ANNUAL REPORT 2015/2016We start with an in-depth description of the Company, our history and highlights of our performance in the year under review. 04 Our Story 06 The Group Structure

ANNUAL REPORT

2015/2016

2

VALUE CREATION AT SOFTLOGIC CAPITAL

At Softlogic Capital, our ultimate promise is the value we create to all our stakeholders. We wish to develop a business that will carry this promise today, tomorrow and over the long term. Everyday we endeavor to improve our economic, social and environmental performance, in order to deliver results of universal value and we use this Book of Value to showcase the above value creation process in a forthright way.

Here we have segmented this Book of Value to make it easier for you to understand the various activities that drive our value creation strategy.

A Fascinating Framework

We start with an in-depth description of the Company, our history and highlights of our performance in the year under review.

04 Our Story06 The Group Structure07 Highlights of the Year 2015-16

An Influential Inscription

We meet our Board of Directors and the Management who lead Softlogic Capital to the next level. We can also read the messages of the Chairman, Mr. Ashok Pathirage and Managing Director Mr. Iftikar Ahamed.

14 Chairman’s Statement18 Managing Director’s Statement22 The Board of Directors

A Translucent Approach

Our promise to accountable and translucent governance is reflected here.

28 Corporate Governance41 Board Sub Committee Reports

41 Audit Committee Report

43 Remuneration Committee Report

44 Nomination Committee Report

45 Board Related Party Transactions Review Committee Report

46 Annual Report of the Board of Directors

49 Statement of Directors Responsibility

50 CEO’s and CFO’s Responsibility Statement

An Endearing Discussion

Here we understand the global and local economic environment and its impact to the Group. Further we analysis the performance of the Company, Group and the diverse business segments.

52 Review of Macro Economic Environment

62 Financial Review

64 Sector Analysis• Insurance Sector• Non Banking Financial Institution Sector• Stockbroking Sector

An Eye-Catching Set of Results

The Softlogic Capital’s Financial Statements is presented here, together with the details of the group’s financial position and performance and other supplementary information.

72 Independent Auditors’ Report73 Income Statement75 Statement of Financial Position77 Statement of Changes in Equity79 Statement of Cash Flow80 Notes to the Financial Statements

Other Information

This section comprise of the information supplementary to the above sections of this report.

164 Investor Relations172 Quarterly Analysis176 Five Year Performance178 Five Year Balance Sheet Summary182 Five Year Graphical Presentation183 Notice of Meeting187 Form of Proxy Corporate Information (Inner Back Cover)

We start with an in-depth description of the Company, our history and highlights of our performance in the year under review.

Our Story 04The Group Structure 06Highlights of the Year 2015 -16 07

4

OUR STORYSoftlogic Capital PLC was incorporated as Capital

Reach Holdings Limited in April 2005 as an Investment Holding Company. Subsequently, in August 2010,

Softlogic Holdings PLC acquired the Company under its objective to form a fully-fledged finance arm to the greater Softlogic Group. The ordinary shares of the Company were listed on the Dirisavi Board of

the Colombo Stock Exchange on September 2011. Softlogic Capital PLC is the financial services sector

holding company of the Softlogic Group.

Softlogic Capital’s portfolio of financial services comprises of Softlogic Finance PLC, a Licensed

Finance Company under the purview of Central Bank of Sri Lanka; Asian Alliance Insurance PLC, an insurer licensed for Life Insurance by the Insurance Board of Sri Lanka ; Asian Alliance General Insurance Ltd an

insurer licensed for General insurance by the Insurance Board of Sri Lanka and Softlogic Stockbrokers (Pvt)

Ltd, a stock broking company licensed and operating on the Colombo Stock Exchange.

Softlogic Capital PLC is licensed by Securities & Exchange Commission of Sri Lanka as a Market

Intermediary under the Investment Manager category.

Softlogic CapitalAnnual Report 2015/2016

5

VISIONTo provide extraordinary investment gains to our

stakeholders by innovating and delivering “best value” financial solutions to the customers in our sector.

MISSIONPeople: Create a great place to work where people

are inspired to be the best they can be.

Portfolio: Acquire and develop a unique range of financial services that anticipate and satisfy

customers desires and needs.

Profit: Maximize and deliver sustainable returns to our shareholders.

Productivity: Be a highly effective, lean and fast-moving team.

6

GROUPSTRUCTURE

SOFTLOGIC HOLDINGS PLCInvestment Holding Company

73.74%

100% 100%68.44%59.19%

ASIAN ALLIANCE GENERAL

INSURANCE LTD.

SOFTLOGIC CAPITAL PLCInvestment Holding Company

ASIAN ALLIANCEINSURANCE

PLC

SOFTLOGIC FINANCE

PLC

Life InsuranceCompany

licensed by IBSL

100%

Registered FinanceCompany

licensed by CBSL

General InsuranceCompany

licensed by IBSL

SOFTLOGIC STOCKBROKERS

(PVT) LTD

Stock BrokingCompany

licensed by SEC

Nooperations

CAPITAL REACH PORTFOLIO

MANAGEMENT(PVT) LTD


7

Opening of New BranchesAsian Alliance Insurance PLC

Asian Alliance Insurance PLC (AAI) was successful in narrowing the gap between customers and products by undertaking branch expansion in strategic locations around the country to increase convenience. During the year under review the Company opened 12 new branches around the country.

The 14th Life Sales Convention was held under the theme, ‘The Extraordinary 500’. The Company’s outstanding performers from the sales team were lauded for their extraordinary achievements at this prestigious event.

In year 2015, AAI launched "Click2Claim" for ladies, a unique Motor Insurance that gives unprecedented benefits to lady drivers. Enabled by modern technology, There customers will be able to intimate their claims through their mobile smartphones as they “click and send” intimations of accidents to Asian Alliance, avoiding any inconvenience associated with an accident, and promptly being informed of their claim settlement.

At the Sri Lankak’s Effie Awards 2016, Organized by the Sri Lanka Institute of Marketing (SLIM), Softlogic Finance PLC (SF) was recognised with a Bronze Award for the marketing communications developed by us for our working capital SME loan product. Only the Bronze Award was awarded in this respective category.

Effie Awards 2016 - Bronze AwardSoftlogic Finance PLC

Click 2 Claim - Lady InsuranceAsian Alliance Insurance PLC

Annual Life Sales Convention 2015Asian Alliance Insurance PLC

HIGHLIGHTS OF THE YEAR 2015 - 16

8

National Business Excellence AwardsAsian Alliance Insurance PLC

AAI won two prestigious awards including Gold in the Insurance category and a Silver in the Overall Large Companies category at the National Business Excellence Awards 2015, organised by the National Chamber of Commerce of Sri Lanka. Further, the Company won the Bronze award category as Service Brand of the Year at the SLIM Brand Excellence Awards.

SF extended our reach in the Northern Province by opening a new branch in Chunnakam and relocating their Jaffna branch to a new location. During the year financial period the Company opened 10 more new branches around the country.

Re-branded Life protection product portfolio as Asian Alliance Life Max. This was done to build a strong brand with an identity of its own to further fuel the growth momentum.

Launch of “Life Max”Asian Alliance Insurance PLC

Opening of New BranchesSoftlogic Finance PLC

AAI won the ‘Innovation of the Year’ award at the 19th Asia Insurance Awards for its revolutionary ‘Click2Claim’ solution that ‘eliminated the traditional accident claim process in Motor Insurance and brought revolutionary change to Sri Lanka’s Motor Insurance industry.

Award for Asia’s Innovation of the YearAsian Alliance Insurance PLC

SF relaunched their SME Business loan “Athahitha”, and did a 3600 marketing campaign where they introduced the “Athahitha” Product to the target segment by building awareness by undertaking a variety of promotional methods.

Re - launch of “Athahitha” ProductsSoftlogic Finance PLC

This unique cover will be in partnership with recognised local and international healthcare service providers, to create a platform of the best healthcare solutions for Asian Alliance Life policyholders and their families.The special partnership with Apollo Group of Hospitals India and Parkway Hospitals Singapore, will enable AAI policyholders to enjoy highly specialised care on overseas treatment. This rider benefit comes together with AAI life policy.

Launch of Overseas PlanAsian Alliance Insurance PLC

Launch of Bundled Innovative SolutionsAsian Alliance Insurance PLC

Motor insurance customers are now able to conveniently purchase Click2Claim / Motor insurance online 24X7 from mobile phones, iPads and other similar devices at any time of the day, from any location.Further, the ‘Click4Life’ application, which gives life policyholders direct access to their records, fulfills many of their requirements through a mobile app, without manual intervention.In addition, the launch of “Kiosk Solution” and “E Advisor” for Life were some of the key innovations for the year.

CMA Award for Annual Report 2014Asian Alliance Insurance PLC

Asian Alliance Insurance PLC won an award for its 2014 Annual Report, in the “TEN BEST INTEGRATED REPORTS” category at the CMA Excellence in Integrated Reporting Awards 2015.

HIGHLIGHTS OF THE YEAR 2015 -16 CONTD.


9

National Business Excellence AwardsAsian Alliance Insurance PLC

AAI won two prestigious awards including Gold in the Insurance category and a Silver in the Overall Large Companies category at the National Business Excellence Awards 2015, organised by the National Chamber of Commerce of Sri Lanka. Further, the Company won the Bronze award category as Service Brand of the Year at the SLIM Brand Excellence Awards.

SF extended our reach in the Northern Province by opening a new branch in Chunnakam and relocating their Jaffna branch to a new location. During the year financial period the Company opened 10 more new branches around the country.

Re-branded Life protection product portfolio as Asian Alliance Life Max. This was done to build a strong brand with an identity of its own to further fuel the growth momentum.

Launch of “Life Max”Asian Alliance Insurance PLC

Opening of New BranchesSoftlogic Finance PLC

AAI won the ‘Innovation of the Year’ award at the 19th Asia Insurance Awards for its revolutionary ‘Click2Claim’ solution that ‘eliminated the traditional accident claim process in Motor Insurance and brought revolutionary change to Sri Lanka’s Motor Insurance industry.

Award for Asia’s Innovation of the YearAsian Alliance Insurance PLC

SF relaunched their SME Business loan “Athahitha”, and did a 3600 marketing campaign where they introduced the “Athahitha” Product to the target segment by building awareness by undertaking a variety of promotional methods.

Re - launch of “Athahitha” ProductsSoftlogic Finance PLC

This unique cover will be in partnership with recognised local and international healthcare service providers, to create a platform of the best healthcare solutions for Asian Alliance Life policyholders and their families.The special partnership with Apollo Group of Hospitals India and Parkway Hospitals Singapore, will enable AAI policyholders to enjoy highly specialised care on overseas treatment. This rider benefit comes together with AAI life policy.

Launch of Overseas PlanAsian Alliance Insurance PLC

Launch of Bundled Innovative SolutionsAsian Alliance Insurance PLC

Motor insurance customers are now able to conveniently purchase Click2Claim / Motor insurance online 24X7 from mobile phones, iPads and other similar devices at any time of the day, from any location.Further, the ‘Click4Life’ application, which gives life policyholders direct access to their records, fulfills many of their requirements through a mobile app, without manual intervention.In addition, the launch of “Kiosk Solution” and “E Advisor” for Life were some of the key innovations for the year.

CMA Award for Annual Report 2014Asian Alliance Insurance PLC

Asian Alliance Insurance PLC won an award for its 2014 Annual Report, in the “TEN BEST INTEGRATED REPORTS” category at the CMA Excellence in Integrated Reporting Awards 2015.

10

6%

45%

16%

Profi

t Afte

r Tax

atio

n

40%Pr

ofit B

efor

e Ta

xatio

n

Operating Profit

Total Assets

12%Gr

oup

Reve

nue

Total Revenue 11,156 9,954 12% 8,316

5,512 4,748 16% 3,920

1,181 842 40% 373

34,763 32,755 6% 29,482

3,144 3,403 -8% 1,790

0.98 0.72 37% 0.2

In Rs. Mn 2015/16 2014/15 Growth 2013/14

Operating Profit

PBT

Total Assets

Total Net Assets

EPS (Rs.)

1,137 782 45% 309PAT

01. Group Revenue

11,1562015/16

2014/15

2013/14

2012/13

2,0000 4,000

11,156 Mn.

9,954 Mn.

8,316 Mn.

5,825 Mn.

6,000 8,000 10,000 12,000 14,000

Rs. Mn

02. Operating Profit

5,5122015/16

2014/15

2013/14

2012/13

2,0000 4,000

5,512 Mn.

4,748 Mn.

3,920 Mn.

2,555 Mn.

6,000 8,000 10,000 12,000 14,000

Rs. Mn

03. Profit after tax

1,1372015/16

200-200-400 0 400

1,137Mn.

782 Mn.

309 Mn.

-317 Mn.

600 800 1,000 1,200

2014/15

2013/14

2012/13Rs. Mn

04. Total Assets

34,7632015/16

2014/15

2013/14

2012/13

10,0000 20,000

34,763 Mn.

32,755 Mn.

29,482 Mn.

23,786 Mn.

30,000 40,000 50,000 60,000 70,000

Rs. Mn

FINANCIAL HIGHLIGHTS


11

6%

45%

16%

Profi

t Afte

r Tax

atio

n

40%

Profi

t Bef

ore

Taxa

tion

Operating Profit

Total Assets

12%

Grou

p Re

venu

e

Total Revenue 11,156 9,954 12% 8,316

5,512 4,748 16% 3,920

1,181 842 40% 373

34,763 32,755 6% 29,482

3,144 3,403 -8% 1,790

0.98 0.72 37% 0.2

In Rs. Mn 2015/16 2014/15 Growth 2013/14

Operating Profit

PBT

Total Assets

Total Net Assets

EPS (Rs.)

1,137 782 45% 309PAT

01. Group Revenue

11,1562015/16

2014/15

2013/14

2012/13

2,0000 4,000

11,156 Mn.

9,954 Mn.

8,316 Mn.

5,825 Mn.

6,000 8,000 10,000 12,000 14,000

Rs. Mn

02. Operating Profit

5,5122015/16

2014/15

2013/14

2012/13

2,0000 4,000

5,512 Mn.

4,748 Mn.

3,920 Mn.

2,555 Mn.

6,000 8,000 10,000 12,000 14,000

Rs. Mn

03. Profit after tax

1,1372015/16

200-200-400 0 400

1,137Mn.

782 Mn.

309 Mn.

-317 Mn.

600 800 1,000 1,200

2014/15

2013/14

2012/13Rs. Mn

04. Total Assets

34,7632015/16

2014/15

2013/14

2012/13

10,0000 20,000

34,763 Mn.

32,755 Mn.

29,482 Mn.

23,786 Mn.

30,000 40,000 50,000 60,000 70,000

Rs. Mn


13

We meet our Board of Directors and the Management who lead the Softlogic Capital to the next level. We can also read the messages of the Chairman,

Mr. Ashok Pathirage and Managing Director Mr. Iftikar Ahamed.

Chairman’s Statement 14Managing Director’s Statement 18The Board of Directors 22

CHAIRMAN’S MESSAGE

and created great momentum in this Sector that we are confident will benefit all stakeholders.

WE HAVE ESTABLISHEDA WINNING SPIRIT

The Financial Services Sector is now one of the largest contributors to both the top line and bottom line of the Group and epitomizes the investment successes that we have achieved at Softlogic by acquiring businesses and developing them in a way that enables the best value to be realized. In the Financial Services business it is mainly about getting the right people who have the passion to perform and we believe that we have now built teams of immense talent that have enabled us to gain great momentum in each of our businesses.

The Sri Lankan economy grew by 4.8% in 2015 compared with 4.9% in 2014 and despite this somewhat muted performance our Companies in the Sector performed quite well. Asian Alliance Insurance (AAI Life) recorded a top line of Rs 4.1Bn

for the year growing 25% compared with industry growth of 20%, whilst Asian Alliance General Insurance recorded top a line of Rs 1.6Bn growing by 7%. Softlogic Finance grew its loan book by 7.4% to reach Total Loans of Rs 15.3Bn whilst Total Assets were Rs 20.7Bn by March 2016. Softlogic Stockbrokers generated revenues of Rs 180Mn that was an increase of 20% compared with the previous year. Sri Lanka’s Per Capita GDP was USD 3,924 in 2015 and has increased from USD 3,853 in the previous year.

Total GDP of the Country was Rs 11,183Bn. The trade deficit for 2015 marginally increased by 2% to USD 8,430Mn with oil imports reducing by 43% compared with the previous year. The cumulative inflow from workers’ remittances decreased

In the Financial Services business it is mainly about getting the right people who have the passion to perform and we believe that we have now built teams of immense talent that have enabled us to gain great momentum in each of our businesses.

Profit After Tax Rs. 1,137 Mn

GROWTH45%

16

marginally by 0.5% to USD 6,980Mn for 2015. The Sri Lankan Rupee depreciated by 9.25% during 2015 to close the year at USD/LKR 144.06 while interest rates trended upwards with benchmark 12month TB rate increasing to 7.11% and Bank Lending rates AWPR moving to 7.5% from 6.33% a year earlier. Sri Lanka’s economy is projected to expand at a rate of 5.8% in 2016, and strengthen over the medium term to achieve a higher growth trajectory of around 7%.

The Life Insurance industry delivered an overall GWP of Rs. 53,585Mn compared to the Rs. 44,652Mn of year 2014 with a growth of 20% which is promising compared with growth rates of 7% and 11% in the past years. Life penetration is yet very low at 0.46%, versus 0.48% last year and is below the regional average estimated at around 1.82%. We therefore believe that the industry has tremendous opportunities over the medium term.

The total GWP generated by General Insurance business amounted to Rs.67,381Mn in 2015 compared to Rs.58,439Mn in 2014, marking a 15% growth. The splitting process that was mandated during the year is likely to drive consolidation with a couple of key transactions already executed. This is mainly due to the fact that General Insurance premiums are considerably lower than the risk based rates with the consequential results quite evident across the industry.

Licensed Finance Companies (LFCs) and Specialised Leasing Companies (SLCs) Sector remained robust reflecting the increased level of economic activities. Total assets of the LFC/SLC sector expanded in 2015 at a higher pace with Total Assets growing 22.3% to Rs 181.6Bn. The growth of assets was largely supported by the increase in borrowings by 44.6% or Rs. 96.9Bn and deposits by 16.1% or Rs 66.5Bn. Funds mobilized were largely utilized in granting loans and advances. Throughout 2015, the sector experienced a strong demand for credit on vehicle leasing and other secured loans. Credit growth accelerated as indicated by loans and advances which robustly grew by 31.8% or Rs 192.1Bn to Rs. 795.8Bn at end 2015, compared to a growth of 15.8% or Rs 82.4Bn during 2014, due to high growth in other secured loans and finance leases. There was a steady growth in deposits as the sector continued to attract depositors due to relatively high deposit rates offered by LFCs compared to those of banks. Total deposits grew by 16.1% or Rs 66.5 billion to Rs 480.6Bn in 2015 at a lesser magnitude, compared to a 22.8% growth in 2014. The deposit mobilization was mainly through time deposits accounting for 95% of the total deposits.

The Colombo Stock Exchange recorded a sluggish performance under volatile movements in the price indices in 2015. The All Share Price Index (ASPI) declined by 5.5% to 6,894 points and S&P SL20 index declined by 11.3% to 3,626 points at end 2015. Increased investor uncertainty resulted in the daily average turnover of the CSE declining by 25.1% to

CHAIRMAN’S MESSAGE CONTD.

We are particularly pleased to report on the substantial progress that we have achieved in the Financial Services Sector of the Group. Revenues of the Sector were Rs 11.1Bn rising 12% from the previous year whilst PAT of the Sector crossed the Billion Rupee mark and was Rs 1.14Bn that shows an increase of 45% compared with last year.


17

Rs. 1,060Mn from Rs. 1,415Mn in 2014, reflecting moderate performances during the year. Foreign investors accounted for 28.1% of the total turnover. Cumulative foreign purchases amounted to Rs 85Bn, while cumulative foreign sales was Rs 90Bn, resulting in a net outflow from the market in 2015.

The year was a special one for the Sector in many ways. We received many awards and accolades for our performance. We won Asia’s most coveted “Innovation of the Year” award at the 19th Asian Insurance Awards held at Marina Bay Sands in Singapore. The award was on account of “innovation in eliminating the traditional accident claims process in motor insurance and for bringing revolutionary change to Sri Lanka’s motor Insurance Industry”. This was followed by the Insurance Gold award at the 12th Annual Business Excellence Awards conducted by the National Chamber of Commerce for the Company. Asian Alliance Insurance was also the only insurer to receive two Awards from Institute of Chartered Accountants of Sri Lanka at Annual Report Awards 2015. Further, we were awarded the Bronze award at SLIM Brand Excellence. Softlogic Finance received a second Merit Award in their highly competitive section for the second year running.

We won Asia’s most coveted “Innovation of the Year” award at the 19th Asian Insurance Awards held at Marina Bay

Sands in Singapore.

I would like to place on record my appreciation to my colleagues on the Board and towards each of the Senior Management Teams and all staff at Asian Alliance Insurance, Softlogic Finance and Softlogic Stockbrokers for their commitment and dedication and towards the Sector’s continued success. We have established a winning spirit and created great momentum in this Sector that we are confident will benefit all stakeholders.

I am deeply grateful to all our stakeholders for their continued commitment and support as we move forward towards realizing our vision in Financial Services.

(Sgd.) Ashok PathirageChairman

25 August 2016

MANAGING DIRECTOR’S MESSAGE

the progress and achievements of the Financial Services Sector of the Group.

WE ARE INDEEDENCOURAGED TO SEE

It is with pleasure that we address all stakeholders of Softlogic Capital on the performance of the Company and the Financial Services Sector of the Softlogic Group for the year ended March 2016.

The highlights of the year were the following;

• Financial Services Sector Group profits crossed the Billion Rupee mark and were Rs. 1.14Bn, increasing by 45% compared with the previous year, whilst Total Revenue rose to Rs. 11.2Bn increasing by 12%,

• Asian Alliance Insurance recorded profit of Rs. 936Mn with Life Insurance recording a top line of Rs. 4.1Bn for the

year growing 34% whilst General Insurance recorded top a line of Rs. 1.6Bn growing by 15%,

• Softlogic Finance recorded PAT of Rs. 369Mn increasing by 73% whilst Total Assets of the Company were recorded at Rs. 20.7Bn,

• Softlogic Stockbrokers generated revenues of Rs. 180Mn that was an increase of 59% compared with the previous year, and was ranked No;2 in the market,

• Asian Alliance won a slew of top notch awards that included Asia’s “Innovation of the Year” for its Click2Claim Motor product, National Business Excellence Gold Award and was selected as one of the Top 25 Great Places to Work in Sri Lanka.

The Financial Services Sector contributed 16.7% to the top line of the Softlogic Group with revenues of Rs. 11.1Bn and more importantly contributed Rs. 1.1Bn to the bottom line of the Group making it one of the major investment successes that the Group has achieved.

Total Revenue Rs. 11Bn

GROWTH12%

20

We are indeed encouraged to see the progress and achievements of the Financial Services Sector of the Group since the Softlogic Group entered the Financial Services arena in the last quarter of 2010. Within a relatively short space of time we have completed these enviable acquisitions and gained significant momentum in each of the businesses that include Insurance, Finance & Leasing and Stockbroking.

All companies in the Sector are primed for good growth in the medium term and we are frankly very excited about the prospects for the future.

The year that passed saw the impact of two elections in the country with Presidential and then Parliamentary elections contributing a certain degree of uncertainty to the Sri Lankan economy. GDP grew by 4.8% in 2015 to Rs 11,183Bn for the year 2015, inflation rose grew by 2.0% from 0.1% in March 2015, and key measures such as benchmark 12month TB rate rose to 7.11% from 6.00% whilst AWPR moved to 7.5% from 6.33% a year earlier. There was an impact on the foreign reserves of the country that reduced by approximately 11% to USD 7.3Bn and the USD/LKR exchange rate closed the year at 144.06 , depreciating by 9.25% YoY. The business confidence index as measured by LMD was at 157 compared with 142 at the beginning of the year.

The Life Insurance industry has seen a significant shift in momentum over the past quarters with industry growth for 2015 recorded at 20%, whilst growth for the first quarter of 2016 was 23%. Asian Alliance Life is riding the crest of this wave and recorded Gross Written Premiums (GWP) of Rs. 4.1Bn in 2015 that was an increase of 34%, and continued strongly into the first quarter of 2016 with GWP of Rs. 1.4Bn, growing 64%. Our focus on Life insurance has been the protection platform coupled with health, where we see tremendous potential for further growth. Average policy value of the Company was at Rs. 90,679- which we expect to be double of the industry. Our unique sales and relationship management model brings in persistency rates of First Year at 82%, Second Year at 64% and Third Year at 53% that are highest in the industry. We see further potential for Life insurance related to Investment products and other Health products and will be launching quite heavily into these areas shortly. The Appraisal Value of Asian Alliance Life Insurance PLC has steadily increased reflecting the profitable portfolio of the Company and as at end 2015 was Rs. 11.8Bn with Volume of New Business (VONB) recorded at Rs. 352Mn.

The General Insurance industry continues to see challenges brought on by an over-crowded market place with intense price competition where risk related pricing has been greatly ignored. At Asian Alliance General we made a strategic

Softlogic Finance’s decision to strategically change focus away from the extremely competitive Leasing and Hire Purchase products and instead focus on SME Working Capital financing has been well implemented and brought about a significant improvement to the bottom line of the company.

MANAGING DIRECTOR’S MESSAGE CONTD.


21

decision to move away from high value, low margin business at the beginning of 2015 and only retain minimum risk on any corporate business that continued on our books. This has stood us well and we have not been affected by flood claims and damage that was experienced recently. We also strategically moved to Retail business and focused on Motor where we developed Asia’s Innovation of the Year – Click2Claim, that has resulted in Motor volumes growing to Rs. 1,247Mn by end 2015, with a further first quarter growth in 2016 of 80% to Rs. 406Mn. Our other key focus is Health Insurance where we leverage our group synergies with Asiri Hospitals.

Softlogic Finance’s decision to strategically change focus away from the extremely competitive Leasing and Hire Purchase products and instead focus on SME Working Capital financing has been well implemented and brought about a significant improvement to the bottom line of the Company. These loans now comprise 42% of the loan book of the Company with Leasing/HP constituting 11%. The Company has successfully grown its Customer Deposits franchise to Rs 13.6Bn, recording a growth of 13.6% which amply demonstrates the public confidence in the Company and the Softlogic Group. The cost income ratio of the Company has stabilized to 54.8% with a host of measures launched to rationalize cost and enhance income. There are a lot of efforts underway to address the relatively high NPL ratio arising from the legacy Leasing/HP portfolio. The Company has rationalized resources and expanded its branch network to 30 branches and locations by the financial year-end.

Softlogic Stockbrokers had to contend with a year where Investors were vary of the market due to the changing political landscape coupled with depreciation of the LKR and interest rates moving higher. The Company has however performed extremely well under the circumstances and was ranked No. 2 in the market by the Financial Year end. The Company’s main focus is the overseas investor segment and holds key market share that is serviced by a top quality research offering.

The Financial Services Sector last year contributed 16.7% to the top line of the Softlogic Group with revenues of Rs. 9.4Bn and more importantly contributed Rs. 1.4Bn to the bottom line of the Group making it one of the major investment successes that the Group has achieved.

We are overall confident that we have established a trajectory of growth and performance that will be hard to match in the Financial Services arena and are looking forward to the future with much anticipation.

(Sgd.) Iftikar AhamedManaging Director

25 August 2016

22

BOARD OF DIRECTOR’S


23

24

BOARD OF DIRECTORS CONTD.

Mr. Ashok Pathirage Chairman

Mr. Ashok Pathirage is one of the co-founders of Softlogic and was appointed as Chairman of Softlogic in 2000. He is also Chairman/Managing Director of Asiri Hospital chain, Softlogic Capital PLC, Softlogic Finance PLC, Asian Alliance Insurance PLC, Odel PLC which are listed in addition to the private companies of the Group operating in Leisure & Restaurants, Retail, Automobile and ICT industries. He is also Deputy Chairman of the National Development Bank PLC and Chairman of NDB Capital Holdings PLC. Due to his business acumen and corporate leadership he is one of the top business leaders in the country.

Mr. Iftikar Ahamed Managing Director

Mr. Iftikar Ahamed heads the Financial Services Sector of the Softlogic Group and is the

Managing Director of Softlogic Capital PLC, which is the financial services holding company of the group that has interests in Insurance, Leasing and Finance and Stockbroking. He is also the Managing Director of Asian Alliance Insurance PLC and an Executive Director of both Softlogic Finance PLC and Softlogic Stockbrokers (Pvt) Ltd. He counts over 30 years of experience in a wide range of metiers within the financial services industry and has extensive Banking experience both in Sri Lanka and overseas, having held senior management positions as Deputy Chief Executive Officer at Nations Trust Bank PLC and Senior Associate Director at Deutsche Bank AG. He holds an MBA from University of Wales, UK.

Mr. Ranjan Perera,Director

Mr. Ranjan Perera co-founder of Softlogic Group, is now the Sector Head – Business Mobiles and is also the Managing Director of Softlogic International (Pvt) Ltd, which has a business partnership with Dialog Axiata PLC.

He has many years of experience behind him, having worked in the senior managerial positions handling world renowned brands in the electronics and mobile telecommunication industries.

Mr. Lucille Wijewardena Director

Mr. Lucille Wijewardena is a Fellow Member of the Institute of Chartered Accountants of Sri Lanka and holds a Masters Degree in Business Administration (MBA) from the Post Graduate Institute of Management, University of Sri Jayawardenapura.

In his career spanning 35 years he has held many Senior Management positions in areas of Finance and General Management. He served as the Managing Director of Hayleys Plantations, Talawakelle Plantations Ltd and Pussellawa Plantations Ltd. He also held the post of Chairman of Mahaweli Marine Cement Company Ltd and Group Chief Accountant of Carson Cumberbatch and Company Limited

Currently he is the chairman of Softlogic Stockbrokers (Pvt) Ltd., Managing Director of Anuga Holdings (Pvt) Ltd., and Founder Director of Regency Teas (Pvt) Ltd. He also serves on the Press Complaint Commission of Sri Lanka as a member of the Dispute Resolution Committee.


25

Mr. Ajita Mahes Pasqual Director

Mr. A. M. Pasqual possesses 31 years experience in the Banking Sector with 22 years in Senior Management positions with HSBC Bank in Corporate Banking, Trade Finance and Treasury. He held the position of Director/General Manager/CEO of Seylan Bank PLC from January 2004 to December 2012. Also he held the position of Consultant of Nations Lanka Finance PLC. Currently he serves as the Chairman of Adam Investment PLC, Adam Capital PLC, Adam Capital Micro Credit (Pvt) Ltd and Adam Carbons (Pvt) Ltd.

He possesses a B.Sc in Business Administration and Economics from Manchester College, N Manchester, Indiana, USA.

Mr. G.L.H. PremaratneDirector

Mr. G.L.H. Premaratne has over 40 years of banking experience with commercial banks. Mr. Premaratne is an Associate of the Chartered Institute of Bankers of London. He served as senior deputy general manager of Commercial bank of Ceylon and as the Managing Director of Sampath Bank PLC from 2009 to December 2011. He also served as the Chief Executive Officer of Cargills Bank Limited from 2012 to December 2014.

Ms. Erandi WickremarachchiDirector

Ms Wickramaarachchi joined the Softlogic Group in 2004 and currently holds the position of

Group Chief Financial Officer of Softlogic Holdings PLC. She also acts as a director of Softlogic Communications (Pvt) Ltd, Softlogic Corporate Services (Pvt) Ltd, Softlogic BPO Services (Pvt) Ltd, Softlogic Destination Management Services (Pvt) Ltd and Ceysands Resorts Ltd. She holds a Special Degree in Accountancy and Financial Management from the University of Sri Jayewardenepura. She is a Fellow Member of the Institute of Chartered Accountants of Sri Lanka and is an Associate Member of Certified Management Accountants of Sri Lanka. She holds an MBA in Finance from the University of Cardiff Metropolitan. She is also a Member of Certified Public Accountants (CPA) of Australia.

He held the position of Chairman of Sri Lanka Banker’s Association. Currently he serves as the Deputy Chairman of Softlogic Finance PLC. He also serves the Board of Softlogic Holdings PLC, Asiri Hospitals Holdings PLC, Asiri Surgical Hospital PLC, Asiri Central Hospital PLC, Softlogic Capital PLC and Central Hospital Limited.


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Corporate Governance 28Board Sub Committee Reports 41

Our promise to accountable and translucent governance is reflected here.

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“Corporate governance involves a set of relationships between

a company’s management, its board, its shareholders and

other stakeholders. Corporate governance also provides the

structure through which the objectives of the Company are set,

and the means of attaining those objectives and monitoring

performance are determined.”(OECD Principles of Corporate Governance, 2nd Edition, 2004)

Governance Framework

Softlogic Capital has a well-defined and well-structured corporate governance framework in place to support the Board’s aim of achieving long term and sustainable shareholder value. But however robust the framework, it is imperative that it is supported by the right culture, values and behaviors, both at the top and throughout the entire organisation.

The Company places strong emphasis on complying with the requirements of the Code of Best Practices on Corporate Governance Code jointly issued by the Securities And Exchange Commission (SEC) and the Institute of Chartered Accountants of Sri Lanka (CASL) as well as the rules on Corporate Governance issued by the Colombo Stock Exchange (CSE). Although the organization monitors its compliance with these mandatory requirements, our corporate governance process is intensified further as a system of checks and

balances in order to ensure that the Company’s sound corporate governance practices are in the best interests of all our stakeholders and the organisation as a whole.

The Company’s approach to manage financial and non-financial issues ensures the alignment of Company objectives with the long-term interests of its stakeholders. This creates an environment where every transaction with every stakeholder can be seen as an opportunity to support the sustainable development of the economy in which the Company operates.

Our corporate governance framework is structured in a manner which reflects both the governing body and the system in which it operates. While it is closely connected to the assignment of rights and responsibilities across the organization and other partners, the framework strives to provide challenge, clarity and accountability to all stakeholders.

Code of Best Practice on Corporate Governance(Issued jointly by the SEC & CASL)

The Company Shareholders Sustainability

The Board Directors’Remuneration

Relations withShareholders

Accountability & Audit

InstitutionalInvestors

OtherInvestors

PrincipleA1- A11

PrincipleB1-B3

PrincipleC1-C3

PrincipleD1-D5

Principle E

PrincipleF

PrincipleG

CORPORATE GOVERNANCE


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The Board

An Effective Board

(Principle A.1)

The Board of Softlogic Capital PLC comprises of 7 renowned professionals whose profiles are given on pages 24 to 25. Directors are elected by shareholders at the Annual General Meeting with the exception of the Managing Director who is appointed by the Board and remain as Executive Directors until expiry or termination of such appointments. Casual vacancies are filled by the Board, based on the recommendations of the Board Nomination Committee as provided for in the Articles of Association.

The Board provides strategic direction and sets in place a sufficiently robust governance structure and policy framework to facilitate value creation to stakeholders in accordance with applicable laws and regulations.

Governance Framework

OWNERS VIA AGM

BOARD OF DIRECTORS

MANAGING DIRECTORS

REMUNERATION COMMITTEE

NOMINATION COMMITTEE

AUDIT COMMITTEE

EXTERNAL AUDITOR

INTERNAL AUDITORRELATED PARTY TRANSACTIONREVIEW COMMITTEE

BUSINESS SEGMENTS ACCORDING TO THE ORGANIZATIONAL STRUCTURE

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CORPORATE GOVERNANCE CONTD.

Board Sub-Committees

There are four Board Sub-Committees that have been established considering the business needs of the Company and best practice in corporate governance as described below.

Board Sub-Committee Areas of Oversight Composition

Board Audit Committee - BAC

• Financial Reporting • Internal Controls • Internal Audit • External Audit

Refer the Report of the BAC on pages 41 to 42 for more information

Comprises 02 Independent Non-Executive Directors and 01 Non- Executive Director.

The MD, Group Head of Finance and Group Head of Internal Audit attend the meetings by invitation together with other relevant Key Management Personnel (KMP).

The Company Secretary acts as the Secretary to the Committee

Board Nomination Committee - BNC

• Selection and appointment of Directors and KMP

• Succession planning • Evaluating the effectiveness of the Board

and its Committees

Refer the Report of the BNC on pages 44 for more information.


The Company Secretary acts as the Secretary to the Committee

Board Remuneration Committee - BRC

• Remuneration of Managing Director and KMP

• HR Policies including Remuneration Policy • Organisational structure

Refer the Report of the BRC on pages 43 for more information


The Company Secretary acts as the Secretary to the Committee.

Board Related Party Transactions Review Committee - BRPTRC

• Related Party Transactions Policy and Processes

• Market disclosures on related party Transactions

• Quarterly and annual disclosures of related party transactions

Refer the Report of the BRPTRC on pages 45 for more information.

Comprises 02 Independent Non-Executive Directors and 01 Non- Executive Director

The Company Secretary acts as theSecretary to the Committee.


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Regular Meetings

(Principle A 1.1)

During 2015/16 the Board held 04 scheduled meetings. The Board Committees also met regularly as summarized below.

Details of the Main Board and Board Sub-Committees as at March 31, 2016

Main Board Board Audit Committee

Board Nomination Committee

Board Remuneration

Committee

Board Related Party Transactions Review Committee

Status DOA Status DOA Status DOA Status DOA Status DOA

Mr. A.K. Pathirage C 30-Aug-10 C 03-May-11 C 03-May-11

Mr. T.M.I. Ahamed M 30-Aug-10 I I

Mr. R.J. Perera M 30-Aug-10 M 06-Feb-14

Mr. L. Wijewardena M 04-Mar-11 C 03-May-11 M 03-May-11 M 03-May-11 C 06-Feb-14

Mr. A. M. Pasqual M 17-Mar-11 M 03-May-11 M 03-May-11 M 03-May-11 M 06-Feb-14

Ms. E. Wickremaarachchi M 22-May-14

Mr. H. Premaratne M 28-Oct-14 M 04-Nov-14

DOA - Date of Apointment Status - C - Chairman / M - Member / I - Participated by Invitation

Number of Meetings Held and Attendance

Main Board Board Audit Committee

Board Nomination Committee

Board Remuneration Committee

Board Related Party Transactions Review

Committee

Eligible to Attend

Attended Eligible to Attend




Attended

Mr. A.K. Pathirage 4 4 1 1 1 1

Mr. T.M.I. Ahamed 4 4 4 4

Mr. R.J. Perera 4 3 1 0

Mr. W.L.P Wijewardena 4 4 4 4 1 1 1 1 1 1

Mr. A. M. Pasqual 4 4 4 4 1 1 1 1 1 1

*Ms. E. Wickremaarachchi 4 4 3 2

Mr. H. Premaratne 4 3 4 3

* Resigned from the audit committee with effect from 26th February 2016

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Composition of the Main Board and Board Sub-Committee as at March 31, 2016

Executive Members

Non-Executive Members

Independent Members

Non-Independent

Members

Gender Age Group

Male Female Below 50

Years

Over 50 Years

Main Board 1 6 2 5 6 1 1 6

Board Audit Committee 1* 3 2 1 3 Nil Nil 3

Board Nomination Committee Nil 3 2 1 3 Nil Nil 3

Board Remuneration Committee Nil 3 2 1 3 Nil Nil 3

Board-Related Party Transactions Review Committee 1* 3 2 1 3 Nil Nil 3

* Attended by invitation

Board Responsibilities

(Principle A 1.2)

Role of the Board

• Represent and serve the interests of the shareholders by overseeing and appraising the Company’s strategies, policies and performance

• Optimise performance and build sustainable value for shareholders in accordance with the regulatory framework and internal policies

• Establishing an appropriate governance framework encompassing compliance with the Company’s values

• Ensure regulators are apprised of the Company’s performance and any major developments

Key Board Responsibilities

• Selection, appointment and evaluation of the performance of the Managing Director

• Setting strategic direction and monitoring its effective implementation

• Establishing systems of risk management, internal control and compliance

• Integrity of financial reporting process

• Developing a suitable corporate governance framework and policies

• Appointment and oversight of External Auditors

Powers Reserved for the Board

• Approving major capital expenditure, acquisitions and divestitures and monitoring capital management

• Appointment of Board Secretary

• Power to seek professional advice in appropriate circumstance at the expense of the Company

• Review, amend and approval of governance structures and policies

The Board provides guidance in formulating the Company’s 3 year strategic plan which is prepared and presented by the Corporate Management to the Board who reviews and approves the same at a Special Board meeting convened for the purpose. Performance vis-à-vis the strategic plan is monitored at Quarterly Board meetings whilst specialised areas identified for oversight by Board Sub-Committees have been monitored and progress and concerns reported to the Board.

The Board is assisted by the following Sub-Committees in fulfilling their role:

• The Board Audit Committee assists the Board in ensuring effective systems to secure integrity of information, internal controls and adopting appropriate accounting policies and fostering compliance with financial regulation.


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• The Board Nomination Committee supports the Board in ensuring that the Managing Director and other Key Management Personnel have the necessary skills, experience and knowledge to implement strategy and also reviews succession plans for the Company and for the Managing Director and Key Management Personnel.

• The Board Remuneration Committee assists the Board in formulating formal and transparent procedure for developing policy on remuneration for executive directors, senior management and other staff of the Company. They recommend annual increments, bonuses and changes in prerequisites and incentives and ensure that no director is involved in setting his own remuneration package.

• Board Related Party Transactions Review Committee updates the Board on the related party transactions of the Company on a quarterly basis.

Act in Accordance with Laws

(Principle A.1.3)

The Board is collectively and individually committed to meet all compliance requirements applicable to the Company. Furthermore the Board is empowered to seek independent professional advice from external parties whilst performing their duties for effective directorship functions at the Company’s expense.

Access to advice and services of Company Secretary

(Principle A.1.4)

All Directors are able to obtain the advice and services of the Company Secretary and the appointment and removal of the Company Secretary are matters involving the whole Board under recommendation of the Board Nomination Committee as it is a Key Management Position. The Company Secretary’s responsibilities are summarised below:

• Matters pertaining to the conduct of Board Meetings and General Meetings

• Conduct of proceedings in accordance with the Articles of Association and relevant legislation

• Co-ordinating the publication and distribution of the Company’s Annual Report

• Maintaining registers of shareholders, company charges, Directors and secretary, Directors’ interests in shares and debentures, interests in voting shares, debenture holders, interests register and the seal register

• Filing statutory returns/information with the Registrar General of Companies

• Adoption of best practice on corporate governance including facilitating and assisting the Directors with respect to their duties and responsibilities, in compliance with relevant legislation and best practice

• Acting as a channel of communication and information for Non-Executive Directors and shareholders

• Disclosures on related parties and related party transactions as required by laws and regulations

• Monitoring and ensuring compliance with the listing rules and managing relations with the CSE

• Obtaining legal advice in consultation with the Board on company law, SEC, CSE and other relevant legislations in ensuring that the Company complies with all applicable laws and regulations

Independent Judgment

(Principle A.1.5)

The Board comprises of senior professionals who are personalities in their respective held and collectively contribute their skills, perspectives and experience to the Board enriching the discussion and debate on matters set before them. As experienced professionals, they use their independent judgment on issues of strategy, performance, resources, key appointments and standards of business conduct. The composition of the Board ensures that there is a sufficient balance of power and contribution by all Directors and minimises the tendency for one or few members of the Board to dominate the Board processes or decision-making.

Dedicate Adequate Time and Effort to Matters of the Board and the Company

(Principle A.1.6)

Board meetings and Board Sub-Committee meetings are scheduled well in advance and the relevant papers are circulated a week prior to the meeting to ensure that Directors have sufficient time to review the same and call for additional

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information or clarifications, if required. While there is provision to circulate board papers closer to the meeting, in exceptional circumstances, this is generally discouraged. Members of the Corporate Management and external experts make representations to the Board and Board Sub-Committees on the business environment, regulatory changes, operations and other developments on a regular basis to facilitate enhancing the knowledge of the Board on matters relevant to the Company’s operations.

Furthermore the directors on a regular basis are involved in evaluating Board memorandums and circular resolutions.

Training for Directors

(Principle A.1.7)

All directors have adequate knowledge, skill and experience and are continuously updated with the latest developments in the Business Environment. In addition, directors engage in continuous professional development in relation to their respective fields of expertise.

Division of Responsibilities between the Chairman and CEO

(Principle A.2)

The positions of the Chairman and the Managing Director have been separated in-line with best practice in order to maintain a balance of power and authority. The Chairman is a Non-Executive Director whilst the Managing Director is an Executive Director appointed by the Board. The roles of the Chairman and the Managing Director are clearly defined in the Board Charter.

The Chairman’s Role

(Principle A.3)

The Chairman provides leadership to the Board, preserving order and facilitating the effective discharge of the duties of the Board and is responsible for ensuring the effective participation of all Directors and maintaining open lines of communication with Key Management Personnel, acting as a sound Board on strategic and operational matters. The agenda for Board Meetings are determined by the Chairman in consultation with the Company Secretary and Directors wishing to include items on the agenda may request the Chairman to discuss the same.

Financial Acumen

(Principle A.4)

The Board consists of two Fellow members of the Institute of Chartered Accountants of Sri Lanka, ensuring a sufficiency of financial acumen within the Board on matters of finance. Additionally, other Directors on the Board are luminaries in their respective held with sufficient financial acumen.

Board Balance

(Principle A.5)

The Board comprises six Non-Executive Directors and one Executive Director. Two Non-Executive Directors are independent of management and free of business dealings that may be perceived to interfere with the exercise of their unfettered and independent judgment. They submit annual declarations to this effect which are evaluated to ensure compliance with the criteria for determining independence which are cased on the requirements of the Code.

The Chairman holds a meeting at least once a year with only the Non-Executive Directors without the presence of the Executive Directors. Directors’ concerns regarding matters which are not resolved unanimously are recorded in the minutes.

Supply of Relevant Information

(Principle A.6)

Board members receive information regarding matters set before the Board, 7 days prior to the meetings and the Chairman ensures that all Directors are properly briefed on same by requiring the presence of KMP, when deemed necessary. Management also makes presentations on regular agenda items to the Board and its Sub-Committees. Additionally, the Directors have access to KMP, to seek clarifications or additional information on matters presented to the Board. Directors who are unable to attend a meeting is updated on proceedings through formally documented minutes which are also discussed at the next meeting to ensure follow up and proper recording.

Appointments to the Board and Re-Election

(Principles A.7)

The Board Nomination Committee is responsible for setting in place a formal and transparent procedure for the appointment of new Directors and further information regarding the


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operations of this committee are given on page 44. They receive resumes of the potential candidates recommended by the Board in the event of a vacancy of a Non-Executive Director and review same in order to make recommendations to the Board which may include an interview with the candidate. The process for appointment of Executive Directors is similar with the exception being that candidates may be selected from amongst the Key Management Personnel, of the Company. The Board Nomination Committee also assesses annually the combined knowledge and experience of the Board in relation to the Company’s strategic plans to identify additional requirements which are addressed when incumbent Directors come up for reelection. Appointments of new Directors are promptly communicated to the CSE and shareholders through press releases. The communications typically includes a brief resume of the Director, relevant expertise, key appointments, shareholding, and directorships in other entities and whether he is independent or not.

Re-Election

(Principle A.8)

Newly appointed directors resign at the first Annual General Meeting (AGM) following their appointment, but are available for re-election by the shareholders at the same meeting. One third of the non-executive directors are required to resign by rotation, but may stand for re-election at the AGM.

Appraisal of Board Performance

(Principle A.9)

The Board and its Sub-Committees annually appraise their own performances to ensure that they are discharging their responsibilities satisfactorily in accordance with the Board Charter. This process requires each Director to fill a Board Performance Evaluation Form, which incorporates all criteria specified in the Board Performance Evaluation Checklist of the Code. The responses are collated by the Company Secretary and submitted to the BNC and discussed at a Board Meeting.

Disclosure of Information in Respect of Directors

(Principle A.10)

Information specified in the Code with regard to Directors are disclosed in this Annual Report as follows:

• Name, qualifications, expertise, material business interests, key appointments and brief profiles on pages 24 to 25.

• Other business interests on page 46.

• Membership of committees, status of Directors attendance at Board Meetings and Board Sub-Committee meetings are on page 31.

• Remunerations under Note 45 to the Financial Statements on page 158.

Appraisal of Managing Director

(Principle A.11)

The Board agree the criteria for assessing performance with the Managing Director at the beginning of the year and assess performance based on same at the close of the financial year. The evaluation is formally approved within 4 months of the close of the financial year. This takes in to account performance vis-à-vis the targets, the operating environment and considers explanations provided for areas where performance has been below agreed targets. The Board is supported by the Board Remuneration Committee in this process.

Directors’ Remuneration

Directors’ and Executive Remuneration

(Principle B.1)

The Board Remuneration Committee is responsible for making recommendations to the Board regarding the remuneration of Executive Directors. This vibrant committee comprises entirely of Non-Executive Directors and majority of them also meet the criteria for independence as set out in the Code. They consult the Chairman and the Managing Director regarding the same and also seek professional advice whenever deemed necessary. Remuneration for Non-Executive Directors is set by the Board as a whole. Remuneration for Executive Directors is set with reference to the Remuneration and Benefit Policy. The above processes ensure that no individual Director is involved in determining his or her own remuneration.

The Level and Make Up of Remuneration

(Principle B2)

It is the responsibility of the Board Remuneration Committee to ensure that the remuneration of both Executive and Non-Executive Directors is sufficient to attract well-known professionals to the Board and retain them as contributing members in driving the performance of the Company. Remuneration and benefits of the Executive Directors and

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Key Management Personnel are determined in accordance with the remuneration policies of the Company which are designed to be attractive, motivating and capable of retaining high performing, qualified and experienced employees in the Company.

Disclosure of Remuneration

(Principle B.3)

The remuneration policy is disclosed on the Report of the Board Remuneration Committee appearing on page 43. The names of the Board Remuneration Committee members are set out on page 43 and the aggregate remuneration paid to Executive and Non-Executive Directors is given in Note 45 to the Financial Statements on page 158.

Relations with Shareholders

Constructive use of the AGM

(Principle C.1)

The AGM provides a forum for all shareholders to participate in decision-making matters reserved for the shareholders which typically include proposals to adopt the Annual Report and Accounts, Appointment of Directors and Auditors and other matters requiring special resolutions as defined in the Articles of Association or the Companies Act No. 07 of 2007. The Chairman ensures the presence of the Chairman of the Board Audit Committee, Board Remuneration Committee and Board Nomination Committee to respond to any questions that may be directed to them by the Chairman. Notice of the AGM is circulated 15 working days in advance together with the Annual Report and Accounts which includes information relating to any other resolutions that may be set before the shareholders at the AGM.

Communication with Shareholders

(Principle C.2.)

The Company will engage with shareholders and the investment community at large codifying its current practices which are in compliance with the Companies Act, SEC and CSE requirements and the Code of Best Practice on Corporate Governance.

The Company has multiple channels of communication with its shareholders which include a dedicated investor relations website at http://www.softlogiccapital.lk, press releases and notices in English, Sinhala and Tamil newspapers and required disclosures to the CSE which are published on the CSE website. The Interim Financial Statements are published on the CSE website within 45 days except in the fourth quarter in which it is done within two months. It is also the intention of the Board to ensure that the Annual Report provides a balanced review of the Company’s performance which is comprehensive but concise.

Major and Material Transactions

(Principle C.3)

There were no transactions which would materially alter the Company’s or Group’s net asset base nor any major related party transactions apart from those disclosed in the Directors’ Report on pages 46 to 48 and Note 45 to the Financial Statements on pages 158 to 159.

Accountability and Audit

Financial Reporting

(Principles D.1)

The Annual Report presents a balanced review of the Company’s financial position, performance and prospects which have been presented combining both narrative and visual elements to ensure that the content is understandable. Care has been exercised to ensure that all statutory requirements are complied with in the Annual Report and in the issue of interim communications on financial performance which are reviewed by the Audit Committee and approved prior to publication. The following disclosures as required by the Code are included in this Report:

• Annual Report of the Board of Directors presented on pages 46 to 48 includes the disclosures required as per Principle D.1.3 of the Code

• Statement of Directors’ Responsibility on page 49 contains a statement setting out the responsibilities of the Board for the preparation and presentation of Financial Statements

• Independent Auditors’ Report on page 72 includes a statement of their responsibilities


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• Statement of going concern of the Company is set out on page 48 in the Statement of Directors’ Responsibility and page 46 of the Annual Report of the Board of Directors.

• Related Party transactions are disclosed on page 47 of the Directors’ Report and in Note 45 in the Financial Statements on page 158 and the process in place is described in the Report of the Board Related Party Transactions Review Committee on page 48.

In the unlikely event of the net assets of the Company falling below 50% of Stated Capital the Board will summon an Extraordinary General Meeting to notify the shareholders of the position and to explain the remedial action being taken. The Financial Statements clearly explain the movement of net assets during the year. Refer page 78 for details.

Internal Control and Audit Committee

(Principle D.2 and D.3)

The Board is responsible for formulating and implementing appropriate processes for risk management and internal control systems to safeguard shareholder interests and assets of the Company. Board Audit Committee assists the Board in discharge of its duties in relation to internal controls. Their responsibilities are summarised in the respective Committee reports appearing on pages 41 to 42 and have been formulated with reference to the requirements of the Code.

The Board Audit Committee comprises 3 Non-Executive Directors and majority of them are independent. A summary of their responsibilities and activities are given in the Report of the Board Audit Committee on pages 41 to 42. It is supported by the Internal Audit function of the Company who report directly to the Audit Committee. The Chairman of the Board Audit Committee is Mr. W.LP Wijewardena, a Fellow member of The Institute of Chartered Accountants of Sri Lanka.

Code of Business Conduct & Ethics and Corporate Governance Report

(Principles D.4 and D.5)

The Company has an internally developed Code of Conduct and Business Ethics which is applicable to all employees. The Code of Business Conduct and Ethics is in compliance with the requirements of the Schedule I of the Code of Best Practice on

Corporate Governance. The Board Remuneration Committee reviews the Code of Business conduct and Ethics to ensure that it is sufficient and relevant with reference to the current operations of the Company.

This Section on corporate governance from pages 28 to 40 complies with the requirement to disclose the extent of compliance with the Code of Best Practice on Corporate Governance as specified in Principle D5.

Statement of Compliance under section 7.10 of the Rules of the Colombo Stock Exchange (CSE) on Corporate Governance (Mandatory Provisions)

Shareholders

Shareholder Relations

(Principles E & F)

The Company has 1,230 voting ordinary shareholders of which 97.82% are institutional shareholders. We have a regular structured dialogue with the large institutional shareholders and any concerns of these institutional shareholders expressed at the meetings are communicated to the Board as a whole. All shareholders are encouraged to exercise their voting powers at the AGM.

Additionally, the information on Investor Relations are on pages 164 to 171 has key information required by shareholders and analysts.

Sustainability

Sustainability Reporting

(Principle G)

Sustainability principles are formed part of the operations of the Company and our subsidiaries. They are considered in formulating our business strategy and reported in a concise manner throughout this Report.

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Sustainability Reporting

Rule Requirement Status of Compliance Comments

7.10.1 Number of non-executive directors

Two or one third of the total number of directors, whichever is higher

Compliant The Board consists of seven directors, out of which six are non-executive directors

7.10.2(a) Number of independent directors

Two or one third of the non-executive directors, whichever is higher

Compliant Two out of the six non-executive directors are deemed as independent directors

7.10.2(b) Declaration of independence

Each non-executive director is required to submit to the Board annually a declaration of his/her independence or non-independence

Compliant All non-executive directors have submitted a declaration in the specimen form provided under the Rule.

7.10.3 Disclosures relating to directors

(a) The names of non-executive directors determined to be ‘independent’

Compliant Please refer Annual Report of the Board of Directors on the Affairs of the Company on page 46.

(b) In the event a director does not qualify as ‘independent’ against any criteria set out in the Rules, however the Board is of the opinion that the director is nevertheless ‘independent’, the Board shall specify the criteria not met and the basis for its determination


(c) A brief resume of each director including information on the nature of his/her expertise in relevant functional areas

Compliant Please refer pages 24 to 25.

(d) In the event of an appointment of a new director, a brief resume of such director shall be submitted immediately to the CSE for dissemination to the public

Compliant There were no new appointments to the Board during the year under review


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7.10.5 Remuneration Committee

7.10.5(a) Composition

Non-executive directors, a majority of whom shall be independent; and one of the non-executive directors shall be appointed as the Chairman

Compliant The Remuneration Committee comprises of three non-executive directors, of which two are independent and Mr. Ashok Pathirage, who is a non-executive director acts as the Chairman

7.10.5(b) Functions

The Committee shall recommend to the Board the remuneration payable to the executive directors and Chief Executive Officer.

Compliant Please refer the Remuneration Committee Report on page 43.


7.10.5(c) Disclosures in the Annual Report

Names of directors comprising the Remuneration Committee

Compliant Please refer the Remuneration Committee Report on page 43.

Statement of the remuneration policy Compliant

The aggregate remuneration paid to executive and non-executive directors


7.10.6 Audit Committee Compliant

7.10.6(a) Composition

Non-executive directors, a majority of whom shall be independent and one non-executive director shall be appointed as Chairman by the Board;

Unless otherwise determined by the Audit Committee, the Chief Executive Officer and the Chief Financial Officer shall attend audit committee meetings;

The Chairman or one member of the Committee should be a Member of a recognized professional accounting body

Compliant The Audit Committee comprises of two independent non-executive directors and one non-executive Director. Mr. L. Wijewardena (INED) acts as the Chairman of the Committee.

The Managing Director and CFO attend meetings of the Committee by invitation

The Chairman is a Fellow Member of the Institute of Chartered Accountants of Sri Lanka

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7.10.6(b) Functions

Oversee the preparation, presentation and adequacy of disclosures in the financial statements in accordance with Sri Lanka Accounting Standards;

Oversee compliance with financial reporting requirements, information requirements of the Companies Act and other relevant financial reporting related regulations and requirements

Compliant Please refer the Audit Committee Report on pages 41 to 42.

7.10.6(b) Functions

Oversee processes to ensure internal controls and risk management are adequate to meet the requirements of the Sri Lanka Auditing Standards;

Assessment of the independence and performance of the external auditors;

Make recommendations to the Board on appointment, re-appointment and removal of external auditors and approve remuneration and terms of engagement

7.10.6(c) Disclosures in the Annual Report

The names of the directors comprising the Audit committee

Compliant Please refer the Audit Committee Report on pages 41 to 42.

The Committee shall make a determination of the independence of the auditors and shall disclose the basis for such determination

Compliant

A report by the Committee setting out the manner of compliance in relation to the above

Compliant


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BOARD SUB COMMITTEE REPORTSAUDIT COMMITTEE REPORT

Composition of the Committee

The Board Audit Committee is appointed by the Board of Directors and as at the end of the year, comprised of following Non-Executive Directors of the Company.

Mr. W.L.P. Wijewardena (Chairman)Mr. A.M. PasqualMr. H. Premaratne

The Managing Director, the Head of Finance, the Manager Finance and Group Head of Internal Audit attended the meetings by invitation. The Company secretaries Messrs Softlogic Corporate Services (Pvt) Ltd acted as secretaries to the Audit committee.

Brief profiles of the member of the Board are given on pages 24 to 25.

Charter of the Committee

The Charter of the Audit Committee approved by the Board clearly defines the terms of Reference of the Committee and is annually reviewed to ensure that new developments relating to the Committee’s functions are addressed. The Committee assists the Board in discharge of its responsibilities and exercises oversight over financial reporting, internal audit, internal controls and external audit.

Rules on Corporate Governance under Listing Rules of the CSE and Code of Best Practice on Corporate Governance, issued jointly by CA Sri Lanka and the SEC of Sri Lanka, further regulate the composition, roles and functions of the Board Audit Committee.

The Committee is empowered by Board of Directors to:

• Ensure that financial reporting systems in place are effective and well-managed in order to provide accurate, appropriate and timely information to the Board of Directors, Regulatory Authorities, the Management and other Stakeholders.

• Review the appropriateness of accounting policies and ensure adherence to statutory and regulatory compliance requirements and applicable Accounting Standards.

• Ensure that the Company adopts and adheres to high standards of Corporate Governance practices, conforming to the highest ethical standards and good industry practices in the best interests of all stakeholders.

• Evaluate the adequacy, efficiency and effectiveness of Risk Management measures, Internal Controls and Governance Processes in place to avoid, mitigate or transfer current and evolving risks.

• Monitor all aspects of Internal and External Audit and Inspection programmes of the Company. Review Internal and External Audit Reports for follow up with the Management on their findings and recommendations.

• Review the Interim Financial Statements and Annual Financial Statements of the Company in order to monitor the integrity of such statements prepared for publication prior to submission to the Board of Directors.

Activities during the Year

The Committee held 04 meetings during the financial year ended March 31, 2016. The proceedings of these meetings, with adequate details of matters discussed, were regularly reported to the Board of Directors. Representatives of the Company’s External Auditors also attended meetings as and when required.

The Committee also invited members of the Senior Management of the Company to participate in the meetings from time to time, based on necessity.

The attendance of Committee members is stated on page 31.

Reporting of Financial Position and Performance

The Committee supports the Board in its oversight on the preparation of Financial Statements that evidences a true and fair view on financial position and performance. This process is based on the Company’s accounting records and in accordance with the stipulated requirements of the Sri Lanka Accounting Standards.

The prevailing Internal Controls, Systems and Procedures were assessed by the Committee and it expressed the view that adequate controls and procedures were in place to provide reasonable assurance to the effect that the Company’s assets are safeguarded and the financial position of the Company is well monitored and accurately reported.

Oversight on Regulatory Compliance

The Committee closely scrutinizes compliance with mandatory statutory requirements and the systems and procedures that

42

are in place to ensure compliance with such requirements. The quarterly reports submitted by the Finance Manager, are being used by the Committee to monitor compliance with all such legal and statutory requirements. The Company’s Inspection Function has been mandated to conduct independent test checks, covering all regulatory compliance requirements, as a further monitoring measure.

Internal Audit and Inspection

The Committee ensures that the Internal Audit function is independent of the activities it audited and that it was performed with impartiality, proficiency and due professional care.

External Audit

With regard to the External Audit function of the Company, the role played by the Committee is as follows:

• Assisting the Board of Directors in engaging External Auditors for audit services, in compliance with the provisions of the Direction and agrees on their remuneration with the approval of the Shareholders.

• Monitoring and evaluating the independence and objectivity of the External Auditor.

• Reviewing non-audit services provided by the Auditors, with a view to ensuring that such functions do not fall within the restricted services and provision of such services will not impair the External Auditors’ independence and objectivity.

• Discussing the audit plan, scope and the methodology proposed to be adopted in conducting the audit with the Auditors, prior to commencement of the Annual Audit.

• Discussing all relevant matters arising from the interim and final audits and any matters the Auditor may wish to discuss, including matters that may need to be discussed in the absence of Key Management Personnel.

• Reviewing the External Auditors Management Letter and the management’s responses thereto.

The Auditors were provided with the opportunity of meeting Non-Executive Directors separately, without any Executive being present, to ensure that the Auditors had the independence to discuss and express their opinions on

any matter. It provided the assurance to the Committee, that the Management has fully provided all information and explanations requested by the Auditors.

At the conclusion of the audit, the Committee also met the Auditors to review the Auditors Management Letter before it is submitted to the Board of Directors.

Corporate Governance

The Company is fully compliant with the applicable rules on Corporate Governance under the listing rules of the Colombo Stock Exchange. In addition, the Company is in substantially compliant with the Code of Best Practice on Corporate Governance issued jointly by the Securities & Exchange Commission of Sri Lanka (SEC) and the Institute of Chartered Accountants of Sri Lanka (ICASL).

Sri Lanka Accounting Standards

The Committee reviewed the revised policy decisions relating to adoption of new and revised Sri Lanka Accounting Standards (SLFRS/LKAS) applicable to the Company and made recommendation to the Board of Directors.

The committee would continue to monitor the compliance with relevant Accounting Standards and keep the Board of Directors informed at regular intervals.

Evaluation of the Committee

An independent evaluation of the effectiveness of the Committee was carried out by the other Members of the Board during the year. Considering the overall conduct of the Committee and its contribution on the overall performance of the Company, the Committee has been rated as highly effective.

(Sgd.)

W.L.P. WijewardeneChairman-Audit Committee

25 August 2016

AUDIT COMMITTEE REPORT BOARD SUB COMMITTEE REPORTS CONTD.


43

REMUNERATION COMMITTEE REPORTBOARD SUB COMMITTEE REPORTS CONTD.

Composition of the Remuneration Committee

The committee, as of 31st March 2016, consisted of three Non Executive Directors.

• Mr. Ashok Pathirage (Chairman)

• Mr. Lucille Wijewardena

• Mr. Ajitha Pasqual

Terms of Reference of the Board Remuneration Committee

As per the Charter of the Remuneration Committee of the Company, the Committee is responsible for setting the remuneration policy of the Company and determining remuneration packages of all Senior Managers and Directors.

The Committee also discusses and advises the Managing Director on structuring remuneration packages for the corporate management. This enables the Company to attract, retain and motivate high caliber individuals with the skills and abilities required to lead the organization.

Board Remuneration Committee Meetings

The Committee meets at least once in every financial year.

Professional Advice

The committee has the authority to seek external professional advice on matters within its purview whenever required.

(Sgd.)

Ashok Pathirage Chairman Nomination Committee

25 August 2016

44

NOMINATION COMMITTEE REPORT

Composition of the Nominations Committee

The committee, as of 31st March 2016, consisted of three Non Executive Directors.

• Mr. Ashok Pathirage (Chairman)

• Mr. Lucille Wijewardena

• Mr. Ajitha Pasqual

Terms of Reference of the Board Nominations Committee

The Nomination Committee was established to ensure the Board’s oversight and control over the selection of Directors. The committee has the authority to discuss the issues under its purview and report back to the Board of Directors with recommendations, enabling the Board to take a decision on the matter. The Committee focuses on the following objectives in discharging its responsibilities;

• To implement a procedure to select Directors to the Board

• Provide advice and recommendations to the Board or the Chairman on any such appointment

• To ensure that the Directors are fit and proper persons to hold office

• To consider and recommend the re-election of current Directors, taking into account the performance and contribution made by them towards the overall discharge of the Board’s responsibilities.

• A member of Nominations Committee opts out in decisions relating to his own appointment.

Board Nomination Committee Meetings

The Committee meets as and when required. During the year under review the committee met two times.

Pofessional Advice

The committee has the authority to seek external professional advice on matters within its purview whenever required.

Conclusion

The Committee continues to work closely with the Board of Directors in relation to the structure, size and composition of the Board ensuring the diversity and balance of skills, knowledge and experience. The Committee is satisfied that the representation of skills, knowledge and experience on the Board is appropriate for the company’s current needs at Board level.

(Sgd.) Ashok PathirageChairman

Nomination Committee

25 August 2016

BOARD SUB COMMITTEE REPORTS CONTD.


45

BOARD RELATED PARTY TRANSACTIONS REVIEW COMMITTEE REPORT

BOARD SUB COMMITTEE REPORTS CONTD.

Purpose

Related Party Transactions Review Committee was established by the Board during the financial year under review in order to comply with the Listing Rules of the Colombo Stock Exchange governing related party transactions in respect of listed companies as per the Codes of Best Practices on Related Party Transactions issued by the Securities and Exchange Commission of Sri Lanka (SEC) (the “Code”) and Section 9 of the Listing Rules of the Colombo Stock Exchange (the “Rules”).

The Board Related Party Transactions Review Committee (the “Committee”) assists the Board in reviewing all related party transactions carried out by the Company and its listed companies in the Group by early adopting of the Codes of Best Practice on Related Party Transactions as issued by the Securities and Exchange Commission of Sri Lanka.

Composition

The Related Party Transactions Review Committee is appointed by the Board of Directors of the Company and the following directors were served on the Committee as at 31st March 2016.

Mr. W L P Wijewardena - Independent Non-executive Director (Chairman)

Mr. A M Pasqual - Independent Non-executive Director

Mr. R J Perera - Non-executive Director

The Chief Financial Officer attends all meetings by invitation.

Softlogic Corporate Services (Pvt) Ltd, Secretaries of the Company function as the Secretary to the Related Party Transactions Review Committee.

Roles and Responsibilities

1. Reviewing in advance all proposed related party transactions of the Company and its listed companies in the Group in compliance with the Code.

2. Adopting policies and procedures to review related party transactions of the Company and its subsidiaries and reviewing and overseeing existing policies and procedures.

3. Determining whether related party transactions that are to be entered into by the Company and/or its subsidiaries require the approval of the Board or Shareholders of the respective companies.

4. If related party transactions are ongoing (recurrent related party transactions) the Committee establishes guidelines for senior management to follow in its ongoing dealings with the relevant related party.

5. Ensuring that no director of the Company shall participate in any discussion of a proposed related party transaction for which he or she is a related party, unless such Director is requested to do so by the Committee for the express purpose of providing information concerning the related party transaction to the Committee.

6. If there is any potential conflict in any related party transaction, the Committee may recommend the creation of a special committee to review and approve the proposed related party transaction.

7. Ensuring that immediate market disclosures and disclosures in the Annual Report as required by the applicable rules/regulations are made in a timely and detailed manner.

(Sgd.)

W.L.P. WijewardeneRelated Party Transactions Review Committee

25 August 2016

46

ANNUAL REPORT OF THE BOARD OF DIRECTORS ON THE AFFAIRS OF THE COMPANYThe Directors of Softlogic Capital PLC have pleasure in presenting their Annual Report together with the Audited Financial Statements of the Company for the year ended 31st March 2016.

General

The Company was incorporated as a limited liability company on 21st April 2005 under the Companies Act No. 17 of 1982 as Capital Reach Holdings Limited. It was re-registered under the Companies Act No. 07 of 2007 on 27th November 2008 under Registration No. PB 779. The name of the Company was changed to Softlogic Capital Limited on 26th November 2010. The ordinary shares of the Company were listed on the Diri Savi Board of the Colombo Stock Exchange on 21st September 2011 and consequent thereto its name was changed to Softlogic Capital PLC on 22nd May 2012 and was assigned with PB 779 PQ as its new number.

Principal activities of the Company and review of performance during the year

The principal activities of the Company are making investments, fund management and provision of financial and management consultancy services.

A review of the business of the Company and its performance during the year with comments on financial results, future strategies and prospects are contained in the Chairman’s review on pages 14 to 17.

This Report together with the Financial Statements, reflect the state of affairs of the Company and its subsidiary companies.

Summarized Financial Results

Group Company

31.03.2016 Rs.

31.03.2016 Rs.

Revenue 11,156 196

Profit/Loss) for the year 1,137 28

Financial Statements

The Financial Statements of the Company and the consolidated Financial Statements of the Company and its subsidiaries, duly signed by two Directors on behalf of the Board of Directors and the Auditors are included in this Annual Report and forms part and parcel hereof.

Independent Auditors’ Report

The Report of the Auditors on the consolidated Financial Statements of the Company is given on page 72.

Accounting Policies

The Financial Statements of the Company have been prepared in accordance with the revised Sri Lanka Accounting Standards and the policies adopted thereof are given on pages 80 to 161. Figures pertaining to the previous periods have been re-stated where necessary to conform to the presentation for the year under review.

Directors

The names of the Directors who held office at the end of the accounting period are given below:

Executive Director

Mr. T M I Ahamed - Managing Director

Non-Executive Directors

Mr. A K Pathirage - Chairman

Mr. R J Perera - Director

Mr. W L P Wijewardena - Director*

Mr. A M Pasqual - Director*

Ms. E Wickremarachchi - Director

Mr. G L H Premaratne - Director

*Independent Non-Executive Directors

Mr. W L P Wijewardena retires by rotation at the conclusion of the Annual General Meeting in terms of Articles 88 and 89 of the Articles of Association and being eligible is recommended by the Directors for re-election.

Directors’ Responsibility for Financial Reporting

The Directors are responsible for the preparation of the Financial Statements of the Company to reflect a true and fair view of the state of its affairs.

Remuneration of Directors

The Directors’ remuneration is disclosed under Key Management Personnel in Note 45 to the Financial Statements on page 158.


47

ANNUAL REPORT OF THE BOARD OF DIRECTORS ON THE AFFAIRS OF THE COMPANY CONTD.

Directors’ Shareholding

The relevant interests of Directors in the shares of the Company are as follows:

As at31.03.2016

As at31.03.2015

Mr. A K Pathirage - Chairman - -

Mr. T M I Ahamed - Managing Director - -

Mr. R J Perera - Director 99,900 -

Mr. W L P Wijewardena - Director 10,000 10,000

Mr. A M Pasqual - Director - -

Ms. E Wickremarachchi - Director - -

Mr. G L H Premaratne - Director - -

Mr. A K Pathirage is the Chairman and major shareholder of Softlogic Holdings PLC which held 505,814,044 shares constituting 73.50% of the issued shares of the company. Messrs R J Perera and G L H Premaratne also serve as Directors of Softlogic Holdings PLC.

Interests Register

The Company maintains an Interests Register in terms of the Companies Act, No. 07 of 2007, which is deemed to form part and parcel of this Annual Report and available for inspection upon request.

All related party transactions which encompasses the transactions of Directors who were directly or indirectly interested in a contract or a related party transaction with the Company during the accounting period are recorded in the Interests Register in due compliance with the provisions of the Companies Act.

Auditors

Messrs PricewaterhouseCoopers, Chartered Accountants served as the Auditors until the appointment of Messrs Ernst & Young as the Auditors of the Company effective from 1st July 2016. They do not have any interest in the Company other than that of Auditor.

A total amount of Rs. 480,000 is payable by the Company to the Auditors for the year under review as audit fees. A sum of Rs. 6,209,525 is payable by the Group to the Auditors for the year under review comprising Rs. 5,783,178 as audit fees and Rs. 426,347 for non-audit services.

A resolution to appoint Messrs Ernst & Young as the Auditors and to authorize the Directors to determine their remuneration will be proposed at the Annual General Meeting.

Stated Capital

The Stated Capital of the Company as at 31st March 2016 is Rs. 2,880,000,000.00 represented by 688,160,000 Ordinary Shares.

Major Shareholders, Distribution Schedule and other information

Information on the twenty (20) largest shareholders of the Company, the distribution of shareholding, percentage of shares held by the public, market values per share as per the listing rules of the Colombo Stock Exchange are given on page 166 under Investor Information.

Property, Plant & Equipment

Details and movements of Property, Plant and Equipment are given in note 18 to the Financial Statements on pages 130 to 131.

Dividends

The Directors do not recommend a Final dividend for the year under review.

Donations

The Company did not make any donations during the year under review.

Land Holdings

The Company does not own any land or buildings. The land and buildings owned by subsidiaries are reflected in their respective Statements of Financial Position at their market values.

48

Events after the date of the Statement of Financial Position

No circumstances have arisen and no material events have occurred after the date of Statement of Financial Position, which would require adjustments to, or disclosure in the accounts other than those disclosed in Note 40 to the Financial Statements.

Material Foreseeable Risk Factors

The Directors are of the opinion that the major risk factor affecting the Group is the Interest Rate Risk.

Going Concern

The Board is satisfied that the Company has adequate resources to continue its operations in the foreseeable future. The Directors have adopted the going concern basis in preparing the accounts.

Corporate Governance

The Directors confirm that, as at the applicable financial period the Company is in compliance with the Corporate Governance Rules contained in the Listing Rules of the Colombo Stock Exchange.

The Corporate Governance Statement on page 28 explains the practices within the Company in this respect.

An Audit Committee, Remuneration Committee, Nomination Committee and Related Party Transaction Review Committee, function as Board Sub Committees, with Directors who possess the requisite qualifications and experience.

The composition of the said Committees is as follows:

Audit Committee

Mr. W L P Wijewardena - Independent Non-Executive Director (Chairman)

Mr. A M Pasqual - Independent Non-Executive Director

Mr. G L H Premaratne - Non-Executive Director

Remuneration Committee

Mr. A K Pathirage - Non-Executive Director (Chairman)

Mr. W L P Wijewardena -Independent Non-Executive Director


Nominations Committee

Mr. A K Pathirage - Non-Executive Director (Chairman)

Mr. W L P Wijewardena - Independent Non-Executive Director


Related Party Transaction Review Committee

Mr. W L P Wijewardena - Independent Non-Executive Director (Chairman)


Mr. R J Perera - Non-Executive Director

Annual General Meeting

The Annual General Meeting of the Company will be held at the Auditorium of Central Hospital Limited, No. 114, Norris Canal Road, Colombo 10 on Monday the 26th day of September 2016 at 10.30 a.m. The Notice of the Annual General Meeting is on page 183 of the Annual Report.

For and on behalf of the Board

(Sgd.) (Sgd.)

A K Pathirage T M I AhamedChairman Managing Director

(Sgd.)

Softlogic Corporate Services (Pvt) Ltd Secretaries

25 August 2016

Colombo

ANNUAL REPORT OF THE BOARD OF DIRECTORS ON THE AFFAIRS OF THE COMPANY CONTD.


49

STATEMENT OF DIRECTORS RESPONSIBILITY

The responsibilities of the Directors, in relation to the financial statements of the Company differ from the responsibilities of the Auditors, which are set out in the Report of the Auditors on page 72.

The Companies Act No. 07 of 2007 stipulates that the Directors are responsible for preparing the Annual Report and the financial statements. Company law requires the Directors to prepare financial statements for each financial year, giving a true and fair view of the state of affairs of the Company at the end of the financial year, and of the statement of comprehensive income of the Company for the financial year, which comply with the requirements of the Companies Act.

The Directors consider that, in preparing financial statements set out on pages 72 to 161 of the Annual Report, appropriate accounting policies have been selected and applied in a consistent manner and supported by reasonable and prudent judgments and estimates, and in compliance with the Sri Lanka Accounting Standards (SLFRSs/LKASs), Companies Act No. 07 of 2007 and Sri Lanka Accounting and Auditing Standards Act No. 15 of 1995. The Directors confirm that they have justified in adopting the going concern basis in preparing the financial statements since adequate resources are available to continue operations in the foreseeable future.

The Directors are responsible for keeping proper accounting records, which disclose reasonable accuracy, at any time, the financial position of the Company and to enable them to ensure the financial statements comply with the Companies Act No. 07 of 2007.

They are also responsible for safeguarding the assets of the Company and for taking reasonable steps for the prevention and detection of fraud and other irregularities. In this regard the Directors have instituted an effective and comprehensive system of internal control.

The Directors are required to prepare financial statements and to provide the external auditors with every opportunity to take whatever steps and undertake whatever inspections they may consider to be appropriate to enable them to give their independent audit opinion.

The directors are of the view that they have discharged their responsibilities as set out in this statement.

Compliance Report

The Directors confirm that to the best of their knowledge, all taxes, duties and levies payable by the Company, all contributions, levies and taxes payable on behalf of and in respect of the employees of the Company and other known statutory dues as were due and payable by the Company as at the date of the statement of financial position have been paid or, where relevant provided for, in arriving at the financial results for the year under review.

For and on behalf of the Board of

SOFTLOGIC CAPITAL PLC

(Sgd.)

SOFTLOGIC CORPORATE SERVICES (PVT) LTDSECRETARIES

25 August 2016

Colombo

50

CEO’S AND CFO’S RESPONSIBILITY STATEMENT

The Financial Statements are prepared in compliance with the Sri Lanka Accounting Standards (SLFRS) issued by the Institute of Chartered Accountants of Sri Lanka and the requirements of the Companies Act No. 07 of 2007. 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 unless otherwise stated in the notes accompanying the Financial Statements.

The Board of Directors and the Management of the Company accept responsibility for the integrity and objectivity of these Financial Statements. The best estimates and judgments were made in order that these Financial Statements are presented 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.

The Financial Statements were audited by Messrs. Ernst & Young, Chartered Accountants, and the independent Auditors.

The Audit Committee of the 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.

We confirm that the Company has complied with all applicable laws and regulations and guidelines and that there are no litigations that are pending against the Company. Also taxes, duties and all statutory payments by the Company and in respect of the employees of the Company as at the Reporting Date have been paid or where relevant accrued.

(Sgd.)

Iftikar Ahamed

Managing Director

(Sgd.)

Dilan Christostom

Head of Finance

25 August 2016


51

Here we understand the global and local economic environment and its impact to the Group. Further we analysis the performance of the Company, Group and

the diverse business segments.

Review of Macro Economic Environment 52Financial Review 62Sector Analysis Insurance Sector 64

Non Banking Financial Institution Sector 67

Stockbroking Sector 70

5252

Global Economy

Global growth, currently estimated at 3.1 percent in 2015 is projected to reach 3.4 percent in 2016 and 3.6 percent in 2017 respectively.

Recent Developments

In 2015 global economic activity remained subdued. Growth in emerging markets and developing economies, while still accounting for over 70 percent of global growth, declined for the fifth consecutive year while a modest recovery continued in advanced economies. Three key transitions continue to influence the global outlook:

• the gradual slowdown and rebalancing of economic activity in China, away from investment and manufacturing toward consumption and services

• lower prices for energy and other commodities, and

• a gradual tightening in monetary policy in the United States in the context of a resilient U.S. recovery, as several other major advanced economy central banks continue to ease monetary policy.

Advanced Economies

Growth in advanced economies is projected to rise by 0.2 percentage points in 2016 to 2.1 percent and hold steady in 2017. Overall activity remains resilient in the United States, supported by still-easy financial conditions and strengthening housing and labor markets, but with dollar strength weighing on manufacturing activity and lower oil prices curtailing investment in mining structures and equipment. In the euro area, stronger private consumption supported by lower oil prices and easy financial conditions is outweighing a weakening in net exports. Growth in Japan is also expected

to firm in 2016, on the back of fiscal support, lower oil prices, accommodative financial conditions, and rising incomes.

Emerging Market and Developing Economies

Growth in emerging market and developing economies is projected to increase from 4 percent in 2015, the lowest since the 2008–09 financial crisis, to 4.3 and 4.7 percent in 2016 and 2017, respectively.

• Growth in China is expected to slow to 6.3 percent in 2016 and 6.0 percent in 2017, primarily reflecting weaker investment growth as the economy continues to rebalance. India and the rest of emerging Asia are generally projected to continue growing at a robust pace, although with some countries facing strong headwinds from China’s economic rebalancing and global manufacturing weakness.

• Aggregate GDP in Latin America and the Caribbean is now projected to contract in 2016 as well albeit at a lower rate than in 2015, despite positive growth in most countries in the region. This reflects the recession in Brazil and other countries in economic distress.

• Higher growth is projected for the Middle East, but lower oil prices, and in some cases geopolitical tensions and domestic strife, continue to weigh on the outlook.

• Emerging Europe is projected to continue growing at a broadly steady pace, although with some slowing in 2016. Russia, which continues to adjust to low oil prices and Western sanctions, is expected to remain in recession in 2016.

• Most countries in sub-Saharan Africa will see a gradual pickup in growth, but with lower commodity prices to rates that are lower than those seen over the past decade.

REVIEW OF MACRO ECONOMIC ENVIRONMENT


53


53

World Economic Outlook Projections

Economic Growth % YOY 2014

%

2015 (Estimate)

%

2016 (Projections)

%

2017 (Projections)

%

World Output 3.4 3.1 3.4 3.6

Advanced Economies 1.8 1.9 2.1 2.1

United States 2.4 2.5 2.6 2.6

Euro Area 0.9 1.5 1.7 1.7

Japan 0.0 0.6 1.0 0.3

United Kingdom 2.9 2.2 2.2 2.2

Canada 2.5 1.2 1.7 2.1

Emerging Market and Developing Economies 4.6 4.0 4.3 4.7

Russia 0.6 –3.7 –1.0 1.0

China 7.3 6.9 6.3 6.0

India 7.3 7.3 7.5 7.5

Source: IMF World Economic Outlook Update – January 2016

Sri Lankan Economy

The Sri Lankan economy expanded by 4.8 per cent in real terms in 2015 compared to 4.9 per cent growth in 2014, accommodated by generally supportive fiscal and monetary policies and favourable weather conditions amidst challenges from both domestic and external factors.

GDP Growth

GDP at current market prices amounted to Rs. 11,183.2 billion (US dollars 82.3 billion) in 2015 compared to Rs. 10,448.5 billion (US dollars 80.0 billion) in 2014. Accordingly, GDP recorded a 7.0 per cent growth in nominal terms in comparison to 8.9 per cent growth observed in 2014 in real terms.

Real Output 2014 % 2015 %

GDP Growth 4.9 4.8

Sectorial classification of GDP Growth

Agriculture 4.9 5.5

Industry 3.5 3.0

Services 5.2 5.3

Services activities, which account for 56.6 per cent of GDP, grew by 5.3 per cent, buttressed by the growth in financial services (15.8 per cent), real estate activities (9.6 per cent), transport activities (5.5 per cent) and wholesale and retail trade (4.7 percent).

Despite the minor slowdown in construction (-0.9 per cent) and mining and quarrying (-0.9 percent) activities, industry activities, which account for 26.2 per cent of GDP, grew by 3.0 per cent, mainly supported by the growth in manufacturing activities (4.7 per cent).

Agriculture activities which account for 7.9 per cent of GDP expanded by 5.5 per cent, mainly due to the significant growth in growing of rice (23.3 per cent) and vegetables (24.9 per cent), amidst the contraction in fishing (-2.7 per cent), growing of rubber (-10.1 per cent) and growing of tea (-2.6 per cent).

5454

As a share of GDP (%) Contribution to Change (%)

2014 2015 2014 2015

Agriculture, Forestry & Fishing 7.8 7.9 7.8 9.0

Industries 26.7 26.2 19.6 16.5

Services 56.3 56.6 59.9 62.6

Real Gdp Growth %

8 8.1 8.

5

8.3

8

6.4

4.8

6.3

6.1

6.8

7.9 8.

2

7.6 7.

8

7.7

6.4

6.4

5.8 6

4.5

2011

-Q1

201

1-Q

2

201

1-Q

3

201

1-Q

4

2012

-Q1

2012

-Q2

201

2-Q

3

2012

-Q4

201

3-Q

1

201

3-Q

2

2013

-Q3

201

3-Q

4

201

4-Q

1

201

4-Q

2

201

4-Q

3

2014

-Q4

201

5-Q

1

201

5-Q

2

201

5-Q

3

201

5-Q

4

from 53.3 percent in 2014, with increased participation of rural sector females in the labour force. Labourproductivity increased during 2015, with positive contributions from all three sectors of the economy.

Meanwhile, a sharp decline of 12.4 per cent was observed in the total number of departures for foreign employment, which could partly be attributed to escalated geo-political tensions and the slowdown of economic activity in the Middle East. This had an impact on the unemployment rate as well as the labour force participation rate.

REVIEW OF MACRO ECONOMIC ENVIRONMENT CONTD.

Unemployment Rate

The unemployment rate increased to 4.6 per cent during 2015, compared to 4.3 per cent recorded in 2014, amidst a marginal increase in labour force participation, particularly by females. The female unemployment rate increased from 6.5 per cent to 7.6 per cent, while the male unemployment rate declined from 3.1 per cent to 3.0 per cent in 2015, compared to 2014.

The increase in unemployment among youth and those with GCE A/L and higher qualifications was notable. The labour force participation rate increased to 53.8 per cent in 2015,


55


55

Unemployment Rate %

Interest Rate

Benefitting from relatively relaxed monetary conditions, market interest rates remained low during 2015 although some upward movements were witnessed intermittently. With the removal of restrictions placed on the access to Standing Deposit Facility (SDF) in March 2015, overnight interest rates, which had remained below the SDFR, moved upwards and settled within the policy rate corridor close to the lower bound. At the same time, excessive increase in some interest rates, including yields on government securities, was observed in the aftermath of the removal of restrictions placed on the SDF. This trend was dampened by the reduction in policy rates of the Central Bank in April 2015. However, with the decline in market liquidity levels, a gradual upward adjustment in overnight interest rates was observed since August 2015. Meanwhile, retail interest rates remained low during 2015, although some increase was witnessed toward the end of the year. With the Central Bank’s decision to raise SRR with effect from January 2016 and the increase in policy interest rates in February 2016, market interest rates increased further in the first quarter of 2016

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

7.67.9

8.88.4 8.3

7.7

6.56

5.45.8

4.9

4.2 44.4 4.3 4.6

Interest Rates %

0

2

4

6

8

10

12

14

16

Dec 11 Dec 12 Dec 13 Dec 14 Dec 15

SLIBOR- Overnight SLIBOR-12 MonthAWCMR

Inflation

Inflation, based on CCPI (2006/07=100), remained below mid-single digit levels, supported by the downward adjustment of prices of several key consumer items, favourable supply side developments in the domestic and international markets, and well contained inflation expectations. Headline inflation, as measured by the year-on-year change of CCPI, declined sharply from 3.2 per cent in January 2015 to 0.6 per cent in February 2015, with the price revisions introduced in the Interim Budget for 2015. Year-on-year Inflation remained below 1 per cent thereafter until September 2015, while recording

56

negative inflation during July - September 2015. Inflation picked up in the fourth quarter of 2015, and recorded 2.8 per cent by end 2015. Annual average headline inflation declined from 3.3 per cent in 2014 to 0.9 per cent in 2015.

Inflation

External Sector Developments

The performance of Sri Lanka’s external sector reflected the impact of the changing global economic environment as well as a number of developments in the domestic economy.

The deficit in the trade account expanded by 1.7 per cent in 2015 in nominal terms, although as a percentage of GDP, it declined marginally. Despite the slowdown in expenditure on imports, the greater decline in exports resulted in the expansion of the trade deficit in 2015. Accordingly, the trade deficit expanded to US dollars 8,430 million in 2015 from US dollars 8,287 million recorded in 2014. Nevertheless, as a percentage of GDP, the deficit in the trade balance declined marginally to 10.2 percent in 2015 from 10.4 per cent in 2014.

Earnings from exports which grew at a healthy rate in 2014, contracted by 5.6 per cent in 2015 reflecting the decline across all major export categories. The decline in international commodity prices, the slower pace of growth in advanced economies, geopolitical uncertainties in many of Sri Lanka’s key export destinations, and restrictions by the European Union (EU) on fish imports from Sri Lanka contributed to the substantial reduction in export earnings.

The BOP, which recorded an overall surplus in 2014, registered a deficit in 2015 largely due to lower than expected inflows to the financial account. In 2015, the BOP recorded an overall deficit of US dollars 1,489 million in comparison to the surplus of US dollars 1,369 million in 2014. Consequently, Sri Lanka’s gross official reserves declined to US dollars 7.3 billion at end

6.2

6.77.6

6.9

3.3

0.9

6.8

4.9

9.2

4.7

2.12.8

0123456789

10

2010 2011 2012 2013 2014 2015

Annual Average Inflation Year on year (end period)

2015 from US dollars 8.2 billion at end 2014.

Exchange Rate

In early September 2015, the Central Bank decided to allow greater flexibility in the determination of the exchange rate. Lower than expected inflows to the current and financial accounts, high volume of foreign exchange outflows on account of increased imports, debt service payments and the reversal of foreign investments from the government securities market exerted a substantial pressure on the domestic foreign exchange market.

The Sri Lankan rupee has depreciated by 6.64%, resulting in an overall depreciation of 9.03% against the USD during the year up to 31st December 2015, subsequent to the decision of the Central Bank to accommodate greater flexibility in the determination of the exchange rate. The exchange rate remains under pressure owing to an increase in demand for USD by importers whilst exporters remain reluctant to convert their positions.

Over the year, based on cross currency exchange rate movements, the Sri Lankan Rupee has appreciated against the Australian Dollar by 2.42% and the Euro by 1.30%, while depreciating against the Japanese Yen by 8.20%, the Pound Sterling by 4.46% and the Indian Rupee by 4.62% during this period.

Global Economic Outlook 2016

The volatility of the global economic environment posed several challenges to Sri Lanka during 2015 and these are expected to persist in 2016. With the continued decline in global oil prices, the stagnating growth in Middle Eastern countries negatively affected workers’ remittances and tea exports, which are key sources of foreign exchange. This trend

Current Account Balance Overall BalanceTrade Balance

-12

-10

-8

-6

-4

-2

0

2 2011 2012 2013 2014 2015



57

is expected to continue to impact remittances and future job prospects of Sri Lankan migrant workers. Further, the stagnating growth momentum of economies which have been Sri Lanka’s traditional sources of tourism, e.g. Europe, Russia and China, may cause a decline in tourist earnings in the coming year, despite the significant growth observed in 2015. During the year, as observed across all emerging markets, there was a significant unwinding of investments from the domestic government securities market, on expectations of the monetary policy normalisation of the US Federal Reserve. Subsequent to the interest rate hike in December 2015 by the Federal Reserve and on expectations of further hikes in 2016, it is expected that this trend will continue. In addition, Sri Lanka may have to incur higher levels of interest payments on foreign loans that had been obtained on a variable rate basis by the government, state owned enterprises (SOEs) and the private sector. Global uncertainties caused by factors such as the weakened pace of global economic growth and geopolitical developments may affect FDIs to the country, both directly and through spillover effects, particularly from China and its major commodity trading partner countries, and from the Middle East.

Sri Lankan Medium Term Macroeconomic Outlook

Sri Lanka’s economy is projected to expand at a rate of 5.8 per cent in 2016, and strengthen over the medium term to achieve a higher growth trajectory of around 7 per cent. The envisaged

growth path is expected to be attained with the improvement in investor sentiments. Further, the new policy initiatives of the government to spur growth across all major sectors of the economy and increase private sector participation through the creation of an investor friendly environment are also expected to contribute to the growth trajectory of the economy over the medium term.

Positive developments in the domestic and global economies, coupled with recent policy initiatives, are expected to result in a favorable outlook for the external sector over the medium term. The decline in the current account deficit is expected to be largely driven by the improvement in trade in goods and services.

The medium term fiscal strategy of the government will focus on strengthening the fiscal consolidation process, by maintaining the budget deficit and public debt at a sustainable level, conducive to the broad based development objective of enhancing the living standards of the people.

The conduct of monetary policy in the medium term will focus on maintaining inflation in midsingle digit levels while facilitating the economy to realise its potential. In this pursuit, the Central Bank would conduct its monetary policy within an enhanced monetary policy framework, aligned towards a flexible inflation targeting (FIT) framework, which focuses on both price stability and economic stability Key Economic

Indicators and their impact on Softlogic Capital Group

Economic Indicator Cause of Movement Impact on Softlogic Capital Group

GDP and per capita income Growth in GDP and increase in per capita It will attract high demand for protection-based products

Helped the Group to increase its business volumes substantially

Inflation Increasing inflation which causes rise in costs

Negative impact on administration cost

Interest rates Increase in interest rates Decline in value of the bond portfolio

Positive impact on surplus due to lowering the insurance contact liabilities

Lower reinvestment risk

Substantial growth in loans and advances

The share market performance Volatility in equity market Volatility over earnings

58

Overview of the Sri Lankan Financial Services Sector

In 2015, the financial sector showed improved performance, reflecting the underlying economic performance and supportive prudential regulatory measures which has led to further strengthening of the financial system stability of the country. The improved performance was reflected in leading indicators of financial institutions, financial markets and payment and settlement systems.

As regards the financial institutions, the banking sector total assets increased by 15.9 percent in 2015, against the 17.3 percent growth in 2014, to record Rs. 8.1 trillion at the end of the year, while the off-balance sheet exposure showed a growth of 8.1 per cent to reach Rs. 3.4 trillion.

During the year, domestic financial markets operated with relatively high volatility consequent to monetary and balance of payment conditions emanating partly from global developments. The domestic money market recorded a gradual decline in excess rupee liquidity to Rs. 105 billion at the end of 2015 from Rs. 331 billion in 2014 and the weighted average call money market rate behaved in the range of 5.80 –

7.00 per cent range in 2015 compared to 5.72 – 7.68 per cent range in 2014.

The domestic foreign exchange market recorded decreased volumes where the excess volatility in the exchange rate of the rupee against the US dollar was stabilised through normal intervention supported by foreign reserves. However, increased demand for US dollar, and subsequent to the policy decision in September 2015 to accommodate greater flexibility to the market in determination of exchange rate, the rupee depreciated by about 9.0 per cent against the US dollar.

In the government securities market, the benchmark yield rate on 364 - day Treasury bills increased by 130 basis points at the end of 2015 from end 2014 as a result of substantial withdrawals of investments in Treasury bills and bonds by foreigners and also due to the increase of the Statutory Reserve Requirement (SRR) by 150 basis points in December 2015.

In the Colombo Stock Exchange (CSE), the all share price index declined 5.5 per cent to 6,894 points by end 2015 from 7,299 points in 2014 while market capitalisation dropped by 5.4 per cent to Rs. 2.9 trillion at the year end.

The Sri Lankan insurance industry depicts a highly dynamic atmosphere with escalated tension existing amongst 29 industry players. Out of these Insurance Companies (Insurers) registered with the Insurance Board of Sri Lanka (IBSL), 04 are composite companies (dealing in both Long Term and General


Total Assets of the Financial System

2014 2015

Rs. Bn Share (%) Rs. Bn Share (%)

Banking Sector 8,442 70.3 9,503 69.6

Other Deposit Taking Financial Institutions (Including Licensed Finance Companies)

857 7.1 1,042 7.6

Specialised Financial Institutions (Including Stock Brokers)

441 3.7 544 4.0

Contractual Savings Institutions (Including Insurance Companies)

2,275 18.9 2,573 18.8

Total 12,015 100.0 13,662 100.0

Source - Central Bank of Sri Lanka

Insurance Sector

Insurance sector maintained its growth momentum without major prudential concerns and recorded a relative share of 3.3 per cent in terms of total assets of the financial sector at end 2015.


59

Insurance Businesses), 11 are registered to carry on Long Term (Life) Insurance business and 14 companies are registered to carry on only General Insurance business. There are 57 insurance brokering companies which registered with IBSL which mainly concentrate on General Insurance business.

Sri Lanka’s insurance industry continued its growth momentum with industry Gross Written Premium (GWP) growing 17% year-on-year (yoy) to Rs.121 billion. The Life Insurance GWP during the year grew by 20% yoy to Rs.54 billion while the General Insurance GWP rose by 15% YoY to Rs. 67 billion. (Source: IBSL)

Total assets of insurance companies reflected a growth of 8% to Rs. 439 billion as at 30th September 2015 when compared to Rs. 407 billion recorded in the same period of last year.

The total investment in government debt securities during the first half of the year represent 46.5% of the total assets of Long Term Insurance business which amounted to Rs. 121 billion whereas the General Insurance business amounted to Rs.29 billion, representing 22%.

Life Insurance Industry

The industry delivered overall GWP of Rs. 54 billion in the Life Insurance business compared to the Rs. 45 billion in 2014 showing an impressive growth of 20% compared to 9% reported in 2014.The main contributor for the GWP is the premium income generated from the renewal GWP which is Rs. 33 billion, and first-year new business GWP of Rs. 13 billion, which accounts of 86% of GWP of the Life Insurance industry and recorded a growth of 13% and 30% respectively.

The growth of new business was mainly driven by different underwriting and product strategies, where companies focused on products coupled with investments, savings, and retirements.

The renewal premium has continued to maintain its dominance by contributing 61% to the total life premium while First Year GWP contributed 25%.

In 2015, the five insurance companies which claimed the top five positions in terms of market share in the Long Term Insurance business collectively accounted for 81% of the total industry GWP (2014: 82%) which indicates a marginal decrease.

General Insurance Industry

General Insurance recorded a GWP amounting to Rs. 67 billion in 2015, which is a 15% growth rate compared to GWP Rs. 58 billion in 2014. This high growth rate was mainly driven by the Motor Insurance industry, which recorded an impressive growth of 19% due to growth in vehicle imports. Non-motor market segment reported a 9% growth mainly from increase in demand for Medical Insurance. This was further strengthened with the expansion in the branch network of insurance companies.

Details of class-wise GWP and growth are provided in the following table;

Class 2015 (Rs. Mn)%

2014 (Rs. Mn)

Growth

Motor 42,940 36,060 19%

Fire and Engineering 8,817 8,512 4%

Medical 6,872 6,344 8%

Accident 6,677 5,690 17%

Marine 2,576 1,833 41%

Total GWP 67,382 58,439 15%

60

Licensed Finance Companies (LFCs) and Specialised Leasing Companies (SLCs) Sector

The performance of the LFC/SLC sector remained robust during 2015 in terms of the expansion of both business volume and outreach, reflecting the extended economic activities, appropriateness of policy initiatives and supportive regulatory and supervisory measures in place.

Business Expansion

• Outreach - This sector comprised of 46 LFCs and 7 SLCs by end 2015. The branch network of LFC/SLC sector expanded further in 2015 by 84 to 1,216 branches with emphasis placed on areas outside the Western Province.

• Assets - Total assets of the LFC/SLC sector expanded in 2015 at a higher pace. Total assets of the sector grew by 22.3 per cent or Rs 181.6 billion in 2015 compared to a growth of 19.0 per cent or Rs 130.0 billion in 2014.

• Liabilities - The share of deposits in total funding decreased to 48.2 per cent in 2015 from 50.8 percent in 2014. However, there was a steady growth in deposits as the sector continued to attract depositors due to relatively high deposit rates offered by LFCs compared to those of banks. Total deposits grew by 16.1 per cent or Rs 66.5 billion to Rs 480.6 billion in 2015 at a lesser magnitude, compared to a 22.8 per cent growth in 2014.

Composition of Assets and Liabilities

2014 2015

Rs. Bn Share (%) Rs. Bn Share (%)

Assets

Loans and Advances 604 74.1 796 79.9

Investments 110 13.5 100 10.0

Other 101 12.4 101 10.1

Liabilities

Total Deposits 414 50.8 481 48.2

Total Borrowings 217 26.7 314 31.6

Capital Elements 117 14.3 123 12.4

Other 67 8.2 78 7.8

Total Assets/Liabilities (net) 815 100.0 996 100.0

Risks in the LFC/SLC Sector

• Credit Risk - Assets quality of LFC/SLC sector improved in 2015 compared to 2014 as evident by improved NPLs and provision coverage ratios. Gross and net NPLs ratios decreased to 5.7 percent and 1.6 percent, respectively, in 2015 from 6.9 per cent and 2.3 per cent, respectively, in 2014, mainly due to higher growth of loan portfolio. Meanwhile, the increase in NPLs of Rs. 3.3 billion in 2015 was not significant when compared to 7.1 billion in 2014.

• Market Risk - The LFC/SLC sector continued to experience a minimal market risk due to the lower exposure to trading portfolio and foreign currency transactions. Also, interest rate risk decreased mainly due to low interest rate environment prevailed during the year, which resulted in an improved margin due to the negative mismatch in the maturity profile of interest bearing assets and liabilities of the sector.

Source - Central Bank of Sri Lanka



61

• Liquidity Risk - The LFC/SLC sector operated with an excess liquidity position during the year. The overall statutory liquid assets available in LFC/SLC sector by end 2015 recorded a surplus of Rs. 13.7 billion compared to the stipulated minimum requirement of Rs. 65.7 billion.

Profitability and Capital Resources

• Profitability - During 2015, the LFC/SLC sector recorded a profit after tax of Rs. 15.2 billion compared to Rs. 14.8 billion in 2014.

• Capital - During the year, total regulatory capital increased by 5.8 per cent to Rs. 92.8 billion due to retention of profits. The total CAR decreased to 11.2 per cent at end 2015 from 13.5 per cent at end 2014 and the core capital ratio decreased to 10.5 per cent in 2015 from 12.8 per cent in 2014.

62

FINANCIAL REVIEW

Our Business

Company Overview

Financial Services arm of the Softlogic Capital that has now established an impressive presence in the market with portfolio comprising of;

• Softloigic Finance PLC, a Licensed Finance Company licensed by the Central Bank of Sri Lanka;

• Asian Alliance Insurance PLC, an insurer licensed for Life insurance by the Insurance Board of Sri Lanka and

• Asian Alliance General Insurance Ltd, an insurer licensed for General insurance by the Insurance Board of Sri Lanka and

• Softlogic Stockbrokers (Pvt) Ltd, a stock brokering company licensed and operating on the Colombo Stock Exchange.

Together with the Investment Management Initiatives set up at Softlogic Capital PLC that is licensed by the SEC, this comprehensive financial service portfolio as primed the Sector for strident growth, leveraging on its fast increasing customer base acquired from diverse sectors of the overall Group.

Company Performance

Profitability

The Company completed the financial year 2015/2016 with a Profit After Tax of Rs. 28 Mn against the profit of Rs. 214 Mn in year 2014/2015. This is due to drop in dividend income from the Subsidiary Companies.

Profit / (Loss) (Rs. Mn)

Total Revenue

During the year the Company recorded revenue of Rs. 196 Mn against the Rs. 371 Mn in year 2014/2015. Drop is mainly driven by the Dividend Income coupled with the Fee and Trading Income.

Group Performance

Softlogic Capital PLC which is the financial services holding company of the Softlogic Group, reported Profit after Tax for the Sector of Rs. 1,137 Mn for the financial year ended March 2016. The result was an increase of 45% from the previous year’s Profit after Tax of Rs. 782 Mn. Turnover for the Sector after consolidation was Rs. 11.16 Bn, an increase of 12% compared with the previous year.

Group Revenue (Rs. Mn)

Group Profitability (Rs. Mn)

-

50

100

-100

-150

-50

150

200

250

2013 - 2014 2014 - 2015 2015 - 2016Profit / (Loss)

-108

214

28

-

2000

4000

6000

8000

1,0000

1,2000

2013 - 2014 2014 - 2015 2015 - 2016

Group Revenue

8,316

9,95411,156

-

200

400

600

800

1,000

1,200

2013 - 2014 2014 - 2015 2015 - 2016

Group Profitability

309

782

1,137


63

The Softlogic Group that entered the financial services arena in the latter part of 2010, within a short period of just 5 years, has quickly moved to streamline and significantly enhance its acquisitions whilst securing the necessary resources for the aggressive business plans that has been laid out. The Sector has focused on developing the teams in each business, upgrading talent, enabling breakthrough product development and enhancing the brand awareness of the respective companies to fast track business growth.

The Financial Services Sector of the Group offers a comprehensive range of product and services to all of their client segments comprising; Retail, SME, Corporate, Institutional and High Networth clients, which covers Life and General Insurance, Leasing and Finance, Equity Brokering and Asset Management.

The Sector performance for the year was driven by contributions from Asian Alliance Insurance PLC (Group) that posted PAT of Rs. 936 Mn, Softlogic Finance PLC PAT of Rs. 369 Mn and Softlogic Stockbrokers PAT of Rs. 31 Mn.

This has delivered impressive results for the year with Asian Alliance performance at PAT level improving by 33% and Softlogic Finance by 71%. Total Assets of the Sector were Rs. 34.8 Bn as at 31st March 2016 and recorded an increase of 6% for the year compared with Rs. 32.8 Bn as at 31st March 2015.

64

INSURANCE SECTOR

SECTOR ANALYSIS

The Asian Alliance Insurance Group, a composite insurance solutions provider, has grown rapidly to become a force to be reckoned within the insurance industry. It is a quoted company and listed on the Colombo Stock Exchange (CSE).

The secret of the Asian Alliance Insurance (AAI) success story lies in its ability to offer tailor-made insurance solutions to its customers through its unique business model.

AAI, ensure quality service underscored by the theme, ‘Rest Assured’ coupled with an extraordinary and customised range of products and services to help customers build and protect their wealth and lifestyles, and to ensure financial support for them during their retirement.

AAI’s advisers expertly equip customers with knowledge to make financial decisions that add value throughout their various life stages.

AAI is considered the fastest-growing and most innovative Insurance Company in the country and have reached 5th position in the Life Insurance industry within a short period of 16 years.

AAI further strengthened its credentials after a 59% stake was acquired by the Softlogic Group, a leading conglomerate and one of Sri Lanka’s major corporate success stories with interests in retail, healthcare, IT, leisure, financial services and automobiles. Further, DEG - Deutsche Investitions – und Entwicklungsgsellschaft mbH of Germany and FMO - Netherlands Financeirings – Maatschappij voor Ontwikkelingslanden N.V. of Netherlands jointly hold a 38% stake in AAI, which reflects the attractiveness of the insurer to investors.

The joint synergies have given rise to immense opportunities for AAI, especially in the healthcare sector, as the Softlogic Group accounts for 60% of the total private healthcare market in the country.

Financial Performance

The Company delivered another set of record results, despite persistent volatility in the macroeconomic environment. Management continued to focus on the factors within our control, which included driving operational improvements, stringent cost control and increasing margins. This combined with the all-encompassing changes we have introduced to ensure greater efficiency, effectiveness and competitiveness, underpinned our excellent performance.

Over the last three years, AAI’s financial focus has been to support the delivery of the Group’s strategy by managing margins, cash, gearing, and return on equity within the context of the difficult local operating environment. In parallel, focus on operational improvements has enabled AAI to build a solid platform for exceptional performance in the years ahead.

The macro environment had an impact on the business, particularly with rapidly decreasing interest rates, regulatory changes such as segregation of the composite company, RBC implementation and other investment opportunities. AAI evaluated these shifting needs in the business environment and aligned its strategies to derive long term benefits.

Vision

To be the benchmark provider of qualityfinancial solutions

Mission

To provide quality products and services through quality people and processes


65

The Company consistently improved its turnover, surpassing industry average growth rates during the last five years, and has demonstrated a consistently exceptional performance.

The AAI Group posted Rs.936million profit after tax for the year to surpass Rs. 6 billion in GWP. The Group’s total asset base continued to grow during the year to Rs.12 billion from Rs. 10 billion in the previous year.

The following indicators denote progress over the last three years:

2015/16 2014/15 Change % 2013/14

Gross Written Premium 6,698 4,945 35% 4,259

Net Earned Premium 5,733 4,235 35% 3,575

Insurance Claims and

Benefits 2,034 1,750 16% 2,403

Underwriting and Net

Acquisition Cost 1,361 888 53% 729

Operating, Administration

and Other Expenses 1,813 1,621 12% 1,191

Investment & Other

Operating revenue 1,080 1,562 -31% 1,214-

Profit After Taxation 936 702 33% 416-

Gross Written Premium (GWP)

Gross Written Premium (GWP) which represents the premium charged to underwrite risk and which is the main source of income from the operations, reached Rs. 6,698 million in 2015/16, with an increase of 35% compared to Rs. 4,945 million recorded in 2014/15.

The Life Insurance segment was the main contributor for GWP by contributing 69% in year 2015/16, which was an increase of 45% from the year 2015/16. General insurance contributed 31% to the consolidated GWP.

The Life Insurance business recorded GWP of Rs. 4,644million while the General Insurance arm concluded the year with an increased GWP of Rs. 2,054 million which marks an increase of 18%.

Critical Success Factors for GWP Sustainable Growth

The continued strong growth in GWP is as a result of strategic investments made over the years in terms of developing innovative products which appeal for their customer value proposition, multiple distribution channels and maintaining effective pricing discipline with improved technology, and structured training of the sales force together with exceptional management strategy.

Net Earned Premium (NEP)

In the year 2015/16, the AAI’s net earned premium surpassed the Rs. 5 billion mark, recording a notable 35% growth from the Rs. 4,235 million in 2014/15. Main contributor for NEP was the Life Insurance segment which accounted for 72% and General Insurance accounts for 28%.

The Life segment contributed Rs.4,118 million to the earned premium as against the contribution of Rs. 2,854 million in 2014/15 which was 44% and exceed the GWP growth mainly due to the savings derived from the restructuring of the reinsurance arrangements. This significant achievement was predominantly due to GWP growth and customized reinsurance arrangements in both Life and General Insurance businesses of the Company.

The General Insurance segment of the Company was able to increase net earned premium to Rs. 1,615 million with a growth of 17%, which is in line with the GWP growth due to the higher business volume recorded in Motor Insurance which had minimum reinsurance exposure. The unearned premium reserve is adjusted in arriving at General Insurance NEP to reflect unexpired risk period.

Insurance Claims and Benefits

Insurance claims and benefit expenses are the main costs of the insurance business, which includes gross benefits and claims paid and claims ceded to reinsurers. During the year, Group’s net claimed expenses of Rs.2,034 million as the insurance claims which showed an increase of 16% compared to the year 2014/15. This growth reflected the manner in which the Company diligently paid out policyholder claims while maximizing shareholder value.

66

Underwriting and Net Acquisition Cost

The acquisition costs include commissions and other variable costs directly connected with acquiring new business and renewal of insurance contracts.

The cost of underwriting and net acquisition had increased to Rs.1,361 million, which is a 53% increase compared to the year 2014/15. The increase in net acquisition cost was mainly due to growth in new businesses attracted by both Life and General Insurance.

It is noted that costs from Life Insurance, accounting for 72 % of the total NEP, was the key reason for the growth in underwriting and net acquisition costs. This trend however, is on par with the insurance industry, where the higher acquisition costs in Life Insurance is a normal phenomenon due to the high commissions paid to intermediaries and the nature of the business model.

The Company was able to control its acquisition cost in relation to GWP mainly due to the exceptional growth in new business premium in the Life Insurance segment.

Operating, Administration and Other Expenses

The AAI Group experienced Rs.1,813 million of operating and administration expenses, which reflects a marginal increase of 12% as a result of effective planning and monitoring process of the expenses carried out by the management. The Company spent 27% of its GWP as operational and administration expenses compared to 33% of year 2014/15.

These expenses comprise of salaries, administration expenses, brand development expense, depreciation and amortisation of assets and all other expenses, not including underwriting and net acquisition costs. The Company continued to implement initiatives to leverage information technology, to enhance productivity and change the existing operating model and business practices in order to optimize expenses.

The expense ratio of the Life and General Insurance stood at 30% and 36% respectively.

Profit after Taxation

AAI’s Group Profit after tax surged to Rs. 936 million for the year 2015/16 with a growth of 33% against Rs. 702 million reported in the previous year. The Life Insurance profitability is increased by 44%.

Financial position

Investment and Asset growth

The total assets crossed the Rs. 12 billion mark in March 2016, recording 14% (2014/15 - 24%) growth over Rs. 10 billion achieved in 2014/15.Total Investment portfolio reached Rs. 8.9 billion (including policyholder loans) which represents 72% of total assets which shows the quality of the asset portfolio. During the year, investments related asset portfolio recorded 8% (2014/15 -26%) growth compared to last year

Insurance contract liabilities

The Life Insurance contract liabilities, refers to the reserves, to meet the future claims and maturities of Life Insurance policyholders. The Life Insurance contract liabilities of the Company crossed Rs. 6 billion in 2015/16 and the Life Fund stood at Rs.6,369 million at the end of the year with a record growth of 24% in comparison with the previous year. The Life Insurance contract liabilities represented 82% of the total liabilities.

The General Insurance contract liability comprises of reserves relating to the General Insurance business, which includes net unearned premium reserves, gross claims outstanding, Incurred But Not Reported (IBNR) claims reserves and Incurred But Not Enough Reported (IBNER) Reserves. The General Insurance contract liabilities recorded Rs. 1,346 million by year-end. This marks a growth of 19% compared to Rs. 1,134 million in 2014/15.

SECTOR ANALYSIS CONTD.

INSURANCE SECTOR CONTD.


67

NON BANKING FINANCIAL INSTITUTION SECTOR

Profitability

Softlogic Finance achieved its highest ever Net Profit After Tax of Rs. 369 million, which was a 70% increase over the Rs. 216 million recorded during the previous financial year. Key contributions to this significant profit growth originated from an increase in total revenue, reduced interest costs, the effective management of operational expenses and a reduction in the impairment charge for the year. Overall, this momentous increase in the Company’s bottom line was achieved as a result of the careful execution of a number of corporate and operational strategies by the management of the Company.

This stellar performance of the Company’s bottom line led to substantial increases in the Return on Equity and the Return on Assets ratios of the Company. The noteworthy increase of the Return on Assets demonstrates that the Company is increasingly utilising and managing its assets more efficiently to generate earnings. Further this increase in the Return on Equity exhibits the fact that the Company is continuously deploying its shareholders’ equity more efficiently to generate increasing returns.

Income Analysis

During the year under review, the Company posted a sound top line performance even with increased competition arising from other finance companies moving to business financing. The Total Income of the Company which consists of Interest Income, Fee Income, Net Trading Income and Other Operating Income, grew from Rs. 3.97 billion to Rs. 4.13 billion during this financial year.

-

2%

4%

6%

8%

10%

12%

14%

16%

%

2011 - 2012 2012 - 2013 2013 - 2014 2014 - 2015 2015 - 2016

Financial Year

11%

14%13%

15%

11%

ROA and ROE

Vision

To be the preferred non-banking financial Institution inSri Lanka.

Mission

To strive to delight our customers through custom ade financial solutions ser ed through our

professional and highl - oti ated tea co itted to e cellence

To create shareholder alue through stabilit and abo e-a erage returns

To sustain our continued co it ent to being a good corporate citi en and ake a positi e contribution to

the co unit and en iron ent

-

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

Rs. Mn

2011 - 2012 2012 - 2013 2013 - 2014 2014 - 2015 2015 - 2016Financial Year

1,605

2,439

3,491

3,9734,135

Total Income

-

50

100

150

200

250

300

350

400

Rs. Mn

2011 - 2012 2012 - 2013 2013 - 2014 2014 - 2015 2015 - 2016

121

164 166

216

369

Financial Year

Net Profit After Tax

68


NON BANKING FINANCIAL INSTITUTION SECTOR

With regard to Interest Income growth, a significant year-on-year increase in disbursements of 21% served as a key contributor. More specifically, the 53% year-on-year increase in SME working capital loan disbursements played a vital role in interest income and fee income growth and served as a testament to the effectiveness of the proactive strategies adopted by the management in shifting towards business financing from leasing and hire purchase, in order to weather industry volatility. In comparison to the previous financial year, it is noteworthy that the contributions to Interest Income increased by 13% from the Personal Loan portfolio by 32% from the Gold Loan portfolio and by 157% from the SME loan Portfolio.

Interest Cost Analysis

During the year under review, the Company was successful in effectively managing its interest expenses and actually reducing its interest cost burden by 3%, when compared to the previous financial year. The Company took advantage of the relatively low interest regime that existed for most of the financial year and focused on fixed deposits and bank borrowings as funding tools. In this predominantly low interest climate that existed, the Company was able to rationalise and carefully manage its fixed deposit costs.

Moreover, the Company made a conscious decision to reduce its Commercial Paper portfolio as it entailed a higher interest cost. Additionally, steps were taken to further manage interest expenses by effecting the conversion of USD 2 million of the FMO loan to equity and not undertaking any high interest securitisations during the year. Moreover, as a result of the low interest regime that prevailed for most of the financial year, the Company was able to negotiate with banks and obtain low interest credit lines.

Total Operating Income

As a result of increases in total revenue and the effective management of interest expenses, the Company was able to record a 12% increase in Total Operating Income before impairment.

Net Operating Income (After Impairment)

For the year under review, the impairment charge decreased by 22% to Rs. 405 million from the previous financial year’s charge of Rs. 522 million. This was as a result of the adoption of effective recovery strategies and the improved quality of credit disbursed. Thus, this resulted in a 25% increase in Net Operating Income after Impairment to Rs. 1.7 billion from the Rs. 1.4 billion recorded in 2014/15.

Cost Management

During the financial year under review, the Company was able to effectively manage its operational expenses. Thus, when compared to the previous year, Operating Expenses only increased by 8%. When analysing the composition of Operating Expenses, it is seen that Other Operating Expenses constitute 51% of total Operating Expenses and consist of administrative, marketing, maintenance and professional expenses, among others. Continuous action was taken to streamline and re-engineer internal processes, minimise wastage, renegotiate contractual terms with vendors and execute various cost saving initiatives in order to manage these costs. The result being that the Company was able to increase its efficiencies and productivity, while containing its cost exposure.

As a result of the cost saving initiatives adopted during the year, the Cost-to-Income Ratio reduced to 56% for this financial year, compared to the previous year’s figure of 58%. This reduction occurred as the Total Operating Income for this financial year increased by 12%, compared to the previous year, while the Total Operating Expenses increased by only 8%, compared to the previous year.

-

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

2,200

Rs. Mn

2011 - 2012 2012 - 2013 2013 - 2014 2014 - 2015 2015 - 2016Financial Year

793

1,391

2,058 2,0212,081

Interest Expense

18%51% 42%

6%

1%

Personal costs

Depreciation of property, plant and equipment

Amortisation of intangible assets

Other operating expenses

Composition of Operating Expenses 2015/16


69

Lending Portfolio

The total Net Lending Portfolio of the Company grew by 7% during this year to reach Rs. 16.9 billion as at 31st March 2016 from Rs. 15.7 billion in 2014/15. During the year, in line with the Company’s strategic decision to focus on business financing and decrease dependency upon the traditional Leasing & Hire Purchase products, the Business Loans portfolio grew by 28% to reach Rs. 11.6 billion.

Therefore, when analysing the Company’s portfolio mix, it is seen that the contribution from the Business Loans Portfolio has been significantly increasing. Additionally, the net Gold Loans Portfolio grew by a healthy 53% during the year, as a result of the Company’s re-engineering of its Gold Loan operations by improving the internal processes and controls in place.

Liquidity

The Company was able to maintain healthy liquid asset levels right throughout the year in excess of the minimum regulatory liquidity requirements. Liquid assets were maintained in the form of cash and cash equivalents, government securities, repos and bank deposits. With the relatively low interest regime that existed for a better part of the financial year, the Company decided to aggressively mobilise retail deposits and negotiate bank credit lines. This helped the Company lower

-

20%

40%

60%

80%

100%

Rs. Mn

2011 - 2012 2012 - 2013 2013 - 2014 2014 - 2015 2015 - 2016

Financial Year

75% 71%61%

56%58%

Cost to Income Ratio

Leasing & HPGold LoansGroup Personal LoansBusiness Loans

3,097

400

3,117

9,084

1,591610

3,050

11,606

8,325

3612,271

976

7,222

4341,672

618

6,005

2551,378

475

Rs. Mn

2011 - 2012 2012 - 2013 2013 - 2014 2014 - 2015 2015 - 2016Financial Year

Net Lending Portfolio

its interest costs by moving away from institutional deposits and commercial papers, both of which entailed higher interest costs and not undertake any high cost securitisations. This move has a positive effect on liquidity, with cash reserves improving. At the end of the 2015/16 financial year, in addition to unutilised credit lines worth Rs. 750 million, the Company’s liquid assets stood at Rs. 651 million in excess of the minimum regulatory level, compared to the previous year’s excess liquid asset level of Rs. 569 million.

Funding

Even in the context of the low interest rate environment that existed for the most part of the financial year, the Company was able to grow its public deposits portfolio by 14% from Rs. 12.4 billion to Rs. 14.1 billion. The Company made a strategic decision to focus on retail deposits and move away from institutional deposits, as they entailed a higher cost. Further, it was also decided to reduce its focus on commercial papers, as they too carried a higher cost. Bank borrowings had increased by 82% at the end of this financial year when compared to the previous year, as the Company decided to take advantage of the relatively low interest regime and obtain additional credit lines from banks. Overall, when looking at the Company’s funding mix, it is seen that the Company’s reliance on public deposits has comparatively increased to 77%, signifying the Company’s ability to draw in public funds, based on the trust the customers have on the Company.

Funding Mix 2014/15

Due to Banks

Due to Customers

Other Borrowed Funds

3%

69%

28%

Funding Mix 2015/16

Due to Banks

Due to Customers

Other Borrowed Funds

5%

77%

18%

70

STOCKBROKING SECTOR


Our fully owned stock broking subsidiary performed well in a lackluster market during the year whilst being ranked amoung the top 5 out of 28 equity broking houses during the year under review.

The ASPI (All Share Price Index) declined 11.0% and S&P Sri Lanka 20 Index also dipped 16.8%, with the ASPI closing at 6,072 and Standard & Poor’s SL 20 index at 3,204 by end March 2016. During the period under review, the market traded between a low of ASPI 5,862 index level and high of ASPI 7,499 index level. The daily average turnover level remained relatively low at approximately Rs. 961Bn (Rs. 1.5Bn in FY15) and daily average volume was 37,118k (67,134k in FY15). Further foreigners were net sellers during the period under review where the market saw a net foreign outflow of Rs. 9.6Bn (Rs. 31.9Bn inflow in FY15).

The Company recorded 20.0% dip in Brokerage fee Income for the financial year 2016 given the overall negative market sentiment. Total Asset base of the Company as at 31 March 2016 grew 7.0% to Rs. 355Mn. The Company would continue its focus on institutional business whilst maintaining 3 branches to service the existing retail client base.

5,000

2,500 4,500

5,000

5,500

6,000

6,500

7,000

7,500

8,000

3,000

3,500

4,000

4,500

Mar

-15

Apr -

15

May

-15

Jun

-15

Jul -

15

Aug

-15

Sep

-15

Oct -

15

Nov

-15

Dec

-15

Jan

-16

Feb

-16

Mar

-16

S&P S L20 (LHS) ASPI (RHS)

ASPI Vs S&P SL20


71

Independent Auditors’ Report 72Income Statement 73Statement of Financial Position 75Statement of Changes in Equity 77Statement of Cash Flow 79Notes to the Financial Statements 80

The Softlogic Capital’s Financial Statements is presented here, together with the details of the group’s financial position and performance and other

supplementary information

72

INDEPENDENT AUDITORS’ REPORT

TO THE SHAREHOLDERS OF SOFTLOGIC CAPITAL PLC

Report on the Financial Statements

We have audited the accompanying financial statements of Softlogic Capital PLC., (“the Company”), and the consolidated financial statements of the Company and its subsidiaries (“Group”), which comprise the statement of financial position as at 31 March 2016, and the income statement and statement of comprehensive income, statement of changes in equity and, cash flow statement for the year then ended, and a summary of significant accounting policies and other explanatory information.

Board’s Responsibility for the Financial Statements

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

Auditor’s Responsibility

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

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

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

Opinion

In our opinion, the consolidated financial statements give a true and fair view of the financial position of the Group as at 31 March 2016, and of its financial performance and cash flows for the year then ended in accordance with Sri Lanka Accounting Standards.

Other Matter

The financial statements of the Company and the Group for the year ended 31 March 2015 were audited by another auditor who expressed an unmodified opinion on those statements on 19 June 2015.

Report on other legal and regulatory requirements

As required by Section 163(2) of the Companies Act No. 07 of 2007, we state the following:

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

b) In our opinion:

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

• The financial statements of the Company give a true and fair view of its financial position as at 31 March 2016, and of its financial performance and cash flows for the year then ended in accordance with Sri Lanka Accounting Standards, and

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

Tel : +94 11 2463500Fax Gen : +94 11 2697369 Tax : +94 11 [email protected]

Ernst & YoungChartered Accountants201 De Saram PlaceP.O. Box 101Colombo 10Sri Lanka

Partners: W R H Fernando FCA FCMA M P D Cooray FCA FCMA R N de Saram ACA FCMA Ms. N A De Silva FCA Ms. Y A De Silva FCA W K B S P Fernando FCA FCMA Ms. K R M Fernando FCA ACMA Ms. L K H L Fonseka FCA A P A Gunasekera FCA FCMA A Herath FCA D K Hulangamuwa FCA FCMA LLB (Lond) H M A Jayesinghe FCA FCMA Ms. A A Ludowyke FCA FCMA Ms. G G S Manatunga FCA N M Sulaiman ACA ACMA B E Wijesuriya FCA FCMA

Principal T P M Ruberu FCMA FCCA

A member firm of Ernst and Young Global Limited

25 August 2016

Colombo

INDEPENDENT AUDITORS’ REPORT


73

INCOME STATEMENT

Year ended 31 MarchIn Rs.

Note Group Company

2016 2015 2016 2015

Revenue

Interest income 8 4,236,194,040 4,082,236,472 131,843 273,262

Fee and trading income 9 6,388,577,858 4,696,015,562 126,666,429 155,566,866

Other income and gains 10 182,227,927 107,536,038 3,242,579 981,423

Net realized gains/(losses) 11 31,264,226 148,002,914 - (6,025,410)

Net fair value gains 12 196,674,205 798,182,464 - -

Dividend income 13 121,193,350 121,977,100 66,020,158 219,967,809

Total revenue 11,156,131,606 9,953,950,550 196,061,009 370,763,950

Direct Expenses

Interest Expenses 14 (2,107,182,555) (2,174,083,268) (93,557,356) (108,349,409)

Other Direct Expenses (3,089,704,931) (2,510,004,869) (6,113,632) (3,339,150)

Impairment of loans and receivables (447,585,879) (522,295,525) - -

Net operating income 5,511,658,241 4,747,566,888 96,390,021 259,075,391

Administrative expenses (2,686,109,477) (2,350,392,382) (63,234,435) (44,332,007)

Distribution costs (423,102,155) (396,982,806) (773,763) -

Change in insurance contract liabilities (1,028,927,838) (944,348,981) - -

Other operating expenses (192,219,260) (213,411,797) (4,165,033) (1,058,022)

Profit before income tax 15 1,181,299,511 842,430,922 28,216,790 213,685,362

Income tax expense 16 (44,072,703) (59,934,071) (23,995) (49,734)

Profit for the year 1,137,226,808 782,496,851 28,192,795 213,635,628

Profit attributable to :

Equity holders of the parent 676,594,498 466,061,173 - -

Non-controlling interests 460,632,310 316,435,678 - -

Profit for the year 1,137,226,808 782,496,851 - -

Earnings Per Share (Rs.) 17 0.98 0.72 0.04 0.33

Figures in brackets indicates deductions.

The accounting policies and notes from pages 80 to 161 form an integral part of these financial statements.

INCOME STATEMENT

74

STATEMENT OF COMPREHENSIVE INCOME

Year ended 31 MarchIn Rs.

Group Company

2016 2015 2016 2015

Profit for the Year 1,137,226,808 782,496,851 28,192,795 213,635,628

Other Comprehensive Income

Other comprehensive income to be reclassified to income statement in subsequent periods

Net (Loss) / Gain on available-for-sale financial assets (1,518,581,525) 15,528,634 (917,179) 7,041,118

Available-for-sale financial assets reclassified to income statement (31,264,226) (177,170,684) - 6,025,410

Net change in fair value on derivative financial instruments - 30,540,342 - -

Net other comprehensive / (loss) income to be reclassified to income statement in subsequent periods (1,549,845,751) (131,101,708) (917,179) 13,066,528

Other comprehensive income not to be reclassified to income statement in subsequent periods

Gains on revaluation of land and buildings 83,168,283 - - -

Gain / (Loss) arising from changes in assumptions 1,570,960 5,354,182 - -

Net other comprehensive income not to be reclassified to income statement in subsequent periods 84,739,243 5,354,182 - -

Tax on other comprehensive income 23,415,286 - - -

Other comprehensive (loss)/ income for the year, net of tax (1,441,691,222) (125,747,526) (917,179) 13,066,525

Total comprehensive (loss)/ income for the year (304,464,414) 656,749,326 27,275,616 226,702,156

Attributable To :

Equity holders of the parent (172,741,081) 397,890,428 - -

Non-controlling interests (131,723,333) 258,858,898 - -

Other comprehensive income for the year (304,464,414) 656,749,326 - -




75

STATEMENT OF FINANCIAL POSITION

As at 31 MarchIn Rs.

Note Group Company

2016 2015Restated

2016 2015

Assets

Non-Current Assets

Property, plant and equipment 18 905,691,405 797,579,238 338,774 537,880

Intangible assets 19 2,570,853,575 2,688,950,653 - 571,263

Investment in subsidiaries 20 - - 4,377,013,625 4,005,768,273

Financial Assets - Available for sale at fair value 21.1 6,732,077,529 4,918,656,521 11,955,965 12,873,144

Financial Assets - Loans and receivables 21.3 4,669,834,913 2,350,210,693 - -

Financial Assets - Lease and hirepurchase 21.4 487,804,238 1,829,695,870 - -

Financial Assets - Held to maturity 21.5 228,593,733 223,631,245 - -

Deferred tax asset 34 81,978,420 14,953,055 14,759,960 14,759,960

Deferred expenses 22 138,684,364 96,498,398 - -

Total Non-Current Assets 15,815,518,176 12,920,175,674 4,404,068,324 4,034,510,521

Current Assets

Inventories 23 529,855,875 643,475,336 - -

Other current assets 24 989,284,998 968,317,384 2,886,941 10,035,321

Income tax receivable 37 6,153,060 - - -

Amounts due from related companies 45 - - 3,504,148 4,018,249

Financial Assets - Fair value through profit or loss 21.2 675,118,383 2,751,282,607 - -

Financial Assets - Available for sale at fair value 21.1 179,848,200 60,730,332 - -

Financial Assets - Loans and receivables 21.3 12,719,825,414 11,537,324,455 - -

Financial Assets - Lease and hirepurchase 21.4 1,060,611,926 1,255,372,072 - -

Financial Assets - Held to maturity 21.5 - 1,480,769,217 - -

Bank and cash balances 25 2,786,360,958 1,137,234,429 40,362,714 35,590,585

Total Current Assets 18,947,058,814 19,834,505,831 46,753,802 49,644,155

Total Assets 34,762,576,990 32,754,681,505 4,450,822,127 4,084,154,675

Capital and reserves

Stated capital 26 2,880,000,000 2,880,000,000 2,880,000,000 2,880,000,000

Reserve fund 28 124,166,209 73,662,858 - -

Available for sale reserve 28.3 (870,274,893) 35,939,065 (2,871,107) (1,953,928)

Revaluation Reserve 54,617,644 - - -

Retained earnings 955,268,930 413,961,626 136,691,173 108,498,378

Shareholders' funds 3,143,777,890 3,403,563,549 3,013,820,066 2,986,544,450

Non-controlling interest 2,463,467,137 2,619,260,988 - -

Total equity 5,607,245,027 6,022,824,537 3,013,820,066 2,986,544,450

76

As at 31 MarchIn Rs.

Note Group Company

2016 2015Restated

2016 2015

Non-Current Liabilities

Insurance provision - life 29. 6,058,200,177 5,029,272,339 - -

Put option liability 30 - 6,260,352 - 6,260,352

Interest baring borrowings 31. 2,917,614,711 2,550,176,000 817,053,500 175,216,000

Public deposits 32 1,521,942,995 2,214,295,777 - -

Employee benefit liabilities 33 84,774,085 71,639,429 - -

Deferred tax liabilities 34 16,480,197 20,109,228 - -

Deferred income 35 15,236,346 25,945,151 - -

Total Non-Current Liabilities 10,614,248,510 9,917,698,276 817,053,500 181,476,352

Current Liabilities

Trade and other payables 36 2,424,940,414 2,722,024,032 2,841,220 2,645,153

Put option liability 30 9,356,708 - 9,356,708 -

Current portion of Interest baring borrowings 31. 2,257,991,305 3,340,932,818 295,953,802 658,378,321

Public deposits 32 12,482,560,103 9,847,666,584 - -

Income tax liability 37 15,237,666 27,234,912 - -

Amounts due to related companies 45 473,763 - 473,763 -

Bank overdraft 25. 1,350,523,495 876,300,347 311,323,068 255,110,399

18,541,083,453 16,814,158,693 619,948,561 916,133,873

Total Equity and Liabilities 34,762,576,990 32,754,681,505 4,450,822,127 4,084,154,675

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

(Sgd.)

Head of Finance

The Board of Directors is responsible for the preparation and presentation of these Financial Statements.

Signed for and on behalf of Board by ;

Colombo 25 August 2016


(Sgd.)

Director

(Sgd.)

Director

STATEMENT OF FINANCIAL POSITION CONTD.


77

STATEMENT OF CHANGES IN EQUITY

GroupIn Rs.Year ended 31 March

Stated Capital

Reserve Fund

Investment Fund

Reserve

Available for Sale Reserve

RevaluationReserve

Retained Earnings

Non Controlling

Interest

Total Equity

As at 01 April 2014 2,176,000,000 46,657,940 47,312,568 123,955,721 - (603,881,308) 2,434,121,303 4,224,166,224

Prior Year Adjustment (Note 46) - - - - - (95,963,000) - (95,963,000)

As at 01 April 2014 (Restated) 2,176,000,000 46,657,940 47,312,568 123,955,721 - (699,844,308) 2,434,121,303 4,128,203,224

Profit for the year - - - - - 466,061,173 316,435,678 782,496,852

Other comprehensive income - - - (88,016,655) - 19,845,911 (57,576,781) (125,747,526)

Total Comprehensive Income - - - (88,016,655) - 485,907,084 258,858,898 656,749,326

Proceed from Share Issue 1,322,464,000 - - - - - - 1,322,464,000

Reduction of Stated Capital (618,464,000) - - - - 618,464,000 - -

Share Issue Expenses - - - - - (10,024,839) - (10,024,839)

Subsidiary dividend paid to non

controling interest - - - - - - (155,782,980) (155,782,980)

Transferred to reserve fund - 27,004,918 (47,312,568) - - 20,307,650 - -

Total changes in ownership interests in

subsidiaries that do not result in a loss

of control - - - - - (847,961) 82,063,767 81,215,806

As at 31 March 2015 (Restated) 2,880,000,000 73,662,858 - 35,939,065 - 413,961,626 2,619,260,988 6,022,824,537

Profit for the year - - - - - 676,594,498 460,632,310 1,137,226,808

Other comprehensive income - - - (906,213,958) 54,617,644 2,260,735 (592,355,642) (1,441,691,222)

Total comprehensive income - - - (906,213,958) 54,617,644 678,855,233 (131,723,332) (304,464,414)

Subsidiary dividend paid to non

controling interest - - - - - - (27,962,030) (27,962,030)

Transferred to reserve fund - 50,503,352 - - - (73,792,156) 23,288,805 -

Total transactions with owners,

recognised directly in equity - - - - - (63,755,773) (19,397,294) (83,153,067)

As at 31 March 2016 2,880,000,000 124,166,209 - (870,274,893) 54,617,644 955,268,930 2,463,467,137 5,607,245,027



78

CompanyIn Rs.Year ended 31 March

StatedCapital

Available forSale Reserve

RetainedEarnings

Total Equity

Balance as at 31 March 2014 2,176,000,000 (15,020,456) (714,076,412) 1,446,903,132

Profit for the year - - 213,635,628 213,635,628

Other comprehensive income - 13,066,528 - 13,066,528

Total comprehensive income 2,176,000,000 13,066,528 213,635,628 226,702,156

Proceeds from Share Issue 1,322,464,000 - - 1,322,464,000

Share Issue Expenses - - (9,524,838) (9,524,838)

Transfer to Retained Earnings (618,464,000) - 618,464,000 -

Balance as at 31st March 2015 2,880,000,000 (1,953,928) 108,498,378 2,986,544,450

Profit for the year - - 28,192,795 28,192,795

Other comprehensive income - (917,179) - (917,179)

Total comprehensive income - (917,179) 28,192,795 27,275,616

Balance as at 31 March 2016 2,880,000,000 (2,871,107) 136,691,173 3,013,820,066



STATEMENT OF CHANGES IN EQUITY CONTD.


79

Year ended 31 March Group Company

In Rs. Notes 2016 2015 2016 2015

Cash flow from operating activities

Profit before income tax 1,181,299,512 842,430,922 28,216,790 213,685,362

Adjustments for

Dividend income 14 (121,193,350) (121,977,100) (66,020,158) (219,967,809)

Profit on disposal of property, plant and equipment 10 (12,052,248) (1,248,348) - -

Loss on Disposal of vehicles 1,869,242 459,232 - -

Fair Value Gain/(loss) on equity investments 11,12 (227,938,431) (946,185,378) - 6,025,410

Impact on derivative financial instruments 3,096,356 19,056,000 3,096,356 -

Amortization of intangible assets 19 149,480,625 152,708,559 571,263 -

Interest expenses 14 2,107,182,555 2,174,083,268 93,557,356 108,349,409

Gratuity provision and related costs 33 22,647,519 20,240,407 - (61,500)

Impairment Provision 447,585,879 522,295,525 - -

Depreciation 19 154,956,428 125,161,831 199,106 298,817

Operating profit before working capital changes 3,706,934,088 2,787,024,917 59,620,713 108,329,689

(Increase)/decrease in deferred expense (42,185,965) (4,263,797) - -

(Increase)/decrease in inventories 113,619,461 19,318,497 - -

(Increase)/decrease in other current assets (54,107,807) 170,045,694 7,148,380 649,060

(Increase)/decrease in amounts due form related companies - - 514,101 (2,002,755)

(Increase)/decrease in financial assets - Available for sale at fair value (1,317,791,301) (942,240,654) - -

(Increase)/decrease in financial assets - Lease and hire purchase 1,536,651,778 1,905,268,681 - -

(Increase)/decrease in financial assets - Loans and receivables (3,940,819,835) (6,602,326,728) - -

(Increase)/decrease in financial assets - Held to maturity 1,475,806,730 (4,478,973) - -

(Increase)/decrease in financial assets - Fair value through profit or loss 132,920,829 921,894,204 - -

Increase/(decrease) in insurance provision - Life 1,028,927,838 1,297,446,521 - -

Increase /(decrease) in deferred income (10,708,805) 1,677,507 - -

Increase/(decrease) in trade and other payables (297,083,618) (310,208,182) 196,067 (4,920,151)

Increase /(decrease) in amount due to related companies 473,763 (3,219,480) 473,763 (3,305,866)

Increase/(decrease) in public deposits 1,942,540,737 2,749,219,409 - -

Cash generated from operations 4,275,177,892 1,985,157,616 67,953,025 98,749,977

Tax paid (80,493,530) (105,901,131) (23,995) (49,734)

Interest paid (2,107,182,555) (2,174,083,268) (93,557,356) (108,349,409)

Gratuity paid (7,941,903) (15,131,195) - -

Net cash generated from / (used in) operations 2,079,559,904 (309,957,978) (25,628,326) (9,649,166)

Cash flows from investing activities

Dividend Income 14 121,193,350 121,977,100 66,020,158 219,967,809

Investment in subsidiaries (371,245,352) (82,573,232) (371,245,352) (349,244,307)

Proceeds from non controlling interest 288,092,285 139,494,613 - -

Proceeds on Disposal of Property Plant & Equipment 25,235,432 1,473,158 - -

Subsidiary dividend paid to non-controlling interest (27,962,030) (155,782,980) - -

Proceeds on Disposal of Investments - 17,266,590 - 17,266,590

Purchase of Property & Equipment and Intangible Assets (224,467,406) (327,653,512) - -

Net cash (used in) / generated from investing activities (189,153,720) (285,798,263) (305,225,195) (112,009,908)

Cash flows from financing activities

Proceeds from Rights Issue - 1,322,464,000 - 1,322,464,000

Rights Issue Expense - (9,524,839) - (9,524,839)

Net proceeds from long term borrowings (715,502,802) (2,547,992,366) 279,412,981 (1,412,006,281)

Net cash used in /generated from financial activities (715,502,802) (1,235,053,205) 279,412,981 (99,067,120)

Net Increase/(Decrease) in Cash and Cash Equivalents 1,174,903,381 (1,830,809,446) (51,440,540) (220,726,194)

Cash & Cash Equivalents at the beginning of the year 260,934,082 2,091,743,528 (219,519,814) 1,206,380

Cash and Cash Equivalents at the end of the Year (Note A) 1,435,837,463 260,934,082 (270,960,354) (219,519,814)

A. Cash & Cash Equivalents

Cash & Bank Balances 2,786,360,958 1,137,234,429 40,362,714 35,590,585

Bank Overdrafts (1,350,523,495) (876,300,347) (311,323,068) (255,110,399)

1,435,837,463 260,934,082 (270,960,354) (219,519,814)



STATEMENT OF CASH FLOW

8080

NOTES TO THE FINANCIAL STATEMENTS

1. CORPORATE INFORMATION

1.1 Reporting Entity

Softlogic Capital PLC (the “Company”) is a public limited liability company incorporated and domiciled in Sri Lanka. The registered office and principal place of business of the Company is located at No 14, De Fonseka Place, Colombo 05. Ordinary shares of the Company are listed on the Colombo stock exchange.

1.2 Consolidated Financial Statements

The Financial statements for the year ended 31st March 2016, comprise “the Company” referring to Softlogic Capital PLC, as the holding company “The Group” referring to the companies that have been consolidated therein.

1.3 Approval of the Financial Statements

The Financial Statements for the year ended 31 March 2016 were authorized for issue by the Board of Directors on 25 August 2016.

1.4 Responsibility for financial statements

The responsibility of the Board of Directors in relation to the financial statements is set out in the Statement of Directors’ Responsibility report in the Annual report.

General Policies

1.5 Statements of compliance

The financial statements which comprise the Income Statement, Statement of Comprehensive Income, Statement of Financial Position, Statement of Changes in Equity and the Statement of Cash Flows, together with the accounting policies and notes (the “financial statements”) have been prepared in accordance with Sri Lanka Accounting Standards (SLFRS/ LKAS) as issued by the Institute of Chartered Accountants of Sri Lanka (CA Sri Lanka) and in compliance with the Companies Act No. 7 of 2007.

1.6 Principal activities and nature of operations

The principal activities of the Company and its subsidiaries (together referred to as the “Group”) are Investment Management, Insurance, leasing, hire purchase, granting loans, pawn broking, Stock Brokering and providing management consultancy and financial advisory services.

1.7 Parent enterprise & ultimate parent enterprise

In the opinion of the Directors the ultimate parent undertaking and controlling party is Softlogic Holdings PLC, which is incorporated Sri Lanka.

2. BASIS OF PREPARATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of preparation

The consolidated financial statements have been prepared on an accrual basis and under the historical cost convention except for land and buildings, derivative financial instruments, fair value through profit or loss financial assets and available-for-sale financial assets that have been measured at fair value.

2.1.1 Functional and presentation currency

The consolidated financial statements are presented in Sri Lankan Rupees (Rs.), which is the primary economic environment in which the holding Company operates. Each entity in the Group uses the currency of the primary economic environment in which they operate as their functional currency.

2.1.2 Going Concern

The Directors have made an assessment of the Group’s ability to continue as a going concern and they do not intend either to liquidate or to cease operations.

2.1.3 Comparative Information

The presentation and classification of the financial statements of the previous years have been amended , where relevant for better presentation and to be comparable with those of the current year, refer note 47.

2.1.4 Basis of consolidation

(a) Subsidiaries

Subsidiaries are all entities (including structured entities) over which the group has control. The group controls an entity when the group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the group. They are deconsolidated from the date that control ceases.


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The group applies the acquisition method to account for business combinations. The consideration transferred for the acquisition of a subsidiary is the fair values of the assets transferred, the liabilities incurred to the former owners of the acquiree and the equity interests issued by the group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. The group recognises any non-controlling interest in the acquiree on an acquisition-by-acquisition basis, either at fair value or at the non-controlling interest’s proportionate share of the recognised amounts of acquiree’s identifiable net assets.

Acquisition-related costs are expensed as incurred.

If the business combination is achieved in stages, the acquisition date carrying value of the acquirer’s previously held equity interest in the acquiree is re-measured to fair value at the acquisition date; any gains or losses arising from such re-measurement are recognised in profit or loss.

Any contingent consideration to be transferred by the group is recognised at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration that is deemed to be an asset or liability is recognised in accordance with IAS 39 either in profit or loss or as a change to other comprehensive income. Contingent consideration that is classified as equity is not re-measured, and its subsequent settlement is accounted for within equity.

Inter-company transactions, balances and unrealised gains on transactions between group companies are eliminated. Unrealised losses are also eliminated. When necessary, amounts reported by subsidiaries have been adjusted to conform with the group’s accounting policies.

(b) Changes in ownership interests in subsidiaries without change of control

Transactions with non-controlling interests that do not result in loss of control are accounted for as equity transactions - that is, as transactions with the owners in their capacity as owners. The difference between fair value of any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary is recorded in equity. Gains or losses on disposals to non-controlling interests are also recorded in equity.

(c) Disposal of subsidiaries

When the group ceases to have control any retained interest in the entity is re-measured to its fair value at the date when control is lost, with the change in carrying amount recognised in profit or loss. The fair value is the initial carrying amount for the purposes of subsequently accounting for the retained interest as an associate, joint venture or financial asset. In addition, any amounts previously recognised in other comprehensive income in respect of that entity are accounted for as if the group had directly disposed of the related assets or liabilities. This may mean that amounts previously recognised in other comprehensive income are reclassified to profit or loss.

Softlogic Finance PLC (SFPLC), Asian Alliance Insurance PLC (AAIC), Asian Alliance General Insurance LTD (AAGI), Softlogic Stockbrokers (Pvt) Ltd (SSB) & Capital Reach Portfolio Management (Pvt) Ltd (CRPM) have been included in the consolidated financial statements using an acquisition method of accounting. Accordingly consolidated financial statements include the results of SFPCL, AAIC, SSB & CRPM for the year ended 31st March 2016.

2.1.5 Segment Reporting

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the steering committee that makes strategic decisions.

2.1.6 Foreign currency translation

(a) Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions or valuation where items are re-measured. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement, except when deferred in other comprehensive income as qualifying cash flow hedges and qualifying net investment hedges.

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NOTES TO THE FINANCIAL STATEMENTS CONTD.

Foreign exchange gains and losses that relate to borrowings and cash and cash equivalents are presented in the income statement within ‘finance income or cost’. All other foreign exchange gains and losses are presented in the income statement within ‘other (losses)/gains - net’.

Changes in the fair value of monetary securities denominated in foreign currency classified as available for sale are analysed between translation differences resulting from changes in the amortised cost of the security and other changes in the carrying amount of the security. Translation differences related to changes in amortised cost are recognised in profit or loss, and other changes in carrying amount are recognised in other comprehensive income.

Translation differences on non-monetary financial assets and liabilities such as equities held at fair value through profit or loss are recognised in profit or loss as part of the fair value gain or loss. Translation differences on non-monetary financial assets, such as equities classified as available for sale, are included in other comprehensive income.

2.2 Significant accounting judgments

The Group’s consolidated financial statements and its financial result are influenced by accounting policies, assumptions, estimates and management judgement, which necessarily have to be made in the course of preparation of the consolidated financial statements.

The Group makes estimates and assumptions that affect the reported amounts of assets and liabilities within the next reporting period. All estimates and assumptions required in conformity with SLFRS are best estimates undertaken in accordance with the applicable standard.

Estimates and judgements are evaluated on a continuous basis, and are based on past experience and other factors, including expectations with regard to future events. Accounting policies and management’s judgements for certain items are especially critical for the Group’s results and financial situation due to their materiality.

a. Impairment losses on loans and advances

The Group reviews its loan portfolios to assess impairment at each reporting date. In determining whether an impairment loss should be recorded in the consolidated income

statement, the Group makes judgements as to whether there is any observable data indicating an impairment trigger followed by measurable decrease in the estimated future cash flows from a portfolio of loans before the decrease can be identified with that portfolio.

This evidence may include observable data indicating that there has been an adverse change in the payment status of borrowers in the Group or economic conditions that correlate with defaults on assets in the Group. Management uses estimates based on historical loss experience for assets with credit risk characteristics and objective evidence of impairment similar to those in the portfolio when scheduling its future cash flows.

The methodology and assumptions used for estimating both the amount and timing of future cash flows are reviewed regularly to reduce any differences between loss estimates and actual loss experience.

b. Impairment of available-for-sale equity investments

The Group determines that available-for-sale equity investments are impaired when there has been a significant or prolonged decline in the fair value below its cost. This determination of what is significant or prolonged requires judgement. In making this judgement, the Group evaluates among other factors, the volatility in share price. In addition, objective evidence of impairment may be deterioration in the financial health of the investee, industry and sector performance, changes in technology, and operational and financing cash flows.

Had all the declines in fair value below cost been considered significant or prolonged, the Group would have recognized an additional loss in its consolidated financial statements.

c. Fair value of financial instruments

The fair values of financial instruments where no active market exists or where quoted prices are not otherwise available are determined by using valuation techniques. In these cases, the fair values are estimated from observable data in respect of similar financial instruments or using models. Where market observable inputs are not available, they are estimated based on appropriate assumptions.


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d. Held-to-maturity investments

In accordance with LKAS 39 guidance, the Group classifies some non-derivative financial assets with fixed or determinable payments and fixed maturity as held-to-maturity. This classification requires significant judgement. In making this judgement, the Group evaluates its intention and ability to hold such investments to maturity. If the Group were to fail to keep these investments to maturity other than for the specific circumstances – for example, selling an insignificant amount close to maturity – the Group is required to reclassify the entire category as Available for Sale. Accordingly, the investments would be measured at fair value instead of amortized cost.

e. Deferred tax assets

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

f. Income Tax

The Group is subject to income taxes and other taxes. Significant judgment was required to determine the total provision for current, deferred and other taxes.

g. Useful life-time of the Property, plant and equipment

The Group reviews the residual values, useful lives and methods of depreciation of assets at each reporting date. Judgment of the management estimate these values, rates, methods and hence they are subject to uncertainty.

h. Fair value of Land and Buildings

Land and buildings are measured at fair value less accumulated depreciation on buildings and impairment losses are recognised after the date of the revaluation. Valuations are performed every two years to ensure that the fair value of a revalued asset does not differ materially from its carrying amount. The Valuation was carried out by Mr. P.B Kalugalagedara, Chartered Valuation Surveyor.

i. Defined Benefit Plans

The cost of defined benefit plans are determined using actuarial valuations. An actuarial valuation involves making various assumptions which may differ from actual developments in the future. These include the determination of the discount rate, future salary increases, mortality rates etc. Refer Note No 2.3.15 to understand how these rates have been determined.

j. Valuation of Insurance Contract Liabilities – Life Insurance

The valuation of the Long Term insurance business as at 31 March 2016 was carried out by the Consultant Actuary.

All Life Insurance contracts are subject to the Liability Adequacy Test (LAT) as required by SLFRS 4 – Insurance Contracts. The LAT was carried out by Mr. John C. Vieren, FSA MAA, of Messrs. Pinnacle Consulting Group Ltd. Hong - Kong.

k. Valuation of Insurance Contract liabilities – General Insurance

For General Insurance contracts, estimates have to be made both for the expected ultimate cost of claims reported at the Reporting Date and for the expected ultimate cost of claims incurred, but not yet reported, at the Reporting Date (IBNR). It can take a significant period of time before the ultimate claims cost can be established with certainty. The main assumption underlying estimating the amounts of outstanding claims is the past claims development experience. Large claims are usually separately addressed, either by being reserved at the face value of loss adjuster estimates or separately projected in order to reflect their future development. In most cases, no explicit assumptions are made regarding future rates of claims inflation or loss ratios. All General Insurance contracts are subject to a Liability Adequacy Test (LAT). The LAT was carried out by Messrs. NMG Consulting Pte Ltd, Singapore.

l. Deferred Acquisition Cost (DAC)

An impairment review is performed on DAC at each Reporting Date or more frequently when an indication of impairment arises. When the recoverable amount is less than the carrying value, an impairment loss is recognised in the Income Statement. No such indication of impairment was experienced during the year.

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DAC is derecognised when the related contracts are either settled or disposed of.

2.3 Summary of significant accounting policies

2.3.1 Property, plant & equipment

Land and buildings are shown at fair value, based on valuations by external independent valuers, less subsequent depreciation for buildings. Valuations are performed with sufficient regularity to ensure that the fair value of a revalued asset does not differ materially from its carrying amount. Any accumulated depreciation at the date of revaluation is eliminated against the gross carrying amount of the asset, and the net amount is restated to the revalued amount of the asset. All other property, plant and equipment is stated at historical cost less depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Cost may also include transfers from equity of any gains/losses on qualifying cash flow hedges of foreign currency purchases of property, plant and equipment.

Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the group and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognised. All other repairs and maintenance are charged to the income statement during the financial period in which they are incurred.

Increases in the carrying amount arising on revaluation of land and buildings are credited to other comprehensive income and shown as other reserves in shareholders’ equity. Decreases that offset previous increases of the same asset are charged in other comprehensive income and debited against other reserves directly in equity; all other decreases are charged to the income statement. Each year the difference between depreciation based on the revalued carrying amount of the asset charged to the income statement, and depreciation based on the asset’s original cost is transferred from ‘other reserves’ to ‘retained earnings’.

Land is not depreciated. Depreciation on other assets is calculated using the straight-line method to allocate their cost or revalued amounts to their residual values over their estimated useful lives, as follows:

Buildings 20 Years

Building improvements 5 Years

Furniture and fittings 10 Years / 5 Years

Computers and printers 5 Years

Office equipment 5 Years

Motor vehicles 4 Years

Office equipment on lease 5 Years

Motor vehicles on lease 4 Years

Furniture and fittings on lease 6.6Years

The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period.

An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount.

Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognised within ‘Other (losses)/gains – net’ in the income statement.

When revalued assets are sold, the amounts included in other reserves are transferred to retained earnings.

2.3.2 Leases

Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the income statement on a straight-line basis over the period of the lease.

The group leases certain property, plant and equipment. Leases of property, plant and equipment where the group has substantially all the risks and rewards of ownership are classified as finance leases. Finance leases are capitalised at the lease’s commencement at the lower of the fair value of the leased property and the present value of the minimum lease payments.

Each lease payment is allocated between the liability and finance charges. The corresponding rental obligations, net of finance charges, are included in other longterm payables. The


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interest element of the finance cost is charged to the income statement over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The property, plant and equipment acquired under finance leases is depreciated over the shorter of the useful life of the asset and the lease term.

2.3.3 Intangible assets

a. Goodwill

Goodwill arises on the acquisition of subsidiaries and represents the excess of the consideration transferred, the amount of any non-controlling interest in the acquiree and the acquisition-date fair value of any previous equity interest in the acquiree over the fair value of the identifiable net assets acquired. If the total of consideration transferred, non-controlling interest recognised and previously held interest measured at fair value is less than the fair value of the net assets of the subsidiary acquired, in the case of a bargain purchase, the difference is recognised directly in the income statement.

For the purpose of impairment testing, goodwill acquired in a business combination is allocated to each of the CGUs, or groups of CGUs, that is expected to benefit from the synergies of the combination. Each unit or group of units to which the goodwill is allocated represents the lowest level within the entity at which the goodwill is monitored for internal management purposes. Goodwill is monitored at the operating segment level.

Goodwill impairment reviews are undertaken annually or more frequently if events or changes in circumstances indicate a potential impairment. The carrying value of goodwill is compared to the recoverable amount, which is the higher of value in use and the fair value less costs to sell. Any impairment is recognised immediately as an expense and is not subsequently reversed.

b. Trademarks and licenses

Separately acquired trademarks and licenses are shown at historical cost. Trademarks and licenses acquired in a business combination are recognised at fair value at the acquisition date. Trademarks and licenses have a finite useful life and are carried at cost less accumulated amortisation. Amortisation is calculated using the straight-line method to allocate the cost of trademarks and licenses over their estimated useful lives of 5 to 20 years.

Acquired computer software licenses are capitalised on the basis of the costs incurred to acquire and bring to use the specific software. These costs are amortised over their estimated useful lives which does not exceed five years.

c. Computer software

Costs associated with maintaining computer software programmes are recognised as an expense as incurred. Development costs that are directly attributable to the design and testing of identifiable and unique software products controlled by the group are recognised as intangible assets when the following criteria are met:

• it is technically feasible to complete the software product so that it will be available for use;

• management intends to complete the software product and use or sell it;

• there is an ability to use or sell the software product;

• it can be demonstrated how the software product will generate probable future economic benefits;

• adequate technical, financial and other resources to complete the development and to use or sell the software product are available; and

• the expenditure attributable to the software product during its development can be reliably measured.

Directly attributable costs that are capitalised as part of the software product include the software development employee costs and an appropriate portion of relevant overheads.

Other development expenditures that do not meet these criteria are recognised as an expense as incurred.

Development costs previously recognised as an expense are not recognised as an asset in a subsequent period.

Computer software development costs recognised as assets are amortised over their estimated useful lives, which does not exceed five years.

d. Present Value of acquired in-force long term Insurance Business (PVIB)

The present value of future profits on a portfolio of long term life insurance contracts as at the acquisition date of Asian Alliance Insurance PLC is recognized as an intangible asset based on a valuation carried out by an independent actuary.

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Subsequent to initial recognition, the intangible asset is carried at cost less accumulated amortization and accumulated impairment losses.

The PVIB is amortized over the average useful life of the related contracts in the portfolio. The amortization charge and any impairment losses would be recognized in the consolidated income statement as an expense.

A summary of the policies applied to the Group’s intangible assets is as follows:

In-force Long-term Insurance Business

Brand Name

Computer Software

Stock-Broker License

Useful lives Definite Infinite Definite Infinite

Method used

Based on the tenure of existing policies

- 4 years -

Internally generated or acquired Acquired Acquired Acquired Acquired

Impairment testing

Annually & when & where an indication of impairment exists




2.3.4 Impairment of non-financial assets

Intangible assets that have an indefinite useful life or intangible assets not ready to use are not subject to amortisation and are tested annually for impairment. Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs of disposal and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are largely independent cash inflows (cash-generating units). Prior impairments of non-financial assets (other than goodwill) are reviewed for possible reversal at each reporting date.

2.3.5 Financial assets and liabilities

In accordance with LKAS 39, all financial assets and liabilities – which include derivative financial instruments – have to be recognised in the statement of financial position and measured in accordance with their assigned category.

2.3.5.1 Financial assets

The Company allocates financial assets to the following LKAS 39 categories: financial assets at fair value through profit or loss; loans and receivables; held-to-maturity investments; and available-for-sale financial assets. Management determines the classification of its financial instruments at initial recognition.

(a) Financial assets at fair value through profit or loss

Financial instruments included in this category are recognized initially at fair value; transaction costs are taken directly to the income statement. Gains and losses arising from changes in fair value are included directly in the income statement and are reported as ‘Net gains/(losses) on financial instruments classified as held for trading’. Interest income and expense and dividend income and expenses on financial assets held for trading are included in ‘Net interest income’ or ‘Dividend income’, respectively. The instruments are derecognized when the rights to receive cash flows have expired or the Group has transferred substantially all the risks and rewards of ownership and the transfer qualifies for derecognising.

Financial assets for which the fair value option is applied are recognized in the statement of financial position as ‘Financial assets designated at fair value’. Fair value changes relating to financial assets designated at fair value through profit or loss are recognized in ‘Net gains on financial instruments designated at fair value through profit or loss’.

(b) Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market, other than:

• those that the Group intends to sell immediately or in the short term, which are classified as held for trading, and those that the entity upon initial recognition designates as at fair value through profit or loss;


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• those that the Group upon initial recognition designates as available- for- sale; or

• those for which the holder may not recover substantially all of its initial investment, other than because of credit deterioration.

Loans and receivables are initially recognised at fair value – which is the cash consideration to originate or purchase the loan including any transaction costs – and measured subsequently at amortised cost using the effective interest rate method. Loans and receivables are reported in the statement of financial position as loans and advances to banks or customers or as investment securities. Interest on loans is included in the income statement and is reported as ‘Interest and similar income’. In the case of impairment, the impairment loss is reported as a deduction from the carrying value of the loan and recognised in the income statement as ‘Loan impairment charges.

They are included in current assets, except for maturities greater than 12 months after the end of the reporting period. These are classified as non-current assets.

(c) Held-to-maturity financial assets

Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturities that the Group’s management has the positive intention and ability to hold to maturity, other than:

• those that the Group upon initial recognition designates as at fair value through profit or loss;

• those that the Group designates as available for sale; and

• those that meet the definition of loans and receivables.

These are initially recognised at fair value including direct and incremental transaction costs and measured subsequently at amortised cost, using the effective interest method.

Interest on held-to-maturity investments is included in the statement of comprehensive income statement and reported as ‘Interest and similar income’. In the case of an impairment, the impairment loss is been reported as a deduction from the carrying value of the investment and recognised in the statement of comprehensive income statement as ‘Net gains/(losses) on investment securities’.

(d) Available-for-sale financial assets

Available-for-sale investments are financial assets that are intended to be held for an indefinite period of time, which may be sold in response to needs for liquidity or changes in interest rates, or equity prices or that are not classified as loans and receivables, held-to- maturity investments or financial assets at fair value through profit or loss.

Available-for-sale financial assets are initialy recognised at fair value, which is the cash consideration including any transaction costs, and measured subsequently at fair value with gains and losses being recognised as a part of equity, except for impairment losses and foreign exchange gains and losses, until the financial asset is derecognised. If an available-for-sale financial asset is determined to be impaired, the cumulative gain or loss previously recognised in the statement of comprehensive income is recognised in the statement of comprehensive income statement. However, interest is calculated using the effective interest method, and foreign currency gains and losses on monetary assets classified as available for sale are recognised in the statement of comprehensive income statement. Dividends on available-for-sale equity instruments are recognised in the statement of comprehensive income statement in ‘Dividend income’ when the Group’s right to receive payment is established.

They are included in non-current assets unless the investment matures or management intends to dispose of it within 12 months of the end of the reporting period.

2.3.5.2 ReclassificationofFinancialassets

The Group may reclassify financial assets within the frame work of LKAS 39 at the election of management.

01) Reclassify FVTPL financial assets other than those designated at FVTPL upon initial recognition, only in limited circumstances as per para 50B or 50D of LKAS 39 Out of the FVTPL category and into the available for sale, loans and receivable or held to maturity.

02) As per para 50E of LKAS 39, a financial asset classified as available for sale may be reclassified out of the available for sale category to loans and receivable if the entity has the intention and ability to hold the financial asset for the foreseeable future.

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2.3.5.3 Derivativefinancialinstrumentsandhedgingactivities

Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently re measured at their fair value. The method of recognising the resulting gain or loss depends on the whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. The Group designates certain derivatives either,

(a) Hedges of the fair value of recognised assets or liabilities or a firm commitment (Fair value hedge)

(b) Hedges of a particular risk associated with a recognised asset or liability or a highly probable forecast transaction (Cash flow hedge)

(c) Hedges of a net investment in a foreign operation (Net investment hedge)

The group documents at the inception of the transaction the relationship between hedging instruments and the hedged items, as well as its risk management objectives and strategies for undertaking various hedging transactions. The Company also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items.

The Fair values of various derivative instruments used for hedging purposes are disclosed in note 30. Movements on the hedging reserve on other comprehensive income (OCI) are shown in the same note. The fair value of a hedging derivative is classified as a non current asset or liability when the remaining hedged item is more than 12 months and as a current asset or liability when the remaining maturity of the hedged item is less than 12 months. Trading derivatives are classified as a current asset or liability.

(a)Fairvaluehedge

Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in the income statement, together with any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk. The group only applies fair value hedge accounting for hedging fixed interest risk on borrowings. The gain or loss relating to the effective portion of interest rate swaps

hedging fixed rate borrowings is recognised in the income statement within ‘Finance costs’. The gain or loss relating to the ineffective portion is recognised in the income statement within ‘Other gains/(losses) – net’. Changes in the fair value of the hedge fixed rate borrowings attributable to interest rate risk are recognised in the income statement within ‘Finance costs’.

If the hedge no longer meets the criteria for hedge accounting, the adjustment to the carrying amount of a hedged item for which the effective interest method is used is amortised to profit or loss over the period to maturity.

(b) Cash flow hedge

The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognised in OCI . The gain or loss in relation to ineffective portion is recognised immediately in the income statement.

Amounts accumulated in equity are reclassified to profit or loss in the periods when the hedged item affects profit or loss (for example, when the forecast sale that is hedged takes place). The gain or loss relating to the effective portion of interest rate swaps hedging variable rate borrowings is recognised in the income statement within ‘Finance income/cost’. However, when the forecast transaction that is hedged results in the recognition of a non-financial asset (for example, inventory or fixed assets), the gains and losses previously deferred in equity are transferred from equity and included in the initial measurement of the cost of the asset. The deferred amounts are ultimately recognised in cost of goods sold in the case of inventory or in depreciation in the case of fixed assets.

When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity and is recognised when the forecast transaction is ultimately recognised in the income statement. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately transferred to the income statement within ‘Other gains/(losses) – net’.

(c) Net investment hedge

Hedges of net investments in foreign operations are accounted for similarly to cash flow hedges.


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Any gain or loss on the hedging instrument relating to the effective portion of the hedge is recognised in other comprehensive income. The gain or loss relating to the ineffective portion is recognised in the income statement. Gains and losses accumulated in equity are included in the income statement when the foreign operation is partially disposed of or sold.

2.3.5.4Financialliabilities

The Group’s holding in financial liabilities is in financial liabilities at Fair Value Through Profit or Loss and financial liabilities at amortized cost. Financial liabilities are derecognized when extinguished.

All financial liabilities are recognized initially at fair value and in the case of borrowings, plus directly attributable transaction costs.

The Group’s financial liabilities include borrowings, public deposits, derivative financial instruments, trade and other payables and bank overdrafts.

FinancialliabilitiesatFairValueThroughProfitorLoss

Financial liabilities at FVTPL include financial liabilities held-for-trading or designated as such upon initial recognition. Subsequent to initial recognition, financial liabilities at FVTPL are measured at fair value, and changes there in recognized in profit or loss. Upon initial recognition, transaction cost are directly attributable to the acquisition are recognised in profit or loss as incurred. The criteria for designation of financial liabilities at FVTPL upon initial recognition are the same as those of financial assets at FVTPL.

Financialliabilitiesmeasuredatamortizedcost

Financial liabilities that are not classified as at fair value through profit or loss fall into this category and are subsequently measured at amortized cost. Financial liabilities measured at amortized cost are deposits from customers and debt securities in issue for which the fair value option is not applied.

2.3.5.5 Determination of fair value

For financial instruments traded in active markets, the determination of fair values of financial assets and financial liabilities is based on quoted market prices.

A financial instrument is regarded as quoted in an active market if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service or regulatory agency, and those prices represent actual and regularly occurring market transactions on an arm’s length basis.

For all other financial instruments, fair value is determined using valuation techniques. In these techniques, fair values are estimated from observable data in respect of similar financial instruments, using models to estimate the present value of expected future cash flows or other valuation techniques, using inputs existing at the reporting dates for more complex instruments, the Group uses internally developed models, which are usually based on valuation methods and techniques generally recognised as standard within the industry.

The output of a model is always an estimate or approximation of a value that cannot be determined with certainty, and valuation techniques employed may not fully reflect all factors relevant to the positions the Group holds. Valuations are therefore adjusted, where appropriate, to allow for additional factors including model risks, liquidity risk and counterparty credit risk.

Based on the established fair value model governance policies, and related controls and procedures applied, management believes that these valuation adjustments are necessary and appropriate to fairly state the values of financial instruments carried at fair value in the statement of financial position. Price data and parameters used in the measurement procedures applied are generally reviewed carefully and adjusted, if necessary – particularly in view of the current market developments.

In cases when the fair value of unlisted equity instruments cannot be determined reliably, the instruments are carried at cost less impairment. The fair value for loans and advances as well as liabilities to banks and customers are determined using a present value model on the basis of contractually agreed cash flows, taking into account credit quality, liquidity and costs.

The fair values of contingent liabilities and irrevocable loan commitments correspond to their carrying amounts.

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2.3.5.6Recognitionofdiffereddayoneprofitandloss

The best evidence of fair value at initial recognition is the transaction price (that is, the fair value of the consideration given or received), unless the fair value of that instrument is evidenced by comparison with other observable current market transactions in the same instrument (that is, without modification or repackaging) or based on a valuation technique whose variables include only data from observable markets.

The Group has entered into transactions, some of which will mature after significant period of time, where fair value is determined using valuation models for which not all inputs are market observable prices or rates. Such financial instruments are initially recognised at the transaction price, although the value obtained from the relevant valuation model may differ. The difference between the transaction price and the model value, commonly referred to as ‘day one profit and loss’, is not recognised immediately in the income statement.

The timing of recognition of deferred day one profit and loss is determined individually. It is either amortised over the life of the transaction, deferred until the instrument’s fair value can be determined using market observable inputs, or realised through settlement. The financial instrument is subsequently measured at fair value, adjusted for the deferred day one profit and loss. Subsequent changes in fair value are recognised immediately in the income statement without immediate reversal of deferred day one profits and losses.

2.3.5.7Derecognitionoffinancialinstruments

Financial assets are derecognised when the contractual rights to receive the cash flows from these assets have ceased to exist or the assets have been transferred and substantially all the risks and rewards of ownership of the assets are also transferred. Financial liabilities are derecognised when they have been redeemed or otherwise extinguished.

Collateral furnished by the Group under standard repurchase agreements and securities lending and borrowing transactions is not derecognised because the Group retains substantially all the risks and rewards on the basis of the predetermined repurchase price, and the criteria for derecognition are therefore not met. This also applies to certain securitisation transactions in which the Group retains a portion of the risks.

A financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires.

When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange o modification is treated as a derecognition of the original liability and the recognition of a new liability and the difference in the respective carrying amounts is recognised in the Income Statement.

Investment sold together with a deep in the money put option are not derecognised from the Statement of Financial Position as the Group retains substantially all of the risks and rewards o ownership. The corresponding cash received is recognised in the consolidated Statement of Financial Position as an asset with a corresponding obligation to return it, including accrued interest as financial liability, reflecting the transaction’s economic substance as a loan to the Group. The difference between the sale and put option exercise price is treated as interest expense and is accrued over the life of agreement using the EIR.

2.3.6 Impairment of financial assets

The Group assesses at each reporting date whether there is any objective evidence that a financial asset or a group of financial assets is impaired. A financial asset or a group of financial assets is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events that has occurred after the initial recognition of the asset (an incurred ‘loss event’) and that loss event has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated. Evidence of impairment may include indications that the debtors or a group of debtors is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganization and where observable data indicate that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults.

a. Financial assets carried at amortized cost

For financial assets carried at amortized cost, the Group first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, or collectively for financial assets that are not individually significant. If the Group determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics


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and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is, or continues to be, recognized are not included in a collective assessment of impairment.

If there is objective evidence that an impairment loss has been incurred, the amount of the loss is measured as the difference between the assets carrying amount and the present value of estimated future cash flows (excluding future expected credit losses that have not yet been incurred). The present value of the estimated future cash flows is discounted at the financial asset’s original effective interest rate. If a loan has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate.

Individual assessment of loans and receivable for impairment

In Initial stage of IFRS implementation group has considered all legal cases related lease and HP receivables and past due contractual payments of either principle or interest as individually assessed loans and receivables.

If there is objective evidence that an impairment loss has been incurred, the amount of the loss is measured as the difference between the assets carrying amount and the present value of estimated future cash flows (excluding future expected credit losses that have not yet been incurred).This encompasses re assessment of the enforceability of any collateral held and the timing and amount of actual and anticipated receipts. The present value of the estimated future cash flows is discounted at the financial asset’s original effective interest rate. If a loan has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate.

The carrying amount of the asset is reduced through the use of an allowance account and the amount of the loss is recognized in the consolidated income statement. Interest income continues to be accrued on the reduced carrying amount and is accrued using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. The interest income is recorded as part of finance income in the consolidated income statement. Loans together with the associated allowance are written off when there is no realistic prospect of future recovery and all collateral has been realized or has been transferred to the Group. If, in a subsequent period, the amount of the estimated impairment loss increases or decreases because of an event occurring after the impairment was recognized, the previously recognized impairment loss is

increased or reduced by adjusting the allowance account. If a future write-off is later recovered, the recovery is credited to finance costs in the consolidated income statement.

Collective assessment of impairment

Collective impairment is based on the statistical model of net flow rate method which takes in to consideration of all historical loss experience in similar credit risk and it is based on the customer credit risk patterns. Based on the asset type total portfolio has segmented into similar credit risk groups. Under this methodology the movements in the outstanding balances of customers in to arrears buckets over the periods are used to estimate the amount of loans that will eventually be written off as a result of the events occurring before the balance sheet date which the Group is not able to identify on an individual loan basis, and that can be reliably estimated. In arriving at ultimate loss ratios Group has considered the past trend in collateral realization and management judgment as to whether current economic and credit conditions are such that the actual losses are likely to be grater or less than suggested by historical data.

Under above methodology, loans are grouped in to ranges according to the number of days in arrears and statistical analysis is used to estimate the likelihood that loans in each range will progress through the various stages of delinquency and ultimately prove irrecoverable.

Write off of loans and advances

The Group write offs certain loans and advances when they are determined to be uncollectible.

b. Available-for-sale financial investments

For available-for-sale financial investments, the Group assesses at each reporting date whether there is objective evidence that an investment or a group of investments is impaired. In the case of equity investments classified as available-for-sale, objective evidence would include a significant or prolonged decline in the fair value of the investment below its cost. ‘Significant’ is evaluated against the original cost of the investment and ‘prolonged’ against the period in which the fair value has been below its original cost. Where there is evidence of impairment, the cumulative loss — measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that investment previously recognized in the consolidated income statement— is removed from other comprehensive income

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and recognized in arriving the net income for the period. Impairment losses on equity investments are not reversed through the consolidated income statement; increases in their fair value after impairments are recognized directly in other comprehensive income.

In the case of debt instruments classified as available-for-sale, impairment is assessed based on the same criteria as financial assets carried at amortized cost. However, the amount recorded for impairment is the cumulative loss measured as the difference between the amortized cost and the current fair value, less any impairment loss on that investment previously recognized in the consolidated income statement.

Future interest income continues to be accrued based on the reduced carrying amount of the asset, using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. The interest income is recorded as part of finance income. If, in a subsequent period, the fair value of a debt instrument increases and the increase can be objectively related to an event occurring after the impairment loss was recognized in the consolidated income statement, the impairment loss is reversed in arriving net income for the period.

2.3.7 Insurance and Investments Contracts

SLFRS 4 – Insurance Contracts, requires contracts written by insurer to be classified as either “Insurance” or “Investment” depending on the level of insurance risk transferred.

2.3.7.1Productclassification

Insurance Contracts

SLFRS 4 requires contracts written by insurers to be classified as either “insurance contracts” or “investment contracts” depending on the level of insurance risk transferred.Insurance contracts are contracts under which one party (the Insurer) accepts significant insurance risk from another party (the policyholder) by agreeing to compensate the policyholder if a specified uncertain future event (the insured event) adversely affects the policyholder. Significant insurance risk exists if an insured event could cause an insurer to pay significant additional benefits in any scenario, excluding scenarios that lack commercial substance (i.e. have no discernible effect on the economics of the transaction). The classification of contracts identifies both the insurance contracts that the Company issues and reinsurance contracts that the Company holds.

The classification of contracts identifies both the insurance contracts that the Company issues and reinsurance contracts that the Company holds.

Investment Contracts

Investment contracts are those contracts that transfer financial risk with no significant insurance risk.

Financial risk is the risk of a possible future change in one or more of a specified interest rate, price of the financial instrument, commodity price, foreign exchange rate, index of price or rates, credit rating or credit index or other variable, provided in the case of a non financial variable that the variable is not specific to a party to the contract.

SubsequentClassification

Once a contract has been classified as an insurance contract, it remains an insurance contract for the remainder of its lifetime, even if the insurance risk reduces significantly during this period, unless all rights and obligations are extinguished or expire. Investment contracts can, however, be reclassified as insurance contracts after inception if insurance risk becomes significant. Insurance and investment contracts are further classified as being either with or without discretionary participating features (“DPF”).

DiscretionaryParticipatingFeatures(DPF)

DPF is a contractual right to receive, as a supplement to guaranteed benefits, additional benefits that are:

(a) Likely to be a significant portion of the total contractual benefits;

(b) The amount or timing of which is contractually at the discretion of the issuer;

(c) That are contractually based on:

The performance of a specified pool of contracts or a specified type of contract

Realised and or unrealised investment returns on a specified pool of assets held by the issuer


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The profit or loss of the Company, fund or other entity that issues the contract

Derivatives embedded in an insurance contract or an investment contract with DPF are separated and fair valued Statement of Income unless the embedded derivative itself is an through the insurance contract or investment contract with DPF. The derivative is also not separated if the host insurance contract and/or investment contract with DPF is measured at fair value through the income statement.

IBSL regulations and the terms and conditions of these contracts set out the bases for the determination of the amounts on which the additional discretionary benefits are based (the DPF eligible surplus) and within which the Company may exercise its discretion as to the quantum and timing of their payment to contract holders. At least 90% of the eligible surplus must be attributed to contract holders as a group (which can include future contract holders) and the amount and timing of the distribution to individual contract holders is at the discretion of the Company, subject to the advice of the appointed actuary. All DPF liabilities including unallocated surpluses, both guaranteed and discretionary, at the end of the reporting period are held within insurance contract liabilities, as appropriate.

Product Portfolio of the Group

All product sold by the Group are insurance contracts and therefore classified as Insurance Contracts thus the Group does not have any investment contracts within its portfolio as at reporting date.

2.3.8 Reinsurance Receivables

The Group cedes insurance risk in the normal course of business for all of its businesses. Reinsurance receivables represent balances due from reinsurance companies. These assets consist of short-term balances due from reinsurers, as well as longer term receivables that are dependent on the expected claims and benefits arising under the related reinsured insurance contracts. Amounts recoverable from reinsurers are estimated in a manner consistent with the outstanding claims provision or settled claims associated with the reinsurer’s policies and are in accordance with the related reinsurance contract.

2.3.9 Premium Receivable

Insurance receivables from General Insurance are recognised when due and measured on initial recognition at the fair value of the consideration receivable. Collectability of premiums is reviewed on an ongoing basis. According to the Premium Payment Warranty (PPW) directive issued by the Insurance Board of Sri Lanka (IBSL), all general insurance policies are issued subject to PPW and are cancelled upon the expiry of 60 days if not settled.

Due Life Insurance premiums (only the premiums due in the 30 day grace period) are recognized at each Reporting Date and will be reversed if the premiums are not settled during the subsequent month, and thus the policies will be lapsed as per the Company policy.

2.3.10 Deferred acquisition costs (DAC)

Deferred acquisition costs comprise commissions and other variable costs directly connected with acquisition or renewal of insurance contracts, are deferred to the extent that these costs are recoverable out of future premiums. All other acquisition costs are recognised as an expense when incurred. DAC is not calculated for Life Insurance Contracts as the acquisition costs are incurred in line with the revenues earned.

DAC is amortised over the period in which the related revenues are earned. In line with the available regulatory guidelines from the Insurance Board of Sri Lanka (IBSL), the DAC is calculated based on the 1/365th basis for non marine and 60:40 basis for marine class. The re-insurers share of deferred acquisition costs is amortised in the same manner as the unearned premium reserve is amortised. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are accounted for by changing the amortisation period and are treated as a change in an accounting estimate.

An impairment review is performed at each reporting date or more frequently when an indication of impairment arises. DAC is reviewed for recoverability based on the profitability of the underlying insurance contracts and when the recoverable amount is less than the carrying value, an impairment loss is recognised in the Statement of Income.

DAC are derecognised when the related contracts are either settled or disposed.

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2.3.11 Reinsurance Commission - Unearned commission reserve (UCR) - General

Commissions receivable on outwards reinsurance contracts are deferred and amortised on a straight line basis over the term of the expected premiums payable.

2.3.12 Lease rentals receivable and hire purchase rentals receivable

Assets leased to customers under agreements, which transfer substantially all the risks and rewards associated with ownership other than legal title, are classified as finance leases. Lease rentals receivable in the Statement of financial position represents total minimum lease payment due, net of unearned income and provision for doubtful recoveries.

Assets sold to customers under fixed rate hire purchase agreements, which transfer all risks and rewards as well as the legal title at the end of such contractual period are classified as hire purchase rentals receivable. Such assets are accounted for similar manner as finance leases.

The accounting for lease income is on the basis of the financing method.

The excess of aggregate rental receivable over the cost of the leased assets constitutes the total income at the commencement of the contract. The unearned income is taken into account over the period of lease, commencing from the month in which the lease is executed, in proportion to the declining receivable balance of the lease.

Income arising from the residual interest on hire purchase agreements is credited to the Income Statement as it accrues in proportion to the declining receivable balance of the agreement.

However, accrual of income from leases and hire purchase agreements cease when the account is impaired specifically.

2.3.13 Other non-financial assets

Inventories

Inventories are valued at lower of cost and net realizable value, after making due allowances for obsolete and slow moving items. Net realizable value is the estimated price at which inventories can be sold in the ordinary course of business

less the estimated cost of completion and the estimated cost necessary to make the sale.

The cost incurred in bringing inventories to it’s present location and conditions accounted for as follows;

• Vehicle stock - at purchase cost on a specific identification basis

• Real estate stocks - at purchase values of properties acquired and at value of related asset extinguished for properties repossessed and any subsequent expenditure incurred on such development including the borrowing costs up to the completion of developments

• Repossessed Vehicle - based on the valuation obtained as at the date of repossession.

• Consumables - at the lower of cost and net realizable value, after making due allowances for obsolete and slow moving items

Cost is determined on a weighted average basis.

Net realizable value is the price at which inventories can be sold in the ordinary course of business.

2.3.14 Cash and cash equivalents

Bank balances and cash in the consolidated statement of financial position comprise cash in hand, demand deposits and liquid investments readily convertible to identified amounts of cash and subject to insignificant change in value with an original maturities of three months or less.

For the purpose of the consolidated statement of cash flows, cash and cash equivalents consists of bank balances and cash as defined above, net of outstanding bank overdrafts.

The consolidated cash flow statement has been prepared using the indirect method.

2.3.15 Retirement benefit costs

a. Defined benefit plans – gratuity

All the employees of the group are eligible for gratuity under the Gratuity Act No. 12 of 1983.The Company measures the present value of the promised retirement benefits of


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gratuity which is a defined benefit plan with the advice of an actuary using the Projected Unit Credit Method. The actuarial valuation involves making assumptions about discount rate, expected rates of return on assets, future salary increases and mortality rates. Due to the long-term nature of these plans, such estimates are subject to significant uncertainty. All assumptions are reviewed at each reporting date.

Actuarial gains and losses arising from the experience adjustments and changes in actuarial assumptions are charged or credited to equity in other comprehensive income in the year in which they arise.

Past service costs are recognised immediately in income, unless the change to the pension plans is conditional on the employees remaining in service for a specified period of time (the vesting period). In this case the past service costs are amortised on straight line basis over the vesting period.

The key assumptions used (Company and the Group) by the actuary include the following:

Rate of interest 10%

Rate of salary increase 7%

Retirement age 55 years

The gratuity liability is not externally funded. This item is grouped under ‘Deferred liabilities’ in the consolidated statement of financial position.

b. Defined contribution plans -Employees’ Provident Fund and Employees’ Trust Fund

All Employees are eligible for Employees’ Provident Fund Contributions and Employees’ Trust Fund Contributions by the Group in line with respective statutes and regulations. The Group contributes 12% to the respective provident fund and 3% to the Employees Trust Fund of such employees’ gross emoluments.

2.3.16 Interest Bearing Borrowings

Interest bearing loans are subsequently measured at amortised cost using, the effective interest rate method. Gains and losses are recognised in the income statement when the liabilities are derecognised as well as through the effective interest rate method (EIR) amortisation process. Amortised cost is calculated by taking into account any discount or

premium on acquisition and fees or costs that are an integral part of the EIR. The EIR amortisation is included in finance costs in the income statement.

2.3.17 Provisions

Provisions are recognized when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Where the Group expects some or all of a provision to be reimbursed, the reimbursement is recognized as a separate asset but only when the reimbursement is virtually certain the expense relating to any provision is presented in the consolidated income statement net of any reimbursement. If the effect of the time value of money is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and where appropriate, the risks specific to the liability. Where discounting is used the increase in the provision due to the passage of time is recognized as an interest expense in the consolidated income statement.

2.3.18 Insurance contract liabilities

a. Life insurance contract liabilities

Measurement

Life insurance liabilities are recognised when contracts are entered into and premiums are charged. These liabilities are measured by using the Net Premium Valuation (NPV) method as specified by the Insurance Board of Sri Lanka (IBSL) based on the recommendation of the Independent Consultant Actuary.

The liability is determined as the sum of the discounted value of the expected future benefits, less the discounted value of the expected future premiums that would be required to meet the future cash outflows based on the valuation assumptions used. The liability is computed based on IBSL specified guidelines and current assumptions which vary based on the contract type. Furthermore, adjustments are performed to capture the likely liabilities that may arise due to currently lapsed contracts reviving in the future.

The minimum mandated amounts, which are to be paid to policyholders plus any declared / undeclared additional benefits, are recorded in liabilities.

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De - recognition

The liability is derecognised when the contract expires, is discharged or is cancelled.

At each reporting date, an assessment is made of whether the recognized life insurance liabilities are adequate net by using an existing liability adequacy test.

b. General insurance contract liabilities

Measurement

General insurance contract liabilities include the outstanding claims provision (Reserve for gross outstanding and Incurred but not reported, and Incurred but not enough reported - IBNR / IBNER) and the provision for unearned premium and the provision for premium deficiency.

Gross Claims Payable including IBNR

The outstanding claims provision is based on the estimated ultimate cost of all claims incurred but not settled at the reporting date, whether reported or not, together with related claims handling costs and reduction for the expected value of salvage and other recoveries. Delays can be experienced in the notification and settlement of certain types of claims, therefore, the ultimate cost of these cannot be known with certainty at the reporting date. The liability is calculated at the reporting date using a range of standard actuarial claim projection techniques, based on empirical data and current assumptions that may include a margin for adverse deviation. The liability is not discounted for the time value of money. No provision for equalisation or catastrophe reserves is recognised.

The liabilities are derecognised when the obligation to pay a claim expires, is discharged or is cancelled.

The liabilities are derecognised when the obligation to pay claim expires, is discharged or is cancelled.

IBNR reserve is decided by an independent external actuary.

Reserve for Unearned Premium (UPR)

The reserve for unearned premium represents that portion of premium received or receivable that relates to risks that have not yet expired at the reporting date. The provision is

recognised when contracts are entered and is brought to account as premium income over the term of the contract in accordance with the pattern of insurance service provided under the contract.

Provision for unearned premium is calculated on a 1 /365 basis except for marine / cargo class which is subject to 60 / 40 basis.

Liability Adequacy Test (LAT)

At the end of each reporting period the Company reviews its unexpired risk and a liability adequacy test is performed as laid out in SLFRS 4 to determine whether there is any overall excess of expected claims and deferred acquisition costs over unearned premium. The calculation uses current estimates of future cash flows after taking account of the investment return expected to arise from assets relating to the relevant general insurance technical provisions.

If the assessments show that the carrying amount of the unearned premium (less related Deferred Acquisition Costs) is inadequate, the deficiency shall be recognised in the Statement of Income by setting up a provision for liability adequacy.

Title Insurance Reserve

Title insurance reserve is maintained by the Company to pay potential claims arising from the Title Insurance policies. Title Insurance policies are normally issued for a long period such as 5 years or more. Thus, no profit is recognised in the first year of the policy given the relatively higher probability of claims occurring in the first year. From the 2nd year onwards, profit is recognised by amortising the premium received and will be distributed throughout the remaining period of the policy using the straight line method. Profit in the first year will be recognised in the 2nd year and thereafter it is periodically recognised. If the corresponding loan of the Title Insurance Policy issued is settled before the maturity, full premium of such policies remaining as at the date of settlement of such loan is recognised in profits upon confirmation of the same by the respective Bank.

2.3.19 Reserve fund

Reserve fund is a statutory reserve created in compliance with the direction No. 1 of Central Bank Regulations of 2003. The amount transferred is not less than 5% of the net profit after taxation.


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2.3.20 Investment fund reserve

Investment fund reserve created in compliance with the guidelines issued by Value added Tax Act No 14 of 2002, under the cover of the letter No. 02/17/800/0014/01. The amount transferred is equal to the summation of,

a. An amount equal to 8% of the value addition computed for financial VAT purposes

b.An amount equal to 5% of profits computed for income tax

However, in compliance with the new guidline issued under the letter No. 24/10/001/0004/001 by Central Bank, the operation of Investment fund reserve has ceased with effect from October 1, 2014 and the balance has been transferred to retained earnings.

2.3.21 Taxation

a. Income tax

Current income tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the reporting date.

The provision for income tax is based on the elements of income and expenditure as reported in the consolidated financial statements and computed in accordance with the provisions of the relevant tax legislations.

Current income tax relating to items recognized directly in equity is recognized in equity and not in the consolidated income statement.

b. Deferred tax

Deferred income tax is provided, using the liability method, on temporary differences at the reporting date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.

Deferred income tax liabilities are recognized for all taxable temporary differences except where the deferred income tax liability arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss.

Deferred income tax assets are recognized for all deductible temporary differences, carry-forward of unused tax assets and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry-forward of unused tax assets and unused tax losses can be utilized except where the deferred income tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss.

The carrying amount of deferred income tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilized.

Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realized or the liability is settled, based on tax rates that have been enacted or substantively enacted at the reporting date.

Deferred income tax relating to items recognized directly in equity is recognized in equity and not in the consolidated income statement.

2.3.22 VAT on financial services

VAT on financial services is calculated based on VAT Act No 14 of 2002 and subsequent amendments thereto

2.3.23 Borrowing costs

Borrowing costs directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial period of time to get ready for its intended use or sale are capitalised as part of the cost of the respective assets. All other borrowing costs are expensed in the period they occur. Borrowing costs consist of interest and other costs that the group incurs in connection with the borrowing of funds.

2.3.24 Revenue recognition

Revenue represents the amounts derived from the provision of goods and services and lending activities to customers outside the Group which fall within the Group’s ordinary activities net of trade discounts and turnover related taxes. All intra group transactions have been eliminated.

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Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured.

The following specific criteria are used for the purpose of recognizing revenue.

a. Professional fee income

Revenue associated with rendering service s recognized by reference to the stage of completion. Where the contract outcome cannot be measured reliably, revenue is recognized only to the extent that the expenses incurred are eligible to be recovered.

b. Income from hire rental and operating leases

Income from hire rental and operating leases is recognized on a straight line basis over the term of hire rental and operating lease agreements.

c. Overdue charges

Overdue charges of leasing / hire purchase have been accounted for on cash received basis.

d. Dividend income

Dividend income is recognized when the Group’s right to receive the payment is established.

e. Interest income

For all financial assets measured at amortised cost and interest bearing financial assets classified as available-for-sale, interest income is recorded using the effective interest rate (EIR), which is the rate that exactly discounts the estimated future cash receipts through the expected life of the financial instrument or a shorter period, where appropriate, to the net carrying amount of the financial asset. The calculation takes into account all contractual terms of the financial instrument and includes any fees or incremental costs that are directly attributable to the instrument and are an integral part of the EIR. Interest income is included in ‘gross income’ in the income statement.

f. Fee and commission income

Group earns fee and commission income from services it provides to its customers. Mainly documentation and processing fee for the service provided in processing of loan facilities to customers.

g. Net trading income

Net trading income includes all gains and losses from changes in fair value and related dividends for financial assets held for trading other than interest income.

h. Gross written premium (GWP)

General Insurance GWP

Gross written premium comprise the total premium receiv able for the whole period of cover provided by contracts entered into during the accounting period. They are recognised on the date on which the policy commences

Rebates that form part of the premium rate, such as no-claim rebates, are deducted from the gross written premium.

Unearned Premium Reserve (UPR)

Unearned premiums are those proportions of premium written in a year that relate to periods of risk after the reporting date. UPR represents the portion of the premium written in the year but relating to the unexpired term of coverage.

Unearned premiums are calculated on the 365 basis except for the marine and title policies which are computed on a 60 - 40 basis in accordance with the Regulation of Insurance Industry Act, No. 43 of 2000. However, for those contracts for which the period of risk differs significantly from the contract period, premiums are earned over the period of risk in proportion to the amount of insurance protection provided. The proportion attributable to subsequent periods is deferred as a provision for unearned premium which is included under liabilities.

Life Insurance GWP

Gross recurring premium on life insurance contracts are recognised as revenue when payable by the policyholder (policies within the 30 day grace period are considered as


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due). Premiums received in advance are not recorded as revenue and recorded as liability until the premium is due unless otherwise the relevant policy conditions require such premiums to be recognized as income. Benefits and expenses are provided against such revenue to recognize profits over the estimated life of the policies. For single premium business, revenue is recognised on the date on which the policy is effective.

i. Reinsurance Premium

Gross reinsurance premium on insurance contracts are recognised as an expense on the earlier of the date when premiums are payable or when the policy becomes effective. Reinsurance premiums are decided based on rates agreed with reinsurers.

General Insurance reinsurance Premium

Reinsurance premium written comprise of total premiums payable for the whole cover provided by contracts entered into the period and are recognised on the date on which the policy incepts. Premiums include any adjustments arising in the accounting period in respect of reinsurance contracts incepting in prior Accounting periods.

Unearned Reinsurance Premium

Unearned reinsurance premiums are those proportions of premium written in a year that relate to periods of risk after the reporting date. Unearned reinsurance premiums are deferred over the term of the underlying direct insurance policies for risks-attaching contracts and over the term of the reinsurance contract for losses occurring contracts. Unearned reinsurance premiums are calculated on the 365 basis except for the marine policies which are computed on a 60-40 basis.

The proportion attributable to subsequent periods is deferred as a provision for unearned premium which is included under Insurance contract liabilities - General.

Life Insurance Reinsurance Premium

Reinsurance premium on life and investment contracts are recognised as an expense on the earlier of the date when premiums are payable or when the policy becomes effective.

j. Investment income

Interest income is recognized in the Statement of Comprehensive Income as it accrues and is calculated by using the effective interest rate method. Fees and commissions that are an integral part of the effective yield of the financial asset or liability are recognized as an adjustment to the effective interest rate of the instrument. Investment income also includes dividends when the right to receive payment is established. For listed securities, this is the date the security is listed as ex dividend.

k. Realized gains and losses

Realized gains and losses recorded in the Statement of Comprehensive Income on investments include gains and losses on financial assets and investment properties. Gains and losses on the sale of investments are calculated as the difference between net sales proceeds and the original or amortized cost and are recorded on occurrence of the sale transaction.

l. Other Income

Other income is recognized on an accrual basis.

m. Reinsurance Commission Income

General Insurance

Reinsurance commission income on outwards reinsurance contracts are recognised as revenue when receivable. Subsequent to initial recognition, reinsurance commission income on outwards reinsurance contracts are deferred and amortised on a straight line basis over the term of the expected premium payable.

Life Insurance

Reinsurance premiums on life and investment contracts are recognised as an expense on the earlier of the date when premiums are payable or when the policy becomes effective.

2.3.26 Benefits, claims and expenses recognition

2.3.26.1Grossbenefitsandclaims

General Insurance

Gross claims expense include all claims occurring during the year, whether reported or not, related internal and external claims handling costs that are directly related to the

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processing and settlement of claims, a reduction for the value of salvage and other recoveries, and any adjustments to claims outstanding from previous years.

Claims outstanding are assessed by review of individual claim files and estimating changes in the ultimate cost of settling claims.

Gross claims expense includes gross claims expense reported but not yet paid, incurred but not reported claims (IBNR). The provision in respect of IBNR is actuarially valued to ensure a more realistic estimation of the future liability based on past experience and trends.

Actuarial valuations are performed on an annual basis. While the Directors consider that the provision for claims is fairly stated on the basis of information currently available, the ultimate liability will vary as a result of subsequent information and events. This may result in adjustment to the amounts provided. Such amounts are reflected in the financial statements for that period. The methods used and the estimates made are reviewed regularly.

Life Insurance

Gross benefits and claims for life insurance contracts include the cost of all claims arising during the year including internal and external claims handling costs that are directly related to the processing and settlement of claims and policyholder bonuses declared on DPF contracts, as well as changes in the gross valuation of insurance. Death claims and surrenders are recorded on the basis of notifications received. Maturities and annuity payments are recorded when due. Interim payments and surrenders are accounted at the time of settlement.

Changes in the valuation of insurance contract liabilities are disclosed in the statement of financial position under Change in insurance contract liabilities.

2.3.26.2 Reinsurance claims

Reinsurance claims are recognized when the related gross insurance claim is recognized according to the terms of the relevant contract.

2.3.26.3ActuarialValuationofLifeInsuranceFund

The Directors agree to the long term insurance provision for the Group at the year-end on the recommendations of

the Independent Consultant Actuary following his annual investigation of the Life Insurance business. The actuarial valuation takes into account all liabilities and is based on assumptions recommended by the Independent Consultant Actuary.

2.3.26.4 Net Deferred Acquisition Expenses

Acquisition expenses, representing commissions, which vary with and are directly related to the production of business, are deferred and amortised over the period in which the related written premiums are earned.

2.3.26.5 Expenditure Recognition

a) Expenses are recognised in the Statement of Comprehensive Income on the basis of a direct association between the cost incurred and the earning of specific items of income. All expenditure incurred in the running of the business and in maintaining the Property, Plant and Equipment in a state of efficiency has been charged to Statement of Comprehensive Income in arriving at the profit for the year.

b) For the purpose of presentation of the Statement of Comprehensive Income the directors are of the opinion that function of expenses method presents fairly the elements of the Company expenditure incurred events. Touch presentation method is adopted.

2.1.2 Changes in accounting policies and disclosures

(a) New accounting standards, amendments and interpretations issued but not yet adopted.

A number of new standards and amendments to standards and interpretations are effective for annual periods beginning after 1 January 2014, and have not been applied in preparing these financial statements. None of these are expected to have a significant effect on the financial statements of the Group, except as set out below:

(i) SLFRS 9 ‘Financial Instruments’, addresses the classification, measurement and recognition of financial assets and financial liabilities. The complete version of SLFRS 9 was issued in July 2014. It replaces the guidance in LKAS 39 that relates to the classification and measurement of financial instruments. SLFRS 9 retains but simplifies the mixed measurement model and establishes three primary measurement categories for financial assets: amortised cost, fair value through OCI and fair value through profit or loss. The basis of classification depends


101


101

on the entity’s business model and the contractual cash flow characteristics of the financial asset. Investments in equity instruments are required to be measured at fair value through profit or loss with the irrevocable option at inception to present changes in fair value in OCI not recycling. There is now a new expected credit losses model that replaces the incurred loss impairment model used in LKAS 39. For financial liabilities there were no changes to classification and measurement except for the recognition of changes in own credit risk in other comprehensive income, for liabilities designated at fair value through profit or loss. SLFRS 9 relaxes the requirements for hedge effectiveness by replacing the bright line hedge effectiveness tests. It requires an economic relationship between the hedged item and hedging instrument and for the ‘hedged ratio’ to be the same as the one management actually use for risk management purposes. Contemporaneous documentation is still required but is different to that currently prepared under LKAS 39. The standard is effective for accounting periods beginning on or after 1 January 2018. Early adoption is permitted. The Group is yet to assess the full impact of SLFRS 9.

(ii) SLFRS 15, ‘Revenue from Contracts with Customers’, deals with revenue recognition and establishes principles for reporting useful information to users of financial statements about the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity’s contracts with customers. Revenue is recognised when a customer obtains control of a good or service and thus has the ability to direct the use and obtain the benefits from the good or service. The standard replaces LKAS 18 and LKAS 11 and related interpretations. This standard will be effective for annual periods beginning on or after 1 January 2017 and earlier application is permitted.

(iii) SLFRS 14 Regulatory Deferral Accounts , SLFRS 14 is an interim standard which provides relief for first time -adopters of SLFRS in relation to the accounting for certain balances that arise from rate-regulated activities (‘regulatory deferral accounts’). The standard permits these entities to continue to apply their previous GAAP accounting policies for the recognition, measurement, impairment and derecognition of regulatory deferral accounts.

3. DIRECTORS RESPONSIBILTY STATEMENTS

Directors acknowlege the responsibilty for the true and fair presenation of the consolidated financial statements in accordance with the books of accounts and Sri Lanka Accounting Standards and the requirements of the Companies Act No 7 of 2007.

4. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES

4.1 Introduction and overview

The Group’s principal financial liabilities, comprise of public deposits, borrowings, trade and other payables, and financial guarantee contracts. The main purpose of these financial liabilities is to finance the Group’s operations and to provide guarantees to support its operations. The Group financial assets comprise loans and advances, Rental receivable on lease assets and hire purchase, trade & other receivables and cash and short-term deposits that flows directly from its operations. The Group also holds other othet financial instruments such as investments in equity instruments.

The Group is exposed to market risk (including currency risk, interest rate risk and price risk), credit risk and liquidity risk. Risk management is carried out under 3 lines of defense in the order of senior management officials under policies approved by the Group’ s operating segments and units. The Group’s overall risk management program seeks to minimise potential adverse effect on the Group’s financial performance.

The Board of Directors of the Group and Boards of directors of individual components manage each of these risks, which are summarised below.

Risk management framework

The Group’s board of directors has overall responsibility for the establishment and oversight of the Group’s risk management frame work. The Board of Directors has established the Risk Management Committee for developing and monitoring the Group’s Risk Management policies. The Committee reports regularly to the Board of Directors on its activities.

102102


The Group risk management policies are established to identify and analyze the risks face by the group, to set appropriate risk limits and controls and to monitor risks and adherence to the limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the groups activities. The Group, through its training and management standards and procedures, aims to maintain a discipline and constructive control environment in which all employees understand their roles and obligations.

The Group Audit Committee oversees how management monitors compliance with the group risk management policies and procedures, and reviews the adequacy of the risk management framework in relation to the risk face by the group. The Group Audit Committee is assisted in its oversight role by the internal audit undertake both regular and ad-hoc review of risk management controls and procedures, the results of which are reported to the Audit Committee.

The Group is exposed to market risk (including currency risk, interest rate risk and price risk), credit risk and liquidity risk. The Group’s overall risk management program seeks to minimize potential adverse effect on the Group’s financial performance.

4.2 Market risk

Market risk is the risk that changes in market prices, such as interest rates and equity price will affect the Company’s profit, equity or value of its holding of financial instruments. The objective of market risk management is to manage and control the market risk exposure within acceptable parameters, while optimizing return.

Management of market risk

Group separates its exposure to market risk between trading and non-trading portfolios. Trading portfolio of the group include position arising from market making and proprietary position taking, together with financial assets and liabilities that are managed on a fair value basis.

The Group employs a range of tools to monitor and limit market risk exposures. These are discussed below, separately for trading and non-trading portfolios.

The table below sets out the allocation of assets and liabilities subject to market risk between trading and non-trading portfolios.

Group Market risk measure Market risk measure

Carrying

amount

2016

Trading

portfolio

2016

Non-trading

portfolio

2016

Carrying

amount

2015

Trading

portfolio

2015

Non-trading

portfolio

2015

Assets subject to market risk

Financial Assets - Fair value through profit or loss 675,118,383 675,118,383 - 2,751,282,607 2,751,282,607 -

Financial Assets - Available for sale 6,911,925,729 - 6,911,925,729 4,979,386,853 - 4,979,386,853

Financial Assets - Loans and receivables 17,389,660,327 - 17,389,660,327 13,887,535,148 - 13,887,535,148

Financial Assets - Lease and hire purchase 1,548,416,164 - 1,548,416,164 3,085,067,940 - 3,085,067,940

Financial Assets - Held to maturity 228,593,733 - 228,593,733 1,704,400,462 - 1,704,400,462

Cash in hand and at bank 2,786,360,958 - 2,786,360,958 1,137,234,429 - 1,137,234,429

Liabilities subject to market risk

Put option liability 9,356,708 - 9,356,708 6,260,352 - 6,260,352

Interest bearing borrowings 5,175,606,016 - 5,175,606,016 5,891,108,818 - 5,891,108,818

Public deposits 14,004,503,098 - 14,004,503,098 12,061,962,361 - 12,061,962,361

Trade and other payables 867,752,724 - 867,752,724 1,369,220,525 - 1,369,220,525

Amounts due to related companies 473,763 - 473,763 - - -

Bank overdraft 1,350,523,495 - 1,350,523,495 876,300,347 - 876,300,347


103


103

Company Market risk measure Market risk measure

Carrying

amount

2016

Trading

portfolio

2016

Non-trading

portfolio

2016

Carrying

amount

2015

Trading

portfolio

2015

Non-trading

portfolio

2015

Assets subject to market risk

Financial Assets - Available for sale 11,955,965 - 11,955,965 12,873,144 - 12,873,144

Amounts due from related companies 3,504,148 - 3,504,148 4,018,249 - 4,018,249

Cash in hand and at bank 40,362,714 - 40,362,714 35,590,585 - 35,590,585

Liabilities subject to market risk

Put option liability 9,356,708 - 9,356,708 6,260,352 - 6,260,352

Interest-bearing loans and borrowings 1,113,007,302 - 1,113,007,302 833,594,321 - 833,594,321

Trade and other payables 2,841,220 - 2,841,220 2,645,153 - 2,645,153

Amounts due to related companies 473,763 - 473,763 - - -

Bank overdraft 311,323,068 - 311,323,068 255,110,399 - 255,110,399

4.2.1 Interest rate risk

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Group’s exposure to the risk of changes in market interest rates relates primarily to the Group’s debt obligations with floating interest rates.

The Group manages its interest rate risk by having a balanced portfolio of fixed and variable rate loans and borrowings.

4.2.1.1 Exposure to interest rate risk

The interest rate profile of Group’s interest bearing financial instruments as reported to the management of the Group is as follows;

Group Company

2016 2015 2016 2015

Fixed interest rate instruments:

Financial assets 25,163,661,473 22,645,127,263 - -

Financial liabilities 17,266,307,672 16,910,472,632 273,640,650 258,604,012

Floating interest rate instruments:

Financial assets - - - -

Financial liabilities 2,345,759,155 1,410,768,657 1,150,689,720 830,068,994

104104


4.2.1.2 Interest rate sensitivity

The following table demonstrates the sensitivity to a reasonably possible change in interest rates on that portion of loans and borrowings. Provided all other variables held constant, the Group’s profit before tax is affected through the impact on floating rate borrowings, as follows:

Increase in basis points Effect on profit before tax

Rupee Borrowings Group Company

2016 +200 b.p (46,915,183) (23,013,794)

-200 b.p 46,915,183 23,013,794

2015 +25 b.p (3,271,994) (2,075,172)

-25 b.p 3,271,994 2,075,172

The assumed spread of basis points for the interest rate sensitivity analysis is based on the currently observable market environment changes to base floating interest rates.

4.2.2 Foreign currency risk

Foreign currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of adverse fluctuations in foreign exchange rates. The Group’s exposure to the risk of fluctuations in foreign exchange rates relates primarily to the Group’s operating activities and foreign currency borrowings.

Management has set up a policy that requires Company and subsiaries to manage their foreign exchange risk and strict-limts on maximum exposure that can be entered into.

4.2.3 Equity price risk

The Group expose to equity price risk which arises from available for sale equity securities and investments measured at fair value through Profit or loss. Management of the group monitors the proportion of equity securities in its investment portfolio based on market indices. Material investments within the portfolio are managed on an individual basis and all buy and sell decisions are approved by risk management committee.

The Group holds listed and unlisted equity securities and put option over quoted equity instruments which are susceptible to market-price risk arising from uncertainties about future values of these securities.

The Group manages the equity price risk through diversification and by placing limits on individual and total equity instruments. Periodic reports on equity investment portfolio are submitted to the senior management of individual business segment based on the relevance. The respective Board of Directors reviews and approves all equity investment decisions. To manage its price risk arising from investments in equity securities, the group diversifies its equity investment portfolio.


105


105

Group Financial assets at fair value through profit or loss

Available-for-sale investments

2016 2015 2016 2015

Rs. % Rs. % Rs. % Rs. %

Bank, Finance and Insurance 158,989,989 30.4% 2,441,774,817 94.0% 1,467,339,444 91.7% 11,351,704 10.0%

Beverage, Food and Tobacco 2,580,336 0.5% 2,587,074 0.1% - 0.0% - 0.0%

Diversified Holdings 250,842,619 48.0% 72,535,898 2.8% 1,141,080 0.1% 1,521,440 1.3%

Health Care 2,318,970 0.4% - 0.0% 132,000,000 8.2% 101,000,000 88.7%

Hotels and Travels - 0.0% 1,340,000 0.1% - 0.0% - 0.0%

Land and Property 2,340,000 0.4% - 0.0% - 0.0% - 0.0%

Manufacturing 86,963,825 16.6% 55,074,230 2.1% - 0.0% - 0.0%

Power and Energy 9,888,000 1.9% 15,946,000 0.6% - 0.0% - 0.0%

Telecommunications 8,859,720 1.7% 9,033,440 0.3% - 0.0% - 0.0%

522,783,459 100.0% 2,598,291,459 100.0% 1,600,480,524 100.0% 113,873,144 100.0%

Company Available-for-sale investments

2016 2015

Rs. % Rs. %

Bank, Finance and Insurance 10,814,884 90.5% 11,351,704 88.2%

Diversified Holdings 1,141,080 9.5% 1,521,440 11.8%

11,955,964 100.0% 12,873,144 100.0%

Investments in unquoted investments are made after obtaining the board approval.

4.2.3.1 Sensitivity analysis

The following table demontrate the sensitivity of cumalitive change in fair value to reasonably possible changes in equity prices provided all other variables are held constant. The effect of a decrease in equity prices is expected to be equal and opposite to the effect of the increase shown.

106106


This table consider only equity shares classified under short term and long term financial assets.

Change in equity price

Effect on profit before tax

Effect on other comprehensive

Income Effect on Equity

Group Group Group

2016

Quoted equity investments listed in Colombo Stock Exchange 10% 52,278,346 160,048,053 212,326,398

2015

Quoted equity investments listed in Colombo Stock Exchange 10% 259,829,146 11,387,314 271,216,460

Change in equity price

Effect on profit before tax

Effect on other comprehensive

Income Effect on Equity

Company Company Company

2016

Quoted equity investments listed in Colombo Stock Exchange 10% - 1,195,596 1,195,596

2015

Quoted equity investments listed in Colombo Stock Exchange 10% - 1,287,314 1,287,314

4.3 Credit Risk

Credit risk is the risk that a counterparty will not meet its obligations under a financial instrument or customer contract, leading to a financial loss. The Group is exposed to credit risk from its operating activities (primarily for trade receivables and customer lending) and from its investing activities, including deposits with banks and financial institutions, foreign exchange transactions and other financial instruments.


107


107

The Group trades only with recognised, creditworthy third parties. It is the Group’s policy that all clients who wish to trade on credit terms are subject to credit evaluation procedures. In addition, receivable balances are monitored on an ongoing basis with that the Group’s exposure to bad debt is not significant.

Hire purchase and lease portfolio is broad based accounting for over 120,240 (2015 - 95,622 customers) contracts and risk of non payment is mitigated by stringent standard of credit approval process. There is no concentration risk on any single region, customer or sector in particular collection of dues from customers is robust with the delinquency rate being better than the financial industry average.

With respect to credit risk arising from other financial assets of the Group, such as cash and cash equivalents, available for sale financial investments, financial assets measured at fair value through profit or loss, held to maturity financial assets, the Group’s exposure to credit risk arise from default of the counterparty. The Group manages its operations to avoid any excessive concentration of counterparty risk.

4.3.1 Credit Risk - Default risk

Default risk is the risk that one party to financial instruments will fail to discharge an obligation and cause the other party to incur financial loss. It arises from lending, trade finance, treasury and other activities undertaken by the Group. The Group has in place standards, policies and procedures for the control and monitoring of all such risks.

4.3.2 Credit Risk - Concentration risk

The Group seeks to manage its credit concentration risk exposure through diversification of its lending, investing and financing activities to avoid undue concentrations of risks with individuals or group of customers in specific businesses. It also obtains security when appropriate. The types of collateral obtained include cash margins, mortgages over properties and pledge over equity instruments.

The requirement for an impairment is analysed at each reporting date on an individual basis for major clients. Additionally, a large number of minor receivables are grouped into homogenous groups and assessed for impairment collectively. The calculation is based on actual incurred historical data. The maximum exposure to credit risk at the reporting date is the carrying value of each class of financial assets disclosed in below.

The tables below show the maximum exposure to credit risk for the components of financial position. The maximum exposure is shown gross before the effect of mitigation through the use of collateral agreements

108108

NOTES TO THE FINANCIAL STATEMENTS CONTD.A

s at

31

Mar

ch20

16

Not

e

Fin

anci

al

Ass

ets

- Fai

r va

lue

thro

ugh

profi

t or l

oss

Fin

anci

al

Ass

ets

- Av

aila

ble

for

sale

Fin

anci

al

Ass

ets

- Loa

ns

and

rece

ivab

les

Fin

anci

al

Ass

ets

- Le

ase

and

hire

purc

hase

Fin

anci

al

Ass

ets

- Hel

d to

m

atur

ity

Cas

h in

han

d an

d at

ban

ks

Tot

al%

of a

lloca

tion

Ris

k Ex

posu

re -

Gro

up

Gov

ernm

ent s

ecur

ities

-

3,5

61,11

6,32

0 9

64,9

95,6

19

-

228

,593

,733

-

4

,754

,705

,672

18

%

Cor

pora

te d

ebt s

ecur

ities

8

5,88

1,93

8 1

,281

,298

,284

4

44,4

27

-

-

-

1,3

67,6

24,6

50

5%

Dep

osits

with

ban

k -

-

4

8,53

7,29

4 -

-

-

4

8,53

7,29

4 0%

Loan

s an

d ad

vanc

es -

-

1

5,26

8,12

3,90

0 -

-

-

1

5,26

8,12

3,90

0 57

%

Leas

e an

d hi

repu

rcha

se -

-

-

1

,548

,416

,164

-

-

1

,548

,416

,164

6%

Trad

e an

d ot

her r

ecei

vabl

es

-

-

228

,314

,414

-

-

-

2

28,3

14,4

14

1%

Prem

ium

Rec

ieva

bles

-

-

679

,116,

882

-

-

-

679

,116,

882

3%

Rei

nsur

ance

rece

ivab

les

-

-

200

,127,

791

-

-

-

200

,127,

791

1%

Am

ount

s du

e fr

om re

late

d pa

rtie

s -

-

-

-

-

-

-

0%

Cas

h in

han

d an

d at

ban

k -

-

-

-

-

2

,786

,360

,958

2

,786

,360

,958

10

%

Tota

l cre

dit r

isk

expo

sure

8

5,88

1,93

8 4

,842

,414

,605

1

7,38

9,66

0,32

7 1

,548

,416

,164

2

28,5

93,7

33

2,7

86,3

60,9

58

26,

881,

327,

725

100%

Equi

ty S

ecur

ities

- Li

sted

5

22,7

83,4

59

1,6

00,4

80,5

25

-

-

-

-

2,12

3,26

3,98

4 80

%

Equi

ty S

ecur

ities

- U

nlis

ted

-

469

,030

,600

-

-

-

-

4

69,0

30,6

00

18%

Inve

stm

ents

in U

nits

66,

452,

986

-

-

-

-

-

66,

452,

986

2%

Tota

l equ

ity

risk

expo

sure

5

89,2

36,4

45

2,0

69,5

11,1

25

-

-

-

-

2,6

58,7

47,5

69

100%

Tota

l 6

75,1

18,3

83

6,9

11,9

25,7

29

17,

389,

660,

327

1,5

48,4

16,1

64

228

,593

,733

2

,786

,360

,958

2

9,54

0,07

5,29

4


109


109

As

at 3

1 M

arch

2015

Not

e

Fin

anci

al

Ass

ets

- Fai

r va

lue

thro

ugh

profi

t or l

oss

Fin

anci

al

Ass

ets

- Av

aila

ble

for

sale

Fin

anci

al

Ass

ets

- Loa

ns

and

rece

ivab

les

Fin

anci

al

Ass

ets

- Le

ase

and

hire

purc

hase

Fin

anci

al

Ass

ets

- Hel

d to

m

atur

ity

Cas

h in

han

d an

d at

ban

ks T

otal

% o

f allo

catio

n

Ris

k Ex

posu

re -

Gro

up

Gov

ernm

ent s

ecur

ities

-

3,5

70,4

09,5

13

225

,874

,701

-

1

,411

,382

,916

-

5,2

07,6

67,1

30

21%

Cor

pora

te d

ebt s

ecur

ities

9

2,57

6,65

5 1

,145

,073

,594

6

,283

,794

-

-

-

1,2

43,9

34,0

43

5%

Dep

osits

with

ban

k -

-

1

3,15

0,91

6 -

2

89,5

17,5

46

- 3

02,6

68,4

62

1%

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s an

d ad

vanc

es -

-

1

2,73

7,157

,672

-

-

-

12,

737,1

57,6

72

52%

Leas

e an

d hi

repu

rcha

se -

-

-

3

,085

,067

,942

-

-

3,0

85,0

67,9

42

13%

Trad

e an

d ot

her r

ecei

vabl

es

-

-

204

,441

,002

-

3

,500

,000

-

207

,941

,002

1%

Prem

ium

Rec

ieva

bles

-

-

473

,859

,629

-

-

-

473

,859

,629

2%

Rei

nsur

ance

rece

ivab

les

-

-

226

,767

,434

-

-

-

226

,767

,434

1%

Am

ount

s du

e fr

om re

late

d pa

rtie

s -

-

-

-

-

-

-

0%

Cas

h in

han

d an

d at

ban

k -

-

1

,137,

234,

429

-

-

- 1

,137,

234,

429

5%

Tota

l cre

dit r

isk

expo

sure

9

2,57

6,65

5 4

,715

,483

,107

1

5,02

4,76

9,57

7 3

,085

,067

,942

1

,704

,400

,462

-

24,

622,

297,

743

100%

Equi

ty S

ecur

ities

- Li

sted

2

,598

,291

,459

1

13,8

73,1

44

-

-

-

- 2

,712

,164

,603

93

%

Equi

ty S

ecur

ities

- U

nlis

ted

-

150

,030

,600

-

-

-

-

150

,030

,600

5%

Inve

stm

ents

in U

nits

60,

414,

493

-

-

-

-

- 6

0,41

4,49

3 2%

Tota

l equ

ity

risk

expo

sure

2

,658

,705

,952

2

63,9

03,7

44

-

-

-

- 2

,922

,609

,696

10

0%

Tota

l 2

,751

,282

,607

4

,979

,386

,851

1

5,02

4,76

9,57

7 3

,085

,067

,942

1

,704

,400

,462

-

27,

544,

907,

439

110110


As at 31 March

2016

Financial Assets -

Available for sale

Financial Assets - Loans &

Receivables Total % of Allocation

Risk Exposure - Company

Government securities - 40,000,000 40,000,000 91%

Amounts due from related parties - 3,504,148 3,504,148 8%

Cash in hand and at bank - 362,714 362,714 1%

Total credit risk exposure - 43,866,862 43,866,862 100%

Equity Securities - Listed 11,955,965 - 11,955,965 100%

Total equity risk exposure 11,955,965 - 11,955,965 100%

Total 11,955,965 43,866,862 55,822,827

Fitch RatingAs at 31 March

2015

Financial Assets -

Available for sale

Financial Assets - Loans &

Receivables Total % of Allocation

Risk Exposure - Company

Government securities - 35,000,000 35,000,000 72%

Amounts due from related parties - 4,018,249 4,018,249 3%

Cash in hand and at bank - 590,585 590,585 2%

Total credit risk exposure - 39,608,834 39,608,834 77%

Equity Securities - Listed 12,873,144 - 12,873,144 100%

Total equity risk exposure 12,873,144 - 12,873,144 100%

Total 12,873,144 39,608,834 52,481,978

4.3.3 Government securities

As at 31 March 2016 as shown in the table above, 18% (2015 - 21%) and 91% (2015 - 72%) of debt securities comprise investments in government securities which consist of treasury bonds, bills and reverse repo investments for the Group and Company respectively. Government securities are usually referred to as risk free due to the sovereign nature of the instrument.

4.3.4 Corporate debt securities

As at 31 March 2016, corporate debt securities comprise 5% (2015 - 5%) of the total investments in debt securities, out of which 42% (2015 – 50%) were rated “A” or better, or guaranteed by a banking institution with a rating of “A” or better.


111


111

Fitch RatingAs at 31 March

Group

2016 2015

LKR Rating % of

total LKR Rating % of

total

AA 50,316,563 4% - 0%

AA- 302,288,405 22% 311,752,379 25%

A 116,281,615 9% - 0%

A- 111,214,633 8% 255,274,284 21%

Guaranteed by Treasury - 0% 53,822,860 4%

BBB- 248,832,437 18% 408,719,522 33%

BBB 312,275,941 23% 141,043,061 11%

BBB+ 226,415,056 17% 67,038,146 5%

Not rated - 0% 6,283,792 1%

Total 1,367,624,650 100% 1,243,934,043 100%

4.3.5 Deposits with banks

Deposits with banks mainly consist of fixed and call deposits. As at 31 March 2016, 15% (2015 - 59%) of the fixed and call deposits were rated “A-” or better for the Group.

As at 31 March

Group

2016 2015

LKR Rating % of

total LKR Rating % of

total

AA- - 0% 177,560,635 59%

A 7,214,266 15% - 0%

BBB 41,323,028 85% 125,000,403 41%

Total 48,537,294 100% 302,561,038 100%

4.3.6 Management of credit risk

The board of directors has delegated responsibility for the oversight of credit risk to its Credit Committee and Credit Risk Committee. Group Credit Risk monitoring Unit reporting to Risk Committee through the Chief Risk Officer who is responsible for management of the Group’s credit risk, including:

Formulating credit policies in consultation with business units, covering collateral requirements, credit assessment, risk grading and reporting.

Establishing the authorisation structure for the approval and renewal of credit facilities. Authorisation limits are allocated to business unit Credit Officers. Larger facilities require approval by Heads of Credit, Board Credit Committee or the board of directors as appropriate.

112112


Reviewing and assessing credit risk. Heads of Credit assesses all credit exposures in excess of designated limits, prior to facilities being committed to customers by the business unit concerned. Renewals and reviews of facilities are subject to the same review process.

Limiting concentrations of exposure to counterparties, geographies and industries (for loans and advances), and by issuer.

Reviewing compliance of business units with agreed exposure limits, including those for selected industries, country risk and product types. Regular reports on the credit quality of local portfolios are provided to Heads of Credit who may require appropriate corrective action to be taken.

Providing advice, guidance and specialist skills to business units to promote best practice throughout the Company in the management of credit risk.

Regular audits of business units and credit processes are undertaken by Internal Audit.

4.3.7 Credit quality by class of financial assets

As at 31 March

Neither past due nor

impairedPast due but not impaired

Individually impaired Total

Financial Assets - Fair value through profit or loss 85,881,938 - - 85,881,938

Financial Assets - Available for sale 4,842,414,605 - - 4,842,414,605

Lease and hire purchase 875,260,702 551,358,545 121,796,913 1,548,416,160

Loans and receivables 15,586,678,771 344,443,613 1,458,537,941 17,389,660,325

Financial Assets - Held to maturity 228,593,733 - - 228,593,733

Bank and cash balances 2,786,360,958 - - 2,786,360,958

Total financial assets 24,405,190,707 895,802,158 1,580,334,854 26,881,327,719

As at 31 March

Neither past due nor

impairedPast due but not impaired

Individually impaired Total

Financial Assets - Fair value through profit or loss 92,576,655 - - 92,576,655

Financial Assets - Available for sale 4,715,483,107 - - 4,715,483,107

Lease and hire purchase 2,326,371,651 453,518,586 305,177,702 3,085,067,942

Loans and receivables 8,336,291,749 4,255,481,837 1,295,761,562 13,887,535,148

Financial Assets - Held to maturity 1,704,400,462 - - 1,704,400,462

Bank and cash balances 1,137,234,429 - - 1,137,234,429

Total financial assets 18,312,358,053 4,709,000,423 1,600,939,264 24,622,297,743


113


113

4.3.7.1Creditquality:LoansandReceivables

31 March 2016Total2016

Total2015

Individually impaired

- Gross amount 1,603,750,806 1,438,831,642

- Allowance for impairment (103,989,805) (81,512,922)

Carring amount 1,499,761,001 1,357,318,720

For the rest of portfolio where collective impairment is applicable

- Gross amount 16,350,717,220 13,868,631,337

- Allowance for impairment (374,601,998) (196,869,380)

Carring amount 15,976,115,222 13,671,761,957

Total carring amount 17,475,876,223 15,029,080,677

Less : Unearned Income (Lease, hire purchase and loans) (2,207,752,325) (2,291,923,005)

Net Carring amount (Lease, hire purchase and loans) 15,268,123,898 12,737,157,672

Receivables

Trade Debtors 228,314,414 204,441,002

Reinsurance Recievables 200,127,791 226,767,434

Premium Recievables 679,116,882 473,859,629

Commercial Papers - -

Debentures 444,427 6,283,794

Bank Deposit 48,537,294 13,150,916

Treasury Bills - -

Repos 964,995,619 225,874,701

17,389,660,325 13,887,535,148

4.3.7.2 Age analysis of facilities considered for collective impairment

CategoryTotal2016

Total2015

Not due/ current 14,338,933,012 14,502,503,364

Overdue:

Less than 30 days 201,529,142 533,567,174

31 - 60 days 122,968,858 485,353,000

61 - 90 days 92,016,976 284,520,573

91 - 120 days 74,365,669 144,964,898

121 - 150 days 64,666,068 118,628,500

151 - 180 days 59,793,744 151,760,892

181 - 365 days 304,416,241 272,602,355

above 365 days 508,158,431 463,214,916

Total 15,766,848,140 16,957,115,672

114114


4.3.8 Trade Receivables

Customer credit risk is managed by each business unit subject to the Group’s established policy, procedures and control relating to customer credit risk management. Credit quality of the customer is assessed based on an extensive credit rating scorecard and individual credit limits are defined in accordance with this assessment. Outstanding customer receivables are regularly monitored and any consignments to major customers are generally covered by bank guarantees or other forms of credit insurance.

4.3.9 Reinsurance Receivable

According to the overall risk management strategy, the Group cedes insurance risk through proportional, non-proportional and specific risk reinsurance treaties. While these mitigate insurance risk, the recoverable from reinsurers and receivables arising from ceded reinsurance exposes the company to credit risk. Following are the few steps to manage reinsurance risk in addition to explained above,

• Placed in line with policy guidelines approved by the Board of Directors on an annual basis in line with the guidelines issued by the Insurance Board of Sri Lanka.

• Counterparties’ limits that are set each year and are subject to regular reviews. On a regular basis management assesses the creditworthiness of reinsurers to update the reinsurance strategy and ascertain the suitable allowance for impairment of reinsurance assets.

• Outstanding reinsurance receivables are reviewed on a monthly basis to ensure that all dues are collected or set off against payables.

• Maintain close and professional relationship with reinsurers.

• No cover is issue without confirmation from reinsurance unless non reinsurance business.

As at reporting date reinsurance receivables amount to Rs. 200.13 mn as at 31 March 2016 (2015 - Rs. 226.77 mn). This mainly consists of reinsurance receivable on paid claims amounting to Rs. 104.50 mn (2015 - Rs. 90.60 mn) and reinsurance share of claim reserve (receivables on outstanding claims) of Rs. 95.63 mn as at 31 March 2016 (2015 - Rs. 136.17 mn).

4.3.10 Insurance Premium Receivable

The Group’s has a credit risk exposure to receivables where the policyholder or the intermediary cannot settle their dues to the Group.

In life insurance, credit risk is minimal, since premium is collected before the policy is issued.

In non-life insurance, the premium warranty clause which state that a claim is not payable if the premium is not settled within 60 days has reduced the credit risk to a greater extent.

The following steps have also been taken to further minimise credit risk,

• Customers are regularly reminded on the premium warranty clause.

• Outstanding credit is followed up on a daily basis.

• Policies not settled within a reasonable period are monitored and cancelled.

• Outstanding receivables are checked and confirmed prior to settling claims.

• Until premium is settled a temporary certificate for 60 days issued for motor policies.


115


115

4.3.11 Bank Deposit

Deposits with banks mainly consist of fixed and call deposits. Credit risk from balances with banks and financial institutions is managed by the Group’s treasury department in accordance with the Group’s policy. Investments of surplus funds are made only with approved counterparties and within credit limits assigned to each counterparty. Counterparty credit limits are reviewed in an annual basis, and may be updated throughout the year subject to appropriate approval. The limits are set to minimise the concentration of risks and therefore mitigate financial loss through potential counterparty’s failure to make payments.

4.4 Liquidity risk

The Group monitors its risk to a shortage of funds using a recurring liquidity planning process. The Liquidity risk is the risk that the Group will not be able to meet financial obligations as they fall due.

The Group’s objective is to maintain a balance between continuity of funding and flexibility through the use of bank overdrafts, bank loans, debentures, finance leases and hire purchase contracts that will always have sufficient liquidity to meet its liabilities when its due, under normal and stressed conditions. The Group assessed the concentration of risk with respect to refinancing its debt and concluded it to be low. Access to sources of funding is sufficiently available and debt maturing within 12 months can be rolled over with existing lenders. The approach is carefully managed without incurring unacceptable losses or risking damage to the Group’s reputation.

As at 31 March

Group Company

2016 2015 2016 2015

Net debt / (cash)

Cash in hand and at bank 2,786,360,958 1,137,234,429 40,362,714 35,590,585

Total liquid assets 2,786,360,958 1,137,234,429 40,362,714 35,590,585

Current portion of borrowings 2,257,991,305 3,340,932,818 295,953,802 658,378,321

Bank overdrafts 1,350,523,495 876,300,347 311,323,068 255,110,399

Total liabilities 3,608,514,800 4,217,233,165 607,276,870 913,488,720

Net debt / (cash) 822,153,842 3,079,998,736 566,914,156 877,898,135

Liquidity risk management

An optional combination of positive and negative cash flows along with investment returns and contractual obligation maturing is collated through an intra-day cash reporting system for all business segments. High value contractual outflows are processed through various control filters. The group is in the process of building a “Liquidity Dashboard” with the implementation of ERP program. This would help further accelerate the review and identification of debt maturities relating to net liquidity position on daily basis and thus enable proactively mobile necessary funding mobilization or reinvest of cash surplus if any. Closely monitoring and working to reschedule maturity profile is any to de-stress cash flows and re-align them with actual investment tenor. This would engender optimal liquidity positioning and this would reduce borrowing cost and enhance reinvestment income.

116116


4.4.1 Maturity analysis

The table below summarises the maturity profile of the Group’s financial liabilities at 31 March 2016 based on contractual undiscounted payments.

On demand Less than 12

months 1 to 3 years > 3 years Total

Put option liability - 9,356,708 - - 9,356,708

Interest-bearing loans and borrowings - 2,257,991,305 784,717,757 2,132,896,954 5,175,606,016

Public deposits - 12,482,560,103 872,766,599 649,176,396 14,004,503,098

Trade and other payables - 2,424,940,414 - - 2,424,940,414

Amounts due to related companies 473,763 - - 473,763

Bank overdraft 1,350,523,495 - - - 1,350,523,495

1,350,523,495 17,175,322,293 1,657,484,356 2,782,073,350 22,965,403,493

The table below summarises the maturity profile of the Group’s financial liabilities at 31 March 2015 based on contractual undiscounted payments.

On demand Less than 12

months 1 to 3 years > 3 years Total

Put option liability - - 6,260,352 - 6,260,352

Interest-bearing loans and borrowings - 3,340,932,818 1,007,960,000 1,542,216,000 5,891,108,818

Public deposits - 9,847,666,584 2,014,364,365 199,931,412 12,061,962,361

Trade and other payables - 2,722,024,032 - - 2,722,024,032

Bank overdraft 876,300,346 - - - 876,300,346

876,300,346 15,910,623,435 3,028,584,717 1,742,147,412 21,557,655,910

The table below summarises the maturity profile of the Company’s financial liabilities at 31 March 2016 based on contractual undiscounted payments.

On demand 1-12 Months 1 to 3 years > 3 years Total

Put option liability - 9,356,708 - - 9,356,708

Interest-bearing loans and borrowings - 295,953,802 466,116,000 350,937,500 1,113,007,302

Trade and other payables - 2,841,208 - - 2,841,208

Amounts due to realted parties - 473,763 - - 473,763

Bank Obverdrafts 311,323,068 - - - 311,323,068

311,323,068 308,625,482 466,116,000 350,937,500 1,437,002,049


117


117

The table below summarises the maturity profile of the Company’s financial liabilities at 31 March 2015 based on contractual undiscounted payments.

On demand 1-12 Months 1 to 3 years > 3 years Total

Derivative Financial Instruments - - - 6,260,352 6,260,352

Interest-bearing loans and borrowings - 658,378,321 175,216,000 - 833,594,321

Trade and other payables - 2,645,152 - - 2,645,152

Amounts due to realted parties - - - - -

Bank Obverdrafts 255,110,399 - - - 255,110,399

255,110,399 661,023,473 175,216,000 6,260,352 1,097,610,224

5. CAPITAL MANAGEMENT

The primary objective of the Group’s capital management is to ensure that it maintains a strong credit rating and healthy capital ratios in order to support its business and maximise shareholder value.

The Group manages its capital structure and makes adjustments to it in light of changes in economic conditions. To maintain or adjust the capital structure, the Group may adjust the dividend payment to shareholders, return capital to shareholders or issue new shares.

No changes were made in the objectives, policies or processes for managing capital during the years ended 31 March 2016.

The Group monitors capital using a gearing ratio for comapny and subsidiary level, which is net debt divided by total capital plus net debt which is monitored very closley by the senior management officials. Net debt of the Group includes, interest bearing loans and borrowings, trade and other payables less cash and cash equivalents (excluding discountinued operations).

As at 31 March

Group Company

2016 2015 2016 2015

Interest-bearing loans and borrowings 19,180,109,114 17,953,071,180 1,113,007,302 833,594,321

Trade and other payables 2,424,940,414 1,369,220,531 2,841,208 2,645,152

Less: cash and short-term deposits (2,770,105,958) (1,137,234,429) (40,362,714) (35,590,585)

Net debt 18,834,943,570 18,185,057,282 1,075,485,797 800,648,888

Equity 3,339,646,022 6,022,824,537 3,013,820,067 2,986,544,450

Total capital 3,339,646,022 6,022,824,537 3,013,820,067 2,986,544,450

Capital and net debt 20,617,401,902 24,207,881,819 4,089,305,863 3,787,193,338

Gearing ratio 0.84 0.75 0.26 0.21

118118


6. F

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119


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s cu

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n si

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r ter

ms,

cre

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isk

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s ha

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Dis

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e ce

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of th

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rious

est

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the

rang

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n be

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and

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man

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vest

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f loa

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and

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120120


Fina

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l ass

ets

and

liabi

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s in

the

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s in

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LK

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d R

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vabl

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sale

fina

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l ass

ets

Tota

l

As

at 3

1 M

arch

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2015

2016

2015

2016

2015

Fina

ncia

l Ass

ets

in n

on-c

urre

nt A

sset

s

Fina

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l Ass

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- Ava

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e fo

r sal

e at

fair

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-

1

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5,96

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362,

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585

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l 4

3,86

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2015

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Fina

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Der

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121


121

7. USE OF ESTIMATES AND JUDGEMENTS

7.1 Fair Value Measurement

The determination of fair value for financial assets and financial liabilities for which there is no observable market of market factors, pricing assumptions and other risks affecting the specific instrument. price requires the use of valuation techniques. For financial instruments that trade infrequently and have little price transparency, fair value is less objective, and requires varying degrees of judgement depending on liquidity, concentration, uncertainty of market factors, pricing assumptions and other risks affecting the specific instrument. The Group measures fair values using the following fair value hierarchy that reflects the significance of the inputs used in making the measurements.

Level 1: Quoted market price (unadjusted) in an active market for an identical instrument.

Level 2: Valuation techniques based on observable inputs, either directly (i.e. prices) or indirectly (i.e. derived from prices). This category includes instruments valued using quoted market prices in active markets for similar instruments, quoted prices for identical or similar instruments in markets that are considered less than active or other valuation techniques where all significant inputs are directly or indirectly observable from market data.

Level 3: Valuation techniques using significant unobservable inputs. This category includes all instruments where the valuation technique includes inputs not based on observable data and the unobservable inputs have a significant effect on the instrument’s valuation. This category includes instruments that are valued based on quoted prices for similar instruments where significant unobservable adjustments or assumptions are required to reflect differences between the instruments.

The Group uses widely recognised valuation models for determining the fair value of common and more simple financial instruments, like government securities, interest rate and currency swaps that use mostly observable market data and require little management judgement and estimation. Observable prices and model inputs are usually available in the market for listed debt and equity securities, government securities and simple over the counter derivatives like forward exchange contracts and interest rate swaps. Availability of observable market prices and model inputs reduces the need for management judgement and estimation and also reduces the uncertainty associated with determination of fair values. Availability of observable market prices and inputs varies depending on the products and markets and is prone to changes based on specific events and general conditions in the financial markets.

Management judgements and estimations are usually required for selection of the appropriate valuation model to be used, determination of expected future cash flows on the financial instrument being valued, determination of probability of counterparty default and prepayments and selection of appropriate discount rates.

The table below analyses financial instruments measured at fair value at the end of the reporting period, by the level of the fair value hierarchy.

Group Company

As at 31st March 2016 Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total

Financial Assets

Fair value through profit or loss

Equity Securities 522,783,459 - - 522,783,459 - - - -

Treasury Bills and Bonds - - - - - - - -

Unit Trusts 66,452,986 - - 66,452,986 - - - -

Other Debt Securities 85,881,938 - - 85,881,938

675,118,383 - - 675,118,383 - - - -

122122


Group Company


Available for sale Financial Assets

Equity Securities 1,600,480,525 - 469,030,600 2,069,511,125 11,955,965 - - 11,955,965

Treasury Bills and Bonds 3,561,116,320 - - 3,561,116,320 - - - -

Unit Trusts - - - - - - - -

Other Debt Securities 1,281,298,284 - - 1,281,298,284 - - - -

6,442,895,124 - 469,030,600 6,911,925,724 11,955,965 - - 11,955,965

Financial Liabilities

Derivative financial instruments - - 9,356,708 9,356,708 - - 9,356,708 9,356,708

- - 9,356,708 9,356,708 - - 9,356,708 9,356,708

Group Company


Financial Assets

Fair value through profit or loss

Equity Securities 2,598,291,459 - - 2,598,291,459 - - - -

Treasury Bills and Bonds 92,576,655 - - 92,576,655 - - - -

Unit Trusts 60,414,493 - - 60,414,493 - - - -

2,751,282,607 - - 2,751,282,607 - - - -

Available for sale Financial Assets

Equity Securities 113,873,144 - 150,030,600 263,903,744 12,873,144 - - 12,873,144

Treasury Bills and Bonds 3,570,409,515 - - 3,570,409,515 - - - -

Other Debt Securities 1,145,073,594 - - 1,145,073,594 - - - -

4,829,356,253 - 150,030,600 4,979,386,853 12,873,144 - - 12,873,144

Financial Liabilities

Derivative financial instruments - - 6,260,352 6,260,352 - - 6,260,352 6,260,352

- - 6,260,352 6,260,352 - - 6,260,352 6,260,352

During the reporting period ended 31 March 2016, there were no transfers between Level 1 and Level 2 fair value measurements. Major portion of level 3 investments represent investments made during the year. Hence management considers current value of the investments is at fair value.


123


123

7.2 Fair Value of Financial Instruments Carried at Amortised Cost

Fair values is the amount for which an asset could be exchanged or a liability settled between knowledgeable, willing parties in an arm’s length transaction. The estimated fair values are based on relevant information. There are various limitations inherent in this fair value disclosure particularly where prices may not represent the underlying value due to dislocation in the market. Not all of the Group’s financial instruments can be exchanged in an active trading market. The Group obtains the fair values of investment securities from quoted market prices where available, Group obtains the fair values by means of discounted cash flows and other valuation techniques that are commonly used by market participants. These techniques address factors such as interest rates, credit risk and liquidity.

Given below is the methodologies and assumptions used in fair value estimates.

Loans and receivables (Including Lease and HP)

Approximately 70% of the total lending portfolio has a remaining maturity of less than one year. Therefore fair value of lending portfolio approximates to the carrying value as at the reporting date.

Held to maturity Financial Assets

Fair values of Held to Maturity Investments are valued based on daily market rate publish by Central Bank of Sri Lanka.

Cash and cash equivalents.

The carrying amount of cash and cash equivalents, approximate their fair value as those are short term in nature and are receivable on demand.

Liabilities

Interest bearing borrowings

Bank Borrowings

Approximately 36% of the amounts due to banks (Inclusive of overdraft facilities) as at the reporting date have a remaining contractual maturity of less than one year. Majority of the balance amounts comprised of floating rate instruments. Therefore fair value of amounts due to banks approximates to the carrying value as at the reporting date.

Other borrowed funds

50% of other borrowed funds mainly includes commercial papers with a contractual maturity of less than one year which approximately equals to its fair value. Further all of securitization payable with a contractual maturity of less than one year also approximately equals to its fair value.

Public Deposits

Approximately 89% of the customer deposits are either repayable on demand or have a remaining contractual maturity of less than one year. Customer deposits with a contractual maturity of more than one year are subject to pre mature upliftment. Amounts paid to customers in the event of premature upliftment would not be materially different to its carrying value as at date. Therefore fair value of customer deposits approximates to their carrying value as at the reporting date.

124124


8. INTEREST INCOME

Year ended 31 March

Group Company

2016 2015 2016 2015

Finance leasing 268,206,917 421,879,681 - -

Hire purchase 369,023,416 1,309,290,865 - -

Term loans 2,777,123,641 1,814,533,403 - -

Investment in treasury bills, bonds, fixed depsoits & debentures 821,840,066 536,532,523 131,843 273,262

4,236,194,040 4,082,236,472 131,843 273,262

9. FEE AND TRADING INCOME

Year ended 31 March

Group Company

2016 2015 2016 2015

Net Earned Premium 5,733,310,398 4,234,942,876 - -

Documentation & processing fees 475,631,311 236,392,584 - -

Stockbroker Income 179,636,149 224,680,102 - -

Professional Fee Income - - 126,666,429 155,566,866

6,388,577,858 4,696,015,562 126,666,429 155,566,866

10. OTHER INCOME & GAINS

Year ended 31 March

Group Company

2016 2015 2016 2015

Profit on Disposal Property Plant and Equipment 12,052,248 1,248,348 - -

Other Income 170,175,679 106,287,690 3,242,579 981,423

182,227,927 107,536,038 3,242,579 981,423

11. NET REALIZED GAINS / (LOSSES)

Year ended 31 March

Group Company

2016 2015 2016 2015

Net Gains from Available-for-sale financial assets

Realised gains

Equity Market securities 19,535,915 33,326,057 - -

Debt Securities 2,143,861 14,628,618 - -

Money Market securities - Treasury Bonds 9,584,450 110,036,243 - -

Realised losses

Equity Market securities - (9,122,499) - (6,025,410)

Debt Securities - (176,818) - -

Money Market securities - Treasury Bonds - (688,687) - -

31,264,226 148,002,914 - (6,025,410)


125


125

12. NET FAIR VALUE GAINS

Year ended 31 March

Group Company

2016 2015 2016 2015

Financial Investments at Fair Value through Profit or Loss Note 12.1 196,674,205 773,067,164 - -

Gain on Derivative Financial Instrument - 25,115,300 - -

196,674,205 798,182,464 - -

12.1 Financial Investments at Fair Value through Profit and Loss

Year ended 31 March

Group Company

2016 2015 2016 2015

Unrealised gains

Equity Securities 104,720,354 362,009,606 - -

Trasury Bonds 19,067,451 - - -

Unit Trusts 8,058,997 1,021,277 - -

131,846,802 363,030,883 - -

Realised gains

Equity Securities 70,425,888 283,204,870 - -

Trasury Bonds - 199,213,518 - -

70,425,888 482,418,388 - -

Unrealised losses

Equity Securities - (6,101,016) - -

Debt Securities (3,943,727) (4,278,543) - -

Trasury Bonds - (35,460,067) - -

Unit Trusts - (26,542,481) - -

(3,943,727) (72,382,107) - -

Unrealised gains

Equity Securities (1,654,758) - - -

(1,654,758) - - -

Total 196,264,205 773,067,164 - -

13. DIVIDEND INCOME

Year ended 31 March

Group Company

2016 2015 2016 2015

Dividends from Investments in Related Parties - - 65,617,661 219,457,818

Dividends from Other Quoted Investments 121,193,350 121,977,100 402,497 509,991

121,193,350 121,977,100 66,020,158 219,967,809

126126


14. INTEREST EXPENSE

Year ended 31 March

Group Company

2016 2015 2016 2015

Interest on Public Deposits 1,450,971,874 1,331,495,767 - -

Interest on Borrowings 649,071,630 740,222,579 93,557,356 108,349,409

Interest on Securitization 6,637,338 101,993,079 - -

Interest on Finance Leases 501,713 371,843 - -

2,107,182,555 2,174,083,268 93,557,356 108,349,409

15. PROFIT BEFORE INCOME TAX

Year ended 31 March

Group Company

2016 2015 2016 2015

Profit before tax is stated after charging all expenses including the following;

Directors' Remuneration 102,325,329 49,099,511 11,785,000 11,345,000

Audit Fees 5,783,178 3,466,021 480,000 894,754

Audit Related and Non Audit Fee including Expenses 426,347 1,961,219 - -

Secretarial fees 2,917,768 2,990,715 1,036,617 469,020

Personnel Costs

- Defined contribution plan costs - EPF & ETF 108,906,939 95,689,703 - 170,610

- Defined benefit plan costs 21,870,163 20,240,407 - -

- Other Staff Costs 1,063,869,039 886,194,991 - 1,665,579

Depreciation 154,956,428 125,161,831 199,106 298,817

Amortization of Intangible Assets 149,480,625 152,708,559 571,263 -

Professional and Consultancy Fees 32,828,887 101,475,885 37,528,524 27,321,402

Provision for Bad debts 6,830 - - -

Loss on Disposal of Fixed Assets 12,052,248 29,650 - -

Loss on fair value on derivative financial instruments 1,068,677 19,056,000 - -


127


127

16 . INCOME TAX EXPENSE

Year ended 31 March

Group Company

2016 2015 2016 2015

Current tax charge 95,497,476 64,431,190 23,995 49,734

Over provisions in previous years (4,185,664) (8,988,473) - -

Deferred tax (Reversal) / Charge

Relating to origination and reversal of temporary differences (47,239,109) 4,491,354 - -

Income tax expense Note 16.1 44,072,703 59,934,071 23,995 49,734

16.1 The tax on the Company and Group’s profit before tax differs from the theoretical amount that would arise using the basic tax rate of the Company and the Group as follows:

Year ended 31 March

Group Company

2016 2015 2016 2015

Reconciliation between current tax charge & accounting profit

Profit before tax 1,181,299,511 842,430,922 28,216,790 213,685,362

Tax calculated at a tax rate 28% ( 2015 - 28%) 330,763,863 235,880,658 7,900,701 59,831,901

Expenses not deductible for tax 153,100,049 35,194,935 1,352,191 1,820,458

Expenses deductible for tax (179,985,796) (127,094,070) (105,612) (274,332)

Effect of tax loss companies (28,121,301) (13,334,002) 9,362,359 238,504

Income not subject to tax (272,406,063) (213,046,638) (18,485,644) (61,566,797)

Consolidation Adjustments 87,975,117 136,985,422 - -

Under / (over) provisions in previous years (14,058) 856,412 - -

Deferred tax (47,239,109) 4,491,354 - -

44,072,703 59,934,071 23,995 49,734

All Companies of the Group are liable to pay Income Tax at 28% (2014/2015-28%).

128128


16.2 Deferred tax charge / (release)

Year ended 31 March

Group Company

2016 2015 2016 2015

Income statement

Deferred tax expense arising from;

Accelerated depreciation for tax purposes 18,541,722 1,959,858 - -

Employee benefit liabilities (4,059,615) 7,737,730 - -

Benefit arising from tax losses (31,228,997) (2,491,057) - -

Others (30,492,221) (2,715,177) - -

(47,239,109) 4,491,354 - -

Other comprehensive income

Deferred tax expense arising from;

Revaluation of land and building to fair value - - - -

Actuarial gains/ (loss) on retirement benefits 808,832 - - -

Net change in fair value of available-for-sale finacial assets 22,606,454 - - -

23,415,286 - - -

Differed tax has been computed at 28% for all companies.

16.3 Tax losses carried forward

Year ended 31 March

Group Company

2016 2015 2016 2015

Tax losses brought forward 6,227,091,065 4,003,609,053 1,102,755,937 1,101,731,324

Adjustments on finalization of liability 615,949,911 920,474,836 - -

Tax losses arising during the year 258,300,103 1,351,576,044 27,274,284 1,120,255

Utlization of tax losses (100,433,216) (48,568,868) (46,145) (95,642)

7,000,907,863 6,227,091,065 1,129,984,076 1,102,755,937


129


129

17. EARNING PER SHARE

Accounting policy

Basic EPS is calculated by dividing the profit for the year attributable to ordinary equity holders of the parent by the weighted average number of ordinary shares outstanding during the year. Diluted EPS is calculated by dividing the profit attributable to ordinary equity holders of the parent (after adjusting outstanding share option scheme and warrants) by the weighted average number of ordinary shares outstanding during the year plus the weighted average number of ordinary shares that would be issued on conversion of all the dilutive potential ordinary shares into ordinary shares.

Year ended 31 March

Group Company

2016 2015 2016 2015

Basic Earnings per Share

Profit attributable to equity holders of the parent (LKR) 676,594,498 466,061,173 28,192,795 213,635,628

Weighted average number of ordinary shares 688,160,000 647,665,534 688,160,000 647,665,534

Basic earnings per share (LKR) 0.98 0.72 0.04 0.33

130130


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131


131

18.2 Company

Furniture & Fittings

Computers and Printers

Office Equipment

Total2016

Total2015

Cost

At the beginning of the year 290,702 2,390,135 132,927 2,813,764 2,813,764

Additions - - - -

Disposals - - - -

At the end of the year 290,702 2,390,135 132,927 2,813,764 2,813,764

Accumulated Amortization

At the beginning of the year 274,890 1,876,815 124,179 2,275,884 1,977,067

Additions 7,096 184,177 7,833 199,106 298,817

Disposals - - -

At the end of the year 281,986 2,060,992 132,012 2,474,990 2,275,884

Carrying Value

Balance As At 31 March 2016 8,716 329,143 915 338,774 -

Balance As At 31 March 2015 15,812 513,320 8,748 - 537,880

18.3 Fully depreciated property plant & equipment in use

The initial cost of fully depreciated PPE which are still in use as at reporting date, is as follows:

As at 31 March Group Company

2016 2015 2016 2015

Property, Plant and Equipment 215,162,270 177,973,369 1,910,129 1,559,042

18.4 Property, Plant & Equipment pledged as security

None of the PPE of the Group and the Company have been pledged as securities as at the reporting date.

18.5 Title restriction on Property, Plant & Equipment

There are no restrictions that existed on the title of the PPE of the Group and the Company as at the reporting date.

18.6 Capitalisation of borrowing cost

There were no capitalised borrowing costs relating to the acquisition of Property, Plant and Equipment during the year (2015- Nil).

132132


18 Property Plant & Equipment Contd.

18.7 The details of freehold land and buildings which are stated at valuation are as follows;

Freehold land - Group

Subsidiary Land extendMethod of Valuation

Date of the Valuation Valuer

Revalued Amount (LKR)

Softlogic Finance PLC 0A-0R-12.6P Direct Capital Comparison method 31st March 2016

Mr. P.B. Kalugalgedara 120,000,000

Asian Alliance Insurance PLC 0A-0R-12.0P Direct Capital Comparison method

31st December 2015 Mr. P.B. Kalugalgedara 108,000,000

Freehold buildings - Group

Subsidiary Sqaure FeetMethod of Valuation

Date of the Valuation Valuer

Revalued Amount (LKR)

Softlogic Finance PLC 16,850 Direct Capital Comparison method 31st March 2016

Mr. P.B. Kalugalgedara 82,750,000

Asian Alliance Insurance PLC 11,824 Direct Capital Comparison method

31st December 2015 Mr. P.B. Kalugalgedara 118,000,000

18.8 If land and buildings were stated at historical cost, the amounts would have been as follows

31 March 2016 Group

Land Building

Cost 147,801,424 210,512,696

Accumulated depreciation - (14,215,129)

Carrying value 147,801,424 196,297,567

18.9 Fair Value Hierarchy

The fair value of the Land & Buildings was determined by an external independent property valuer, having appropriate recognised professional qualifications and experience in the category of the property being valued. The valuer provides the fair value of the property. Fair value measurements of the property has been categorised as a Level 3 fair value based on the valuation techniques used.


133


133

Valuation Techniques and Significant Unobservable Inputs

The following tables show the valuation techniques used in measuring fair values, as well as the significant unobservable inputs.

Description Valuation TechniqueSignificant UnobservableInputs

Interrelationship between key unobservable inputs and Fair value measurements

Freehold land - Group

No. 13, De Fonseka place, Colombo 4.

Open market valueEstimated price per perch Rs. 10,000,000/-

Positive correlated sensitivity

No. 283, R A De Mal Mawatha, Colombo 3.

Open market valueEstimated price per perch Rs. 5,000,000/- - Rs. 11,000,000/-

-

Freehold buildings - Group

No. 13, De Fonseka place, Colombo 4.

Direct capital comparison method

Estimated value per square foot Rs. 7,000/-

Positive correlated sensitivity

No. 283, R A De Mal Mawatha, Colombo 3.

Direct capital comparison method

Estimated value per square foot Rs. 10,000/-

-

134134


19. INTANGIBLE ASSETS

Group Company

PVIB Goodwill Brand Name Other 2016 2015 2016 2015

Cost

At the beginning of the year 1,980,596,000 924,934,106 224,498,000 116,568,700 3,246,596,806 3,274,555,670 6,571,263 6,571,263

Transfer from PPE - - - 75,399,154 75,399,154 - - -

Adjustment (73,395,470)

Additions - - 14,316,558 14,316,558 45,436,606 - -

At the end of the year 1,980,596,000 924,934,106 224,498,000 206,284,412 3,336,312,518 3,246,596,806 6,571,263 6,571,263

Accumulated amortisation

At the beginning of the year 511,701,580 - - 45,944,573 557,646,153 404,937,594 6,000,000 6,000,000

Transfer from PPE - - - 58,332,166 58,332,166

Amortisation 127,343,669 - 22,136,956 149,480,625 152,708,559 571,263 -

At the end of the year 639,045,249 - - 126,413,695 765,458,944 557,646,153 6,571,263 6,000,000

Carrying value

As at 31 March 2016 1,341,550,751 924,934,106 224,498,000 79,870,718 2,570,853,575 - - -

As at 31 March 2015 1,468,894,420 924,934,106 224,498,000 70,624,127 - 2,688,950,653 - 571,263

19.1 Present value of acquired in-force Long-term Insurance business (PVIB)

On acquiring a controlling stake in Asian Alliance Insurance PLC, the group has recognized in the consolidated financial statements an intangible asset representing the present value of future profits on AAIC’s portfolio of long term life insurance contracts, known as the present value of acquired in-force Long-term Insurance business (PVIB) at the acquisition date. Further, PVIB recognized at the acquisition date will be amortized over the life of the business acquired and reviewed annually for any impairment in value.

19.2 Brand Name of Asian Alliance Insurance PLC

On acquiring controlling stake in Asian Alliance Insurance PLC the Group has recognized in the Consolidated Financial Statements an Intangible Asset representing the value of “Asian Alliance” brand.


135


135

Stock broker license of Softlogic Stock Broker (Pvt) Ltd.

19.3 This represents the amount paid to Colombo Stock Exchange to obtain the “Trading Membership” in the Colombo Stock Exchange.

19.4 Goodwill acquired through business combinations have been allocated to three cash generating units (CGU’s) such as Asian Alliance Insurance PLC, Softlogic Stock Brokers and Softlogic Finance PLC for impairment testing.

The recoverable amount of all CGUs have been determined based on the higher of its fair value less costs to sell and its Value in Use (VIU) calculation. VIU was determined by discounting the future cash flows generated from the continuing use of the unit. The key assumptions used are given below:

• Business growth - Based on historical growth rate and business plans. Cash flows beyond the five year period are extrapolated using zero growth rate.

• Inflation - Based on prevailing inflation rate and projected economic conditions.

• Discount rate - Weighted Average Cost of Capital;

• Margin - Based on current margin and business plans

20. INVESTMENTS IN SUBSIDIARIES

Effective Holding %

No. of Shares Company

2016 2015

Carrying Value

Softlogic Finance PLC 68.44 40,429,635 1,370,501,893 999,256,540

Asian Alliance Insurance PLC 59.19 221,952,810 2,689,582,212 2,689,582,213

Softlogic Stockbrokers (Pvt) Ltd 100.00 19,700,000 316,929,500 316,929,500

Capital Reach Portfolio Management (Pvt) Ltd. 100.00 2 20 20

4,377,013,625 4,005,768,273

Market Value of Group quoted Investments in Subsidiaries 2016 2015

Softlogic Finance PLC 1,548,455,007 1,123,396,402

Asian Alliance Insurance PLC 3,351,487,431 2,929,777,092

4,899,942,438 4,053,173,494

136136


21. FINANCIAL ASSETS

21.1 Available for sale Financial Assets

As at 31 March Note Group Company

2016 2015Restated

2016 2015

Quoted Shares 21.1.1 1,600,480,525 113,873,144 11,955,965 12,873,144

Unquoted Shares 469,030,600 150,030,600 - -

Debentures 1,281,298,284 1,145,073,594 - -

Treasury Bonds 3,561,116,320 3,570,409,515 - -

6,911,925,729 4,979,386,853 11,955,965 12,873,144

Realizable after one year 6,732,077,529 4,918,656,521 11,955,965 12,873,144

Realizable within one year 179,848,200 60,730,332 - -

6,911,925,729 4,979,386,853 11,955,965 12,873,144

21.1.1 Quoted shares investments

As at 31 March Group

2016 2016 2015 2015

No of Shares Market Value No of Shares Market Value

Market Value

Asiri Hospital Holdings PLC 5,500,000 132,000,000 5,000,000 101,000,000

FLC Holdings PLC 950,900 1,141,080 950,900 1,521,440

Hatton National Bank PLC 21,841 4,352,911 21,841 4,848,702

National Development Bank 8,628,700 1,456,524,560 - -

Seylan Bank PLC (Non Voting) 102,571 6,461,974 102,571 6,503,002

15,204,012 1,600,480,525 6,075,312 113,873,144

As at 31 March Company

2016 2016 2015 2015


FLC Holdings PLC 950,900 1,141,080 950,900 1,521,440



1,075,312 11,955,965 1,075,312 12,873,144


137


137

21.2 Financial Assets at Fair Value through Profit or Loss

As at 31 March Note Group

2016 2015

Quoted Shares 21.2.1 522,783,459 2,598,291,459

Debt securities 85,881,938 92,576,655

Unit trust 66,452,986 60,414,493

675,118,383 2,751,282,607

21.2.1 Quoted shares investments


2016 2016 2015 2015


Aitken Spence Hotel Holdings PLC - - 20,000 1,340,000

Aitken Spence PLC - - 114,269 11,369,766

Alumex PLC 828,460 12,758,284 3,401,850 53,749,230

Bairaha Farms PLC 17,919 2,580,336 23,866 2,587,074

Chevron Lubricants Lanka PLC 55,000 16,775,000 - -

Commercial Bank of Ceylon PLC (Non Voting) - - 504,482 66,188,038

Dialog Axiata PLC 868,600 8,859,720 868,600 9,033,440

Hemas Holdings PLC 904,950 72,938,970 - -


Hatton National Bank PLC (Non Voting) 208,505 35,654,355 408,505 67,403,325

Jhon Keells Holdings PLC 789,419 116,834,012 - -

Lanka Tiles PLC - - 12,500 1,325,000

National Development Bank - - 8,628,700 2,139,917,600

Overseas Realty (Ceylon) PLC 100,000 2,340,000 - -

Panasian Power PLC 3,090,000 9,888,000 4,690,000 15,946,000

People's Leasing & Finance PLC - - 100,000 2,210,000

Richard Pieris and Company PLC - - 75,000 555,666


Softlogic Holding PLC 4,591,702 61,069,637 4,591,702 60,610,466

Textured Jersey Lanka PLC 1,811,689 57,430,541 - -

The Lanka Hospital Corporation PLC 45,470 2,318,970 - -

Union Bank PLC 6,023,317 99,987,062 5,827,256 140,436,870

19,657,088 522,783,459 29,614,672 2,598,291,459

138138


21.2.2 Reclassification of financial assets at fair value through profit or loss (FVTPL) to available-for-sale (AFS)

Asian Alliance Insurance PLC, Asian Alliance Insurance General Ltd and Softlogic Finance PLC reclassified its investment in National Development Bank PLC (NDB) equity shares into Available for Sale (AFS) from financial assets at fair value through profit or loss (FVTPL) category on 31 July 2015 as approved by the respective board of directors. Further board of directors of respective entities had resolved to reclassify the investment in NDB shares as it was decided the group will no longer hold the investment in NDB for the purpose of being sold in the near term. This decision was taken after considering the potential synergies that could be developed between NDB and companies within the Softlogic group and taking in to account the strategic intent in the holding.

Details of reclassified amounts from financial assets at fair value through profit or loss (FVTPL) to Available for Sale (AFS) as at 31 July 2015 are as follows.

Asian Alliance Insurance PLC 1,829,217,500

Asian Alliance Insurance General Ltd 412,500,000

Softlogic Finance PLC 131,175,000

Total value of reclassification 2,372,892,500

Fair Value gain recorded in the Group Income Statement and Group Other Comprehensive Income Statement as at the beginning of the financial period, at the date of the reclassification and as at the financial priod end is given bellow;

Fair value/ carring value

Impact on Group Income

Statement

Impact on Other

Comprehensive Income

As at 01 April 2015 2,139,917,600 - -

As at 31 July 2015 2,372,892,500 232,974,900 -

As at 31 March 2016 1,456,524,560 - (916,367,940)

Fair value of Rs. 916.37 Mn would be recognized in the group income statement of financial assets at Fair Value Through Profit or Loss (FVPTL) had not been reclassified into Available for Sale.


139


139

21.3 Loans and Receivables

As at 31 March Note Group

2016 2015

Other Loans 22.3.1 15,268,123,900 12,737,157,672

Trade Debtors 228,314,414 204,441,002

Reinsurance Recievables 200,127,791 226,767,434

Premium Recievables 679,116,882 473,859,629

Debentures 444,427 6,283,794

Bank Deposit 48,537,294 13,150,916

Repos 964,995,619 225,874,701

17,389,660,327 13,887,535,148

Realizable after one year 4,669,834,913 2,350,210,693

Realizable within one year 12,719,825,414 11,537,324,455

17,389,660,327 13,887,535,148

21.3.1 Other Loans

Loans and receivable 17,954,468,027 15,307,462,979

(-) Unearned Income (2,207,752,325) (2,291,923,005)

Gross Loans and Receivables 15,746,715,702 13,015,539,974

(-) Allowance for Specific Impairment (103,989,804) (81,512,922)

(-) Allowance for Collective Impairment (374,601,998) (196,869,380)

Net Other Loans 15,268,123,900 12,737,157,672

21.3.1.1ProductwiseanalysisofOtherLoans


2016 2015

Short term loans receivable - 143,256

Revolving loans receivable 677,752,248 549,685,488

Consumer Loans receivable 107,696,393 289,942,425

Personal loans receivable 3,132,928,988 2,948,779,619

Pawning receivable 610,384,558 401,572,520

Policy Loans 1,470,037 135,657,025

SME Loans receivable 11,216,483,478 8,689,759,641

Allowance for impairment (478,591,802) (278,382,302)

15,268,123,900 12,737,157,672

140140


21.3.1.2 Product wise analysis - allowance for impairment for loans and advances


2016 2015

Short term loans receivable

Revolving loans receivable 41,071,529 28,673,634

Consumer Loans receivable 29,881,919 19,020,691

Personal loans receivable 160,897,416 102,220,843

Pawning receivable 59,359 1,747,871

SME Loans receivable 246,681,579 126,719,263

478,591,802 278,382,302

21.3.1.3MovementinImpairmentAllowanceforLoansandReceivable


2016 2015

At the Beginning of the Year 278,382,303 150,748,625

Net Iimpairment Charge for the Year 244,011,490 185,808,930

Write off during the Year - (3,264,732)

Set offs during the year (43,801,990) (54,910,520)

At end of the year 478,591,802 278,382,302

22.3.1.4MovementinSpecificImpairmentAllowanceforLoansandReceivables


2016 2015


Net Impairment Charge for the Year 22,476,882 45,918,615

Write off During the Year - (3,264,732)

Set offs during the year - (54,910,520)

At the end of the Year 103,989,804 81,512,922

22.3.1.5MovementinCollectiveImpairmentAllowanceforLoansandReceivables


2016 2015



Set offs during the year (43,801,990) -

Balance as at end of the year 374,601,998 196,869,380


141


141

21.4 Lease and hire purchase receivables


2016 2015

Gross Investment in Leases and hire purchases 1,994,552,796 3,976,742,767

(-) Rentals Received in Advance (1,177,300) (2,289,650)

(-) Unearned Income (269,044,239) (802,977,420)

(-) Allowance for Impairment

Allowance for Specific Impairment (18,404,121) (10,220,024)

Allowance for Collective Impairment (157,510,972) (76,187,733)

Net Leases and hire purchase Receivables 1,548,416,164 3,085,067,942

21.4.1 Lease and hire purchase rentals receivable within one year


2016 2015

Lease and hire purchase Rentals Receivable within one year 1,409,438,615 1,680,471,274

(-) Unearned Income (172,911,596) (338,691,445)

Total Rentals Receivable within one year 1,236,527,019 1,341,779,829


Allowance for Specific Impairment (18,404,121) (10,220,024)

Allowance for Collective Impairment (157,510,972) (76,187,733)

Net Leases and hire purchase Receivables within one year 1,060,611,926 1,255,372,072

21.4.2 Lease and hire purchase rentals receivable within one to five years


2016 2015

Lease and hire purchase Rentals Receivable within 1-5 years 583,936,881 2,293,981,846

(-) Unearned Income (96,132,643) (464,285,976)

Gross rentals Receivable within one to five years 487,804,238 1,829,695,870


Allowance for Specific Impairment - -

Allowance for Collective Impairment - -

Net Lease and hire purchase rentals receivable within one to five years 487,804,238 1,829,695,870

142142


21.4.3 Movement in Impairment Allowance for Leases and hire purchase Receivables


2016 2015


Net impairment charge for the year 225,311,524 222,974,526

Recoveries during the year 128,044,598 54,465,995

Write offs during the year (257,797,478) (258,172,215)

At end of the year 198,188,622 102,629,977

Reversal of notional interest for the year (22,273,503) (16,222,220)

At the end of the year after notional interest adjustment 175,915,093 86,407,757

Movement in Specific Impairment Allowance for Leases and hire purchase Receivables


2016 2015

At the beginning of the year 26,442,244 36,822,810

Net impairment charge for the year 143,988,285 193,325,654

Recoveries during the year 128,044,598 54,465,995

Write offs during the year (257,797,478) (258,172,215)

Balance as at end of the year 40,677,649 26,442,244

Reversal of notional interest for the year (22,273,503) (16,222,220)

At the end of the year after notional interest adjustment 18,404,121 10,220,024

Movement in Collective Impairment Allowance for Leases and hirepurchase Receivables


2016 2015



At the end of the Year 157,510,972 76,187,733


143


143

21.5 Held to Maturity Financial Assets


2016 2015

Deposits with Regulator-CSE 3,500,000 3,500,000

Bank Deposits - 289,517,546

Treasury Bills - 1,191,251,671

Treasury Bonds 225,093,733 220,131,245

228,593,733 1,704,400,462

Realizable after one year 228,593,733 223,631,245

Realizable within one year - 1,480,769,217

228,593,733 1,704,400,462

22. DEFERRED EXPENSES


2016 2015

Deferred Expenses 138,684,364 96,498,398

22.1 Deferred Expenses (Deferred acquisition costs) comprise commissions and other variable costs directly connected with acquisition or renewal of insurance contracts.

23. INVENTORIES


2016 2015

Vehicle Stock 73,217,136 262,584,742

Real Estate Stock 426,888,815 356,885,276

Gold Stock - 3,489,732

Other 29,749,924 20,515,586

529,855,875 643,475,336

144144


24. OTHER CURRENT ASSETS


2016 2015 2016 2015

Advance, Deposits & Pre payments 255,807,043 92,723,709 667,347 1,997,726

Receivable from Inland Revenue 300,901,134 334,041,328 - -

Insurance Debtors 42,141,096 157,534,595 - -

Other Receivables 399,043,725 384,017,752 2,219,594 8,037,595

989,284,998 968,317,384 2,886,941 10,035,321

25. CASH AND CASH EQUIVALENTS


2016 2015 2016 2015

Cash in hand and at Bank Balances 2,786,360,958 1,137,234,429 40,362,714 35,590,585

2,786,360,958 1,137,234,429 40,362,714 35,590,585

Bank Overdrafts (1,350,523,495) (876,300,347) (311,323,068) (255,110,399)

1,435,837,463 260,934,082 (270,960,354) (219,519,814)

Cash and Cash equivalents include Cash in Hand, Bank Deposits & Investments with the maturity of less than 3 months. Bank Overdrafts include all temporary & permanent overdrafts.

26. STATED CAPITAL

Issued and Fully Paid Group Company

2016 2015

Number ofShares

Value ofShares

Number ofShares

Value ofShares

At the beginning of the year 688,160,000 2,880,000,000 299,200,000 2,176,000,000

Shares Issued during the year - - 388,960,000 1,322,464,000

Reduction of stated capital - - - (618,464,000)

At the end of the year 688,160,000 2,880,000,000 688,160,000 2,880,000,000

28. RESERVES


2016 2015

Reserve Fund


Transferred during the year 50,503,352 27,004,919

At the end of the year 124,166,209 73,662,858


145


145

Reserve fund is a statutory reserve created in compliance with the direction No. 1 of Central Bank Regulations of 2003. The amount transferred is not less than 20% of the net profit after taxation.

28.2 Investment Fund Reserve


2016 2015

At the beginning of the year - 47,312,568

Transferred during the year - (47,312,568)

At the end of the year - -

Investment fund reserve created in compliance with the guidelines issued by Value Added Tax Act No 14 of 2002, under the cover of the letter No. 02/17/800/0014/01. The amount transferred is equal to the summation of

a) An amount equal to 8% of the value addition computed for financial VAT purposes

b) An amount equal to 5% of profits computed for income tax

However, in compliance with the new guidline isuued under under the letter No. 24/10/001/0004/001, the operation of Investment fund reserve has ceased with effect from October 1, 2014 and the balance has been transferred to retained earnings.

28.3 Available for Sale Reserve


2016 2015 2016 2015

At the beginning of the year 35,939,065 123,955,721 (1,953,928) (15,020,456)

Net unrealised gan/ (loss) on available-for-sale financial instruments (906,213,958) (88,016,656) (917,179) 13,066,528

At the end of the year (870,274,893) 35,939,065 (2,871,107) (1,953,928)

29. INSURANCE PROVISION - LIFE


2016 2015

At the beginning of the year 5,029,272,339 4,084,923,357

Increase in life fund 1,891,162,838 1,510,562,982

Transfer to shareholders (862,235,000) (566,214,000)

At the end of the year 6,058,200,177 5,029,272,339

Valuation of Life Insurance Fund

The valuation of the long term life insurance fund as at 31 December 2015 was conducted by Mr. M. Poopalanathan of Actuarial & Management Consultants (Pvt) Ltd, for an behalf of Asian Alliance Insurance PLC (AAIC).

146146


Long duration contract liabilities included in the Life insurance fund, results primarily from traditional participating and non-participating life insurance products. Short duration contract liabilities are primarily group term, accident and health insurance products. The actuarial reserves have been established based upon the following.

- Interest rates which vary by product and as required by Regulations issued by the Insurance Board of Sri Lanka (IBSL)

- Mortality rates based on published mortality tables adjusted for actual experience as required by Regulations issued by the IBSL

- Surrender rates based upon actual experience.

Recommendation of Surplus Transfer

In accordance with the Consultant’s Actuary Report as at 31 December 2015, the sum of provision Rs. 5,966.00 Mn (2014 - Rs. 4,999.00 Mn) includes the liability in respect of policy holders bonus as well. In the opinion of the consultant actuary, the provision is adequate to cover the liabilities pertaining to long term insurance.

The actuary recommended to transfer a sum of Rs. 612.24 Mn (2015 - Rs. 368.45 Mn) to the share holders of AAIC as at 31 December 2015 and transferred further Rs. 250.00 Mn (2015 - Rs. 197.76 Mn) for the three months period ending 31 March 2016.

Solvency Margin

In the opinion of the consultant actuary, the Admissible Assets of the Life Insurance fund as at 31 December 2015 is adequate to cover the liabilities of the fund and solvency margin requirement prescribed under section 26 of the Regulation of Insurance Industry Act No 43 of 2000.

As at 31 March 2015 2014

Actuarial Assumptions as at 31 December

Interest Rate 8.00% - 9.50% 7.50%

Mortality Table Used A67/70 A67/70

30. PUT OPTION LIABILITY


2016 2015 2016 2015

Put Option Liability 9,356,708 6,260,352 9,356,708 6,260,352

9,356,708 6,260,352 9,356,708 6,260,352

Put Option Liability - Non Current - 6,260,352 - 6,260,352

Put Option Liability - Current 9,356,708 - 9,356,708 -

9,356,708 6,260,352 9,356,708 6,260,352


147


147

30.1 Softlogic Holdings PLC (“SH”), Softlogic Capital PLC (“SC”) and Asian Alliance Insurance PLC (“AAI”) entered into a “Shareholders Agreement” and “Share Purchase Agreement” dated 20 December 2012 as amended 13 February 2013 with Deutsche Investitions - Und Entwicklungsgesellschaft MBH (“DEG”) and Nederlandse Financierings-Maatschappij Voor Ontwikkelingslanden N.V. (“FMO”) to sell 19% of the ordinary shares of AAI, held by SH to FMO and 19% of the AAI ordinary shares held by SC to DEG. As per the above agreements, SC has granted a ‘Put Option’ to FMO and DEG which will be valid for a three year period with effect from 7 March 2017 to repurchase 38% of the shares held by DEG and FMO based on a ‘Put Option’ price as specified in the amended agreements.

Subsequent to the evaluation of ownership interest on the share transferred to non-controlling interest (NCI) based on pricing, voting rights, decision making and dividend rights, management determines that SH & SC have transferred full ownership interest to the NCI. Therefore AAI shares were derecognized and any liability arising from the put option will be recognized based on option valuation methodology in line with LKAS 39 Financial Instrument Recognition and measurement.

30.2 The obligation on the put option liability is based on the Binomial method of valuation carried out by the management of Softlogic Capital PLC. The principal inputs used in determining the liability were:

Company and Group

2016 2015

Continuous compounded risk free rate (%) 10.64 8

Annualized volatility (%) 39.54 39

Appraisal value (Rs.) 247 203

Probability to move up (Pu) of the option value (%) 90 90

Probability to move down (Pd) of the option value (%) 10 10

Upward movement of the appraisal value (%) 1.32 1.32

Downward movement of the appraisal value (%) 0.76 0.76

At the end of the year the liability amounted to Rs. 9,356,708/-.

Risk free rate - Rate of return of an investment with no risk of financial loss

Appraisal value - Appraisal value is based on an valuation performed by an independent valuer

148148


30.3 Sensitivity of assumptions used

If one percentage point changes in the assumptions, would have the following effect:

As at 31 March Company and Group

2016 2015

Effect on the put option obligation liability;

Increase by one percentage point in risk free rate (184,302) (147,080)

Decrease by one percentage point in risk free rate 188,944 151,776


Increase by one percentage point in appraisal value (238,311) (102,542)

Decrease by one percentage point in appraisal value 418,157 248,212


Increase by one percentage point in probability to move up of the option value (2,439,280) (1,792,390)

Decrease by one percentage point in probability to move up of the option value 2,923,311 2,237,153

31. INTEREST BEARING BORROWINGS


2016 2015 2016 2015

Bank Loans Note 31.3 1,971,404,591 1,001,543,928 1,035,216,000 756,816,000

FMO Loan 311,727,460 507,960,000 - -

Finance Lease Creditors 18,292,040 1,931,772 - -

Securitization - 164,104,285 - -

Commercial Papers 938,373,756 2,348,568,833 77,791,302 76,778,321

Debentures 1,935,808,168 1,867,000,000 - -

5,175,606,015 5,891,108,818 1,113,007,302 833,594,321

31.1 Non-Current Liabilities


2016 2015 2016 2015

Bank Loans 1,155,563,000 175,216,000 817,053,500 175,216,000

FMO Loan 311,727,460 507,960,000 - -

Finance Lease Creditors 14,516,082 - - -

Debentures 1,435,808,168 1,867,000,000 - -

2,917,614,711 2,550,176,000 817,053,500 175,216,000


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149

31.2 Current liabilities


2016 2015 2016 2015

Bank Loans 815,841,591 826,327,928 218,162,500 581,600,000

Finance Lease Creditors 3,775,958 1,931,772 - -

Securitization - 164,104,285 - -

Commercial Papers 938,373,756 2,348,568,833 77,791,302 76,778,321

Debentures 500,000,000 - - -

2,257,991,305 3,340,932,818 295,953,802 658,378,321

31.3 Bank Loans

Institution Type of Loan Amortized Cost Interest Rate Securities Pledged Security Value

Softlogic Capital PLC

Sampath Bank Term Loan 175,216,000 AWPLR+1.25%

Sampath Bank Term Loan 500,000,000 AWPLR+0.75% 191,250,000 shares of Asian PLC Alliance Insurance 2,887,875,000

Sampath Bank Term Loan 360,000,000 AWPLR+1.25%

1,035,216,000

Softlogic Finance PLC

Commercial Bank of Ceylon Term Loan 219,083,119 AWPLR+1.25% Nil Nil

HNB Bank Term Loan 201,425,797 AWPLR+1% Nil Nil

Seylan Bank Term Loan 245,979,675 AWPLR+1.5% Hire purchase and finance lease receivables 250,000,000

666,488,591

Asian Alliance Insurance PLC

NTB Loan Term Loan 269,700,000 AWPLR +2.0% 18,600,000 shares of Cargils Bank Limited 269,700,000

269,700,000

Total Bank Borrowings 1,971,404,591

32. PUBLIC DEPOSITS


2016 2015

Time deposits 13,932,160,040 11,979,261,889

Savings deposits 68,188,626 70,806,908

Certificate of deposits 4,154,432 11,893,564

14,004,503,098 12,061,962,361

Payable after one year 1,521,942,995 2,214,295,777

Payable within one year 12,482,560,103 9,847,666,584

14,004,503,098 12,061,962,361

150150


33. RETIREMENT BENEFIT OBLIGATION


2016 2015


Transitional liability - 1,411,602

Current service cost 16,058,178 13,009,250

Interest cost 6,589,341 7,231,157

(Gain)/loss arising from changes in assumptions (1,570,960) (6,874,961)

Benefits paid (7,941,903) (15,131,195)


33.1 The amounts recognized in the statement of comprehensive income are as follows


2016 2015

Current service cost 16,058,178 13,009,250

Interest cost 6,589,341 7,231,157

Recognised in income statement 22,647,519 20,240,407

33.2 The principal assumptions used for this purpose are as follows:


2016 2015

Discount rate per annum 11%-12% 9%

Annual salary increments rate 8% 10%

Staff turnover rate 6% 6%

Retirement age 55 55


151


151

33.3 Sensitivity of assumptions used

If one percentage point changes in the assumptions, would have the following effect:


2016 2015

Effect on the defined benefit obligation liability;

Increase by one percentage point in discount rate (3,451,380) (5,634,156)

Decrease by one percentage point in discount rate 3,797,608 5,293,723

Effect on the defined benefit obligation liability;

Increase by one percentage point in salary increment rate 4,034,922 5,940,110

Decrease by one percentage point in salary increment rate (3,721,203) (5,187,270)

33.4 Maturity analysis of the payments

The following payments are expected on employees benefit liabilities in future years.


2016 2015

- within the next 12 months 6,013,680 3,991,867

- between 1 and 2 years 18,364,344 5,906,661



- beyond 10 years 22,581,056 42,489,438

Total expected payments 84,774,085 71,639,427.34

33.3 The Group’s weighted average duration of defined benefit obligation is 6.35 years.

152152


34. DEFERRED TAX LIABILITIES / ASSETS

34.1 Deferred tax assets


2016 2015 2016 2015

At the beginning of the year 14,953,055 22,446,337 14,759,960 14,759,960

Charge/(credited) to the income statement 67,025,365 (7,493,282) - -

At the end of the year 81,978,420 14,953,055 14,759,960 14,759,960

The closing deferred tax asset balance relates to the following;

Accelerated depreciation for tax purposes 529,860 (2,619,515) - -

Revaluation of building to fair value (7,905,460) - - -

Net gain/loss on available-for-sale financial assets 22,606,454 - - -

Employee benefit liabilities 5,169,294 1,171,499 - -

Losses available for offset against future taxable income 61,578,273 16,401,071 14,759,960 14,759,960

81,978,420 14,953,055 14,759,960 14,759,960

34.2 Deferred tax liabilities


2016 2015


Income statement release (3,629,031) (23,486,225)

Impact on reclassification - (3,001,928)


The closing deferred tax liability balance relates to the following;

Accelerated depreciation for tax purposes (46,536,099) (55,635,079)

Employee benefit liabilities 4,864,531 3,993,879

Losses available for offset against future taxable income 10,188,610 24,136,816

Unclaimed Impairment Provisions 79,309,378 48,817,156

Lease Capital Balance (64,306,618) (41,422,000)

(16,480,197) (20,109,228)


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153

35. DEFERRED INCOME


2016 2015

Reinsurance Commission Income 15,236,346 25,945,151

36. TRADE AND OTHER PAYABLES


2016 2015 2016 2015

Trade Payable 316,794,653 712,417,201 - -

Reinsurance Creditors 200,701,183 219,282,604 - -

Insurance Provision - General 1,346,470,847 1,134,071,314 - -

Other Payable Note Note 36.1 560,973,731 656,252,913 2,841,220 2,645,153

2,424,940,414 2,722,024,032 2,841,220 2,645,153

36.1 Other Payable


2016 2015 2016 2015

Commission Payable 214,504,515 149,462,971 - -

Premium Deposit 94,584,615 72,725,534 - -

Other 251,884,601 434,064,408 2,841,220 2,645,153

560,973,731 656,252,913 2,841,220 2,645,153

37. INCOME TAX PAYABLE


2016 2015 2016 2015

At the beginning of the year 27,234,912 54,205,548 - -

Provision for the year 88,192,566 40,046,988 23,995 49,734

Reversal of income tax over charge in previous years - (8,986,915) - -

Impact on Reclassification - 23,486,222 - -

115,427,478 108,751,843 23,995 49,734

Payments and set off against refunds (106,342,872) (81,516,931) (23,995) (49,734)

At the end of the year 9,084,605 27,234,912 - -

Income Tax Receivable (6,153,060) - - -

Income Tax Payable 15,237,666 27,234,912 - -

Net Income Tax Payable 9,084,606 27,234,912 - -

154154


38. CONTINGENT LIABILITIES

38.1 The Company has given Corporate Guarantees amounting to LKR 75Mn on behalf of Softlogic Stockbrokers (Pvt) Ltd.

38.2 Subsidiaries

38.2.1 Softlogic Finance PLC

2016 2015

Guarantees issued and in force 4,650,000 12,250,000

Commitments include guarantees issued to banks and other financial institutions on behalf of customers.

38.2.2 Asian Alliance Insurance PLC

38.2.2.1AssessmentinrespectofValueAddedTax(VAT)

a) The Company has been issued with an assessment by the Department of Inland Revenue on 28 October 2011 and 26 April 2013 under the Value Added Tax Act, in relation to the taxable period ending 31 December 2009 and 2010 for LKR 4.5 Million and LKR 52.3 Million respectively.

The Company has filed an appeal in November 2011 on the basis that the underlying computation includes items which are exempt /out of scope of the VAT Act. The Commissioner General of Inland Revenue has determined the assessment and the Company is in the process of appeal to the Tax Appeals Commission. The Company is awaiting the final decision.

b) The Company has received a tax assessments letter for Life Insurance taxation for the years 2010.The Company is of the strong view that no additional tax liability is arising and also we have filed a response highlighting our view, which was done in consultation with Tax Consultants. Further even if this would materialised against the Company, no additional tax liabilities are required for the Company due to carried forward taxable loses and credits. However,the accumulated tax losses of Life business will come down by LKR 237 Mn.

c) The Company has received a notice of assessments for Life Insurance taxation for the years 2011 and 2012.The Company has filed a petition of appeal through Company’s Tax Consultants and the Company is of the strong view that no additional tax liability is arose due to this. Further even if this would materialised against the Company, no additional tax liabilities are required for the Company due to carried forward taxable loses and credits. However,the accumulated tax losses of Life business will come down by LKR 554 Mn.

38.2.2.2PendingLitigation

In the opinion of the Directors, and in consultation with the Company Lawyers, litigation currently pending against the Company would not have a material impact on the reported financial results of the Company.

All pending litigations for claims have been evaluated and adequate provisions have been made in these Financial Statements where necessary.

38.2.2.3 Compliance with Solvency Regulation

Asian Alliance Insurance PLC Group is also subject to insurance solvency regulations and has complied with all solvency regulations. There are no contingencies associated with the Company’s compliance or lack of compliance with such regulations.


155


155

39. CAPITAL COMMITMENTS

The Group and the Company do not have significant capital commitment as at the Reporting date.

40. POST BALANCE SHEET EVENTS

No circumstances have arisen since the date of the statement of financial position, which would require adjustments to or disclosure in the fianacial statements other than the following.

Sale of shares - Asian Alliance General Insurance Ltd

The directors of Asian Alliance Insurance PLC, a subsidiary of Softlogic Holdings PLC announced that on 24th June 2016, the company entered into a Share Sales and Purchase Agreement for the sale of entire stake in Asian Alliance General Insurance Ltd to Fairfax Asia Ltd or another nominated member of the Fairfax Group.

The closing of the aforesaid transaction is conditional on the completion of certain customary matters including approvals by the respective boards of directors and shareholders, regulatory approvals and other necessary third party approvals (as required) and Fairfax Asia (or another nominated member of the Fairfax Group) entering into an exclusive general insurance distribution agreement with Softlogic Holdings PLC.

41. SEGMENT INFORMATION

Business Segment

Segment Revenue & Segment Results

Year ended 31 March 2016 Lease Hire Purchase

Loans Insurance Investments Group Total

Segment Revenue 271,658,103 371,817,244 3,246,509,937 6,813,544,765 196,061,010 10,899,591,059

Un-allocated 444,843,691

Inter Company (188,303,144)

271,658,103 371,817,244 3,246,509,937 6,813,544,765 196,061,010 11,156,131,606

Depreciation of property,plant and equipment (4,884,230) (6,685,024) (58,370,062) (75,967,050) (199,106) (146,105,472)

Un-allocated (8,850,956)

(4,884,230) (6,685,024) (58,370,062) (75,967,050) (199,106) (154,956,428)

Amortisation of intangible assets (678,163) (928,199) (8,104,535) (11,203,355) (571,263.00) (21,485,515)

Un-allocated (651,441)

Consolidation Adjustments (127,343,669)

(678,163) (928,199) (8,104,535) (11,203,355) (571,263.00) (149,480,626)

Segment Results before Tax 28,229,206 38,637,190 337,359,340 905,799,739 28,216,792 1,338,242,267



Taxation (44,072,703)

28,229,206 38,637,190 337,359,340 905,799,739 28,216,792 1,137,226,808

156156


Business Segment

Segment Revenue & Segment Results

Year ended 31 March 2015 Lease Hire

Purchase Loans Insurance Investments Group Total

Segment Revenue 424,745,616 1,333,054,906 1,822,209,471 5,800,534,395 370,763,951 9,751,308,339


Inter Company (428,071,783)

424,745,616 1,333,054,906 1,822,209,471 5,800,534,395 370,763,951 9,953,950,550

Depreciation of property,plant and equipment 7,297,115 22,901,836 31,305,494 52,765,638 298,817 114,568,900


7,297,115 22,901,836 31,305,494 52,765,638 298,817 125,161,833

Amortisation of intangible assets 637,164 1,999,725 2,733,510 2,360,877 - 7,731,276


Consolidation Adjustments 142,800,455

637,164 1,999,725 2,733,510 2,360,877 - 152,708,559

Segment Results before Tax 23,591,039 74,039,965 101,208,379 715,853,142 213,685,363 1,128,377,888



Taxation (59,934,071)

23,591,039 74,039,965 101,208,379 715,853,142 213,685,363 782,496,851

Segment Assets & Liabilities

As at 31 March 2016 Lease Hire


Total Assets 1,465,809,117 124,985,808 15,266,653,864 12,349,877,576 4,450,822,117 33,658,148,482

Un-allocated 4,284,273,518

Goodwill 924,934,106

Intangible Assets 1,645,919,468

Eliminations (5,750,698,589)

Total Assets 1,465,809,117 124,985,808 15,266,653,864 12,349,877,576 4,450,822,117 34,762,576,990

Total Liabilities 1,286,572,731 109,702,779 13,399,876,100 9,587,846,365 1,437,002,049 25,821,000,024


Eliminations (256,425,518)

Total Liabilities 1,286,572,731 109,702,779 13,399,876,100 9,587,846,365 1,437,002,049 29,150,185,157


157


157

Segment Assets & Liabilities

As at 31 March 2015 Lease Hire


Total Assets 1,465,809,117 4,953,710,435 10,314,478,187 10,799,198,808 4,084,154,674 31,617,351,221


Goodwill 924,934,106

Intangible Assets 1,693,392,420

Eliminations (4,990,154,638)

Total Assets 1,465,809,117 4,953,710,435 10,314,478,187 10,799,198,808 4,084,154,674 32,850,644,505

Total Liabilities 1,323,018,217 4,471,147,760 9,309,699,597 7,827,797,684 1,097,610,224 24,029,273,482


Eliminations (373,063,607)

Total Liabilities 1,323,018,217 4,471,147,760 9,309,699,597 7,827,797,684 1,097,610,224 26,731,856,972

44. ASSETS PLEDGED

Following Assets have been pledged as securities

Group Company

2016 2015 2016 2015

Lease Rental Receivables 487,952,824 505,552,730 - -

Ordinary Shares of Softlogic Finance PLC 967,466,464 528,346,238 967,466,464 528,346,238

Ordinary Shares of Asian alliance Insurance PLC 2,908,741,992 2,608,095,871 2,908,741,992 2,608,095,871

Quoted Investments 11,955,964 12,873,143 11,955,964 12,873,143

4,376,117,244 3,654,867,983 3,888,164,420 3,149,315,253

158158


45. RELATED PARTY TRANSACTIONS

Details of significant related party disclosures are as follows:

a. Key Management Personnel

Remuneration paid

key management personnel include members of the Board of Directors of Softlogic Capital Ltd. & it’s subsidiaries.

Group Company

2016 2015 2016 2015

Remuneration(Short-term Employee Benefits) paid 102,325,329 49,099,511 11,785,000 11,345,000

Other Transactions

Group Company

2016 2015 2016 2015

Borrowings/Public Deposits from KMPs 77,117,364 44,212,192 - -

b.Outstanding balances arising from the related party transactions are as follows:

Group Company

2016 2015 2016 2015

Amount due to Related Companies

Softlogic Holdings PLC 473,763 - 473,763 -

473,763 - 473,763 -

Amount due from Related Companies

Asian Alliance Insurance PLC - - 1,984,148 1,945,769

Capital Reach Portfolio Management Pvt Ltd. - - - 27,480

Softlogic Finance PLC - - 1,520,000 2,045,000

- - 3,504,148 4,018,249


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159

c. Transactions with Group Companies

Nature of the Transaction Company Relationship 2016 2015

Interest Income Softlogic Stockbrokers (Pvt) Ltd. Subsidiary - 97,626

Consultancy and Professional Fees Softlogic Finance PLC Subsidiary 36,000,000 36,000,000

Income Asian Alliance Insurance PLC Subsidiary 78,666,429 112,666,866

Softlogic Stockbrokers (Pvt) Ltd. Subsidiary 12,000,000 6,900,000

Corporate Guarantee Fees From Softlogic Finance PLC Subsidiary 2,369,404 -

Softlogic Stockbrokers (Pvt) Ltd. Subsidiary 376,027 -

Dividend Income Softlogic Finance PLC Subsidiary 43,455,162 -

Asian Alliance Insurance PLC Subsidiary - 197,295,318

Softlogic Stockbrokers (Pvt) Ltd. Subsidiary 22,162,500 22,162,500

Interest Expense Softlogic Holdings PLC Parent Company - 19,053,337

Softlogic Communications Pvt. Ltd Group Company - 2,139,183

Softlogic Information Technologies (Pvt) Ltd. Group Company - 1,307,849

Consultancy and Professional Fees Softlogic Holdings PLC Parent Company 35,881,125 27,204,082

Expense

Secretarial Fee Softlogic Corporate Services (Pvt) Ltd. Group Company 987,703 180,000

Brokerage Expense Softlogic Stockbrokers (Pvt) Ltd. Subsidiary 741,656 195,688

Network Support Charges Softlogic BPO Services (Pvt) Ltd. Group Company 3,186,021 -

Corporate Guarantees given to Softlogic Finance PLC Subsidiary - 700,000,000

Softlogic Stockbrokers (Pvt) Ltd. Subsidiary 75,000,000 -

d. Non-recurrent Related Party Transactions value exceeds 10% of the Equity or 5% of the Total Assets, whichever is lower

Company Relationship ValueValue as a % of

equityValue as a % of

Total Assets The rationale

Softlogic Finance PLC Subsidiary 371,987,008 12% 8% To enhance the direct share holding of Softlogic Finance PLC

e. Terms and conditions of transactions with related parties

Transactions with related parties are carried out in the ordinary course of the business. Outstanding current account balances at year end are unsecured, interest free and settlement occurs in cash. Interest bearing borrowings are at pre-determined interest rates and terms.

46. PRIOR YEAR ADJUSTMENTS

The Consolidated Financial Statements have been restated in accordance with Sri Lanka Accounting Standard LKAS – 8, Accounting Policies, changes in Accounting Estimates and Errors, to refl ect the following.

Fair value adjustment on Available for Sale Financial Assets amounting to Rs. 95,963,000 has been erroniously debited to the Available for sale financial assets which was reliased in previous financial years. This has been corrected during the current financial year.

160160


Comparative information in the Consolidated Financial Statements have been restated as follows:

Group Published for 2014/15

Impact of errors Published for 2015/16

Available for sale financial assets 5,075,349,856 (95,963,000) 4,979,386,856

Retained Earnings 509,924,626 (95,963,000) 413,961,626

Group Published for 2013/14

Impact of errors Published for 2015/16

Retained Earnings (603,881,308) (95,963,000) (699,844,308)

47. RECLASSIFICATIONS OF COMPARATIVES

Group Note As Reported Previously

Current Presentation

Statement of Financial Position

Non Current Assets

Financial Assets - Loans and receivables 47.1, 47.2, 47.3 1,590,814,627 2,350,210,693

Lease and hirepurchase 47.1 2,812,256,581 1,829,695,870

Current Assets

Financial Assets - Loans and receivables 47.1, 47.2, 47.3 10,009,698,062 11,537,324,455

Lease and hirepurchase 47.1 3,595,017,265 1,255,372,072

Financial Assets - Held to Maturity 47.1, 47.2 - 1,480,769,217

Other Current Assets 47.3 1,413,903,153 968,317,384

Non Current Liabilities

Insurance Provision 47.4 6,382,075,845 5,029,272,339

Current Liabilities

Trade and Other Payables 47.4 1,369,220,525 2,722,024,032

47.1 Loans and Receivable of of Rs. 3,322,205,904 of the Group previously classified under Lease and Hirepurchase were reclassified as Financial Assets - Loans and Receivable.

47.2 Short term bank deposits and Government Securities of Rs. 1,480,769,217 of the Group previously classified under Financial Assets - Loans and Receivables were reclassified as Financial Assets - Held to Maturity.

47.3 Interest Receivable of Rs. 445,585,769 of the Group previously classified Other Current Assets were reclassified as Financial Assets - Loans and Receivables.

47.4 General Insurance Provision of Rs. 1,334,071,314 and Life Claims Payable of Rs. 218,732,192 of the Group previously classified Other Insurance Provision - Life and Non Life were reclassified as Trade and Other Payables.


161

48. MATERIAL PARTLY-OWNED SUBSIDIARIES

Financial information of subsidiaries that have material non controlling interest (NCI) is given below.

Softlogic Finance PLC Asian Alliance Insurance PLC Asian Alliance General

2016 2015 2016 2015 2016 2015

Summarised income statement

Revenue 3,612,022,476 3,673,994,558 4,118,291,426 3,849,478,287 1,615,018,972 385,464,589

Other income 522,869,176 290,172,434 238,960,463 585,911,655 90,733,542 6,093,350

Operating cost (3,673,636,270) (3,704,400,200) (2,914,427,402) (3,670,387,777) (1,930,208,391) (440,482,470)

Change in insurance contract liabilities - - (1,028,927,838) (944,348,981) - -

Finance income - 8,735,408 617,871,747 967,687,589 132,668,615 5,898,925

Finance cost (31,580,332) (47,840,955) (22,798,794) (27,915,165) (11,382,602) (1,546,859)

Profit before tax 429,675,050 220,661,245 1,008,969,602 760,425,608 (103,169,864) (44,572,465)

Taxation expense (60,714,266) (4,171,605) - (7,887,006) 30,655,224 (2,724,147)

Profit for the year 368,960,784 216,489,640 1,008,969,602 752,538,602 (72,514,640) (47,296,612)

Other comprehensive income 11,996,771 22,304,794 (1,258,698,620) (135,627,403) (195,703,589) (25,491,445)

Total comprehensive income 380,957,555 238,794,434 (249,729,018) 616,911,199 (268,218,229) (72,788,057)

Profit/ (loss) attributable to material NCI 116,444,023 79,235,208 411,760,495 307,111,003 (29,593,225) (19,301,747)

Dividend paid to NCI 24,063,093 - - 153,037,500 - -

Summarised statement of financial position

Current assets 15,524,061,381 14,596,440,276 2,241,256,286 2,904,967,830 1,235,270,828 1,299,666,637

Non-current assets 5,268,208,305 5,417,393,545 7,562,752,905 5,593,512,741 1,310,597,559 1,036,693,876

Total assets 20,792,269,686 20,013,833,821 9,804,009,191 8,498,480,571 2,545,868,387 2,336,360,513

Current liabilities 14,576,618,967 13,542,569,559 1,585,207,098 1,072,182,055 1,768,820,849 1,599,287,105

Non-current liabilities 3,673,211,031 4,521,628,870 6,215,234,594 5,173,001,907 18,583,823 10,361,465

Total liabilities 18,249,829,998 18,064,198,429 7,800,441,692 6,245,183,962 1,787,404,672 1,609,648,570

Accumulated balance of material NCI 802,393,966 713,566,553 817,655,896 919,570,346 309,529,042 296,571,144

Summarised cash flow information

Cash flows from/ (used in) operating activities 2,807,510,676 (3,230,105,331) 687,009,982 375,663,645 (21,896,590) 862,709,088

Cash flows from/ (used in) investing activities (97,378,639) 1,383,701,778 (1,152,590,475) (139,591,380) (396,460,414) (1,781,647,788)

Cash flows from/ (used in) financing activities (1,266,790,817) 401,292,330 118,678,515 (223,978,515) 299,970,000 799,500,000

Net Increase/ (decrease) in cash and cash

equivalents 1,443,341,220 (1,445,111,223) (346,901,978) 12,093,750 (118,387,004) (119,438,700)

48.1 The above information is based on amounts before inter-company eliminations.


163

This section comprise of the information supplementary to the above sections of this report

Investor Relations 164Quarterly Analysis 172Five Year Performance 176Five Year Balance Sheet Summary 178Five Year Graphical Presentation 182Notice of Meeting 183Form of Proxy 187Corporate Information (Inner Back Cover)

164

INVESTOR RELATIONS

Dear Investor,

We are delighted to present this ’Investor Relations’ section, which we have dedicated to you as part of our Annual Report in appreciation of continued support to the Company. Softlogic Capital PLC is committed to forge a high standard of communication with our shareholders and other investors, so that you have all the necessary information to make informed assessments of the Company’s value and prospects.

This section reveals the extent to which your Company complied with regulatory and voluntary disclosures during the financial year under review.

Your company communicated regularly with investors and other stakeholders mainly through the publication of press releases, interim financials, and communicating of other information etc. The Company’s latest Annual Report together

with interim financial results are available on the Colombo Stock Exchange web site. Alternatively, shareholders are able to elect to receive a copy of the Annual Report via mail on request.

Compliance Report on the Contents of the Annual Report in

termsofListingRulesoftheCSE

We are pleased to inform you that your company has complied with all requirements of Section 7.6 of the Listing Rules of the CSE on the contents of the Annual Report and Accounts of a Listed Entity.

The table below provides reference to the relevant sections of this Annual Report where specified information is found, together with page references for the convenience of the readers.

Listing rule number

Compliance Requirement Section / Reference Page Reference

7.6 (i) Names of persons who held the position of Director during the financial year

• Annual Report of the Board of Directors

46

7.6 (ii) Principal activities of the Company and its Subsidiaries during the year, and any changes therein.

• Note 1.6 of the Accounting Policies 80

7.6 (iii) The names and number of shares held by the 20 largest holders of voting and non-voting shares and the percentage of such shares held at the end of the period

• Item 03 of the Investment Relations Supplement

166

7.6 (iv) The public holding percentage • Item 04 of the Investment Relations Supplement

168

7.6 (v) A statement of each Director’s holding and Chief Executive Officer’s holding in shares of the entity at the beginning and end of each financial year


• Annual Report of the Board of Directors

168

47

7.6 (vi) Information pertaining to material foreseeable risk factors of the entity


168

7.6 (vii) Details of material issues pertaining to employees and industrial relations of the entity


168

7.6 (viii) Extents, locations, valuations and the number of buildings of the entity’s land holdings and investment properties

• Note 18.7 to the Financial Statements on “Property, Plant and Equipment”

132-133


165

Listing rule number

Compliance Requirement Section / Reference Page Reference

7.6 (ix) Number of shares representing the entity’s stated capital • Note 26 to the Financial Statements on “Stated Capital”


144

7.6 (x) A distribution schedule of the number of holders in each class of equity securities, and the percentage of their total holdings in the given categories


169

7.6 (xi) List of ratios and market price Information • Item 10 of the Investment Relations Supplement

169

7.6 (xii) Significant changes in the entity’s fixed assets and the market value of land, if the value differs substantially from the book value

• Note 18 to the Financial Statements on “Property, Plant and Equipment”

132

7.6 (xiii) If during the year the entity has raised funds either through a public issue, rights issue or private placement

• Note 26 to the Financial Statements on “Stated Capital”

144

7.6 (xiv) Employee Share Option Schemes and Employee Share Purchase Schemes

• There is no “Employee Share Ownership Scheme” in the Company.

-

7.6 (xv) Disclosures pertaining to Corporate Governance practices in terms of rules 7.10.3, 7.10.5 c. and 7.10.6 c. of Section 7 of the Rules

• Report on Corporate Governance 28-40

7.6 (xvi) Disclosures on Related Party Transactions exceeding 10% of the Equity or 5% of the total assets of the Entity as per the Audited Financial Statements, whichever is lower.

• Note 45.d to the Financial Statements on “Related Party Transactions”

159

01. Stock Exchange Listing

The ordinary shares of the Company are listed on the Dirisavi Board of the Colombo Stock Exchange under the stock code of SCAP.N0000.

Unaudited Interim Financial Statements for the first three quarters of 2015/2016 were submitted to the CSE within 45 days from the respective quarter ends as required by the Rule No. 7.4 (a) (i) of the Listing Rules of CSE.

The unaudited Interim Financial Statements for the fourth quarter of 2015/2016 was submitted to the CSE on May 29th, 2016 as required by Rule No. 7.4 (a) (i) of the Listing Rules of the CSE.

The Audited Income Statement for the year ended 31st March 2016 and the Audited Statement of Financial Position as at 31st March 2016 will be submitted to the CSE within four months from the year end, which is well within the required deadline as required by Rule No. 7.5(a) of the Listing Rules of the CSE.

4.00

5.00

6.00

7.00

8.00

9.00

10.00 8,000

7,000

6,500

7,500

6,000

5,500

5,000

4,500

Mar

15

Apr 1

5

May

15

Jun

15

Jul 1

5

Aug

15

Sep

15

Oct 1

5

Nor

15

Dec

15

Jan

16

Mar

16

Feb

16

ASPI (RHS)SCAP (LHS)

166

02. Information on Share Trading

Number of Transactions Number of Transactions

03. The Name, Number and Percentage of Shares held by Twenty Largest Shareholders

(As per Rule 7.6 (iii) of the Listing Rules of the CSE)

(a) As at 31st March 2016

Name No of Shares %

1 Softlogic Holdings PLC 405,814,044 58.97

Commercial Bank of Ceylon PLC / Softlogic Holdings PLC 100,000,000 14.53

2 Seylan Bank PLC / ARC Capital (Pvt) Ltd 70,329,246 10.22

3 Melstacorp Limited 40,000,000 5.81

4 Rosewood (Private) Limited Account No. 1 35,417,613 5.15

5 Seylan Bank PLC / W.D.N.H. Perera 10,109,999 1.47

6 Mcbridge Blue (Private) Limited 2,318,000 0.34

7 Hotel International Ltd 1,624,700 0.24

8 Mr. K. A. D. A. Perera 1,062,510 0.15

9 Vanik Incorporation Limited 1,050,000 0.15

10 Mr. D. L. Piyarisi 1,000,002 0.15

11 People’s Leasing & Finance PLC/ Mr. M.I.M. Rizly and F.R. Hassan 1,000,000 0.15

12 Trading Partners (Pvt) Ltd. 600,000 0.09

13 Ceylon Investments PLC Account No. 1 600,000 0.09

2015/2016 2014/2015

Trade volume 552 871

Share volume 3,174,499 3,214,485

Turnover (Rs.) 17,344,652 22,440,852

Days Traded 54 54

0

50

100

150

200

250

300

350

400

2011/12 2012/13 2013/14 2014/15 2015/16

Number of Transactions

0

200

400

600

800

1,000

1,200

1,400

1,600

2011/12 2012/13 2013/14 2014/15 2015/16

Number of Transactions

INVESTOR RELATIONS CONTD.


167

Name No of Shares %

14 Dr. S. Yaddehige 575,000 0.08

15 Mr. M. P. W. Gunawardana 550,000 0.08

16 Mr. H. A. V. Starrex 500,000 0.07

17 Mr. K. T. Gunarathna 495,501 0.07

18 Trillion Investments Limited 448,000 0.07

19 Mr. K. D. H. Perera 339,595 0.05

20 Mr. S. K. T. Munasinghe 310,278 0.05

674,144,488 97.98

Other 14,015,512 2.04

Total 688,160,000 100.00

(b) As at 31st March 2015

Name No of Shares %

1 Softlogic Holdings PLC 403,151,380 58.58

Commercial Bank of Ceylon PLC / Softlogic Holdings PLC 100,000,000 14.53

2 Seylan Bank PLC / ARC Capital (Pvt) Ltd 70,329,246 10.22

3 Melstacorp Limited 40,000,000 5.81

4 Rosewood (Private) Limited Account No. 1 37,248,263 5.41

5 Seylan Bank PLC / W.D.N.H. Perera 10,284,999 1.49

6 Hotel International Ltd. 2,540,256 0.37

7 Mcbridge Blue (Private) Limited 2,318,000 0.34

8 People's Leasing & Finance PLC/ Mr. M.I.M. Rizly and F.R. Hassan 1,478,500 0.21

9 Mr. K. A. D. A. Perera 1,062,510 0.15

10 Vanik Incorporation Limited 1,050,000 0.15

11 Trading Partners (Pvt) Ltd. 1,000,000 0.15

12 Trillion Investments Limited 700,000 0.10

13 Mr. D. L. Piyarisi 690,422 0.10

14 J B Cocoshell (Pvt) Ltd. 677,687 0.10

15 Ceylon Investments PLC Account No. 1 600,000 0.09

16 Mr. M. P. W. Gunawardana 550,000 0.08

17 Mr. H. A. V. Starrex 538,669 0.08

18 Mr. K. T. Gunarathna 500,001 0.07

19 Guardian Fund Management Limited/ The Aitken Spence And Association 400,025 0.06

20 Mrs. S. S. Navaratnam 376,696 0.05

675,496,654 98.16

Other 12,663,346 1.84

Total 688,160,000 100.00

168

04. Public Shareholding

(Percentage of public holding - As per Rule 7.6 (iv) of the Listing Rules of the CSE Number of shareholders representing public holding - As per Rule 7.13.1 of the Listing Rules of the CSE)

As at 31st March 2016 As at 31st March 2015

No of Shareholders % No of Shareholders %

Public Holding 1,226 26.48% 1,089 26.89

05. Director’s Shareholding including the MD’s Shareholding

(As per Rule No 7.6 (v) of the Listing Rules of the Colombo Stock Exchange)

No of Shares As at 31st March 2016

No of Shares As at 31st March 2015

Mr. A.K. Pathirage Nil Nil

Mr. T.M.I. Ahamed Nil Nil

Mr. R.J. Perera Nil Nil

Mr. L. Wijewardena 99,900 Nil

Mr. A. Pasqual 10,000 10,000

Ms. E. Wickremaarachchi Nil Nil

Mr. H. Premaratne Nil Nil

06. Material Foreseeable Risk Factors

(As per Rule No 7.6 (vi) of the Listing Rules of the Colombo Stock Exchange)

Information pertaining to the material foreseeable risk factors that require disclosures as per Rule No. 7.6 (vi) of the Listing Rules of CSE are discussed in the section on Financial Risk Management on pages 101 to 117.

07. Material Issues pertaining to Employees and Industrial Relations

(As per Rule No 7.6 (vii) of the Listing Rules of the Colombo Stock Exchange)

There were no material issues pertaining to employees and industrial relations pertaining to the Company that occurred during the year under review which need to be disclosed.

08. Information on Movement in Number of Shares Represented by the Stated Capital

(As per Rule No 7.6 (ix) of the Listing Rules of the Colombo Stock Exchange)

Year Details Basis Number of Shares Issues

Balance

2010/2011 As at 31st March 2011 27,200,000

2012/2013 Rights Issue 10 for 1 272,000,000 299,200,000

2014/2015 Rights Issue 13 for 10 388,960,000 688,160,000



169

09. Distribution Schedule of the Number of Holders and Percentage Holding in Each Class of Equity Securities

(As per Rule No 7.6 (x) of the Listing Rules of the Colombo Stock Exchange)

No of shares As at 31st March 2016 As at 31st March 2015

No of shareholders

No of shares % of total No of shareholders

No of shares % of total

1 – 1,000 602 191,493 0.03 539 178,035 0.03

1001 – 10,000 379 1,739,177 0.25 338 1,585,805 0.23

10,001 – 100,000 201 7,133,043 1.03 171 6,389,282 0.93

100,001 – 1,000,000 37 10,370,173 1.51 33 10,543,724 1.53

Over 1,000,000 11 668,726,114 97.18 11 669,463,154 97.28

Total 1230 688,160,000 1092 688,160,000

10. Information on Ratios, Market Prices of Shares and Credit Ratings

(As per Rule No 7.6 (xi) of the Listing Rules of the Colombo Stock Exchange)

(a) Key Performance Ratios

Group Company

2016 2015 2016 2015

Earnings Per Share (Rs.) 0.98 0.72 0.04 0.33

Price to Book Value (Times)

0.74 0.69 0.17 0.17

Price Earnings Ratio (Times)

6.12 8.33 150.0 18.18

Net Assets per Share (Rs.) 8.14 5.09 4.38 4.34

Return on Equity (%) 22 14 9 8

(b) Market Prices

2015/2016 2014/2015

Price (Rs.) Date Price (Rs.) Date

Highest during the period 7.90 05-Aug-15 8.80 10-Nov-14

Lowest during the period 4.50 09-Mar-16 3.60 21-May-14

Last traded price 6.00 6.00

170

Share Price Movement – 2015/2016

Share Price (Rs) Softlogic Capital Market Capitalization and Market Price (Rs)

Share Price Trend over Last Five Years

Year 2015/2016 2014/2015 2013/2014 2012/2013 2011/2012

Highest Price 7.90 8.80 7.20 16.90 75.00

Lowest Price 4.50 3.60 3.10 4.60 13.20

Last Traded Price 6.00 6.00 3.90 5.60 16.20

( c ) Credit Ratings

The Company’s credit rating, BBB+ was affirmed by Lanka Rating Agency Ltd. (Formally known as RAM Ratings (Lanka) Ltd.) in 2014/2015.

11. Analysis of Shareholders

(a) Resident / Non Resident


No of shareholders



Resident 1,221 687,088,439 99.84 1,085 687,627,318 99.92

Non Resident 9 1,071,561 0.16 7 532,682 0.08

Total 1,230 688,160,000 100 1092 688,160,000 100

0

1.00

2.00

3.00

4.00

5.00

6.00

7.00

8.00

Mar 2015 Jun 2015 Sept 2015 Dec 2015 Mar 2016

Share Price (Rs.)

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

0

1.00

2.00

5.00

6.00

7.00

Jun 2015 Sept 2015 Dec 2015 Mar 2016

Market PriceMarket Capitalization

0

1.

2.

5.

6.

15 Dec 2015 Mar 2016



171

(b) Individual / Institutional


No of shareholders



Individual 1,141 14,985,614 2.18 1,008 12,545,939 1.82

Institutional 89 673,174,386 97.82 84 675,614,061 98.18

Total 1,230 688,160,000 100 1,092 688,160,000 100

Non ResidentResident

1%

201699%

2015

Non ResidentResident

1%

99%

Resident/ Non Resident Shareholding

Individual / Institutional Shareholding

InstitutionalIndividual

7%

201693%

InstitutionalIndividual

8%

201592%

172

QUARTERLY ANALYSIS - GROUPSTATEMENT OF INCOME - 2015/2016

1st QuarterApril - June

2015

2nd QuarterJuly - Sep

2015

3rd QuarterOct - Dec

2015

4th QuarterJan - March

2016

Total

Revenue

Interest Income 1,017,990,170 1,043,454,488 1,074,041,523 1,100,707,859 4,236,194,040

Fee & Trading Income 1,337,228,805 1,360,339,357 1,500,449,756 1,714,928,629 5,912,946,547

Other Income & Gains 111,517,343 132,234,273 169,030,666 245,076,956 657,859,238

Realized Gains/(Losses) on Disposal of Subsidiaries - - - -

Realised gain/(loss) on AFS financial assets (1,027,717) 16,903,751 11,901,045 3,487,147 31,264,226

Fair value Gains and Losses 146,796,915 111,289,604 21,231,540 (82,643,854) 196,674,205

Dividend Income 7,666,430 4,165,053 69,606,756 39,755,111 121,193,350

Total Revenue 2,620,171,946 2,668,386,526 2,846,261,286 3,021,311,848 11,156,131,605

Direct Expenses

Interest Expenses (518,851,106) (525,086,457) (529,990,601) (533,254,391) (2,107,182,555)

Other Direct Expenses (650,182,184) (669,834,643) (787,694,510) (981,993,594) (3,089,704,931)

Impairment of loans & receivables (109,218,460) (103,196,277) (163,236,201) (71,934,941) (447,585,879)

Operating Profit 1,341,920,196 1,370,269,149 1,365,339,974 1,434,128,922 5,511,658,241

Administrative Expenses (644,050,786) (658,099,559) (621,678,257) (762,280,875) (2,686,109,477)

Distribution Cost (92,725,146) (102,116,127) (112,986,723) (115,274,159) (423,102,155)

Change in Insurance Contract Liabilities (459,156,384) (401,293,748) 12,578,831 (181,056,537) (1,028,927,838)

Other Operating Expenses (51,757,951) (46,685,193) (52,180,635) (41,595,481) (192,219,260)

Profit /(Loss) before Taxation 94,229,929 162,074,522 591,073,190 333,921,871 1,181,299,512

Taxation (23,918,337) (21,395,767) 35,749,352 (34,507,950) (44,072,703)

Profit /(Loss) for the period 70,311,592 140,678,755 626,822,542 299,413,921 1,137,226,808

Attributable to :

Equity holders of the parent 43,320,310 86,175,506 375,352,505 171,746,177 676,594,498

Minority Interest 26,991,282 54,503,249 251,470,037 127,667,744 460,632,311

Profit /(Loss) for the period 70,311,592 140,678,755 626,822,542 299,413,921 1,137,226,808


173

QUARTERLY ANALYSIS - GROUPSTATEMENT OF INCOME - 2014/2015


2014


2014


2014


2015

Total

Revenue

Interest Income 945,102,433 1,043,796,281 1,132,977,218 1,088,651,148 4,210,527,080



Realized Gains/(Losses) on Disposal of Subsidiaries - - - - -

Realised gain/(loss) on AFS financial assets 20,084,695 37,981,153 93,577,270 (3,640,205) 148,002,913

Fair value Gains and Losses 234,255,790 787,360,387 (119,986,030) (103,447,683) 798,182,464

Dividend Income 28,882,819 2,256,548 61,195,905 29,641,828 121,977,100

Total Revenue 2,275,892,924 2,979,722,482 2,385,858,897 2,312,476,245 9,953,950,550

Direct Expenses

Interest Expenses (573,776,340) (522,520,561) (563,231,883) (514,554,483) (2,174,083,268)

Other Direct Expenses (519,981,838) (660,689,799) (660,678,608) (668,654,625) (2,510,004,869)

Impairment of Loans and Receivables (90,554,950) (108,564,269) (166,027,041) (157,149,264) (522,295,525)

Operating Profit 1,091,579,796 1,687,947,853 995,921,365 972,117,873 4,747,566,886

Administrative Expenses (541,005,007) (612,638,369) (653,757,398) (542,991,608)

(2,350,392,382)


Change in Insurance Contract Liabilities (402,527,379) (482,924,089) 54,411,494 (113,309,007) (944,348,981)


Profit /(Loss) before Taxation 36,880,523 281,890,936 298,866,994 224,792,470 842,430,922

Taxation (5,927,608) (26,928,737) (15,897,931) (11,179,795) (59,934,071)

Profit /(Loss) for the period 30,952,915 254,962,199 282,969,063 213,612,675 782,496,850

Attributable to :

Equity holders of the parent 6,514,823 155,914,011 181,584,067 122,048,091 466,060,990


Profit /(Loss) for the period 30,952,915 254,962,199 282,969,063 213,612,675 782,496,850

174

QUARTERLY ANALYSIS - COMPANYSTATEMENT OF INCOME - 2015/2016


2015


2015


2015


2016

Total

Revenue

Interest Income 12,948 88,186 11,961 18,748 131,843

Fee & Trading Income 24,980,736 25,185,861 25,865,552 50,634,279 126,666,429

Other Income & Gains 2,212 2,417,759 390,686 431,923 3,242,579

Realized Gains/(Losses) on Disposal of Subsidiaries - - - -

Realised gain/(loss) on AFS financial assets - - - - -

Fair value Gains and Losses - - - -

Dividend Income 43,824,898 - - 22,195,261 66,020,158

Total Revenue 68,820,794 27,691,806 26,268,199 73,280,211 196,061,010

Direct Expenses

Interest Expenses (21,014,145) (21,153,693) (21,593,446) (29,796,071) (93,557,356)

Other Direct Expenses (822,930) (2,322,090) (1,330,640) (1,637,972) (6,113,632)

Operating Profit 46,983,719 4,216,023 3,344,113 41,846,168 96,390,022

Administrative Expenses (9,935,662) (12,366,002) (13,865,246) (27,067,526) (63,234,435)

Distribution Cost - - (300,000) (473,763) (773,763)

Other Operating Expenses (298,854) (10,367) (7,278) (3,848,535) (4,165,033)

Profit /(Loss) before Taxation 36,749,203 (8,160,346) (10,828,411) 10,456,344 28,216,790

Taxation - - - (23,995) (23,995)

Profit /(Loss) for the period 36,749,203 (8,160,346) (10,828,411) 10,432,349 28,192,795


175

QUARTERLY ANALYSIS - COMPANYSTATEMENT OF INCOME - 2014/2015


2014


2014


2014


2015

Total

Revenue

Interest Income 29,726 118,364 93,355 31,817 273,262


Other Income & Gains 281,800 - - 699,623 981,423

Realized Gains/(Losses) on Disposal of Subsidiaries - - - - -

Realised gain/(loss) on AFS financial assets (6,025,410) - - - (6,025,410)

Fair value Gains and Losses - - - - -

Dividend Income 346,645 - 97,493,514 122,127,650 219,967,809

Total Revenue 21,762,750 22,742,668 181,040,420 145,218,112 370,763,950

Direct Expenses


Other Direct Expenses (775,500) (917,790) (822,930) (822,930) (3,339,150)

Operating Profit (23,809,397) (2,231,197) 158,934,399 126,181,585 259,075,391


Distribution Cost - - - - -

Other Operating Expenses (504,595) (442,228) (35,690) (75,509) (1,058,022)

Profit /(Loss) before Taxation (32,113,940) (11,053,407) 147,355,052 109,497,656 213,685,362

Taxation - - - (49,734) (49,734)

Profit /(Loss) for the period (32,113,940) (11,053,407) 147,355,052 109,447,922 213,635,628

176

FIVE YEAR SUMMARY - GROUPSTATEMENT OF INCOME

2015/2016 2014/2015 2013/2014 2012/2013 2011/2012

Revenue

Interest Income 4,236,194,040 4,210,527,081 3,942,592,514 2,751,383,428 1,797,796,477



Realized Gains/(Losses) on Disposal of Subsidiaries 31,264,226 - - 19,829,754 -

Realised gain/(loss) on AFS financial assets 148,002,914 222,027,356 (47,023,365) (375,893,911)

Fair value Gains and Losses 196,674,205 798,182,464 269,868,032 227,186,128 199,915,494

Dividend Income 121,193,350 121,977,100 106,324,902 133,791,874 68,058,949

Total Revenue 11,156,131,605 9,953,950,551 8,316,005,327 5,824,862,942 2,927,196,301

Direct Expenses

Interest Expenses (2,107,182,555) (2,174,083,268) (2,369,782,841) (1,892,908,547) (1,139,800,210)

Other Direct Expenses (3,089,704,931) (2,510,004,869) (2,026,666,916) (1,377,315,533) (505,283,715)

Impairment of loans and receivables (447,585,879) (522,295,525) (327,796,234) (72,963,616) (8,893,475)

Operating Profit 5,511,658,241 4,747,566,889 3,591,759,336 2,481,675,246 1,273,218,901

Administrative Expenses (2,686,109,477) (2,350,392,382) (1,793,133,417) (1,511,648,253) (889,978,562)


Change in Insurance Contract Liabilities (1,028,927,838) (944,348,981) (966,545,920) (773,854,115) (162,450,042)


Profit /(Loss) before Taxation 1,181,299,512 842,430,923 372,832,683 (289,035,385) (68,137,134)

Taxation (44,072,703) (59,934,071) (63,506,394) (28,180,050) (63,907,881)

Profit /(Loss) for the period 1,137,226,808 782,496,852 309,326,288 (317,215,435) (132,045,015)

Attributable to :

Equity holders of the parent 676,594,498 466,061,173 60,456,472 (380,837,796) (237,071,445)


Profit /(Loss) for the period 1,137,226,808 782,496,852 309,326,288 (317,215,435) (132,045,014)


177

FIVE YEAR SUMMARY - COMPANYSTATEMENT OF INCOME

2015/2016 2014/2015 2013/2014 2012/2013 2011/2012

Revenue

Interest Income 131,843 273,262 1,109,828 898,205 4,228,085


Other Income & Gains 3,242,579 981,423 879,380 493,114 4,750,000

Realized Gains/(Losses) on Disposal of Subsidiaries - - 30,275,817 25,113,795 -

Realised gain/(loss) on AFS financial assets - (6,025,410) (114,970) (43,405,574) (1,290,790)

Dividend Income 66,020,158 219,967,809 134,802,737 38,461,926 103,743,807

Total Revenue 196,061,009 370,763,950 268,731,026 110,189,622 117,553,550

Direct Expenses


Other Direct Expenses (6,113,632) (3,339,150) (7,313,040) (5,466,747) -

Operating Profit 96,390,021 259,075,391 (63,134,983) (378,133,346) (194,786,114)


Distribution Cost (773,763) - (131,572) (4,572) (163,562)


Profit /(Loss) before Taxation 28,216,790 213,685,362 (108,254,630) (418,818,165) (204,284,823)

Taxation (23,995) (49,734) (201,989) - -

Profit /(Loss) for the period 28,192,795 213,635,628 (108,456,619) (418,818,165) (204,284,823)

178

FIVE YEAR SUMMARY - GROUPSTATEMENT OF FINANCIAL POSITION

2015/2016 2014/2015 2013/2014 2012/2013 2011/2012

ASSETS

Non-current assets

Property, plant and equipment 905,691,404 797,579,238 662,499,039 320,275,619 280,529,275

Intangible assets 2,570,853,575 2,688,950,653 2,796,222,606 3,003,631,814 3,013,922,838

Receivable from related parties on account of put option - - - 906,414,000 -

Financial assets 12,118,310,413 9,322,194,330 9,009,288,101 8,299,152,899 6,075,395,533

Deferred tax asset 81,978,420 14,953,055 22,446,337 27,202,620 24,545,308

Deferred expenses 138,684,364 96,498,398 92,234,601 71,494,774 -

15,815,518,176 12,920,175,674 12,582,690,684 12,628,519,176 9,394,392,954

Current assets

Inventories 529,855,875 643,475,336 662,793,833 152,355,594 54,327,739

Prepayments and other receivables 995,438,058 968,317,384 1,583,948,847 910,799,997 964,265,718

Financial assets 14,635,403,923 17,085,478,683 12,045,191,733 8,404,881,820 6,669,723,671

Bank and cash balances 2,786,360,958 1,137,234,429 2,607,387,593 1,690,077,239 1,201,888,153

18,947,058,814 19,834,505,831 16,899,322,006 11,158,114,650 8,890,205,281

TOTAL ASSETS 34,762,576,990 32,754,681,506 29,482,012,690 23,786,633,826 18,284,598,235


179

2015/2016 2014/2015 2013/2014 2012/2013 2011/2012

EQUITY AND LIABILITIES


Stated capital 2,880,000,000 2,880,000,000 2,176,000,000 2,176,000,000 272,000,000

Reserve fund 124,166,209 73,662,858 46,657,939 26,076,637 8,795,812

Investment fund account - - 47,312,568 29,698,004 13,011,769

Availiable for sale reserve (870,274,893) 35,939,065 123,955,721 170,835,523 (81,762,331)

Revaluation Reserve 54,617,644 - - - -

Retained earnings 955,268,929 413,961,626 (603,881,308) (585,021,608) (321,943,587)

Shareholders' funds 3,143,777,889 3,403,563,544 1,790,044,920 1,817,588,556 (109,898,337)

Non-controlling interest 2,463,467,138 2,619,260,988 2,434,121,304 1,461,904,210 1,293,887,217

Total equity 5,607,245,027 6,022,824,537 4,224,166,224 3,279,492,766 1,183,988,880

Non-current liabilities

Insurance provision - life 6,058,200,177 5,029,272,339 5,084,629,324 3,864,302,457 2,799,945,032

Provision for Life Solvency - - - - 225,000,000

Liability under Put Option - - - 1,812,828,000 -

Derivative financial instruments - 6,260,352 17,744,694 - -

Borrowings payable after one year

2,917,614,711 2,550,176,000 1,329,006,471 1,464,671,722 1,255,846,087

Public deposits 1,521,942,995 2,214,295,777 1,885,402,009 1,217,018,340 460,334,147

Retirement benefit obligation 84,774,085 71,639,429 71,993,576 52,790,515 43,372,761

Deferred tax liability 16,480,197 20,109,228 46,597,381 65,150,142 75,683,213

Deferred revenue 15,236,346 25,945,151 24,267,644 22,320,412 -

10,614,248,510 9,917,698,276 8,459,641,099 8,499,081,588 4,860,181,240

Current liabilities

Trade and other payables 2,424,940,414 2,722,024,032 1,690,457,550 1,468,342,084 1,014,983,779

Derivative financial instruments 9,356,708

Borrowings payable within one year

2,257,991,305 3,340,932,818 7,107,337,782 4,123,289,148 6,079,589,262

Public deposits 12,482,560,103 9,847,666,584 7,427,340,943 5,570,112,107 4,221,515,982

Income tax Liability 15,237,666 27,234,912 54,205,548 20,580,376 3,629,388

Amounts due to related companies

473,763 - 3,219,480 126,517,122 710,630,143

Bank overdraft 1,350,523,495 876,300,347 515,644,064 699,218,635 210,079,559

18,541,083,453 16,814,158,692 16,798,205,367 12,008,059,472 12,240,428,113

TOTAL EQUITY AND LIABILITIES 34,762,576,990 32,754,681,506 29,482,012,690 23,786,633,826 18,284,598,233

180

FIVE YEAR SUMMARY - COMPANYSTATEMENT OF FINANCIAL POSITION

2015/2016 2014/2015 2013/2014 2012/2013 2011/2012

ASSETS

Non-current assets - - - - -

Property, plant and equipment 338,774 537,880 836,697 950,174 364,753

Intangible assets - 571,263 571,263 121,263 -

Investments in subsidiaries 4,377,013,625 4,005,768,273 3,656,523,967 3,549,968,330 4,278,690,797

Investments in subsidiaries under put option - - - 859,282,125 -

Receivable from related parties on account of put option - - - 906,414,000 -

Deferred tax asset 11,955,965 12,873,144 23,012,231 21,057,831 72,311,853

Deferred expenses 14,759,960 14,759,960 14,759,960 14,759,960 14,759,960

4,404,068,324 4,034,510,520 3,695,704,118 5,352,553,683 4,366,127,363

Current assets

Prepayments and other receivables 2,886,941 10,035,321 10,684,380 17,655,710 61,350,126

Amounts due from related companies 3,504,148 4,018,249 2,015,494 2,021,489 6,881,880

Financial assets - - - - 80,000,000

Bank and cash balances 40,362,714 35,590,585 126,156,569 56,269,553 26,159,881

46,753,802 49,644,155 138,856,443 75,946,752 174,391,887

TOTAL ASSETS 4,450,822,127 4,084,154,675 3,834,560,561 5,428,500,435 4,540,519,250


181

2015/2016 2014/2015 2013/2014 2012/2013 2011/2012

EQUITY AND LIABILITIES


Stated capital 2,880,000,000 2,880,000,000 2,176,000,000 2,176,000,000 272,000,000

Availiable for sale reserve (2,871,107) (1,953,928) (15,020,456) (17,536,228) (61,079,237)

Retained earnings 136,691,173 108,498,378 (714,076,411) (605,619,792) (176,930,556)

Shareholders' funds 3,013,820,066 2,986,544,450 1,446,903,133 1,552,843,980 33,990,207

Non-controlling interest - - - -

Total equity 3,013,820,066 2,986,544,450 1,446,903,133 1,552,843,980 33,990,207

Non-current liabilities

Liability under Put Option - - - 1,812,828,000 -

Derivative financial instruments - 6,260,352 6,260,352 - -

Borrowings payable after one year 817,053,500 175,216,000 256,816,000 - 172,496,000

Retirement benefit obligation - - 61,500 197,697 -

817,053,500 181,476,352 263,137,852 1,813,025,697 172,496,000

Current liabilities

Trade and other payables 2,841,220 2,645,153 7,565,305 50,369,727 25,659,430

Derivative Financial Instruments 9,356,708 - - - -

Borrowings payable within one year 295,953,802 658,378,321 1,988,784,602 1,608,455,108 3,455,984,084

Income tax Liability - - - (1,644) (1,644)

Amounts due to related companies 473,763 - 3,219,480 124,916,101 710,630,143

Bank overdraft 311,323,068 255,110,399 124,950,189 278,891,471 141,761,030

619,948,561 916,133,873 2,124,519,576 2,062,630,759 4,334,033,042

TOTAL EQUITY AND LIABILITIES 4,450,822,127 4,084,154,675 3,834,560,561 5,428,500,436 4,540,519,249

182

FIVE YEAR GRAPHICAL PRESENTATION

-

2,000

4,000

6,000

8,000

10,000

12,000

2011 - 2012 2012 - 2013 2013 - 2014 2014 - 2015 2015 - 2016

Total Revenue

2,927

5,825

8,316 9,954

11,156

Total Revenue

Other Direct Expenses

Total Equity

Interest Expenses

Operating Profit

Total Assets

-

500

1,000

1,500

2,000

2,500

3,000

2011 - 2012 2012 - 2013 2013 - 2014 2014 - 2015 2015 - 2016

Interest Expenses

1,140

1,893

2,3702,174 2,107

-

500

1,000

1,500

2,000

2,500

3,500

3,000

2011 - 2012 2012 - 2013 2013 - 2014 2014 - 2015 2015 - 2016

Other Direct Expenses

505

1,377

2,027

2,510

3,090

-

1,000

2,000

3,000

4,000

5,000

6,000

2011 - 2012 2012 - 2013 2013 - 2014 2014 - 2015 2015 - 2016

Operating Profit

1,273

2,482

3,592

4,7485,512

-

5,000

10,000

15,000

20,000

25,000

35,000

30,000

2011 - 2012 2012 - 2013 2013 - 2014 2014 - 2015 2015 - 2016

Total Assets

18,285

23,787

29,48232,755

34,762

-

1,000

2,000

3,000

4,000

5,000

7,000

6,000

2011 - 2012 2012 - 2013 2013 - 2014 2014 - 2015 2015 - 2016

Total Equity

1,184

3,279

4,224

6,0235,607

-

200

400

400

200

600

800

1,000

1,200

2011 - 2012 2012 - 2013 2013 - 2014 2014 - 2015 2015 - 2016

Profit /(Loss) for the period

(132)

(317)

309

782

1,137

Profit/(Loss) for the Period


183

NOTICE OF MEETING

NOTICE IS HEREBY GIVEN that the Ninth (9th) Annual General Meeting of Softlogic Capital PLC will be held at the Auditorium of Central Hospital Limited (4th Floor), No. 114, Norris Canal Road, Colombo 10 on Monday the 26th day of September 2016 at 3.00 p.m. for the following purposes:

1) To receive and consider the Annual Report of the Board of Directors and Financial Statements of the Company for the year ended 31st March 2016 together with the Report of the Auditors thereon.

2) To re-elect Mr. W L P Wijewardena who retires by rotation in terms of Articles 88 and 89 of the Articles of Association, as a Director of the Company.

3) To appoint Messrs Ernst & Young as Auditors of the Company for the ensuing year and to authorize the Directors to determine their remuneration.

4) To authorize the Directors to determine and make donations for the year ending 31st March 2017 and up to the date of the next Annual General Meeting.

By Order of the Board

SOFTLOGIC CORPORATE SERVICES (PVT) LTD

(Sgd.)

SECRETARIES

25 August 2016

Colombo

Note:

• A member entitled to attend and vote at the Meeting is entitled to appoint a Proxy who need not be a member, to attend on behalf of him/her.

• The Form of Proxy is enclosed in this Report.

• The completed Form of Proxy should be deposited at the Registered Office of the Company, No. 14, De Fonseka Place, Colombo 05 not later than 36 hours before the time fixed for the meeting.

184

NOTES


185

NOTES

186

NOTES


187

FORM OF PROXY

*I/We …………………………………………………………………………………………………………………………………………...............................................................................……… of

………………………………………………………………………………………………..................................................................................……… being *a member/ members of

SOFTLOGIC CAPITAL PLC, do hereby appoint ………………………………………………………………………………………… ……………………………………………………………………

………………............................................................................................................................................… (holder of N.I.C. No. ……………………........………………)

of ……………………………………………………………………………………………………… or failing him*

Mr A K Pathirage of Colombo or failing him*

Mr T M I Ahamed of Colombo or failing him*

Mr R J Perera of Colombo or failing him*

Mr W L P Wijewardena of Colombo or failing him*

Mr A M Pasqual of Colombo or failing him*

Mr G L H Premaratne of Colombo

as *my/our Proxy to represent *me/us and to speak and vote for *me/us on *my/our behalf at the ANNUAL GENERAL MEETING OF THE COMPANY to be held at the Auditorium of Central Hospital Limited, No. 114, Norris Canal Road, Colombo 10 at 3.00 p.m. on the 26th day of September 2016 and at any adjournment thereof, and at every poll which may be taken in consequence thereof.

1) To receive and consider the Annual Report of the Board of Directors and the Financial Statements of the Company for the year ended 31st March 2016 together with the Report of the Auditors thereon

2) To re-elect Mr. W L P Wijewardena who retires by rotation in terms of Articles 88 and 89 of the Articles of Association, as a Director of the Company.

3) To appoint Messrs Ernst & Young, as Auditors and to authorize the Directors to determine their remuneration.

4) To authorize the Directors to determine and make donations.

FOR AGAINST

……………………............ …………………………

*Signature/s Date

Note:

1) *Please delete the inappropriate words.

2) Instructions as to completion are noted on the reverse hereof.

188

Instructions As To Completion

1. Kindly perfect the Form of Proxy after filling in legibly your full name, address and the National Identity Card number and signing in the space provided and filling in the date of signature.

2. A Member entitled to attend and vote at the Meeting is entitled to appoint a Proxy who need not be a member, to attend and vote on behalf of him. Please indicate with an “X” in the boxes provided how your Proxy is to vote on each resolution. If no indication is given, the Proxy in his discretion will vote as he thinks fit.

3. If the Form of Proxy is signed by an Attorney, the relevant Power of Attorney should also accompany the completed Form of Proxy for registration, if such Power of Attorney has not already been registered with the Company.

4. In the case of a Corporate Member, the Form of Proxy must be executed in the manner prescribed by the Articles of Association/Statute.

5. The completed Form of Proxy should be deposited at the Registered Office of the Company, No. 14, De Fonseka Place, Colombo 05 not later than 36 hours before the time fixed for the meeting.

6. Please provide the following details:

Shareholder’s N.I.C./ Passport/ Company Registration No.

Shareholder’s Folio No.

Number of shares held

Proxy Holder’s N.I.C. No. (if not a Director)

FORM OF PROXY CONTD.

Name of the Company

Softlogic Capital PLC

Legal Form

Incorporated under the Companies Act No 17 of 1982 on 21st April 2005Re-registered under the Companies Act No 7 of 2007 on 27th November 2008Quoted in the Colombo Stock Exchange on 21st September 2011Registered under the Securities and Exchange Commission of Sri Lanka Act No 36 of 1987 as a Investment Manager

Date of Incorporation

21st April 2005

Company Registration Number

P B 779 PQ

Stock Exchange Listing

The Ordinary Shares of the Company are listed on the Dirisavi Board of the Colombo Stock Exchange. Stock code for the Company share is “SCAP”.

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VAT Registration Number

1340124637000

Fiscal Year - End

31st March

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No 14, De Fonseka Place, Colombo 05

Directors

Mr. A.K. Pathirage - Chairman - Non-Executive DirectorMr. T.M.I. Ahamed - Managing DirectorMr. R.J. Perera - Non-Executive DirectorMr. W.L.P. Wijewardena - Independent Non-Executive Director Mr. A.M. Pasqual - Independent Non-Executive DirectorMs. E. Wickramaarachchi - Non-Executive DirectorMr. H. Premaratne - Non - Executive Director

Board Sub Committees

Audit Committee

W. L. P. Wijewardena - ChairmanA.M. PasqualH. Premaratne

Remuneration Committee

A.K. Pathirage - ChairmanW. L. P. WijewardenaA. M. Pasqual

Nomination Committee

A.K. Pathirage - ChairmanW. L. P. WijewardenaA. M. Pasqual

Related Party Transaction Review Committee

W. L. P. Wijewardena - ChairmanA.M. PasqualR.J. Perera

Auditors

Messrs. Ernst & YoungChartered Accountants 201, De Saram PlaceP.O. Box 101Colombo 10Sri Lanka

Secretaries

Softlogic Corporate Services (Pvt) Ltd.No. 14, De Fonseka Place,Colombo - 5Tel: +94 11 5575425

Bankers

Commercial Bank of Ceylon PLCDFCC Vardhana BankPan Asia Banking Corporation PLCSampath Bank PLCNDB Bank PLCNations Trust Bank PLC

Subsidiaries % Holding

Softlogic Finance PLC 68.44Asian Alliance Insurance PLC 59.19Softlogic Stockbrokers (Pvt) Ltd 100.00Capital Reach Portfolio Management (Pvt) Ltd 100.00

CORPORATE INFORMATION

Softlogic Capital PLCNo.14, De Fonseka Place, Colombo 05, Sri Lanka.,

Tel: +94 115 575425, Fax: +94 112 508291,email: [email protected], web: www.softlogiccapital.lk

ANNUAL REPORT 2015/2016

Documents

ANNUAL REPORT 2015/2016We start with an in-depth description of the Company, our history and highlights of our performance in the year under review. 04 Our Story 06 The Group Structure