairman of:

Touchwood Investments Ltd

Deputy Chairman of:

Lanka ORIX Finance Company Ltd

Lanka ORIX Factors Ltd

Lanka ORIX Insurance Brokers Ltd

LOIB Financial Services Ltd



Lank ORIX Project Development Ltd

Director of:

Brown and Co Ltd

Colombo Land Exchange

Taprobane Fund Management (Pvt) Ltd

Muthugala Estates Ltd

Pathregala Estates Ltd

Masons Mixture Ltd

Walker & Greig Ltd

Standard Finance Ltd

The Hatton Transport & Agency Co Ltd

Snowcem Products Lanka (Pvt) Ltd

The Badulla Transport & Agency Co Ltd

Ceylon Marine & Travel Services (Pvt) Ltd

CFT Engineering Ltd

Associated Battery Manufacturers (Cey) Ltd

Engineering Services Ltd


PRASAC Micro Finance Institution

Ishara Plantations (Pvt) Ltd

Ishara Property Development (Pvt) Ltd.

Deshamanya M. D. D. Pieris Deputy Chairman of:

Mercantile Merchant Bank Ltd

Director of :

Financial Systems International (Pvt) Ltd

Mercantile Financial Brokers Ltd

Mercsair Ltd

MMBL Logistics (Pvt) Ltd

MMBL Money Transfer (Pvt) Ltd

Pathfinder Holdings (Pvt) Ltd.,

Pathfinder (Pvt) Ltd.,

Mountain Hawk Express (Pvt) Ltd.

Mr. M. T. L. Fernando Director:


Asian Hotels & Properties Ltd

Royal Ceramics Lanka Ltd

Brown & Company Ltd

Accounting Consultancy & Solutions (Pvt) Ltd

Business Intelligence Ltd

Chevron Lubricant Lanka Ltd

Commercial Development Co. Ltd

Gal Oya Holdings (Pvt) Ltd

Lanka Lapids Ltd

Lanka Tours & Trades (Pvt) Ltd

Lexinton Holdings (Pvt) Ltd

Management Systems Ltd

Managers & Secretaries (Pvt) Ltd

Mirishena (Kalutara) Rubber Co.Ltd

Paradise Coconut Products (Pvt) Ltd

Rocell Bathware Ltd

Royal Ceramics Distributors (Pvt) Ltd

Royal Porcelain (Pvt) Ltd

Secretarial Services Ltd

SSL Business Services (Pvt) Ltd

Taprobane Investment (Pvt) Ltd

Taprobane Fund Management (Pvt) Ltd

Taprobane Consultancy (Pvt) Ltd

Taprobane Securities (Pvt) Ltd

Taprobane Holdings Ltd

The Institute for the Development of

Commercial Law & Practice

Uva Ketawela Tea Co. Ltd

Vallibel Power Erathna Ltd

Mr. R. A. Fernando

Director of:

World Vision

Habitat for Humanity

Environmental Foundation of Lanka

Duncan White Sports Foundation

Mrs. K. U. Amarasinghe

Director of:

Lanka ORIX Finance Company Ltd Lanka ORIX Factors Ltd Lanka ORIX Insurance Brokers Ltd LOIB Financial Services LtdLanka ORIX information Technology Ltd Lanka ORIX Project Development Ltd Lanka ORIX Securities (Pvt) Ltd



Ishara Traders (Pvt) LtdIshara Property Development (Pvt) LtdIshara Plantations (Pvt) LtdTouchwood Investments Ltd

Mr. T. H. M. Wickremasinghe

Chairman of:

Shakthi Institute (Pvt) LtdManaging Director of:


Mr. R. M. Nanayakkara

Chairman of:

Ishara Traders (Pvt) LtdIshara Plantations (Pvt) LtdIshara Property Development (Pvt) Ltd

Mr. W. D. K. Jayawardene

Director of:

Lanka ORIX Finance Co Ltd Lanka ORIX Factors Ltd Lanka ORIX Insurance Brokers Ltd LOIB Financial Services Ltd Lanka ORIX Information Technology Ltd Lanka ORIX Securities (Pvt) Ltd Touchwood Investments LtdSundaya Lanka (Pvt) Ltd Peoples Merchant Bank Ltd

Mr. Y. Oshima

Chairman of:

ORIX China CorporationORIX Auto Infrastructure Services LimitedORIX Leasing Pakistan Limited ORIX Polska S.AORIX International Finance Limited

Deputy Chairman of: ORIX China Railway Corporation

Director of: ORIX Australia Corporation LimitedShanghai Jinheyuan Equipment Rental Co., LtdChina Orient Leasing Co., Ltd.ORIX Leasing Egypt SAETian An China Investment Company LimitedORIX Asia LimitedIL&FS Education & Technology Services LimitedInfrastructure Leasing & Financial Services LimitedIL&FS Securities Services LimitedBTA ORIX Leasing JSCORIX Leasing Malaysia BerhadORIX Investment Bank Pakistan LimitedORIX METRO Leasing and Finance CorporationORIX Car Rentals Pte Ltd

ORIX Investment and Management Private LimitedORIX Leasing Singapore LimitedORIX Rentec (Singapore) Pte. Ltd.,ORIX Hotels International Pvt LtdSaudi ORIX Leasing CompanyORIX Europe LimitedORIX Auto Leasing Taiwan CorporationORIX Taiwan CorporationORIX EnterpriseORIX Auto Leasing (Thailand) Co.,LtdThai ORIX Leasing Co., LtdORIX Finance Services Hong Kong LimitedORIX Advanced Finance Inc, ORIX Taiwan Asset Management CompanyORIX (Carribean) N. V., Dragon Wealth Development LimitedORIX Asset Management (Hong Kong) Co. Ltd

He also serves as Auditor of ORIX Capital Korea Corporationand is the Vice President Commissioner of PT. ORIX IndonesiaFinance.

Mr. K. Fushitani

Deputy Chairman of:

ORIX Polska S.A

Director:

ORIX Auto Infrastructure Services Limited

ORIX Leasing Pakistan Limited

ORIX Capital Korea Corporation

ORIX Auto Leasing Taiwan Corporation

ORIX Enterprise Corporation

ORIX Auto Leasing (Thailand) Co. Ltd

Thai ORIX Leasing Co., Ltd

Mr. Kapila JayawardenaGroup Managing Director / Chief Executive Officer

Mrs. Rohini NanayakkaraChairperson

Ms. Chrishanthi EmmanuelCompany Secretary


DIRECTORS’ RESPONSIBILITY FOR FINANCIAL REPORTING


The Company's financial statements for the year to 31st March , 2008

have been prepared and presented in conformity with the

requirements of the Sri Lanka Accounting Standards, the Regulations

and Directions of the Central Bank of Sri Lanka, the Listing Rules of

the Colombo Stock Exchange, the Finance Leasing Act No. 56 of 2000,

the Companies Act No, 17 of 1982 (for the applicable period ) and the

Companies Act No. 7 of 2007.

The Directors have set in place systems and procedures which

facilitate monitoring and control . Internal systems and processes are

reviewed regularly by the Enterprise Risk Management Division and

their reports are discussed at the Meetings of the Audit Committee.

The Audit Committee also meets with the external auditors. The

Directors expectations of employees, with regard to integrity and

ethics are communicated to all staff .

The Directors believe that they have taken all reasonable steps to

safeguard the assets of the Company , to ensure the integrity,

accuracy and safeguarding of operational data , and to prevent ,

deter and detect fraud.

M/s KPMG Ford Rhodes Thornton and Company , the Auditors , have

examined the financial records, connected documentation and

minutes of Directors' and shareholders' meetings . Their opinion is

given on page 77.

Kapila JayawardenaGroup Managing Director / Chief Executive Officer


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. 7 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 KPMG Ford, Rhodes,

Thornton & Co., 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 Officer, LOLC Group

CHIEF EXECUTIVE OFFICER'S AND CHIEF FINANCIALOFFICER'S RESPONSIBILITY STATEMENT


REPORT OF THE AUDITORS

INCOME STATEMENTS


Group Company

RestatedFor the year ended 31 March 2008 2007 2008 2007

Note Rs. Rs. Rs. Rs.

REVENUE 3 6,248,147,740 4,158,425,939 4,921,034,276 3,325,950,111

INCOME 4 5,934,772,221 3,950,751,220 4,480,432,084 3,034,110,432

OPERATING EXPENSES 5

Direct expenses excluding interest costs 6 (218,144,472) (142,646,748) (165,047,682) (110,713,213)

Provision for bad and doubtful debts (171,592,067) (110,110,919) (108,272,168) (66,157,272)

Staff costs 7 (521,628,482) (351,482,091) (333,659,398) (212,747,869)

Depreciation (319,886,314) (237,697,595) (296,601,808) (215,883,709)

Other operating expenses 8 (649,448,291) (530,998,891) (423,013,697) (367,363,149)

OPERATING PROFIT BEFORE NET INTEREST COST 4,054,072,595 2,577,814,976 3,153,837,331 2,061,245,220

Net interest costs 9 (3,403,965,174) (1,787,750,976) (2,768,779,783) (1,442,881,021)

RESULTS FROM OPERATING ACTIVITIES 650,107,421 790,064,000 385,057,548 618,364,199

Other income/ (expenses) 10 313,375,519 207,674,719 440,602,192 291,839,679

Negative Goodwill 11 131,292,503 - - -

Share of profit of associate companies 88,276,885 - - -

PROFIT BEFORE TAXATION 1,183,052,328 997,738,719 825,659,740 910,203,878

Taxation 12 87,737,153 52,442,537 152,211,715 76,389,707

PROFIT FOR THE YEAR 1,270,789,481 1,050,181,256 977,871,455 986,593,585

Attributable to:

Equity holders of the Company 1,268,173,363 1,041,240,058 977,871,455 986,593,585

Minority interest 2,616,118 8,941,198 - -

PROFIT FOR THE YEAR 1,270,789,481 1,050,181,256 977,871,455 986,593,585

BASIC EARNINGS PER SHARE 13 26.69 21.91 20.58 20.76

Figures in brackets indicate deductions

The above Income Statements should be read in conjunction with the Notes, which form an integral part of these Financial Statements,

disclosed on pages 82 to 112.

BALANCE SHEETS


Group Company

RestatedAs at 31 March 2008 2007 2008 2007

Note Rs. Rs. Rs. Rs.

ASSETSCash and cash equivalents 14 1,072,750,722 464,118,339 538,690,514 204,360,048 Short term investments 863,356,920 404,548,902 178,838,916 34,778,665 Rentals receivable on lease assets/hire purchase/others 15 11,602,159,331 10,257,387,807 9,984,330,771 8,823,469,550 Advances and other loans 16 8,562,905,852 5,751,122,663 6,194,837,965 4,685,043,569 Inventories 20,884,442 - - - Real estate stocks 160,757,548 149,985,117 39,290,372 46,765,717 Advances for margin trading 79,880,328 95,194,684 - - Other current assets 17 3,558,466,426 2,344,659,955 1,529,878,268 755,080,099 Investment Securities 18 365,660,795 140,306,014 759,142,979 531,524,373 Investment in term deposits 4,362,623,372 3,013,378,966 4,239,553,926 3,013,378,966Deferred tax asset 19 490,399,448 248,284,112 488,541,570 248,284,112 Investments in joint venture 20 - - 100,000,000 -Investments in equity accounted investees 21 492,585,403 - 278,190,903 - Investments in subsidiary companies 22 20 20 1,216,000,065 981,159,765 Property, plant and equipment 23 2,151,209,445 1,614,963,370 2,105,744,201 1,564,849,494 Total assets 33,783,640,052 24,483,949,949 27,653,040,450 20,888,694,358

LIABILITIES AND EQUITYLiabilitiesBank Overdraft 1,090,023,468 257,894,250 659,445,757 43,700,703 Deposits from customers 24 3,339,664,870 1,746,164,740 - - Short-term borrowings 25 7,865,273,046 5,401,358,338 7,161,533,046 4,867,512,742 Finance lease liabilities 26 961,803,300 1,030,606,142 961,151,033 1,030,606,142 Provision for taxation 21,301,187 36,537,601 1,373,597 19,066,673 Long term borrowings-current 27 3,867,594,352 2,708,744,871 3,867,594,352 2,708,744,871 Trade and other payables 28 2,362,903,617 1,842,355,476 1,188,999,831 900,546,104 Long term borrowings-non current 27 9,102,258,984 7,599,610,164 9,102,258,984 7,599,610,164 Deferred taxation 19 15,881,811 928,325 - - Retirement benefit obligations 29 51,772,347 34,831,047 40,042,619 24,620,025 Total liabilities 28,678,476,982 20,659,030,954 22,982,399,219 17,194,407,424

EquityStated capital 30 475,200,000 475,200,000 475,200,000 475,200,000 Reserves 31 506,205,797 329,110,928 494,396,232 320,542,388 Retained earnings 32 4,070,107,741 2,980,546,405 3,701,044,999 2,898,544,546 Equity attributable to equity holders of the Company 5,051,513,538 3,784,857,333 4,670,641,231 3,694,286,934 Minority interest 33 53,649,532 40,061,662 - - Total equity 5,105,163,070 3,824,918,995 4,670,641,231 3,694,286,934 Total liabilities & equity 33,783,640,052 24,483,949,949 27,653,040,450 20,888,694,358

The above Balance Sheets should be read in conjunction with the notes, which form an integral part of these Financial Statements, disclosed onpages 82 to 112.These financial statements are prepared in compliance with the requirements of the Companies Act No. 07 of 2007.

Mrs. S. S. KotakadeniyaChief Financial Officer-LOLC Group

Signed on behalf of the Board

Mrs. R. L. Nanayakkara Mr. I. C. NanayakkaraChairperson Deputy Chairman

30 May 2008

Rajagiriya (Greater Colombo)

STATEMENTS OF CHANGES IN EQUITY


GROUP Attributable to Equity Holders of the Company

Stated Capital Subsidiary Revaluation Future Statutory Retained Minority TotalShare Reserve Taxation Reserve Earnings Interest

Premium Reserve

For the year ended 31 March 2008 Rs. Rs. Rs. Rs. Rs Rs. Rs. Rs.

Balance as at 31.03.2006

as previously reported 475,200,000 536,504 - 205,000,000 257,689,233 1,961,594,070 31,120,464 2,931,140,271

Prior year adjustment to

subsidiary retained earnings (Note 42) (13,842,532) (13,842,532)

Balance as at 31.03.2006 (restated) 475,200,000 536,504 - 205,000,000 257,689,233 1,947,751,538 31,120,464 2,917,297,739

Profit for the year as previously reported - - - - - 1,045,671,684 - -

Prior year adjustment to subsidiary profits (Note 42) - - - - - (4,431,626) -

Profit for the year (Restated) - - - - - 1,041,240,058 8,941,198 1,050,181,256

Dividends - - - - - (142,560,000) - (142,560,000)

Transferred to retained earnings - - - - (204,399,402) 204,399,402 - -

Transfers during the year - - - - 70,284,593 (70,284,593) - -

Balance as at 31.03.2007 475,200,000 536,504 - 205,000,000 123,574,424 2,980,546,405 40,061,662 3,824,918,995

Profit for the year - - - - - 1,268,173,363 2,616,118 1,270,789,481

Dividends - - - - - (106,920,000) - (106,920,000)

Addition to minority through acquisition of subsidiary - - - - - - 10,971,752 10,971,752

Transfers during the year - - - - 71,692,027 (71,692,027) - -

Revaluation during the year - - 105,402,842 - - - - 105,402,842

Balance as at 31.03.2008 475,200,000 536,504 105,402,842 205,000,000 195,266,451 4,070,107,741 53,649,532 5,105,163,070

COMPANY

Attributable to Equity Holders of the Company

Stated Capital Revaluation Future Statutory Retained Minority TotalReserve Taxation Reserve Earnings Interest

Reserve

For the year ended 31 March 2008 Rs. Rs. Rs. Rs Rs. Rs. Rs

Balance as at 31.03.2006 475,200,000 - 205,000,000 250,880,239 1,919,173,110 - 2,850,253,349

Profit for the year - - - - 986,593,585 - 986,593,585

Dividends - - - - (142,560,000) - (142,560,000)

Transfers during the year - - - 69,061,551 (69,061,551) - -

Transferred to retained earnings - - - (204,399,402) 204,399,402 - -

Balance as at 31.03.2007 475,200,000 - 205,000,000 115,542,388 2,898,544,546 - 3,694,286,934

Profit for the year - - - - 977,871,455 - 977,871,455

Dividends - - - - (106,920,000) - (106,920,000)

Transfers during the year - - - 68,451,002 ( 68,451,002) - -

Revaluation during the year - 105,402,842 - - - - 105,402,842

Balance as at 31.03.2008 475,200,000 105,402,842 205,000,000 183,993,390 3,701,044,999 - 4,670,641,231

The Statements of Changes in Equity should be read in conjunction with the Notes, which form an integral part of these Financial Statements,disclosed on pages 82 to 112.

CASH FLOW STATEMENTS


Group CompanyFor the year ended 31 March 2008 2007 2008 2007

Rs. Rs. Rs. Rs.

CASH FLOW FROM OPERATING ACTIVITIESNet profit before taxation 1,183,052,328 997,738,719 825,659,740 910,203,878 Adjustment for:(Profit)/Loss on sale of property, plant and equipment (6,158,934) (56,202,698) (3,176,819) (56,202,698)Depreciation 319,886,314 237,697,595 296,601,808 215,883,709 Provision for gratuity 18,448,564 11,927,293 16,140,094 7,576,830 Allowances for doubtful debts 119,014,628 21,631,143 70,941,207 (15,304,831)Provision for fall/(Increase) in value of investments (138,353,860) 614,388 (136,427,230) 718,347 Investment income (1,789,404) (2,126,480) (12,812,920) (2,126,480)Interest cost 3,633,596,534 1,887,346,920 2,998,411,143 1,542,476,965 Interest income (229,631,360) (99,595,944) (229,631,360) (99,595,944)(Profit)/Loss on sale of investments (47,744,537) (14,974,287) (47,744,537) (14,974,287)Negative goodwill (131,235,677) - - - Share of profit of equity accounted investees (88,276,885) - - -

3,447,755,383 1,986,317,930 2,952,301,386 1,578,451,611

Operating profit before working capital change 4,630,807,710 2,984,056,648 3,777,961,125 2,488,655,488 Change in accounts receivables & others (580,419,322) (129,316,714) (774,798,169) (386,457,552)Change in inventories (3,447,493) - - -Change in accounts payable (108,579,785) 239,945,616 104,679,872 295,195,317 Change in real estate stocks (10,772,430) (79,260,321) 7,475,345 6,792,463 Change in net investment in leases (1,463,786,152) (2,845,595,129) (1,217,757,622) (2,501,799,042)Change in factoring account receivable (615,752,485) (208,956,180) - - Change in net investment in advances and other loans (2,811,783,189) (2,175,749,808) (1,523,839,200) (1,391,333,448)

(963,733,146) (2,214,875,888) 373,721,351 (1,488,946,774)Interest paid (3,022,107,835) (1,887,346,920) (2,814,637,288) (1,542,476,965)Income tax paid (156,744,952) - (105,738,819) - Gratuity paid (1,507,264) (3,092,756) (717,500) (1,224,750)Net cash used in operating activities (3,914,461,837) (4,105,315,564) (2,547,372,256) (3,032,648,489)

CASH FLOW FROM INVESTING ACTIVITIESInvestment in subsidiary companies - - (234,840,300) (605,000,000)Acquisition of subsidiary net of cash acquired (Note 22) 10,404,153 - - -Investment in associate company (216,359,359) - (216,359,359) - Investment in joint venture - (100,000,000) -Acquisition of property, plant and equipment (805,358,312) (934,498,512) (792,886,438) (906,819,000)Acquisition of short term Investments (458,808,018) 44,216,396 (144,060,251) 111,338,990 Investment in overseas - (61,831,544) - (61,831,544)Net additions to investments (101,087,928) (51,355) (105,278,385) (8,373,055)Increase in investment in term deposits (1,349,244,407) (1,855,821,365) (1,226,174,961) (1,856,221,365)Proceed from the sale of property, plant and equipment 67,542,412 81,151,468 63,969,586 79,769,582 Interest received 229,631,360 99,595,944 229,631,360 99,595,944 Dividend received 1,789,404 2,039,790 12,812,920 2,039,790 Rent received - 86,690 - 86,690 Net cash flow from investing activities (2,851,124,055) (2,625,112,488) (2,513,185,828) (3,145,413,968)

CASH FLOW FROM FINANCING ACTIVITIESNet proceed from short term borrowings 2,463,914,708 1,449,374,251 2,294,020,304 1,516,528,655 Net increase/(decrease) in Lease Liability (69,904,082) 742,956,093 (69,455,109) 742,956,093 Net proceeds from customer deposits 1,593,500,130 551,903,683 - - Proceeds from long term loans 6,935,999,833 6,576,554,334 6,935,999,833 6,576,554,334 Repayments of long term loans (4,274,501,532) (2,382,515,234) (4,274,501,532) (2,382,515,234)Dividends paid (106,920,000) (142,560,000) (106,920,000) (142,560,000)Net cash from financing activities 6,542,089,057 6,795,713,127 4,779,143,496 6,310,963,848

Net increase/(decrease) in cash & cash equivalents (223,496,834) 65,285,076 (281,414,588) 132,901,392 Cash & cash equivalents at the beginning of the year 206,224,089 140,939,013 160,659,345 27,757,953 Cash & cash equivalents at the end of the year (17,272,746) 206,224,089 (120,755,243) 160,659,345

Analysis of Cash & Cash Equivalents at the end of the yearCash at bank and in hand 1,072,750,722 464,118,339 538,690,514 204,360,048 Bank overdraft (1,090,023,468) (257,894,250) (659,445,757) (43,700,703)

(17,272,746) 206,224,089 (120,755,243) 160,659,345

NOTES TO THE FINANCIAL STATEMENTS


1. CORPORATE INFORMATION

1.1 General

Lanka ORIX Leasing Company PLC. is a public quotedcompany incorporated on 14 March 1980 and domiciled inSri Lanka. The Consolidated Financial Statements of theCompany for the year ended 31 March 2008 comprise ofthe Company and its subsidiaries (together referred to asthe "Group").

The Financial Statements were authorised for issue by theDirectors on 30th May 2008.

1.2 Principal Activities and Nature of Operations

During the year, the principal activities of the Groupcomprised of leasing, hire purchase, loans,operatingleases, factoring, insurance broking, accepting deposits,pawn broking and assembling & distribution of solar lightsystems.

1.3 Directors' Responsibility Statement

The Board of Directors takes the responsibility for thepreparation and presentation of these FinancialStatements.

2. ACCOUNTING POLICIES

2.1 Statement of Compliance

The Financial Statements of the Company and thoseconsolidated with such are prepared in accordance withthe Sri Lanka Accounting Standards laid down by theInstitute of Chartered Accountants of Sri Lanka, andtherefore present fairly the financial position, financialperformance and cash flow of the Company.

The preparation of Financial Statements in conformitywith SLASs require management to make judgments,estimates and assumptions that affect the application ofpolicies and reported amounts of assets and liabilities,income and expenses.The estimates and associatedassumptions are based on historical experience andvarious other factors that are believed to be reasonableunder the circumstances, the results of which form thebasis of making the judgments about carrying values ofassets and liabilities that are not readily apparent fromother sources. Actual results may differ from theseestimates.

2.2 Basis of Preparation

The Financial Statements are presented in Sri LankanRupees where appropriate the significant AccountingPolicies disclosed in the succeeding notes. The FinancialStatements are prepared on the historical cost basis andno adjustment has been made for inflationary factorsaffecting the Financial Statements except for revaluationof land and buildings of offiice premises at 100/1, SriJayewardenepura Mawatha, Rajagiriya and adjoining landat 100/2, Sri Jayewardenepura Mawatha, Rajagiriya .Assets and liabilities are grouped by nature and listed inan order that reflect their relative liquidity.

Previous period figures and notes have been restated andreclassified wherever necessary to conform to the currentpresentation. (Note 42)

The specific policies used are explained below and relateto both the Consolidated Financial Statements and that ofthe Company, except as stated otherwise.

The Accounting Policies have been consistently applied bythe Company and are consistent with those used in theprevious year except changes made in Notes 15 and 19.

2.3 Basis of Consolidation

i) Subsidiaries

The Financial Statements of the Group represent theconsolidation of the Financial Statements of LankaORIX Leasing Company PLC., and its subsidiaries asdisclosed in Note 18. Subsidiaries are entitiescontrolled by the Company. Control exists when theCompany has the power, directly or indirectly, togovern the financial and operation policies of anentity so as to obtain benefits from its activities. Inassessing control, potential voting rights thatpresently are exercisable or convertible are taken intoaccount.

Subsidiaries are consolidated from the date theparent company obtains control until such time ascontrol ceases. Acquisition of subsidiaries areaccounted for using the purchase method ofaccounting.

The Group Financial Statements are prepared inaccordance with Sri Lanka Accounting Standards No.26 on Consolidation Financial Statements.

The interest of the outside shareholders of the Groupis disclosed separately under the heading “MinorityInterest”.

ii) Associates and jointly controlled entities

Associates are those entities in which the Group has



significant influence, but not control, over thefinancial and operating policies. Joint ventures arethose entities over whose activities the Group hasjoint control, established by contractual agreementand requiring unanimous consent for strategicfinancial and operating decisions.

Associates are those entities in which the Group hassignificant influence, but not control, over thefinancial and operating policies. Significant influenceis presumed to exist when the Group holds between20 and 50 percent of the voting power of anotherentity. Joint ventures are those entities over whoseactivities the Group has joint control, established bycontractual agreement and requiring unanimousconsent for strategic financial and operatingdecisions.

Associates are accounted for using the equity method(equity accounted investees) and are initiallyrecognised at cost. The Group's investment includesgoodwill identified on acquisition, net of anyaccumulated impairment losses. The consolidatedfinancial statements include the Group's share of theincome and expenses and equity movements of equityaccounted investees, after adjustments to align theaccounting policies with those of the Group, from thedate that significant influence commences until thedate that significant influence ceases. When theGroup's share of losses exceeds its interest in anequity accounted investee, the carrying amount ofthat interest (including any long-term investments) isreduced to nil and the recognition of further losses isdiscontinued except to the extent that the Group hasan obligation or has made payments on behalf of theinvestee.

Jointly controlled entities are accounted for usingproportionate consolidation method, from the datethat significant influence or joint control commencesuntil the date that significant influence or joint controlceases.

iii) Business Combinations

All business combinations have been accounted forby applying the purchase method in accordance withthe Sri Lanka Accounting Standards No. 25 (Revised2004) - Business Combinations. Applying this methodinvolves the entity that obtains control of the otherentity to recognise the fair value of assets acquiredand liabilities and contingent liabilities assumed,including those not previously recognised.

iv) Transactions eliminated on consolidation

Intra-group balances and any unrealised gains andlosses or income and expenses arising from intra-group transactions, are eliminated in preparing theConsolidated Financial Statements.

v) Goodwill

Goodwill represents the excess of the cost of anyacquisition of a subsidiary or an associate over theGroup's interest in the net fair value of theidentifiable assets, liabilities and contingentliabilities acquired.

Goodwill is initially recognized at cost. The companywill test the goodwill for impairment annually andasses for any indication of impairment to ensure thatit's carrying amount does not exceed the recoverableamount. If an impairment loss is identified, it isrecognized immediately to the income statement.

Carrying amount of the goodwill arising on acquisitionof subsidiaries and joint ventures is presented as anintangible and the goodwill on an acquisition of andequity accounted investment is included in thecarrying value of the investment.

In the Group's interest in the net fair value of theidentifiable assets, liabilities and contingentliabilities exceeds the cost of the acquisition of theentity, the Group will reassess the measurement ofthe acquiree's identifiable assets and liabilities andthe measurement of the acquiree's identifiable assetsand liabilities and the measurement of the cost andrecognize the difference immediately to theconsolidated income statement.

2.4 Assets and Bases of their Valuation

i) Cash and Cash Equivalents

Cash and Cash Equivalents comprise of cash in handand cash at banks. Bank overdrafts that are repayableon demand and form an integral part of the Groupcash management are included as a component ofCash and Cash Equivalents for the purpose of thestaterment of cash flows.

ii) Rentals Receivable on Leased Assets, MortgageLoans, Hire Purchases

Rentals receivable on leased assets are accounted foras finance leases and reflected in the Balance Sheetat balance cost recoverable after eliminatingunearned income and deducting pre-paid rentals,rental collections and provision for doubtful debts.



Advances and Other Loans to Customers

Advances and other loans to customers comprised ofrevolving loans and loans with fixed instalments.

Revolving loans to customers are reflected in theBalance Sheet at amounts disbursed less repaymentsand provision for doubtful debts. Loans to customerswith fixed installments are stated in the BalanceSheet net of possible loan losses and net of interest,which is not accrued to revenue.

iii) Provision for Doubtful Debts

The Company computes its provisioning for bad anddoubtful debts according to the Central Bank directionNo. 2 of 2006.

The specific provisions for doubtful debts are arrivedat using the following bases;

Lease, hire purchase and loan receivables ofLanka ORIX Leasing Company PLC

• Twenty percent (20%) of all lease, hire purchaseand loan receivables (net of unearned income)which are in arrears for a period of 6 to 12 months.

• Fifty percent (50%) of all lease, hire purchasesand loan receivables (net of unearned income)which are in arrears for a period of 12 to 18months.

• One hundred percent (100%) of all lease, hirepurchases and loan receivables (net of unearnedincome) which are in arrears for a period of 18months and more.

with additional specific provisions on a case by casebasis.

Micro Finance debts of Lanka ORIX LeasingCompany PLC and lease, hire purchase and loanreceivables of Lanka ORIX Finance CompanyLimited.

Computation is based on the Direction No. 1 of 1991of Section 2 of the Finance Companies Act no 78 of1988.

• Fifty percent (50%) on all receivables (net ofunearned income) which are in arrears for a periodof 6 to 12 months.

• One hundred percent (100%) on all receivables (netof unearned income) which are in arrears for aperiod of 12 months and more with additionalspecific provisions.

• Additional specific provisions are made upon

management review on the performance of thelease,hire purchase and loan portfolios. Facilitiesthat are overdue for 18 months or more and fullyprovided have been written off against theprovisions made.

The values of the following items held ascollateral for a particular advance have beendeducted in arriving at the above provisions.

• with regard to vehicles that have beenrepossessed by the Company, eighty percent (80%)of the valuation obtained during the preceding sixmonths from a professional valuer.

• with regard to land and buildings, the full value, incase of a primary mortgage, such value shall notexceed the value decided by a qualifiedprofessional valuer at the time of providing theaccommodation

iv) Factoring Debtors - (Subsidiary)

Factoring receivables of Lanka ORIX Factors Ltd., asubsidiary Company, have been stated net of specificprovisions based on Management review. Anyamount uncollectable is written off against profits.

v) Inventories

Inventories are stated at the lower of cost and netrealizable value. Inventories has been valued basedon the weighted average cost method and includesexpenditure incurred in acquiring the inventories andbringing them to their existing condition and location.

vi) Real Estate Stocks

Real Estate Stocks of the Company represent thepurchase value of properties acquired for resale withbuy-back agreements, less repayments. Real EstateStocks of Lanka ORIX Finance Company represent thepurchase value of properties acquired and anysubsequent expenditure incurred on such fordevelopment.

vii) Short Term Investments

Short term investment comprises of call deposits,interest earning demand deposits with banks andsecurities purchased under repurchase agreements(repos). Call deposits and deposits with banks arestated at the amounts to be realized and repos arestated at purchase value plus interest accrued on atime proportionate basis.

viii) Investments in Term Deposits

Term deposits are stated at principal amount plusinterest accrued on a time proportionate basis.



ix) Investments in Subsidiary Companies

In the Parent Company's Financial Statements, theinvestments in the Subsidiary Companies arereflected at cost of acquisition, net of any provisionfor diminution in value other than temporary.Provision made for fall in value of such investmentsis charged against profits.

x) Investment Securities

Investments in quoted shares are stated at theirrespective market values on an aggregate portfoliobasis. Provision for fall in market value is also madeon an aggregate portfolio basis for each class ofinvestment.

Investment in treasury bills and commercial papersare shown at initial cost plus accumulated interest.

Investment in non quoted shares are stated at cost ofacquisition and adjusted for any fall in value, whichare other than temporary.

xi) Receivable from Clients on Share Purchases

Amounts receivable from clients for shares purchasedon behalf of them are stated at net of specificprovisioning.

xii) Other Receivables

Other receivable balances are stated at estimatedamounts receivable after providing for doubtfulreceivables.

xiii) Property, Plant and Equipment (Other thanOperating Lease Assets and Leasehold Vehiclesand Machinery)

(i) Recognition and measurement

Items of property, plant and equipment are measuredat cost/revaluation less accumulated depreciation/impairment losses.

Cost includes expenditure that is directly attributableto the acquisition of the asset. The cost of self-constructed assets includes the cost of materials anddirect labour, any other costs directly attributable tobringing the asset to a working condition for itsintended use, and the costs of dismantling andremoving the items and restoring the site on whichthey are located.

When parts of an item of property, plant andequipment have different useful lives, they areaccounted for as separate items of property, plant andequipment.

Gains and losses on disposal of an item of property,plant and equipment are determined by comparingthe proceeds from disposal with the carrying amountof property, plant and equipment and are recognisednet within “other income” in profit or loss. When re-valued assets are sold, the amounts included in therevaluation surplus reserve are transferred to retainedearnings.

(ii) Subsequent costs

The cost of replacing part of an item of property, plantand equipment is recognised in the carrying amountof the item if it is probable that the future economicbenefits embodied within the part will flow to theGroup and its cost can be measured reliably. Thecarrying 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 lossas incurred.

(iii) Depreciation

Property plant and equipment are stated in theBalance Sheet, at cost/revaluation less accumulateddepreciation together with any incidental expensesthereon. The cost includes expenditure that is directlyattributable to the acquisition of the asset and anyother costs incurred in bringing the asset to theworking condition.

Depreciation is provided from the date the asset isavailable for use up to the date it derecognises. Thecompany and its subsidiaries provide depreciation forthe following assets on the straight line method overthe estimated useful life stated below. Land is notdepreciated.

Building 40 years

Motor Vehicles 4 years

Furniture & Fittings 5 years

Office Equipment 5 years

Lanka ORIX Factors Ltd., a subsidiary company,depreciates computers categorized under officeequipment over 3 years.

Lanka ORIX Securities (Pvt) Ltd., a subsidiarycompany, depreciates computers categorized underoffice equipment over 3 year and furniture and fittingsover 4 years.

Gal Oya Holdings (Pvt) Ltd.,a Joint Venture company,depreciates computers over 4 years and officeequipment over 8 years.



Sundaya Lanka (Pvt) Ltd., a subsidiary company,depreciates motor vehicles over 5 years. Equipments& tools, furniture & fittings and computers aredepreciated over 4 years.

xiv) Operating Lease Assets

Operating Lease Assets are motor vehicles andequipments shown under property, plant andequipment in the Balance Sheet at cost lessaccumulated depreciation.

Motor vehicles are depreciated net of cost and theestimated residual value over the effective useful life.Effective useful life for leasedhold motor vehicles is estimated as five years for the purpose of depreciation. Cost of equipments are fullydepreciated over the lease period. Residual value isthe estimated net amount the Company wouldcurrently obtain from disposal of the assets at the endof useful life.

xv) Leasehold Vehicles

Leasehold vehicles are assets obtained on financeleases facilities by the company for the business ofhiring and shown under the property, plant andequipment in the Balance Sheet at cost lessaccumulated depreciation.

These assets are depreciated net of cost and theestimated residual value over five years.

xvi) Leasehold machinery

Leasehold machinery are machinery and equipmentsshown under property, plant and equipment in theBalance Sheet at cost less accumulated depreciation.Depreciation on leasehold machinery is computedover the lease period.

xvii) Capital Work-in-Progress

Capital work -in- progress is stated at cost. These areexpenses of a capital nature directly incurred in theconstruction of building.

2.5 Foreign Currency Transactions

Transactions denominated in foreign currencies areconverted into Rupees at the monthly average exchangerate applicable for the transactions. Assets and liabilitiesdenominated in foreign currencies are converted intoRupees at the rate of exchange prevailing at the date ofthe Balance Sheet. Profit or loss arising on conversion iscredited or debited to the Income Statement.

2.6 Liabilities and Provisions

Liabilities are recognized in the Balance Sheet when there

is a present obligation as a result of a past event, thesettlement of which is expected to result in an outflow ofresources embodying economic benefits. Obligationspayable at the demand of the creditor or within one yearof the Balance Sheet date are treated as current liabilitiesin the Balance Sheet. Liabilities payable after one yearfrom the Balance Sheet date are treated as non-currentliabilities in the Balance Sheet.

i) Finance Leases

Property, Plant and Equipment on finance leases,which effectively transfer to the Group substantiallyall of the risk and benefits incidental to ownership ofthe leased items, are capitalized and disclosed asfinance leases at their cash price and depreciatedover the period the Group is expected to benefit fromthe use of the leased assets.

The corresponding principal amount payable to thelessor is shown as a liability. Lease payments areapportioned between the finance charges andreduction of the lease liability so as to achieve aconstant rate of interest on the outstanding balanceof the liability. The interest payable over the period ofthe lease is transferred to an interest in suspenseaccount. The interest element of the rentalobligations pertaining to each financial year ischarged to the Income Statement over the period oflease.

ii) Income Tax

The tax rates and tax laws used to compute theamount are those that are enacted or substantivelyenacted as at the Balance Sheet date. Accordingly,provision for taxation is made on the basis of theprofit for the year as adjusted for the taxationpurposes in accordance with provision of the InlandRevenue Act No.10 of 2006 and amendments thereto.The rates used are specified in Note No.11 tofinancial statements.

iii) Deferred Taxation

Deferred taxation is provided on the liability methodfor temporary differences between the carryingamount of assets and liabilities for financial reportingpurposes and the amounts used for taxationpurposes. The amount of deferred tax provided isbased on the expected manner of realization orsettlement of the carrying amount of assets andliabilities.

A deferred tax asset is recognized for carried forwardunused tax losses to the extent that it is probable thatfuture taxable profit will be available against whichthe asset can be utilized.



The carrying amount of deferred tax asset is reviewedat each Balance Sheet date and reduce to the extentthat is no longer probable that the related tax benefitwill be realized. Unrecognized deferred tax asset inrelation to deductible differences, unused tax creditsand unused tax losses carried forward are reassessedat each Balance Sheet date and recognized to theextent that has become probable that future taxableprofits will allow the deferred tax asset to berecovered.

Deferred tax liabilities and assets are measured atthe applicable tax rate prevailing in the year. Deferredtax asset and the liabilities in the same entity are setoff in line with provision of prevailing tax laws

iv) Retirement Benefits

Defined Benefit Plan- Gratuity

Provision has been made in the Financial Statementsfor retiring gratuities payable under the Payment ofGratuity Act No. 12 of 1983 to all employees includingthose who have less than 5 years of continued servicewith the Company. However, this provision is notfunded externally nor actuarily valued.

The gratuity liability would be actuarily valued fromthe year 2008/09 onwards, as required by the revisedSri Lanka Accounting Standards No 16.

Defined Contribution Plan - EPF & ETF

All employees of the Company are members of theEmployees' Provident Fund (EPF) and Employees' TrustFund (ETF), to which the Company contributes 12%and 3% of employee salaries respectively andcharged against the profits.

2.7 Income Statement

i) Gross income represents the gross income receivable for the year on all performing contracts,rentals on operating leases, income on factoring ofclient debtors, commission earned on insurancepremiums, brokerage on share transactions and feesfor IT services provided. It includes all income relatedto operations such as interest on overdue rentals,profit/loss on leases and loans terminated andcollections on contracts written-off.

ii) Revenue Recognition

a) Earned Income on Leases

The Group follows the financing method ofaccounting for lease income.

The excess of aggregated contract receivable over thecost of the leased assets constitutes the totalunearned income at the commencement of a contract.

The unearned income is recognized as income overthe term of the lease commencing with the monththat the lease is executed in proportion to thedeclining receivable balance, so as to produce aconstant periodic rate of return on the Lessor's netinvestment outstanding on the lease.

Non-performing leases are those leases where therentals are overdue for 6 months and over. Leaseincome accrued is suspended from the date a lease isclassified as non-performing and credited to the“Earned Income in Suspense”. Thereafter suchincome is recognized on cash basis.

Profit or loss on leases terminated, collections oncontracts written off, interest on overdue rentals,interest on revolving loans, interest earned onproperty sale and buy back agreements, interestincome on pawn broking are accounted for on cashbasis.

b) Factoring (Subsidiary)

Revenue is derived from two sources, Funding andproviding Sales Ledger related services.

Funding - Discount income relating to factoringtransactions is recognized at the end of a givenaccounting month. In computing this discount, a fixedrate agreed upon at the commencement of thefactoring agreement is applied on the daily balance inthe Client's Current Account.

Sales Ledger related services - A service charge islevied as stipulated in the Factoring Agreement.

Income is accounted for on an accrual basis anddeemed earned on disbursement of advances forinvoices factored, except where the account isclassified as non-performing.

c) Securitisation of Lease Receivables (Subsidiary)

LOLC Funding One Limited was established tosecuritise lease receivables of LOLC and to provide acost-effective method of long term finance to LOLC.Currently LOLC Funding One Limited is dormant.

d) Insurance Broking

Lanka ORIX Insurance Brokers Ltd., and LOIB FinancialServices Ltd., derive their income from commission oninsurance premiums. Income is accounted for onpremium collection basis.



e) Brokerage on Share Transaction

Lanka ORIX Securities (Pvt) Ltd., earns brokerageincome on the value of share transactions carried outon behalf of its clients. This income is accounted foron an accrual basis.

f) IT Service Fee

Lanka ORIX Information Technology Ltd., earns fee forIT services provided for Group Companies and isaccounted for on an accrual basis.

g) Turnover from sale of solar systems

Sundaya Lanka (Pvt) Ltd., earns revenue from sale ofsolar systems and its accounted on an accrual basis.

h) Royalty Income

Royalty Income is charged from the Group Companiesfor the usage of “LOLC” logo and ORIX brand, usageof infrastructure support and is accounted for onaccrual basis.

i) Treasury Management Fees & ManagementFees

Treasury Management Fee and Management Feecollected from Subsidiaries is accounted for onaccrual basis.

j) Other Income

Rent income, non operational interest income andforeign exchange gains are accounted for on accrualbasis.

Dividend income is recognized when the right toreceive payment is established.

Profit on sales of property, plant and equipment areaccounted for on accrual basis

iii) The Group Profits are stated after:

a) Providing for all bad and doubtful debts anddepreciation of property, plant and equipment.

b) Charging all expenses incurred in the day-to-dayoperations of the business and in maintaining theproperty, plant and equipment in a state of efficiency.

iv) Borrowing Costs

Borrowing costs are recognized as expenditure in theperiod in which they are incurred. However,borrowing costs that are directly attributable to theacquisition, construction or production of qualifyingassets that take a substantial period of time to getready for its intended use or sale, are capitalized aspart of the assets. During the year no borrowing costhas been capitalized.

2.8 Movement of Reserves

Movement of Reserves is disclosed in the Statements ofChanges in Equity.

2.9. Cash Flow Statements

The Cash Flow Statements are prepared using the indirectmethod as stipulated in SLAS 9 - Cash Flow Statements,Cash and Cash Equivalents for Cash Flow Statementscomprise mainly of cash in hand, balances at banks andbank overdraft.

2.10. Related Party Transactions

Transactions with related parties are conducted on normalbusiness terms. The relevant disclosures are given in Note 43 to the Financial Statements.

2.11. Segmental Reporting

Segment is a distinguishable component of the Group thatis engaged either in providing products or services(business segment), or in providing products or serviceswithin a particular economic environment (geographicalsegment), which is subject to risks and rewards that aredifferent from those of other segments.

In accordance with Sri Lanka Accounting Standards No 28on Segment Reporting, segmental information ispresented in respect of the Group. The segmentcomprises of Leasing, hire purchase and other advancesFactoring, Insurance Broking, IT services are described inNote 36.

Segment results, assets and liabilities include itemsdirectly attributable to a segment as well as those that canbe allocated on a reasonable basis.

Segment capital expenditure is the total cost incurredduring the period to acquire segment assets that areexpected to be used for more than one period.



Group Company

2008 2007 2008 2007

Rs. Rs. Rs. Rs.

3 Revenue

Net Rentals and income from subsidiaries 10,549,173,222 7,656,086,369 8,817,394,598 6,693,128,165

Income 5,934,772,221 3,950,751,220 4,480,432,084 3,034,110,432Other income 313,375,519 207,674,719 440,602,192 291,839,679Revenue 6,248,147,740 4,158,425,939 4,921,034,276 3,325,950,111

4 Income

Leasing interest income 1,586,383,566 1,232,118,297 1,381,745,650 1,055,344,574 Hire purchases interest income 948,165,721 581,926,923 809,056,422 511,735,122 Advances & other loans interest income 1,731,224,560 950,287,974 1,260,276,794 804,739,920 Interest income from micro financing 144,466,940 78,545,102 113,681,463 56,114,099 Operating lease and hire rental income 531,295,664 365,792,101 531,295,664 365,792,101 Overdue interest income 226,819,876 124,145,456 182,231,425 110,180,754 Other operational incomes 248,814,658 153,315,169 202,144,666 130,203,862 Debt factoring 252,649,562 200,797,501 - - Insurance broking 110,961,106 99,632,661 - - Securities Trading/others 162,450,757 173,488,671 - - IT Consultancy Fee 73,500,000 49,500,000 - -

6,016,732,410 4,009,549,855 4,480,432,084 3,034,110,432 Inter-company income (81,960,189) (58,798,635) - -

5,934,772,221 3,950,751,220 4,480,432,084 3,034,110,432

5 Expenses

Expenses are stated after including the following:Auditors remuneration and expenses:

Audit related 1,730,000 1,338,000 1,000,000 800,000 Non-Audit related 236,758 362,648 216,758 362,648

Legal expenses 8,982,510 11,035,461 6,573,780 8,079,728 Donations 164,800 299,699 118,000 249,499

6 Direct Expenses excluding interest costs

VAT on leases/general expenses /VAT on financial services 162,423,892 102,619,956 123,128,206 79,984,553 Others 55,720,580 40,026,792 41,919,476 30,728,660

218,144,472 142,646,748 165,047,682 110,713,213

7 Staff Costs

Salaries and other benefits 464,664,568 310,344,068 292,738,127 188,195,638 Defined contribution to EPF 30,812,280 23,368,584 19,824,942 13,580,317 Defined contribution to ETF 7,703,070 5,842,146 4,956,235 3,395,079 Provision for retiring gratuity 18,448,564 11,927,293 16,140,094 7,576,835

521,628,482 351,482,091 333,659,398 212,747,869



Group Company

2008 2007 2008 2007

Rs. Rs. Rs. Rs.

8 Other operating expenses

Administration cost 393,761,363 337,606,960 197,938,899 181,348,310

Operating & marketing cost 235,890,976 184,916,694 221,300,426 183,686,218

Specific provisions (92,902,939) (78,906,209) (37,330,961) (81,462,102)

Specific bad debts written off 112,698,891 87,381,446 41,105,333 83,790,723

649,448,291 530,998,891 423,013,697 367,363,149

9 Net Interest Costs

Overdraft and other short term borowings 1,206,071,606 668,762,502 1,028,398,997 525,146,719

Long term borrowings: 1,833,148,638 950,226,675 1,812,573,093 938,741,410

Finance lease interest 157,606,052 67,627,789 157,439,053 67,627,789

Interest on customer deposits 436,770,238 189,768,907 - -

3,633,596,534 1,876,385,873 2,998,411,143 1,531,515,918

Less: Interest income on USD and EURO deposits (229,631,360) (88,634,897) (229,631,360) (88,634,897)

3,403,965,174 1,787,750,976 2,768,779,783 1,442,881,021

10 Other Income / (Expenses)

10.1 Other Income

Rent income - 86,690 - 86,690

Profit on sale of property, plant and equipment 6,158,934 56,202,698 3,176,819 56,202,698

Sales proceeds received in excess on refinances 2,745,826 5,652,424 2,745,826 5,652,424

Profit on sale of vehicles 963,249 17,723,629 963,249 17,723,629

Dividends received 1,789,404 2,039,790 12,812,920 2,039,790

Interest received from USD current accounts,

treasury bills,call deposits 78,547,232 53,477,071 6,521,875 19,263,314

Debenture interest income - - 89,138,411 63,791,123

Royalty Income - - 67,932,478 52,199,458

Foreign exchange gain 434,538 35,886,114 - 32,378,502

Treasury management fee - - 46,004,437 16,204,901

Reversal of provision for fall in value of investments and others 19,588,857 31,756,453 17,578,002 31,652,494

Appreciation in market value - People's Merchant Bank shares 136,929,540 - 136,929,540 -

Profit on sale of quoted and non quoted shares 47,744,537 14,974,287 47,744,537 14,974,287

Profit on sale of investment of property - - - -

Sundry income 17,145,237 14,343,994 6,705,731 4,138,800

Supplier payments unclaimed (193,203) 7,902,410 (193,203) 7,902,410

Due diligence fee 25,652,174 - 25,652,174 -

337,506,325 240,045,560 463,712,796 324,210,520

10.2 Other expenses

Loss on sale of property, plant and equipment - - - -

Loss on sale of quoted and non quoted shares 58,745 - - -

Provision for fall in value for investment 18,164,536 32,370,841 18,080,311 32,370,841

Foreign exchange loss 5,907,525 - 5,030,293

24,130,806 32,370,841 23,110,604 32,370,841

313,375,519 207,674,719 440,602,192 291,839,679

The foreign exchange gain was mainly derived from profits earned on foreign currency denominated leases and foreign currencydeposits converted in to the reporting currency.



Group Company2008 2007 2008 2007

Rs. Rs. Rs. Rs.

11 Negative Goodwill

Touchwood Investment Ltd. 126,117,616 - - -Sundaya Lanka (Pvt) Ltd. 5,174,887 - - -

131,292,503 - - -

12 Taxation

The following companies are liable for taxation on its taxable income

Company 2007/08 2006/07

Lanka ORIX Leasing Company PLC. 35% 35%

Lanka ORIX Factors Ltd. 35% 35%

LOIB Financial Services Ltd. 35% 35%

Lanka ORIX Finance Company Ltd. 35% 35%

Lanka ORIX Insurance Brokers Ltd. 35% 35%

Lanka ORIX Securities (Pvt) Ltd. 35% 35%

Lanka ORIX Project Development Ltd. 35% 35%

Sundaya Lanka (Pvt) Ltd. 35% 35%

Galoya Holdings (Pvt) Ltd. 35% 35%

The provisions made for the year are as follows

Group Company

2008 2008 2007 2007 2008 2008 2007 2007

% Rs. % Rs. % Rs. % Rs.

Profit for the period 1,270,789,481 1,050,181,256 977,871,455 986,593,585

Total income tax 87,737,153 52,442,537 152,211,715 76,389,707

Profit excluding income tax expense 1,183,052,328 997,738,719 825,659,740 910,203,878

Income tax using the corporate income tax rate 35.00 414,068,315 35.00 349,208,552 35.00 288,980,909 35.00 318,571,357

Disallowable expenses 149.56 1,769,314,633 140.53 1,402,124,213 182.25 1,504,755,430 143.00 1,301,577,412

Allowable expenses -173.39 (2,051,263,077) -155.90 (1,555,491,190) -206.84 (1,707,784,065) -159.11 (1,448,254,364)

Under provision of income tax expense 0.46 5,446,950 0.00 - 0.25 2,093,469 0.00 -

11.63 137,566,819 19.63 195,841,575 10.66 88,045,743 18.89 171,894,405

Recognition of previously unrecognized tax losses (295,706,562) (342,177,291) (295,706,562) (342,177,291)

Change in temporary difference 70,402,590 93,893,179 55,449,104 93,893,179

(87,737,153) (52,442,537) (152,211,715) (76,389,707)

13 Earnings per Share

The calculation of Basic Earnings Per Share at 31 March 2008 is based on the profits attributable to ordinary shareholders of 1687 (2007-

1570) and a weighted average number of ordinary shares outstanding during the year ended 31 March 2008 of 47,520,000 (2007:47,520,000)

,calculated as follows:

Group Company

31.03.2008 31.03.2007 31.03.2008 31.03.2007

Pofit for the year (Rs.) 1,268,173,363 1,041,240,058 977,871,455 986,593,585

Weighted average number of ordinary shares 47,520,000 47,520,000 47,520,000 47,520,000

Earnings per share (Rs.) 26.69 21.91 20.58 20.76



14 Cash and cash equivalentsGroup Company

31.03.2008 31.03.2007 31.03.2008 31.03.2007Rs. Rs. Rs. Rs.

Cash in hand 2,438,531 5,729,868 881,635 415,000

Balances at banks 1,070,312,191 458,388,471 537,808,879 203,945,048

1,072,750,722 464,118,339 538,690,514 204,360,048

15 Rentals receivable on leased assets, hire purchase and othersGroup Company

31.03.2008 31.03.2007 31.03.2008 31.03.2007Rs. Rs. Rs. Rs.

15.1 Rentals receivable on leased assets

Receivable after five years

Rentals receivable - 20,026,000 - 20,026,000

Unearned income - (8,113,089) - (8,113,089)

- 11,912,911 - 11,912,911

Receivable from one to five years

Rentals receivable 6,265,563,761 6,385,807,548 5,478,902,085 5,511,241,886

Unearned income (1,416,557,269) (1,374,267,449) (1,251,672,758) (1,205,806,430)

Provision for doubtful debts - (9,657,238) - (3,008,733)

Deposits received from lessees (165,216,186) (146,254,637) (152,546,101) (143,063,321)

4,683,790,306 4,855,628,224 4,074,683,226 4,159,363,402

Receivables within one year


Unearned income (1,314,765,873) (1,253,758,651) (1,139,085,697) (1,077,863,287)

Provision for doubtful debts (1,089,880) (26,389,388) (1,089,880) (6,424,891)

2,443,982,983 2,284,357,185 2,075,797,690 1,930,820,317

Overdue rental receivable

Rentals receivable 159,605,717 137,816,556 109,262,268 66,851,855

Earned income in suspense (15,450,985) (20,672,946) (7,162,486) (5,856,091)


49,905,000 75,425,052 47,799,655 50,632,709

Total


Unearned income (2,731,323,142) (2,636,139,189) (2,390,758,455) (2,291,782,806)




Balance as at 31 March 7,177,678,289 7,227,323,372 6,198,280,571 6,152,729,339

Rentals receivable on leased assets to the value of Rs. 10,709,542,366/- (31 March 2007 - Rs. 7,577,033,180/-) have been assigned

against bank loans.



Group Company

31.03.2008 31.03.2007 31.03.2008 31.03.2007

Rs. Rs. Rs. Rs.

15.2 Rentals receivable on hire-purchase

Receivable from one to five years


Unearned income (967,475,056) (509,193,661) (827,529,548) (509,193,661)

Provision for doubtful debts - (2,332,147) - (2,332,147)

2,972,914,351 1,785,433,835 2,531,099,728 1,785,433,835

Receivables within one year


Unearned income (978,273,849) (660,359,122) (835,532,426) (524,482,356)


1,398,554,770 1,209,740,079 1,206,619,195 854,268,084

Overdue rental receivable

Rentals receivable 79,376,985 32,545,206 68,756,902 27,634,097



46,214,913 26,834,283 41,534,269 22,982,054

Total


Unearned income (1,945,748,905) (1,169,552,783) (1,663,061,974) (1,033,676,017)




15.3 Rentals receivable on operaing leases and hire

Total


Rental received in advance (9,339,973) - (9,339,973) -

Unearned income (2,106,204,221) (1,664,507,810) (2,106,204,221) (1,664,507,810)

Earned income in suspense (745,195) - (745,195) -

Provision for doubtful debts (872,926) (513,130) (872,926) (513,130)

Balance as at 31 March 6,797,008 8,056,238 6,797,008 8,056,238



Group Company

31.03.2008 31.03.2007 31.03.2008 31.03.2007

Rs. Rs. Rs. Rs.

15.4 Total receivable on leased assets, hire purchase & others


Unearned income (6,783,276,268) (5,470,199,782) (6,160,024,650) (4,989,966,633)


Provision for doubtful debts (Note 15.5) (127,707,926) (84,486,139) (82,710,625) (25,814,224)


Balance as at 31 March (Notes 15.1, 15.2 & 15.3) 11,602,159,331 10,257,387,807 9,984,330,771 8,823,469,550

15.5 Provision for doubtful debts

Balance as at 01 April 84,486,139 70,782,593 25,814,224 42,529,214

Provisions made during the yaer

- Charged against profits 119,014,628 81,848,970 78,790,852 51,430,434

- Written off during the year (75,792,841) (68,145,424) (21,894,451) (68,145,424)


16 Advances and other loans

Rentals receivable on loans to customers 8,715,324,134 5,850,913,294 6,271,404,208 4,783,703,145

Capital outstanding of revolving loans 1,584,410,829 1,120,616,752 1,584,410,829 1,120,616,752

Receivables under Textilebt Recovery Fund scheme 7,202,445 7,202,445 7,202,445 7,202,445

Overdue loan instalments 271,735,744 96,033,427 251,425,436 89,144,546


Unearned loan income (1,920,884,425) (1,291,638,291) (1,854,162,977) (1,290,170,422)


8,562,905,852 5,751,122,663 6,194,837,965 4,685,043,569

Less:

Provision for doubtful debts


Provisions made during the year

- Charged against profits 37,355,711 21,244,272 29,481,314 14,726,836

- Written off during the year (17,110,098) (13,316,675) (15,436,510) (13,316,675)




Group Company

31.03.2008 31.03.2007 31.03.2008 31.03.2007

Rs. Rs. Rs. Rs.

17 Other Current assets

Factoring accounts receivable 1,971,223,296 1,355,433,071 - -

Insurance commission receivable 63,838,659 61,532,133 - -

Securities clients/ brokers receivable 392,569,640 349,571,230 - -

Amount due from subsidiaries - - 975,245,377 361,884,296

Finance charges suspended 56,804,225 23,301,904 56,804,225 23,301,904

Other accounts receivable 1,030,540,582 490,798,134 497,828,666 367,480,442

VAT refunds due from IRD 43,336,272 64,023,483 2,413,457

ACT recoverable - - - -

ESC recoverable 153,752 - - -

3,558,466,426 2,344,659,955 1,529,878,268 755,080,099

Above receivable are shown after deducting provisions for doubtful debts.

Finance charges suspended 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.

18 Investment SecuritiesGroup Company

31.03.2008 31.03.2007 31.03.2008 31.03.2007

Rs. Rs. Rs. Rs.

Debenture - - 400,000,000 400,000,000

Quoted ordinary shares (Note 18.1) 357,120,657 61,884,332 356,942,832 61,342,682

Non quoted ordinary shares (Note 18.2) - - - -

Acquired properties 8,540,138 16,590,138 2,200,147 8,350,147

PRASAC Micro Finance Institution - 61,831,544 61,831,544

Total 365,660,795 140,306,014 759,142,979 531,524,373



18.1 Quoted Ordinary Shares-Company

No. of 31.03.2008 31.03.2008 No. of 31.03.2007 31.03.2007Shares Cost Mkt. Value Shares Cost Mkt. Value

Rs. Rs. Rs. Rs.

Brown & Company Ltd. 36,700 34,363,357 33,947,500 - - - Central Finance Co.Ltd. 3,900 937,471 780,000 4,000 961,509 940,000 Ceylinco Seylan and Development - - - 1,052,312 11,678,471 8,155,416 Chemical Industries (Col.) Ltd. 137440 5,767,985 4,638,600 72 2,781 4,320 Chemical Industries (Col.) Ltd. 27,500 715,792 653,122 10,300 1,177,264 927,000 Dialog Telecom Ltd. 831,600 21,432,993 13,929,300 738,200 19,953,219 18,824,100 Dry Docks Ceylon Ltd. - - - 5 148 220 Hatton National Bank Ltd. - - - 47,300 7,175,378 4,730,000 Hatton National Bank Ltd.(non voting) - - - 30,600 3,386,381 1,461,150 HDFC Bank (par value Rs.100) 47,200 7,749,236 7,749,236 47,200 7,749,236 7,749,236 Hotel Developers (Lanka) Ltd. - - - 3,000 316,448 159,000 Housing Development Finance Co. 34,400 1,909,885 4,196,800 26,000 567,977 4,212,000 John Keells Holdings Ltd - - - 28 5,318 4,340 Lanka IOC Ltd. - - - 50,000 1,644,906 1,512,500 Lanka Milk Food - - - 47,600 2,503,132 1,904,000 NDB Bank Ltd. - - - 4,400 922,812 924,000 Peoples' Merchant Bank 4,987,953 152,081,734 289,011,274 - - - Property Development Ltd. 67,900 2,823,104 2,037,000 60,500 2,574,954 1,815,000 Sampath Bank - - - 5,100 621,305 545,700 Sri Lanka Telecom - - - 150,000 4,884,106 5,587,500 Touchwood Investments Ltd. - - - 33,700 2,483,292 1,887,200 Veyangoda Textiles Mills Ltd. 10,300 262,060 - 10,300 262,060 - Total cost of quoted ordinary shares 228,043,617 356,942,832 68,870,697 61,342,682

Less:Provision for fall in market valueBalance as at 01 April 7,528,015 - 6,809,668 -Provision/(Reversal) made during the year (136,427,230) - 718,347 -Balance as at 31 March (128,899,215) - 7,528,015 -

356,942,832 356,942,832 61,342,682 61,342,682

Quoted Ordinary Shares -Subsidiaries

Ahot Properties Ltd. 300 9,150 12,000 300 9,150 13,650 Dialog Telecom Ltd. 9,000 274,491 165,825 9,000 252,000 229,500 NDB Bank Ltd. - - - 1,500 162,891 298,500 Total cost of quoted ordinary shares 283,641 177,825 424,041 541,650

Less:Provision for fall in Market ValueBalance as at 01 April - - - Provision/(Reversal) made during the year - - - Balance as at 31 March - - -Add:Adjustment for changes in market valueBalance as at 01 April 117,609 98,650 Provision/(Reversal) made during the year - Net appreciation of value during the year (223,425) 18,959 Balance as at 31 March (105,816) 117,609

177,825 177,825 541,650 541,650 Quoted Ordinary Shares - Group 357,120,657 357,120,657 61,884,332



18.2 Non-quoted Ordinary Shares-Group and Company

No. of 31.03.2008 No. of 31.03.2007Shares Cost Shares Cost

Rs. 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 Total cost of non-quoted ordinary shares 10,000,000 10,000,000

Less:Provision for fall in 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

19 Deferred tax assets and liabilities

In 2006/07 Rs. 342mn of previously unrecognised tax losses were recognised as management considered it is probable that future taxableprofits will be available against which they can be utilised. An additional amount of Rs.298mn of previously unrecognised tax losses wererecognised in 2007/08. The Company is of the opinion that ‘its more likely than not’ tax losses carried forward at the year end will berecovered in full during the next three to five years. An independent confirmation has been obtained from the tax consultants of the Company.

Recognised deferred tax assets and liabilities

Deferred tax assets and liabilities are attributable to the following:

GroupAssets Liabilities Net

2008 2007 2008 2007 2008 2007

Rs. Rs. Rs. Rs. Rs. Rs.

Property, plant and equipment 1,090,282 (13,174,842) (542,310) (12,084,560) (542,310)Operating lease assets (35,927,725) (24,263,704) (35,927,725) (24,263,704)Lease rentals receivable (114,430,367) (77,704,174) (114,430,367) (77,704,174)Retirement benefit obligations 14,958,247 8,617,009 14,958,247 8,617,009 Tax loss carry forward 637,883,853 342,177,291 637,883,853 342,177,291 Net tax (assets)/liabilities 653,932,382 350,794,300 (163,532,934) (102,510,188) 490,399,448 248,284,112

Deferred tax liability of subsidiaries presented separately Property, plant and equipment - - (413,066) (1,705,658) (413,066) (1,705,658)Lease rentals receivable - - (16,123,968) - (16,123,968) - Retirement benefit obligations 655,223 777,333 - - 655,223 777,333

655,223 777,333 (16,537,034) (1,705,658) (15,881,811) (928,325)

Company Assets

2008 2007 2008 2007 2008 2007

Property, plant and equipment (12,999,108) (542,310) (12,999,108) (542,310)Operating lease assets (35,927,725) (24,263,704) (35,927,725) (24,263,704)Leased assets (114,430,367) (77,704,174) (114,430,367) (77,704,174)Retirement benefit obligations 14,014,917 8,617,009 14,014,917 8,617,009 Tax loss carry forward 637,883,853 342,177,291 637,883,853 342,177,291 Net deferred tax (assets)/liabilities 651,898,770 350,794,300 (163,357,200) (102,510,188) 488,541,570 248,284,112

Movement in temporary differences during the year Group

Balance as at Recognised in Balance as at Recognised in Balance as at01 April 2007 Income 31 Mar 07 Income 31 Mar 08

Statement Statement

Property, plant and equipment - (542,310) (542,310) (11,542,250) (12,084,561)Operating lease assets - (24,263,704) (24,263,704) (11,664,021) (35,927,725)Leased assets - (77,704,174) (77,704,174) (36,726,193) (114,430,367)Retirement benefit obligations - 8,617,009 8,617,009 6,341,238 14,958,247 Tax loss carry forward - 342,177,291 342,177,291 295,706,562 637,883,853

248,284,112 248,284,112 242,115,336 490,399,448



Company Balance as at Recognised in Balance as at Recognised in Balance as at

01 April 07 Income 31 Mar 07 Income 31 Mar 08Statement Statement

Rs. Rs. Rs. Rs. Rs.

Property, plant and equipment - (542,310) (542,310) (12,456,798) (12,999,108)Operating lease assets - (24,263,704) (24,263,704) (11,664,021) (35,927,725)Leased assets - (77,704,174) (77,704,174) (36,726,193) (114,430,367)Retirement benefit obligations - 8,617,009 8,617,009 5,397,908 14,014,917 Tax loss carry forward - 342,177,291 342,177,291 295,706,562 637,883,853

- 248,284,112 248,284,112 240,257,458 488,541,570

20 Investment in joint ventureGroup Company

31.03.2008 31.03.2007 31.03.2008 31.03.2007 Rs. Rs. Rs. Rs.

Galoya Holdings (Pvt) Ltd. (GHL)Cost of Investment as at 31st March 08 100,000,000Percentage of Ownership 50%Principal activity Plantation Management The investment in the GHL has been recognised in the financial statements on the basis of proportionate consolidation.

As at 31st March 08

Current Assets 102,669,333Long Term Assets 116,463Current Liabilities 7,810,594Long Term Liabilities -Income 984,774Expenses (5,953,246)

21 Investments in equity accounted investees Carrying Amount Holding Cost

Rs. % Rs.

Touchwood Investment Ltd 400,306,821 29.2 216,359,359 PRASAC Micro Finance Company in Cambodia 92,278,583 19 61,831,544

492,585,403 278,190,903

Touchwood PRASAC Micro Cost of Investment Investments Ltd. Finance Institution

Pricncipal Activity Forestry Management Micro-Finance Services

Acquisition Date 12th October 2007 27th February 2007Percentage holding as at 31/03/2008 29.2% 19.0%No of Shares 2,601,000 51,736 Market Value (Rs.) 90.25Goodwill/Excess recognised in the P&L 126,117,616 - Profit share recognized 57,829,846 30,447,039Nagative Goodwill Note Last published financial statements 31st March 08 31st Dec 2007Assets 2,614,206,423 4,073,791,797 Liabilities 1,215,554,924 3,716,220,480 Revenue 593,844,694 805,135,622 Profit / ( Loss ) 284,009,411 205,586,386

Goodwill arising on acquisition, representing the excess of the fair value of the net assets acquired over the cost of acquisiton have beenrecognised in the Income Statement The investment in PRASAC Micro Finance Institution in the previous financial year, has been accountedfor as an associate in the current financial year, upon LOLC being appointed to the Board as one of the two influential shareholders.

The reporting date of the financial statements of PRASAC MFI is 31st December & the profit share recognised is only for 9 months ended31st December 2007.



22 Investments in subsidiariesPrincipal Activity No. of Holding Cost No. of Holding Cost

Ordinary Shares % 31.03.2008 Ordinary Shares % 31.03.2007Rs. Rs. Rs.

GroupLanka Orient Investment Ltd. 2 100 20 2 100 20

Company

Lanka ORIX Factors Ltd Debt factoring 27,312,040 100 310,999,345 6,828,010 100 106,159,045 LOLC Funding One Ltd Securitisation of lease receivables 7 100 700 7 100 700 (Par value Rs.100/-)Lanka ORIX Insurance Brokers Ltd Insurance broking 1,000,000 100 10,000,000 200,000 100 2,000,000 Lanka Orient Investment (Pvt) Ltd 2 100 20 2 100 20 LOIB Financial Services (Pvt) Ltd. Investment advice and 100 100 - 100 100 - Lanka ORIX Finance Company (Pvt) Ltd Finance business and

pawn broking 80,000,000 100 800,000,000 80,000,000 100 800,000,000 Lanka ORIX Information Technology Ltd. Software design,development

and distribution 2,000,000 100 20,000,000 2,000,000 100 20,000,000 Lanka ORIX Securities (Pvt) Ltd. Stock broking 270,000 30 23,000,000 270,000 30 23,000,000 Lanka ORIX Project Development Ltd. Property and infrastructure

development 5,200,000 100 52,000,000 3,000,000 100 30,000,000 Sundaya Lanka (Pvt) Ltd. Assembling and distribution of

solar systems 624,490 51 - - - - 1,216,000,065 981,159,765

Acquisition of subsidiaryOn 25th May 2007 the Group acquired 51% of the shares in Sundaya Lanka (Pvt) Limited for Rs. 6,244,900/- in cash.

The company is in the business of assembling and distribution of solar systems. During the period the subsidiary contributed a profit ofRs.224,361/-.

The acquisition had the following effect on the Group's assets and liabilities on acquisition date

RecognizedPre acquisition Fair value values on

carrying amount adjustment acquisitionRs. Rs. Rs.

Property, Plant and Equipment 3,376,356 - 3,376,356 Inventories 17,436,949 - 17,436,949 Pre-payments 76,611 - 76,611 Trade and other receivables 5,677,077 - 5,677,077 Bank guarantee 665,000 - 665,000 Cash and cash equivalents 15,984,053 - 15,984,053 Lease Liabilities (1,101,240) - (1,101,240)Tax payable (2,083,841) - (2,083,841)Trade creditors (12,765,426) - (12,765,426)Amount due to related parties (812,648) - (812,648)Accrued expenses (631,975) - (631,975)Other payables (3,429,178) - (3,429,178)Net identifiable assets and liabilities 22,391,738 - 22,391,738 Percentage acquired 51%Net assets applicable to Group 11,419,787 Negative goodwill on acquisition (5,174,887)Consideration paid, satisfied in cash 6,244,900Cash acquired 16,649,053Net cash inflow/(outflow) 10,404,153

Pre-acquisition carrying amounts were determined based on applicable SLASs immediately before the acquisition



23 Property, Plant & Equipment

Land & Motor Leasehold Furniture & Office Computers & Leasehold For Operating Capital Work- TotalBuilding Vehicles Motor Vehicles fittings Equipment Software Machinery Lease Assets in-Progress

Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs.

Group

Cost/Valuation

Balance as at 01 April ‘07 322,282,930 88,840,432 834,264,712 115,347,443 123,373,383 150,783,690 123,343,978 506,623,220 54,352,178 2,319,211,965

Additions 33,379,331 72,413,527 169,711,030 58,728,257 38,449,276 34,248,276 - 341,625,737 61,824,570 810,380,004

Disposals - (9,249,040) - (36,070,357) (195,703) - - (147,374,247) - (192,889,348)

Adjustments / Transfers 132,081,006 27,367,194 4,255,167 18,779,582 7,694,041 1,775,221 - (29,128,081) (55,032,133) 107,791,997

Balance as at 31 March ’08 487,743,267 179,372,113 1,008,230,909 156,784,924 169,320,997 186,807,187 123,343,978 671,746,629 61,144,615 3,044,494,619

Accumulated Depreciation

Balance as at 01 April ‘07 8,621,953 47,593,453 116,076,546 83,880,331 86,580,797 91,040,054 84,798,984 185,656,483 - 704,248,605

Charge for the year 2,158,618 27,463,303 128,120,059 12,794,524 19,871,356 20,171,094 23,126,997 86,180,363 - 319,886,314

Depreciation on disposals - (8,721,986) - (33,802,743) (1,069,977) - - (87,913,163) - (131,507,869)

Adjustments / Transfers - 11,737,787 - 80,383 (176,850) 442,252 - (11,425,445) - 658,127

Balance as at 31 March ‘08 10,780,571 78,072,557 244,196,605 62,952,496 105,205,326 111,653,400 107,925,981 172,498,238 - 893,285,174

Written Down Value

as at 31 March ‘08 476,962,696 101,299,555 764,034,304 93,832,428 64,115,671 75,153,787 15,417,997 499,248,391 61,144,615 2,151,209,445

as at 31 March ‘07 313,660,978 41,246,979 718,188,166 31,467,110 36,792,586 59,743,638 38,544,995 320,966,737 54,352,178 1,614,963,370

Company

Cost/Valuation

Balance as at 01 April ‘07 322,282,930 75,972,608 834,264,712 86,994,293 81,602,765 71,800,288 123,343,978 506,623,220 54,352,179 2,157,236,973

Additions 33,379,331 70,823,527 169,711,030 57,479,605 33,271,064 26,244,519 - 341,625,737 61,824,570 794,359,383

Disposals - (4,491,667) - (36,070,357) (187,403) - - (147,374,247) (188,123,674)

Adjustments / Transfers 132,081,006 25,898,914 3,229,167 18,371,382 7,534,001 975,641 - (29,128,081) (55,032,133) 103,929,897

Balance as at 31 March ‘08 487,743,267 168,203,382 1,007,204,909 126,774,923 122,220,427 99,020,448 123,343,978 671,746,629 61,144,616 2,867,402,579

Accumulated Depreciation

Balance as at 01 April ‘07 8,621,953 38,449,110 116,076,546 68,519,864 61,897,983 28,366,556 84,798,984 185,656,483 - 592,387,479

Charge for the year 2,158,618 25,467,598 128,120,060 7,375,695 11,750,806 12,421,671 23,126,997 86,180,363 - 296,601,808

Depreciation on disposals - (4,546,544) - (33,802,743) (1,068,457) - (87,913,163) - (127,330,907)

Adjustments / Transfers - 11,425,445 - - - - (11,425,445) - -

Balance as at 31 March ‘08 10,780,571 70,795,609 244,196,606 42,092,816 72,580,332 40,788,227 107,925,981 172,498,238 - 761,658,378

Written Down Value

as at 31 March ‘08 476,962,696 97,407,773 763,008,304 84,682,107 49,640,095 58,232,221 15,417,997 499,248,391 61,144,616 2,105,744,201

as at 31 March ‘07 313,660,977 37,523,498 718,188,166 18,474,429 19,704,782 43,433,732 38,544,994 320,966,737 54,352,179 1,564,849,494



2007/08Rs.

• Land 365,780,000Buildings 121,963,267

487,743,267

• Lands of LOLC were revalued during the current year by Mr. G. J. Sumanasena and Mr. S. N. Wijepala independent professsionalvaluers. The total market value of Lands as per the revaluation on the basis of existing use is Rs. 365,780,000/=. If the Lands werestated on the historical cost basis, the cost of the land would be Rs. 260,377,158/=

Land will be revalued every 3-5 years

• LOLC has not pledged any of its property plant & equipment against any liability.

• During the financial year 2005/2006 the company started constructing a new office building adjoining to the head office at SriJayawardanapura Mawatha. During the year Rs. 55 Mn worth of work has been considered as completed and capitalised as at 31March 2008. Capital expenditure contracted for which no provision is made in the financial statements as at 31 March 2008 is Rs. 48 Mn.

• Property plant and equipment of the group includes assets acquired with the business combinations during the financial year. The netbook value of such assets is made up as follows.

Cost Accumulated Net Book ValueDepreciation

Sundaya Lanka (Pvt) Limited Subsidiary 4,284,302 1,569,275 2,715,027 Galoya Holdings (Private) Limited Joint Venture 121,405 4,942 116,463

Group Company31.03.2008 31.03.2007 31.03.2008 31.03.2007

Rs. Rs. Rs. Rs.

24 Deposits from customers

Deposits maturing within one year 2,826,801,429 929,376,516 - - Deposits maturing after one year 512,863,441 816,788,224 - -

3,339,664,870 1,746,164,740 - -

25 Short Term Borrowings

Commercial papers 973,547,200 1,348,293,254 973,547,200 1,348,293,254 Short term loans and others 6,891,725,846 4,053,065,084 6,187,985,846 3,519,219,488

7,865,273,046 5,401,358,338 7,161,533,046 4,867,512,742

26 Finance lease liabilities

Gross lease rentals payable as at 01 April 1,327,381,025 353,924,143 1,325,943,757 353,924,143 Leases obtained during the year 301,274,916 1,157,831,927 301,273,916 1,157,831,927 Lease rentals paid during the year (427,820,879) (185,812,313) (427,204,907) (185,812,313)Gross lease rentals payable as at 31 March 1,200,834,062 1,325,943,757 1,200,012,766 1,325,943,757 Less: Interest in suspense (239,030,762) (295,337,615) (238,861,733) (295,337,615)Net lease liability 961,803,300 1,030,606,142 961,151,033 1,030,606,142

Repayable within one year

Gross lease rentals payable 465,208,750 333,208,517 464,592,778 333,208,517 Less: Interest in suspense (127,097,449) (131,310,631) (126,942,252) (131,310,631)Net lease liability 338,111,301 201,897,886 337,650,526 201,897,886 Repayable after one year

Gross lease rentals payable 735,625,312 992,735,240 735,419,988 992,735,240 Less: Interest in suspense (111,933,313) (164,026,984) (111,919,481) (164,026,984)Net lease liability 623,691,999 828,708,256 623,500,507 828,708,256



27 Long Term Borrowings

Group Company

31.03.2008 31.03.2007 31.03.2008 31.03.2007

Rs. Rs. Rs. Rs.

Balance as at 01 April 10,308,355,035 6,114,315,935 10,308,355,035 6,114,315,935

Received during the year 6,935,999,833 6,576,554,334 6,935,999,833 6,576,554,334

Repaid during the year (4,274,501,532) (2,382,515,234) (4,274,501,532) (2,382,515,234)


Less:

Long term borrowings - current 3,867,594,352 2,708,744,871 3,867,594,352 2,708,744,871

Long term borrowings -non current 9,102,258,984 7,599,610,164 9,102,258,984 7,599,610,164

Analysis of non-current portion of long term borrowings 12,969,853,336 10,308,355,035 12,969,853,336 10,308,355,035

Repayable within 3 years 6,865,527,023 4,871,917,916 6,865,527,023 4,871,917,916

Repayable after 3 years 2,236,731,961 2,727,692,248 2,236,731,961 2,727,692,248

9,102,258,984 7,599,610,164 9,102,258,984 7,599,610,164

The above loans were obtained for the purpose of financing the lease/loan portfolio and secured on the relevant lease/loan contracts. The

repayment of the long term balance extends from the period of year 2008 to 2021.

28 Trade And Other Payables

Group Company

31.03.2008 31.03.2007 31.03.2008 31.03.2007

Rs. Rs. Rs. Rs.

Accounts payable 973,843,976 628,323,384 782,027,189 529,258,473

Creditors for leased equipment 440,582,529 362,215,131 405,098,488 341,308,219

Amount due to susbsidiaries - 7,285 - 28,155,864

Factoring accounts payable 862,088,111 676,084,711 - -

Clients Payable 64,301,807 76,169,918 - -

Insurance Premium Payable 20,213,040 97,731,499 - -

Unclaimed dividends 1,874,154 1,823,548 1,874,154 1,823,548

2,362,903,617 1,842,355,476 1,188,999,831 900,546,104



Group Company

31.03.2008 31.03.2007 31.03.2008 31.03.2007

Rs. Rs. Rs. Rs.

29 Retirement Benefit Obligation

Balances as at beginning of the year 34,831,047 25,996,510 24,620,025 18,267,945

Provision during the year 18,448,564 11,927,293 16,140,094 7,576,830

Payment made during the year (1,507,264) (3,092,756) (717,500) (1,224,750)

Balance as at end of the year 51,772,347 34,831,047 40,042,619 24,620,025

The total number of employees of the Company as at 31 March, 2008 was 521 and the number of qualiftying employees in respect of the

above was 373. (as at 31March 2007 - 414 and 106 respectively)

30 Stated Capital

Issued and fully paid

At the beginning of the year 47,520,000 of Rs.10/- each - - 475,200,000 475,200,000

Issued and fully paid - - - -

At the end of the year 47,520,000 shares 475,200,000 475,200,000 475,200,000 475,200,000

31 Reserves

Share Premium of subsidiary 536,504 536,504 - -

Future Taxation Reserve 205,000,000 205,000,000 205,000,000 205,000,000

Statutory Reserve 195,266,451 123,574,424 183,993,390 115,542,388

Revaluation reserve 105,402,842 - 105,402,842 -

Total Reserves as at 31 st March 506,205,797 329,110,928 494,396,232 320,542,388

Subsidiary Share Premium

The premium of Rs.536,504 has arisen on the date on which shares were issued to the parent over the par value by subsidiaries.The use of

this reserve is restricted to write off preliminary expenses, to charge discounts when debentures are issued at less than par value or to

redeem any debentures or preference shares

Future Taxation Reserve

The reserve has been created over the years since year 1987 to year 2000 for any future tax liabilities

Reserve Fund

The Company's reserve fund was created according to the Direction No.5 of 2006 issued by the Central Bank under section 34 of the Finance

Leasing Act of No. 56 of 2000.



32 Retained EarningsGroup Company

31.03.2008 31.03.2007 31.03.2008 31.03.2007 Rs. Rs. Rs. Rs.

Balance brought forward 2,980,546,405 1,961,594,070 2,898,544,546 1,919,173,110

Prior year adjustment to subsidiary retained earnings - (13,842,532) -Transferred back to retained earnings - 204,399,402 - 204,399,402

Transfers to statutory reserves (71,692,027) (70,284,593) (68,451,002) (69,061,551)

Net profit for the year 1,268,173,363 1,041,240,058 977,871,455 986,593,585

Dividends (106,920,000) (142,560,000) (106,920,000) (142,560,000)

Balance carried forward 4,070,107,741 2,980,546,405 3,701,044,999 2,898,544,546

32.1 Dividends

Final 15% for 2005/2006 paid on 30 June 2006 - - - 71,280,000

Interim of Rs.2.25 per share (on a stated capital of Rs.475,200,000) paid on

30 June 2007 for 2007/2008 - - 106,920,000 71,280,000

- - 106,920,000 142,560,000

Dividend per share - 2.25 1.50

In terms of the Inland Revenue (Amendment) Act No.10 of 2006 a Withholding Tax of 10% has been imposed on dividends.

33 Minority Interest

The Minority Interest relates to the Net Assets of Lanka ORIX Securities (Pvt) Ltd. and Sundaya Lanka (Pvt) Ltd. which is not represented by

the Parent Company's investment.

34 Business combinations that were effected during the period

Name of Entity Touchwood Galoya Holdings Sundaya Lanka PRASACInvestments Ltd. (Private) Ltd. (Private) Ltd. Microfinance

[TIL] [GHL] Institution

Principal Activity Forestry Plantation Assembly of Micro- FinanceManagement Management Solar Systems Services

Acquisition Date 12 Oct 2007 11 Oct 2007 25 May 2007 27 Feb 2007

Percentage holding as at 31st March 08 29.2% 50.0% 51.0% 19.0%

No of Shares 2,601,000 * 624,490 51,376

Cost (Rs.) 216,359,359 100,000,000 6,244,900 61,831,544

Excess recognised in the Income Statement (Rs.) 126,117,616 - 5,174,887 -

Profit Share recognised (Rs.) 57,829,849 (4,968,472) 233,016 30,447,039

Assets as per last published statements (Rs.) 2,614,206,423 102,785,796 38,989,175 4,073,791,797

Liabilities as per last published statements (Rs.) 1,215,554,924 7,810,594 16,140,543 3,716,220,480

* Galoya Holdings Ltd. 1,000,000 shares issued on 28th April 08

Business combinations that were effected after the period Commercial Leasing Company Ltd

Principal Activity Financial Services

Acquisition Date 9th May 2008

Percentage holding as at 26th May 2008 66.54%

No of Shares as at 26th May 2008 11,741,907

Cost (Rs.) 1,101,486,231

Assets as per last published statements (Rs.) 7,975,669,491

Liabilities as per last published statements (Rs.) 6,680,510,717



35 Maturity analysis-Company

Assets/Liabilities 0-12 12-36 36-60 More than TotalMonths Months Months 60 months

Rs. Rs. Rs. Rs. Rs.

Assets

(a) Interest earning assets

Investments in Govt securities - - - - -

Fixed deposits and savings deposits with

banks/finance companies 787,348,998 2,362,046,993 545,705,008 544,452,929 4,239,553,927

(b) Loans & Advances net of provisions

Leasing -Finance and operating leases 2,445,589,975 3,646,348,791 113,138,813 - 6,205,077,579

Hire Purchase 1,283,337,161 2,426,693,912 69,222,119 - 3,779,253,192

Advances and other loans 3,520,192,825 2,564,170,230 110,474,910 - 6,194,837,965

Loans to real estate/housing 39,290,372 - - - 39,290,372

(c) Non-interest earning assets

Cash and bank balances 538,690,514 - - - 538,690,514

(d) Investments in

Subsidiary Companies - - - 1,216,000,065 1,216,000,065

Associate Companies - - - 278,190,903 278,190,903

Joint ventures 100,000,000 100,000,000

Dealing securities 359,142,979 - - - 359,142,979

Debentures/Commercial papers 400,000,000 - - - 400,000,000

Stocks (vehicles/real estates/machineries etc) 92,699,405 - - - 92,699,405

Short term investments 178,838,916 - - - 178,838,916

(e) Fixed Assets - - - 2,105,744,201 2,105,744,201

(f) Other current assetsOther current assets 462,208,485 - - - 462,208,485

Amount due from subsidiaries 974,970,377 - - - 974,970,377

Deferred tax asset - 488,541,570 - - 488,541,570

Total assets 11,082,310,007 11,487,801,496 838,540,850 4,244,388,098 27,653,040,450

Liabilites(a) Interest bearing liabilities

Bank overdrafts 659,445,757 - - - 659,445,757

Bank loans-short term loans 6,187,985,846 - - - 6,187,985,846

Commercial papers 973,547,200 - - - 973,547,200

Redeemable preference shares - - - - -

Debentures - - - - -

Long term borrowings 3,867,594,352 6,865,527,023 1,898,389,135 338,342,825 12,969,853,336

Finance lease liabilities 333,282,147 627,868,886 961,151,033

(b) Non-interest bearing liabilitiesAmount due to subsidiaries/associates - - - - -

Other liabilities

Leased equipment creditors 406,097,848 - - - 406,097,848

Taxation 1,373,597 - - - 1,373,597

Trade and other payables 782,901,983 - - - 782,901,983

Retirement benefit obligation - - - 40,042,619 40,042,619

(c) Shareholders funds(excluding redeembale preference shares) - - - 4,670,641,231 4,670,641,231

Total liabilities 13,212,228,730 7,493,395,909 1,898,389,135 5,049,026,675 27,653,040,450



36 Segmental InformationLeasing, Factoring Insurance IT Services Stock Broking Total

Hire Purchase & Broking & OtherOther Products

Rs. Rs. Rs. Rs. Rs. Rs.

2007/2008

Operating profit before interest 3,667,255,859 407,323,677 15,851,081 (40,765,389) 4,407,367 4,054,072,595

Net Interest cost (3,196,091,132) (203,277,186) (110,089) (1,913) (4,484,854) (3,403,965,174)

Other income/(expenses) 294,609,398 2,863,335 10,751,566 - 5,151,220 313,375,519

Goodwill on consolidation - - - - - 131,292,503

Share of profit of associate companies - - - - - 88,276,885

Profit before taxation 765,774,125 206,909,826 26,492,558 (40,767,302) 5,073,733 1,183,052,328

2006/2007

Operating profit before interest 2,297,786,375 267,954,615 18,973,928 (27,237,237) 20,337,295 2,577,814,976

Net Interest cost (1,648,849,570) (135,139,772) (26,822) (2,251) (3,732,561) (1,787,750,976)

Other income/(expenses) 187,927,298 12,396,382 3,654,506 - 3,696,533 207,674,719

Profit before taxation 836,864,103 145,211,225 22,601,612 (27,239,488) 20,301,267 997,738,719

2007/2008

Capital expenditure 799,532,391 1,128,034 1,256,746 3,119,446 5,343,387 810,380,004

Depreciation of property, plant & equipment 302,802,841 1,535,235 4,325,865 2,042,842 9,179,531 319,886,314

Provision/(reversal) for doubtful debts and bad debts written off 163,494,922 8,697,932 16,036,054 - 3,159,111 191,388,019

Provision/(reversal) for fall in value ofinvestments (502,310) - 1,926,630 - - 1,424,320

Provision for gratuity 16,999,159 - 454,460 698,795 296,150 18,448,564

2006/2007

Capital expenditure 917,759,818 1,132,171 5,523,489 1,272,719 11,810,315 937,498,512

Depreciation of property, plant & equipment 221,207,676 2,257,968 4,680,020 1,559,518 7,992,413 237,697,595

Provision/(reversal) for doubtful debts and - bad debts written off 107,324,836 144,147 - - 6,658,313 114,127,296

Provision/(reversal) for fall in value ofinvestments 718,347 - (103,959) - - 614,388

Provision for gratuity 7,990,385 1,592,350 854,923 410,159 1,079,476 11,927,293

As at 31 Mar 2008

Total assets 29,985,334,889 2,837,286,999 139,964,835 63,142,078 757,911,252 33,783,640,052

Total liabilities 26,740,518,638 1,423,650,364 60,490,675 3,741,767 450,075,538 28,678,476,982

As at 31 Mar 2007

Total assets 22,162,799,210 1,636,166,588 201,049,575 24,058,416 459,876,160 24,483,949,949

Total liabilities 19,279,989,198 908,760,046 123,271,518 6,102,139 340,908,053 20,659,030,954



Group Company2008 2007 2008 2007

Rs. Rs. Rs. Rs.

37 Loans to Employees (Rs.20,0000/- and above)


Loans granted during the year 44,391,050 52,749,377 35,603,400 40,490,542

Recoveries during the year (35,808,318) (43,306,095) (29,297,609) (32,473,365)


The above year end balances are included under "Other accounts receivable" given in Note No. 16 Other Current Assets

38 Capital Commitments

The Company as at 31 March 2008 has a capital commitment of approximately Rs. 48 Mn for the refurbishment of Rajagiriya LOLC building

and for the construction of service centres.

39 Contingent Liabilities

Contingent Liabilities exist as at 31 March 2008 on guarantees given by the Company to Hatton National Bank,in relation to the banking

facilities obtained by the Company's subsidiary Lanka ORIX Insurance Brokers Ltd. (LOIB). The balances outstanding on these facilities as at

31 March 2008 amounted to Rs. 2,050,000/-

Contingent Liabilities exist as at 31 March 2008 on guarantees given by the Company to banks on Letter of Credit opened by the Company

for import of equipment and vehicles for execution of leases and refurbishment. The value of LC's at the year end was Rs.73,683,284.

The Company does not anticipate any material liability to arise out of any contingent event.

40 Consolidation of Accounts with those of the Subsidiary Company

The results of the Company's subsidiary, Lanka Orient Investments (Pvt) Ltd., incorporated on 27 February, 1986 have not been consolidated

with that of the Company in accordance with Section 153 (6) (a) of the Companies Act No. 07 of 2007.

41 Events after the Balance Sheet Date

There have been no material events occuring after the Balance Sheet date that require adjustment to or disclosure in the Financial

statements, other than the following:

1 The Company has purchased 11,741,907 shares (67%) of Commercial Leasing Company Ltd. for a consideration of Rs. 1,101,486,231

on 9th May 2008

2 The Company has advanced Rs. 15 Mn to Galoya Holdings (Pvt) Ltd.



42 Comparative information in the financial statements have been restated as follows:

Income statement for year ended 31st March 2007 Net Profit Net Profitbefore tax after tax

Rs. Rs.

As per last year financial statements 1,001,544,296 1,054,612,882

Restated in 2007/08 financial statements 997,738,719 1,050,181,256

(3,805,577) (4,431,626)

Balance Sheet as at 31st March 2007 Assets Liabilities Equity

As per last year financial statements 24,405,605,970 20,562,412,817 3,843,193,153

Restated in 2007/08 financial statements 24,483,949,949 20,659,030,954 3,824,918,996

(78,343,979) (96,618,137) 18,274,158

Net profit before tax has been restated due to adjustments carried out subsequent to consolidation, in the following subsidiary financials

LOIB provision made for commissions receivable to the value of Rs. 4,458,860/-

LOFAC exchange loss of Rs. 1,061,786/-

LOFIN Interest Income adjustment of Rs.1,715,069/-

Other adjustments Rs. 626,049/-

The subsidiary balance sheets have been changed in view of the above, as well as,a re-classification of Factoring Accounts Receivable &

Payables in LOFAC financials & a write-off against retained profits of Rs. 13,842,532/-

The above were adjusted as follows:

Retained earnings as at 31st March 2006 13,842,532

Retained earnings as at 31st March 2007 4,431,626

18,274,158



43 Related Party Transactions

43.1 The Directors of the Company are also Directors of the following Companies in the Group through which they have control.

LOFAC LOIB LFSL LOFIN LOSEC LOIT LOPD LFOL Sundaya

Mrs R L Nanayakkara √ √ √ √ √ √ √ √ √

Mr I C Nanayakkara √ √ √ √ √ √ √ √ √

Mr M D D Pieris √ √ √ √ - √ - - -

Mrs K U Amarasinghe √ √ √ √ √ √ √ √ -

Mr M T L Fernando √ √ - - - √ - √ -

Mr T H M Wickramasinghe - - - - √ - - - -

Mr W D K Jayawardena √ √ √ √ - √ - - √

Mr R M Nanayakkara - - - - √ - - - -

Mr J M Swaminathan - - - √ - - - - -

As at 31 Mar 2008 As at 31 Mar 2007

Rs. Rs.

Amounts due from Subsidiary Companies to Parent

LOIB 41,638,773 59,305,587

LOFIN 225,637,470 220,340,903

LOPD 6,448,654 3,332,312

LOFAC 689,969,077 22,672,424

LOSEC 4,854,190 56,233,070

LOIT 1,866,056 -

Sundaya 4,831,157 -

975,245,377 361,884,296

Amount due to Subsidiary Companies from Parent

LOIT - 28,155,864

Inter-Company Transactions

1 The Company has received following income from subsidiaries:

LOFAC LOSEC LOIB LOIT LOPD

Rs. Rs. Rs. Rs. Rs.

2007/2008

Royalty 47,069,505 10,000,000 10,862,973 - -

Management fees 1,200,000 - - - -

Treasury management fee 44,804,437 - - - -

Operating lease rental income 799,608 6,234,133 - - 665,604

Debenture interest income 89,138,411 - - - -

183,011,961 16,234,133 10,862,973 - 665,604



LOFAC LOSEC LOIB LOIT LOPD

Rs. Rs. Rs. Rs. Rs.

2006/2007

Royalty 32,278,203 10,000,000 9,921,255 - -

Management fees 1,200,000 - - - -

Treasury management fee 15,004,901 - - - 665,604

Operating lease rental income 799,608 4,594,206 - - -

Debenture interest income 63,791,123 - - - -

113,073,835 14,594,206 9,921,255 - 665,604

2 The Company has paid IT service fee of Rs.36,000,000/- to LOIT (2006/07 - Rs.36,000,000/-)

3 The subsidiary companies have the following transactions with other subsidiaries and the parent.

3.1 LOIB has earned Rs.1,560,452/- (2006/07- Rs.3,904,819/-) as insurance commission from premium paid by

the following:

2007/2008 2006/2007

Rs. Rs.

LOLC 1,362,664 3,494,717

LOFAC 21,774 160,058

LOSEC - 119,382

LOFIN 176,014 130,662

1,560,452 3,904,819

3.2 LOIT has received IT service fee as follows:

LOFAC 9,000,000 9,000,000

LOIB 4,500,000 4,500,000

LOLC 36,000,000 36,000,000

LOFIN 24,000,000 -

73,500,000 49,500,000

3.3 Rs. 1,727,789/- is due to LOIB from LFSL for sharing of services (2006/07 - Rs.2,010,385/-).

3.4 LOFIN has purchased the loan portfolio of LOFAC for the consideration of Rs.669,290,148/- (2006/07 - Rs.605,340,040/-).

3.5 Rs.16,000,000/- is due to LOIT from LOFIN (2006/07 - Nil).

3.6 Rs.6,121,588/- is due to LOFAC from LOFIN (2006/07 - Nil).

3.7 Rs.6,115,431/- is due to LOFIN from LOIB (2006/07 - Nil).

3.8 Rs.239,755/- is due to LOSEC from LOIB (2006/07 - Nil).


43.2 Transactions with Key Management Personnel

Key Management personnel include all the members of the Board of Directors of the Group having authority and responsibility for

planning, directing and controling the activities of the Company as well as the subsidiaries, directly or indirectly.

• Group has paid fees amounting to Rs.12,468,103/- for the year 2007/08. (2006/07- Rs.1,453,044/-)

• Emoluments paid to key management personnel during the year 2007/08 amounted to Rs. 32,203,919/-.

(2006/07 - Rs. 21,126,788/-).

• In addition to the above company has provided the following benefits and facilities:

2007/08 2006/07Short-term Long-term Total Short-term Long-term Total

benefits benefits benefits benefitsRs. Rs. Rs. Rs. Rs. Rs.

Total benefits and facilities 11,586,928 7,055,833 18,642,760 10,536,085 3,600,000 14,136,085

• Group has not incurred any amount as Termination benefits or Post Employment benefits on account of the key managerial

personnel during the year.

• Group has not provided leases, loans, advances or other credit facilities in the names of key managerial persons as at 31.03.2008.

43.3 Other Related Parties

The Company carries out transactions in the ordinary course of its business on arm's length basis with related parties.

Name of Directors, their relationship, accommodations granted and balance outstanding as at March 31, 2008 are listed below:

Name of Related Party Name of Director Relationship

Ishara Traders Mr R M Nanayakkara Proprietor

Mr I C Nanayakkara Director

Mrs K U Amarasinghe Director

Brown & Co .Ltd. Mrs R L Nanayakkara Chairperson

Mr M T L Fernando Director


Mr R M Nanayakkara Director

Taprobane Fund Management (Pvt) Ltd. Mrs R L Nanayakkara Director

Mr M T L Fernando Director


The Colombo Land Exchange Ltd. Mr I C Nanayakkara Director




1. The Group and Company paid Rs.36,772,500/- and Rs 25,817,500/- (2006/07 - Rs. 351,077,004/- and Rs. 337,707,004/-)

respectively for the supply of lease vehicles to Ishara Traders (Pvt) Ltd.

2. The Company has obtained Rs. 700 Mn loan from Ishara Traders during the year and Rs. 14,738,356/- (2006/07 - Rs.21,379,815/-)

paid as interest. The loan was fully settled on 24.12.2007.

3. The Company received Rs.1,700,000/- (2006/2007-Rs. 39,100,000/-) from Ishara Traders as sales proceeds of vehicles.

4. The Company purchased 4,359,786 shares of Hatton National Bank Ltd. from Taprobane Fund Management (Pvt) Ltd.

for Rs. 407,183,303/-.

5. The Company paid Rs. 411,130,700/- for the supply of lease vehicles to Brown & Company Ltd. (2006/2007-Rs.191,318,323/-)

6. LOFAC has advanced Rs. 213,007,500/- to Standard Finance Ltd. and earned Rs. 11,978,417/- as interest income and earned

Rs. 254,155/- as discount charge income during the year from Mason’s Mixtures Ltd.

7. Amount due from related party transactions are as follows:

Balance outstanding

As at As at

31 Mar 2008 31 Mar 2007

Name of the Company Nature of transactions Rs. Rs.

The Colombo Land Exchange Ltd. Loan granted - 90,000,000

Brown & Company Finance Lease 1,362,736 -

Galoya Holdings (Pvt) Ltd. Loan granted 10,164,210 -

Galoya Holdings (Pvt) Ltd. Finance Lease 2,443,170 -

Touchwood Investments Ltd. Loan granted 25,074,574 -

Touchwood Investments Ltd. Finance Lease 5,506,372 -

8. Interest Income earned from loan granted to related party transactions as follows:

2007/08 2006/07

Name of the Company Rs. Rs.

The Colombo Land Exchange Ltd. - 32,048,609

Brown & Company 13,930,168 12,828,769

Galoya Holdings (Pvt) Ltd. 2,188,951 -

Galoya Holdings (Pvt) Ltd. 1,607,910 -

Touchwood Investments Ltd. 2,606,339 -

44 Foreign Exchange Risk

The Company obtains long-term facilities from foreign multilateral and bilateral agencies for on lending purposes.The Company adopts a

conservative strategy on obtaining rupee facilities from local Commercial Banks with the deposit of these foreign currency money

received.Thereby, Company minimises the foreign exchange risk.

MILESTONES


Milestones1980

• The first to introduce leasing to Sri Lanka1992

• Launched its first subsidiary LOFAC1995

• 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

companies1997

• The first to introduce export factoring through LOFAC• Branch office opened in Matara

1998• Branch offices opened in Badulla and Rathnapura

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, LOFIN• Branch offices opened in Kurunagala and Kaluthara

2002• The first leasing company to be recognized as a

Participating Financial Institution for the Indian Line of Credit

• Branch office opened in Galle2003

• 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 Nuwaraeliya and Kiribathgoda2004

• Entered into stock broking through LOSEC • Launched LOIT, the Information Technology arm• The first to win the Non Banking Sector Award at South

Asian Federation of Accountants (SAFA) best presented accounts competition

• Branch office opened in Gampaha

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 PROPARCO• 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 OPIC• Branch office opened in Wattala• The first Regional Expansion to Cambodia through 17.91%

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 CharteredAccountants of Sri Lanka for 2005/06

2007• Branch offices opened in Chilaw and Mahiyanganaya• 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 center in Oasis• Opened the first student savings center at Royal college -

Polonnaruwa• LOFIN operations expanded to Wattala, Kegalle,

Mahiyanganaya, Mount Lavinia and Chilaw• Received Cabinet sub committee approval for the project on

off shore Sand Mining, Washing, Sieving and Grading to supplyconstruction and related industry

• Signed up with LIOC to establish LOLC sub branches at LIOCfilling stations.

• LIOC centers opened in Morawaka and Trincomele• Set up the Islamic BU with an in house Sharia'h Supervisory

Board. • Dairy farmer loans, cultivation loans, business set up loans and

skilled enable loans were introduced.• Partnered with GTZ for capacity building of the micro finance

staff, setting up low cost branch network and development of amicro banking system.

2008• Launched a lottery for customers with a house as the prize• Launched Western Union Money transfer services at LOLC

branches• Entered into an joint venture agreement with Agri Tec for

manufacture of precipitated silica & allied products using ricehusk ash

• LIOC centers opened in Pilimathalawa, Seeduwa, Aluthgama,Kadawatha, Ambalangoda, Deberawewa, Beliatta andThalawakele

• LOLC MF was appointed as the only representative from theprivate sector to the micro finance steering committee appointedby department of development finance attached to ministry offinance and planning.

TEN YEAR SUMMARY

COMPANY

For the year ended 31 March (‘000) 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008OPERATING RESULTS Gross Income 834,064 860,738 938,381 1,062,137 1,130,880 1,401,776 1,566,952 1,908,291 3,034,110 4,480,432Other operating expenses (187,644) (239,310) (289,072) (352,377) (415,469) (588,339) (617,719) (621,628) (972,865) (1,326,595)Operating Profit before Interest 646,420 621,428 649,309 709,760 715,411 813,437 949,233 1,286,663 2,061,245 3,153,837Interest Costs (562,632) (529,136) (562,269) (566,914) (492,557) (493,338) (532,298) (703,399) (1,442,881) (2,768,780)Other Income/(Expenses) 60,436 25,933 94,198 69,862 32,679 97,806 145,294 93,449 291,840 440,602Income tax expense - - - - - - - (12,701) 76,390 152,212 Net profit after tax 144,224 118,225 181,238 212,708 255,533 417,905 562,229 664,012 986,594 977,871

As at 31 MarchASSETSTotal assets 5,642,073 5,587,654 5,502,316 5,527,821 5,980,825 7,616,680 8,746,741 13,297,988 20,888,694 27,653,040

LIABILITIESCurrent Liabilities 3,203,432 2,486,632 3,077,791 2,222,274 3,044,815 3,713,713 2,999,461 5,003,038 7,840,922 12,027,597Non-Current Liabilities 1,112,127 1,683,013 1,107,767 1,841,339 1,257,849 2,058,618 3,439,150 5,444,697 9,353,485 10,954,802

4,315,559 4,169,645 4,185,558 4,063,613 4,302,664 5,772,331 6,438,611 10,447,735 17,194,407 22,982,399

SHAREHOLDERS' FUNDSStated Capital & ReservesStated Capital 108,000 118,800 237,600 237,600 237,600 475,200 475,200 475,200 475,200 475,200Reserves 1,218,514 1,299,209 1,079,158 1,226,608 1,440,560 1,369,149 1,832,930 2,375,053 3,219,087 4,195,441

1,326,514 1,418,009 1,316,758 1,464,208 1,678,160 1,844,349 2,308,130 2,850,253 3,694,287 4,670,641

INVESTOR RATIOSBonus issues - 10:1 1:1 - - 1:1 - - - - Gross dividends(Rs ' 000s) 27,000 26,730 71,280 77,220 77,220 92,664 110,009 142,560 71,280 106,920Total assets to shareholders' funds (times) 4 4 4 4 4 4 4 5 6 6Return on Assets (%) 3 2 3 4 4 6 7 6 6 4Return on Equity (%) 11 8 14 15 16 24 27 26 30 23

OTHER INFORMATIONNo. of employees 162 166 170 179 201 259 269 346 414 521No. of branches 4 6 6 8 9 12 12 16 18 22No. of LOLC service centres 0 0 0 0 0 0 0 0 0 10No. of subsidiary companies 3 3 4 5 5 6 7 8 8 9No. of associate companies 0 0 0 0 0 0 0 0 0 2No. of joint ventures 0 0 0 0 0 0 0 0 0 1


SUMMARISED QUARTERLY STATISTICS

2007/2008 2006/2007

COMPANY

Income Statement (Rs.‘000)

For the 3 months ended Jun 30 Sep 30 Dec 31 Mar 31 Jun 30 Sep 30 Dec 31 Mar 31

Operating Profit before Interest 688,794 673,582 901,725 889,736 416,924 498,555 484,810 660,956

Interest Costs (543,425) (632,194) (683,299) (909,862) (281,345) (344,408) (420,430) (396,698)

Other Income/(Expenses) 52,912 67,709 296,689 23,292 53,904 75,162 89,287 73,487

Taxation (48,000) (36,000) (41,093) 277,305 - (78,882) (30,000) 185,272

Profit available to shareholders'

of the Company 150,281 73,097 474,022 280,471 189,483 150,427 123,667 523,017

Balance Sheets (Rs.'000)

As at Jun 30 Sep 30 Dec 31 Mar 31 Jun 30 Sep 30 Dec 31 Mar 31

Assets 22,958,188 24,149,170 26,514,031 27,653,040 15,434,342 16,943,762 18,480,877 20,888,694

Liabilities 19,220,540 20,338,425 22,229,265 22,982,399 12,465,886 13,824,878 15,238,326 17,194,407

Net Assets 3,737,648 3,810,745 4,284,766 4,670,641 2,968,456 3,118,884 3,242,551 3,694,287

Stated Capital & Reserves 3,737,648 3,810,745 4,284,766 4,670,641 2,968,456 3,118,884 3,242,551 3,694,287

Stated Capital 475,200 475,200 475,200 475,200 475,200 475,200 475,200 475,200

Reserves 3,262,448 3,335,545 3,809,566 4,195,441 2,493,256 2,643,684 2,767,351 3,219,087

GROUP

Income Statement (Rs.‘000)


Operating Profit before Interest 852,784 896,332 1,161,680 1,143,277 519,438 621,481 609,846 827,050

Interest Costs (645,811) (781,669) (863,445) (1,113,040) (342,418) (418,794) (514,025) (512,514)

Other Income/(Expenses) 29,298 36,263 264,799 (16,984) 35,311 53,070 82,771 36,523

Goodwill on consolidation - 5,175 - 126,118

Share of profit of associate companies - - (4,473) 92,750

Taxation (48,525) (68,828) (54,446) 259,536 (4,687) (84,287) (36,417) 177,834

Minority Interest (9,776) (1,395) (18,295) 26,850 (7,693) (5,473) (3,350) 7,575

Profit available to shareholders'

of the Company 177,970 85,878 485,820 518,507 199,951 165,997 138,825 536,468

Balance Sheets (Rs.'000)


Assets 26,915,804 28,620,658 32,058,118 33,783,640 18,797,508 20,111,710 22,270,748 24,483,950

Liabilities 22,990,310 24,616,746 27,550,092 28,678,477 15,730,004 16,872,737 18,889,601 20,659,031

Net Assets 3,925,494 4,003,912 4,508,026 5,105,163 3,067,504 3,238,973 3,381,147 3,824,919

Stated Capital & Reserves 3,925,494 4,003,912 4,508,026 5,105,163 3,067,504 3,238,973 3,381,147 3,824,919

Stated Capital 475,200 475,200 475,200 475,200 475,200 475,200 475,200 475,200

Reserves 3,450,294 3,528,712 4,032,826 4,629,963 2,592,304 2,763,773 2,905,947 3,349,719


VALUE ADDITION

2007/2008 % 2006/2007 %

Rs. Rs.

COMPANY

Value added

Income 4,480,432,084 3,034,110,432

Cost of borrowing and services (3,573,385,497) (2,053,271,927)

Provisions 108,272,168 66,157,272

Other income 440,602,191 291,839,679

Value added tax 642,923,881 659,754,698

2,098,844,827 1,998,590,154

Distribution of Value added

To Employees 333,659,398 16 212,747,869 11

Remuneration and other benefits 333,659,398 212,747,869

To Government 490,712,166 23 583,364,991 29

Indirect taxes 642,923,881 659,754,698

Direct taxes (152,211,715) (76,389,707)

To Providers of Capital 175,371,002 8 140,341,551 7

Dividends to shareholders 106,920,000 69,061,551

Reserves 68,451,002 71,280,000

To Expansion and Growth 1,099,102,261 53 1,062,135,743 53

Retained profits 802,500,453 846,252,034

Depreciation 296,601,808 215,883,709

2,098,844,827 100 1,998,590,154 100


VALUE ADDITION

2007/2008 % 2006/2007 %

Rs. Rs.

GROUP

Value added

Income 5,934,772,221 3,950,751,220

Cost of borrowing and services (4,610,274,270) (2,681,618,452)

Provisions 167,124,266 110,110,919

Other income 313,375,519 207,674,719

Goodwill on consolidation 131,292,503

Share of profits of associate companies 88,276,885

Value added tax 746,258,089 752,210,614

2,770,825,212 2,339,129,019

Distribution of Value added

To Employees 521,628,482 19 351,482,091 15

Remuneration and other benefits 521,628,482 351,482,091

To Government 658,520,936 24 699,768,076 30

Indirect taxes 746,258,089 752,210,614

Direct taxes (87,737,153) (52,442,538)

To Providers of Capital 178,612,027 6 141,564,593 6

Dividends to shareholders 106,920,000 71,280,000

Reserves 71,692,027 70,284,593

To Expansion and Growth 1,412,063,768 51 1,146,314,258 49

Retained profits 1,092,177,454 908,616,663

Depreciation 319,886,314 237,697,595

2,770,825,212 100 2,339,129,019 100


SUBSIDIARY COMPANIES

Group Companies Directors

Lanka ORIX Finance Company Ltd. (LOFIN)

Date of Incorporation - 13 December 2001 Mrs. R. L. Nanayakkara - Chairperson

Stated Capital - Rs. 800,000,000/- (80,000,000 shares) Mr. I. C. Nanayakkara - Deputy Chairman

Group Holding - 100% Deshamanya M. D. D. Pieris

Status of the Company - Unquoted Public Company Mr. J. M. Swaminathan

Principal Activities - Finance Business and Pawn Mrs. K. U. Amarasinghe

Broking, Islamic Leasing Mr. B. C. G. de Zylva - Managing Director

Registered Office - No. 100/1, Sri Jayewardenepura Mawatha, Mr. W.D.K Jayawardena (Appointed w.e.f.18.06.07)

Rajagiriya, Sri Lanka.

Lanka ORIX Factors Ltd. (LOFAC)

Date of Incorporation - 20 February 1991 Mrs. R. L. Nanayakkara - Chairperson



Status of the Company - Unquoted Public Company Mrs. K. U. Amarasinghe

Principal Activity - Factoring of Debts Mr. W.D.K Jayawardena (Appointed w.e.f.18.06.07)

Registered Office - No. 100/1, Sri Jayewardenepura Mawatha,


Place of Business - No. 2A-1A, 1st Floor, Lake Drive,

Borella, Colombo 8, Sri Lanka.

Lanka ORIX Insurance Brokers Ltd. (LOIB)

Date of Incorporation - 2 February 1999. Mrs. R. L. Nanayakkara - Chairperson



Status of the Company - Unquoted Public Company Mrs. K. U. Amarasinghe

Principal Activity - Insurance Broking Mr. N.D.J. Silva

Registered Office - No. 100/1, Sri Jayewardenepura Mawatha, Mr. W..D.K.Jayawardena (Appointed w.e.f. 18.06.07)


Place of Business - No. 323, Union Place, Colombo 2, Sri Lanka.

LOIB Financial Services Ltd. (LFSL)

Date of Incorporation - 30 May 2000 Mrs. R. L. Nanayakkara - Chairperson

Stated Capital - Rs. 5,000,000/- (500,000 shares) Mr. I. C. Nanayakkara - Deputy Chairman

Group Holding - 100% (wholly owned subsidiary Mrs. K. U. Amarasinghe

of Lanka ORIX Insurance Brokers Ltd. Deshamanya M. D. D. Pieris

Status of the Company - Unquoted Public Company Mr. W.D.K Jayawardena (Appointed w.e.f.18.06.07)

Principal Activities - Investment Advice



Place of Business - No. 323, Union Place, Colombo 2, Sri Lanka.


SUBSIDIARY COMPANIES

Group Companies Directors

Lanka ORIX Securities (Pvt) Ltd. (LOSEC)

Date of Incorporation - 19 December 1990 Mrs. R. L. Nanayakkara - Chairperson

Stated Capital - Rs. 9,000,000/- (900,000 shares) Mr. I. C. Nanayakkara - Deputy Chairman

Group Holding - 30% Mr. T. H. M. Wickramasinghe - Managing Director

Status of the Company - Private Limited Liability Company Mrs. K. U. Amarasinghe

Principal Activity - Stock Broking Mr. R. F. Senewiratne

Registered Office - No. 42, Sir Mohamed Macan Markar Mr. V. S. Premawardhana

Mawatha, Colombo 3, Sri Lanka.

Lanka ORIX Infomation Technology Ltd.

Date of Incorporation - 5 March 2004 Mrs. R. L. Nanayakkara - Chairperson


Group Holding - 100% Mrs. K. U. Amarasinghe

Status of the Company - Unquoted Public Company Deshamanya M. D. D. Pieris

Principal Activities - Software Design, Mr. M. T. L. Fernando

Development and Distribution Mr. F. K. C. P. N. Dias - Managing Director

Registered Office - No. 100/1, Sri Jayewardenepura Mawatha, Mr. W.D.K Jayawardena (Appointed w.e.f.18.06.07)


Agrisil Holdings Limited

Date of Incorporation - 23 April 2008 Mrs. R. L. Nanayakkara - Chairperson

Stated Capital - Rs. 10/- (01 shares) Mr. I. C. Nanayakkara - Deputy Chairman

Group Holding - 100% (Wholly owned subsidiary of Lanka ORIX Mrs. K. U. Amarasinghe

Project Development Limited)

Status of the Company - Unquoted Public Company

Principal Activities - Management Services



Lanka Orix Project Development Ltd. (LOPD) Mrs. R. L. Nanayakkara - Chairperson

Date of Incorporation - 12 May 2005 Mr. I. C. Nanayakkara - Deputy Chairman

Stated Capital - Rs.30,000,000/= - (3,000,000 shares) Mrs. K. U. Amarasinghe

Group Holding - 100%

Status of the Company - Unquoted Public Company

Principal Activities - Property and Infrastructure Development

Registered Office - 100/1, Sri Jayawardenapura Mawatha,

Rajagiriya, Sri Lanka


Date of Incorporation - 06 June 2005 Mrs. R. L. Nanayakkara - Chairperson

Stated Capital - Rs.12,244,900/= - (1,224,490 shares) Mr. I. C. Nanayakkara - Deputy Chairman

Group Holding - 51% held by LOFAC which is a subsidiary of LOLC Mr. M. C. Adema

Status of the Company - Private Limited Liability Company Mr. R. D. Tissera

Principal Activities - Manufacturing, Assembly and sales of solar power systems Mr. P. S. T. Loh

Registered Office - 100/1, Sri Jayawardenapura Mawatha, Rajagiriya Mr. V. Visvasan


INVESTOR INFORMATION

1. SHAREHOLDING INFORMATION

1.1 Shareholding as at 31 March

2008 2007No. of % of No. of % of

Shares Shares Shares Shares

Residents 33,070,268 69.60 33,207,804 69.88ORIX Corporation 14,256,000 30.00 14,256,000 30.00Other foreign investors 193,732 0.40 56,196 0.12Total 47,520,000 100.00 47,520,000 100.00

1.2 Analysis of Ordinary Shares as at 31 March

2008 2007Range No. of No. of % of No. of No. of % of

Shareholders Shares Shares Shareholders Shares Shares

1 - 1,000 1,156 337,813 0.71 1,098 318,443 0.671,001 - 5,000 356 840,803 1.77 314 717,470 1.515,001 - 10,000 76 567,067 1.19 64 461,582 0.97

10,001 - 50,000 72 1,415,907 2.98 72 1,505,695 3.1750,001 - 100,000 10 733,228 1.55 6 398,924 0.84

100,001 - 500,000 10 1,952,394 4.11 9 1,964,998 4.14500,001 - 1,000,000 1 800,200 1.68 - - -

Over 1,000,000 Shares 6 40,872,588 86.01 7 42,152,888 88.71,687 47,520,000 100.00 1,570 47,520,000 100.00

1.3 Categories of Shareholders as at 31 March

2008Resident Non-Resident

Range No. of No. of % of No. of No. of % ofShareholders Shares Shares Shareholders Shares Shares

1 - 1,000 1,140 331,525 0.70 16 6,288 0.011,001 - 5,000 350 824,483 1.74 6 16,320 0.035,001 - 10,000 72 534,431 1.12 4 32,636 0.07

10,001 - 50,000 69 1,361,719 2.87 3 54,188 0.1150,001 - 100,000 9 648,928 1.37 1 84,300 0.18

100,001 - 500,000 10 1,952,394 4.11 0 0 0.00500,001 - 1,000,000 1 800,200 1.68 0 0 0.00

Over 1,000,000 Shares 5 26,616,588 56.01 1 14,256,000 30.001,656 33,070,268 69.60 31 14,449,732 30.40

2007Resident Non-Resident

Range No. of No. of % of No. of No. of % ofShareholders Shares Shares Shareholders Shares Shares

1 - 1,000 1,081 311,931 0.66 17 6,512 0.011,001 - 5,000 308 704,910 1.48 6 12,560 0.035,001 - 10,000 62 447,146 0.94 2 14,436 0.03

10,001 - 50,000 70 1,483,007 3.12 2 22,688 0.0550,001 - 100,000 6 398,924 0.84 - - -

100,001 - 500,000 9 1,964,998 4.14 - - -500,001 - 1,000,000 - - - - - -

Over 1,000,000 Shares 6 27,896,888 58.70 1 14,256,000 30.001,542 33,207,804 69.88 28 14,312,196 30.12


INVESTOR INFORMATION

1.4 Categories of Shareholders as at 31 March

2008 2007No. of No. of % of No. of No. of % of

Shareholders Shares Shares Shareholders Shares Shares

Individual 1,537 17,419,631 36.66 1,413 16,988,672 35.75Institutions 150 30,100,369 63.34 157 30,531,328 64.25Total 1,687 47,520,000 100 1,570 47,520,000 100

2008 2007No. of % of Stated No. of % of Stated

Shares Capital Shares Capital

1 ORIX Corporation 14,256,000 30.00 14,256,000 30.00

2 Seylan Bank - R.M. Nanayakkara 12,019,708 25.29 12,019,708 25.29

3 Mr. I.C. Nanayakkara 5,989,550 12.60 5,989,550 12.60

4 Mrs. K.U. Amarasinghe 5,243,200 11.03 5,243,200 11.03

5 Mr. R.M. Nanayakkara 2,122,114 4.47 2,122,114 4.47

6 Sri Lanka Insurance Corporation - Life Fund 1,242,016 2.61 1,438,216 3.03

7 DPMC Financial Services (Pvt) Ltd. (A/C No. 01) 800,200 1.68 1,084,100 2.28

8 Mrs. I. Nanayakkara 456,402 0.96 314,902 0.66

9 Mr. G.G. Ponnambalam 208,992 0.44 208,992 0.44

10 Swastika Mills Ltd. 200,000 0.42 211,200 0.44

11 HSBC - Mr. C.P. de Silva 200,000 0.42 200,000 0.42

12 HSBC - Mr. R.C. de Silva 200,000 0.42 200,000 0.42

13 HSBC - Mr. C.L. de Silva 200,000 0.42 200,000 0.42

14 Mr. M. Radhakrishnan 150,000 0.32 150,000 0.32

15 DPMC Financial Services (Pvt) Ltd (A/C No. o2) 128,700 0.27 16,000 0.03

16 Employees Trust Fund Board 107,900 0.23 27,500 0.05

17 Mr S G Karunagoda 100,400 0.21 - -

18 Mr K P S D Karunagoda 97,200 0.20 - -

19 Mr D J Wilson 85,216 0.18 82,216 0.17

20 Galleon International Master Fund, SPC Ltd 84,300 0.18 - -

43,891,898 92.35


ECONOMIC AND FINANCIAL INDICATORS

December 2003 2004 2005 2006 2007

Economic Growth

GDP at Current Market Prices (Rs. Bn.) 1,822 2,091 2,453 2,939 3,578

GDP Growth Rate % 5.9 5.4 6.2 7.7 6.8

External Finance

Trade Balance - US $ Mn. -1,539 -2,243 -2,516 -3,371 -3,560

Balance of Payment (Rs. Mn) 48.6 -7.5 48.1 33.5 60.0

Exchange Rates - Rs. US $

Annual Average 96.52 101.19 100.5 103.96 110.62

Year End 96.74 104.61 102.12 107.71 108.72

Rate of Inflation

CCPI* Annual Average Change % 6.3 7.6 11.6 13.7 17.5

Money Supply - Percentage change Dec. to Dec.

Narrow Money - M1 % 16.0 16.6 22.4 12.6 2.7

Broad Money - M2b % 15.3 19.6 19.1 17.8 16.6

Interest Rates - Per cent per annum at year end

Repurchase Rate - Overnight % 7.0 7.5 8.8 10.0 10.5

Reverse Repurchase Rate - Overnight % 8.5 9.0 10.3 11.5 12.0

Treasury Bill Rate

91 Days % 7.35 7.25 10.10 12.76 21.30

364 Days % 7.24 7.65 10.37 12.96 19.66

CB's** Weighted Average Deposit Rate % 5.3 5.3 6.2 7.6 10.3

CB's** Weighted Average Prime Lending Rate % 9.3 10.2 12.2 15.2 18.0

Share Market

All Share Price Index - ASPI 1,062.10 1,506.90 1,922.20 2,722.40 2,541.00

Market Capitalisation Rs. Bn. 262.8 382.1 584.0 834.8 820.7

*CCPI - Colombo Consumers Price Index

** CB - Commercial Bank


GLOSSARY

TERMS

Term Meaning

Accrual Basis Recognising the effects of transactions and events when they occur without waiting for receipt

or payment of cash or cash equivalent.

Associate Company A company other than a subsidiary in which the holding company has significant influence over

its financial and operating policy decisions.

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.

Executions Advances granted to customers under leasing, hire purchase and loan facilities.

Finance Lease A lease that transfers substantially all the risk and rewards incident to ownership of the asset

to the lessee. Title may or may not eventually be transferred.

Gross Dividend The proportion of profit distributed to shareholders inclusive of tax withheld.

Gross Portfolio Total rental receivable of the advances granted to customers under leasing, hire

purchase and loan facilities.

Hire Purchase A 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.

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.

Lease A 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.

Net Portfolio Total rental receivable excluding interest of the advances granted to customers under leasing,

hire purchase and loan facilities.

Non-Performing Portfolio Facilities granted to customers which are in default for more than six months.


GLOSSARY

Operating Lease An operating lease is a lease other than a finance lease.

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 Form The 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.


GLOSSARY

RATIOS

Ratio Method 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 number of ordinary shares in issue.

Share of current year’s earnings attributable to a 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 (PE Ratio) Market price of a share divided by Earnings Per Share (EPS). Number of years that would be

taken to recoup shareholders’ capital outlay in the form of earnings.

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).


NOTICE OF MEETING

NOTICE IS HEREBY GIVEN THAT THE TWENTY NINTH ANNUAL GENERAL MEETING of the Company will be held on Monday, 30th June, 2008 at10:00 a m at “The Members Court” , Waters Edge , Battaramulla, for the following purposes:

1. To receive and consider the Report of the Directors and Statement of Accounts for the year ended 31st March, 2008 with the Report of theAuditors thereon.

2. To re-elect as a Director Mr. R. M. Nanayakkara, who retires by rotation in terms of Article 84 of the Article of Association of the Company.

3. To re-elect as a Director Mr. Y. Oshima, who retires by rotation in terms of Article 84 of the Article of Association of the Company.

4. To re-elect as a Director Mr. K. Fushitani, who retires by rotation in terms of Article 91 of the Article of Association of the Company.

5. To re-elect Mrs. R. L. Nanayakkara, who retires in terms of Section 210 of the Companies Act No. 7 of 2007, as a Director. As Mrs. R. L. Nanayakkara is over 70 years, Special Notice has been received from a shareholder of the intention to pass a resolution which isset out below in relation to her re-election (see note 4 below)

6. To re-elect Mr. M. T. L. Fernando, who retires in terms of Section 210 of the Companies Act No. 7 of 2007, as a Director. As Mr. M. T. L. Fernando is over 70 years, Special Notice has been received from a shareholder of the intention to pass a resolution which is setout below in relation to his re-election (see note 5 below)

7. To re-elect Mr. M. D. D. Pieris, who retires in terms of Section 210 of the Companies Act No. 7 of 2007, as a Director. As Mr. Pieris is over70 years, Special Notice has been received from a shareholder of the intention to pass a resolution which is set out below in relation to hisre-election (see note 6 below)

8. The Auditors, M/s KPMG Ford Rhodes Thornton and Company retire. In accordance with best practices, which recommends periodic changesof auditors, the Board recommends that M/s Ernst & Young be appointed as auditors for the year 2008/2009, at a fee to be decided upon bythe Board.

9. To authorise the Directors to make donations.

BY ORDER OF THE BOARD

Chrishanthi EmmanuelSecretary

28th May, 2008Rajagiriya (in the greater Colombo)

NOTE:1) A member entitled to attend and vote at the Meeting is entitled to appoint a Proxy to attend and vote instead of him/her. A Proxy need not

be a member of the Company.

2) The completed Form of Proxy should be deposited at the registered office of the Company , 100./1, Sri Jayawardenapura MawathaRajagiriya, not later than 10:00 a m on Saturday, 28th June, 2008.

3) A Form of Proxy accompanies this Notice

4) Special Notice has been received by the Company from a shareholder of the Company giving Notice of intention to move the followingResolution at the above Annual General Meeting :

“Resolved that Mrs R L Nanayakkara (a Director retiring by rotation) of the Company who is 72 years be and is hereby re-elected a Directorof 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. 7 of2007 shall not apply to the said Director, Mrs R L Nanayakkara.”


“Resolved that Mr M T L Fernando (a Director retiring by rotation) of the Company who is 82 years be and is hereby re-elected a Director ofthe Company and it is further specifically declared that the age limit of 70 years referred to in Section 210 of the Companies Act No. 7 of2007 shall not apply to the said Director, Mr M T L Fernando.”


“Resolved that Mr M D D Pieris (a Director retiring by rotation) of the Company who is 70 years be and is hereby re-elected a Director of thecompany and it is further specifically declared that the age limit of 70 years referred to in Section 210 of the Companies Act No. 7 of 2007shall not apply to the said Director, Mr M D D Pieris.”


FORM OF PROXY

I / We.......................................………..........................................................................................................................................................................of.

..............................................................................................................................................................................................being a member/members of

the Lanka ORIX Leasing Company PLC hereby appoint..................................................................................................................................................of

............................................................................................. whom failing

Mrs Rohini Lettitia Nanayakkara of Colombo or failing her

Mr Ishara Chinthaka Nanayakkara of Colombo or failing him

Mr Malawige Tissaka Lal Fernando of Colombo or failing him

Mr Ravindra Ajith Fernando of Colombo or failing him

Mrs Kalsha Upeka Amarasinghe of Colombo or failing her

Mr Minuwanpitiyage Dharmasiri Dayananda Pieris of Colombo or failing him

Mr Raja Mahinda Nanayakkara of Colombo or failing him

Mr Tushan Harsha Mendis Wickramasinghe of Colombo or failing him

Mr Waduthanthi Dharshan Kapila Jayawardena of Colombo

as my/our proxy to represent me/us * ………… and vote on my/our behalf at the 29th Annual General Meeting of the Company to be held onMonday, 30th June, 2008 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 31st March, 2008 with the Report of the Auditors thereon.

2 To re-elect Mr R M Nanayakkara, who retires by rotation in terms of Article 84 of the Article of Association of the Company.

3 To re-elect Mr Y Oshima, who retires by rotation in terms of Article 84 of the Article of Association of the Company.

4 To re-elect Mr K Fushitani, who retires by rotation in terms of Article 91 of the Article of Association of the Company.

5 To re-elect Mrs R L Nanayakkra, who retires in terms of Section 210 of the Companies Act No. 7 of 2007, as a Director.

6 To re-elect Mr M T L Fernando, who retires by rotation in terms of Section 210 of the Companies Act No. 7 of 2007, as a Director.

7 To re-elect Mr M D D Pieris , who retires by rotation in terms of Section 210 of the Companies Act No. 7 of 2007, as a Director.

8 To appoint M/s Ernst & Young Auditors at a remuneration to be fixed by the Directors

9 To authorise the Directors to make donations.

dated this ……….………………….. day of June, Two Thousand Eight

………………………………………Signature of Shareholder

NOTE:

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 “vote” marked *and initial the alteration

3) Instructions as to completion appear on the reverse hereof

We hereby certify that the Stamp Duty payable, namely cents 50 in respect of this instrument has been compounded in terms of section 13of the Stamp Duty Act No.43 of 1982


FORM OF PROXY

INSTRUCTIONS AS TO COMPLETION

1 Please return the completed Form of Proxy after filling in legibly your full name and address, signing on the space provided and filling in the

date of signature.

2 The completed Form of Proxy should be deposited at the registered office of the Company, 100/1 Sri Jayawardenepura Mawatha, Rajagiriya

not less than 48 hours before the time appointed for the holding of the Meeting.


vision - lolc · interest cover 1.26 1.22 1.32 1.38 1.52 1.85 2.06 1.96 1.63 1.30 dividend cover...

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