LEASING SAVINGS CLC ONLINE FLEXI CASH CEFTS I S L A M I C ... · Leasing & Finance PLC. (CLC) and sharing with you a vibrant performance in an year which saw CLC grow and expand to

Commercial Leasing & Finance PLCAnnual Report 2015/16

C L C O N L I N E

C E F T S

S L I P SL O A N S

F A C T O R I N GD E P O S I T S

F L E X I C A S H

I S L A M I C F I N A N C E

M I C R O F I N A N C EI S L A N D W I D E A T M N E T W O R K

L E A S I N G

S A V I N G S

ANNUAL REPORT 2015/16

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C L C O N L I N E

C E F T S

S L I P SL O A N S

F A C T O R I N GD E P O S I T S

F L E X I C A S H

I S L A M I C F I N A N C E

M I C R O F I N A N C EI S L A N D W I D E A T M N E T W O R K

L E A S I N G

S A V I N G S

CONTENTS

About Commercial Leasing & Finance PLC 4

A Few Highlights of 2015/16 6

Financial Highlights 8

Chairman’s Review 12

Director’s Review 14

Chief Executive Officer’s Review 16

The Board of Directors 19

Management Team 22

Regional Management Team 25

Management Discussion & Analysis 28

Branch Network 32

Financial Review 33

Sustainability Report 37

Report on Corporate Governance 40

Risk Management 66

Report of the Board of Directors 73

Report of the Audit Committee 76

Report of the Integrated Risk Management Committee 77

Report of the Remuneration Committee 78

Report of the Nomination Committee 79

Report of the Related Party Transaction Review Committee 80

Directors’ Statement on Internal Control Over Financial Reporting 81

Chief Executive Officer’s and Chief Financial Officer’s Responsibility Statement 82

Independent Auditors’ Report 83

Statement of Profit or Loss and Other Comprehensive Income 84

Statement of Financial Position 85

Statement of Changes In Equity 86

Statement of Cash Flows 88

Scan the QR Code with your smart device to view this report online.

http://www.clc.lk

Notes to the Financial Statements 90

Shareholder Information 157

Summarised Quarterly Statistics 159

Ten Year Summary 160

Sources and Distribution of Income 161

Statement of Value Added 162

Glossary Terms 163

Notice of Meeting 167

Notes 168

Form of Proxy 171

Corporate Information IBC

ALL IN ONEAt Commercial Leasing & Finance PLC (CLC) we like to keep things simple. Our promise is that every customer receives a unique combination of qualities - expertise, responsibility and a comprehensive portfolio of world-class products and outstanding services, all under one roof.

From leasing and loans and factoring, to savings and fixed deposits, microfinance and Islamic finance and even Flexicash, we are an efficient and finely tuned one stop shop pioneering the most comprehensive financial solutions, supported by a gamut of accessibility solutions that includes the CLC Online platform, with CEFTS and SLIPS functionality, and an islandwide partner network of over 3,000 ATMs. We know our competitive advantage lies not just in our portfolio, but in the service excellence that has now become our DNA.

For years we have been revolutionising the financial industry in Sri Lanka and in the year under review we successfully concluded Sri Lanka’s largest syndicated loan of USD 153 million from FMO, the Dutch Development Bank and 11 other funding partners. We’re proud of this achievement for it demonstrates how we’re inspired by our own future-potential, exploring new markets, improving technologies, expanding our portfolio and building excellence into everything we undertake to do. Last year we achieved a target of over Rs 2 billion in profits and we are very confident that we can continue to deliver such outstanding stakeholder value to our customers, business partners, shareholders, communities and regulators in the years that lie ahead.

The remarkable financial and operational performance recorded in this annual report is just one chapter in our journey to build a sustainable business. We know we will keep surging forward, to exceed the expectations of our many stakeholders who rely on our proven ability to deliver the promise of performance, value and success.

COMMERCIAL LEASING & FINANCE PLC

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ABOUT COMMERCIAL LEASING & FINANCE PLC

Commercial Leasing & Finance PLC (CLC) is one of Sri Lanka’s leading Non Banking Financial Service Providers offering solutions ranging from leasing, fixed deposits, savings, loans, flexi cash, microfinance, Islamic finance, to factoring. With 60 customer touch points spread across the country, CLC has become a trusted brand, synonymous with stability and dependability, playing an invaluable role as a key catalyst in financial empowerment.

CLC will continue to grow and expand with its unique operating philosophy “Hithawathkama” which encapsulates how the trust and progress of all our stakeholders will continue to be the priority in our hearts and minds.


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OUR VISION

CORE VALUES

MISSION

In order to make our vision a reality, we always strive:

To provide innovative financial solutions of highest possible quality at an optimum value.

To ensure utmost customer focus and dedication to superior customer service.

To provide best returns to our stakeholders through the strength of our customer, strategic partner and employee satisfaction.

To soar into the future, giving wings to the dreams, hopes and aspirations of our people and everyone who has a stake in the success of our enterprise.

To forge ahead to reach new frontiers, to touch new horizons, seeking new challenges and exploring new opportunities.

Together with our people with diverse strengths, committed to achieving personnel excellence and the continuous growth of our enterprise.

To serve our customers with utmost care.

To serve our customers professionally.

To do work with utmost integrity.

Be performance driven.

To work as a team and treat fellow colleagues as one family.


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Launch of MicrofinanceObtaining the largest ever syndicated loan by a Sri Lankan company of USD 153.1 Mn

Battaramulla branch opening

A FEW HIGHLIGHTS OF 2015/16

Tangalle branch openingRelocation of Kuliyapitiya branch

Launch of CLC Islamic business division


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One of our CSR activities at Ragama Teaching HospitalAnnual award ceremony and Dinner dance

CLC religious activities

A FEW HIGHLIGHTS OF 2015/16

CLC Sports day and family day

Baduraliya branch opening Thambuththegama branch opening


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Company

For the year ended 31st March 2012 2013 2014 2015 2016

Performance indicators (Rs. 'Mn)Interest income 5,317 5,996 7,514 7,590 8,628Interest expense 2,167 2,515 3,039 2,406 3,467Net interest income 3,150 3,481 4,475 5,184 5,161Profit before tax 3,245 1,603 1,289 1,728 2,008Profit after tax 2,964 1,168 936 1,426 1,574

New executions (leases and loans) 15,262 11,232 18,593 22,762 31,986Factoring funds in use 3,005 2,859 2,231 2,778 5,085

Financial position (Rs. 'Mn)Total assets 26,398 27,229 32,934 42,385 84,359Net lending portfolio 24,101 24,985 27,570 32,982 46,793Outstanding borrowings 16,974 14,660 14,369 20,095 57,542Deposits from customers 385 2,962 7,534 9,381 11,981Shareholders funds 6,763 7,837 8,856 10,115 11,797

Key financial indicatorsEarnings per share (Rs. per share) 0.46 0.18 0.15 0.22 0.25Net asset value per share (Rs. per share) 1.06 1.23 1.39 1.59 1.85

Interest cover (times) 2.49 1.63 1.42 1.72 1.58Debt to equity ratio (times) 2.57 2.25 2.47 2.91 5.89Return on capital employed (%) (after tax) 56.69 16.01 11.21 15.03 14.37Return on average total assets (%) (before tax) 13.59 5.98 4.28 4.59 3.16Non performing ratio 2.80 2.98 2.44 2.74 1.09

Capital adequacyCore capital ratio (%) minimum 5% 25.01 29.53 27.63 28.27 20.22Total risk weighted capital ratio (%) minimum 10% 25.01 29.53 27.63 25.57 18.42Core capital (Rs. Mn) minimum Rs. 400 Mn 6,380 7,576 8,404 10,119 11,702

FINANCIAL HIGHLIGHTS


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New ExecutionsRs. Mn

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

2011/12 2012/13 2013/14 2014/15 2015/16

Net Lending PortfolioRs. Mn

0

10,000

20,000

30,000

40,000

50,000

2012 2013 2014 2015 2016

Net Interest IncomeRs. Mn

0

1,000

2,000

3,000

4,000

5,000

6,000

2011/12 2012/13 2013/14 2014/15 2015/16

Core CapitalRs. Mn

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

2012 2013 2014 2015 2016

NPL Ratio%

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

2012 2013 2014 2015 2016

Factoring Funds in Use Rs. Mn

0

1,000

2,000

3,000

4,000

5,000

6,000

2012 2013 2014 2015 2016

Deposits from CustomersRs. Mn

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

2012 2013 2014 2015 2016

Total Assets

84Bn

Profit Before Tax

2Bn

Interest Income

8.6Bn


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Management Reviews


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E X T R A O R D I N A R Y

C A P A B L EC O M P E T E N T

A S T U T EA G I L E

A C C O M P L I S H E D

A L E R TA W A R E

H O N O U R A B L E

V I B R A N T

P R U D E N T

E X C E L L E N T

P R O G R E S S I V E


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CHAIRMAN’S REVIEW

Dear Stakeholder,I take pleasure in welcoming you to the 24th Annual General Meeting of Commercial Leasing & Finance PLC. (CLC) and sharing with you a vibrant performance in an year which saw CLC grow and expand to become an “All in One” financial products and services provider, with one of the most comprehensive product portfolio amongst the Non Banking Financial Institutions (NBFI’s) in the country.

Performance:CLC has continued on its rapid growth trajectory which began in 2008, since becoming a member of the LOLC Group of companies. In less than a decade, CLC has grown leaps and bounds to become one of the leading NBFIs in the country. A staggering portfolio growth of 524%, and a corresponding increase in the asset base of 958% in eight years, coupled with an exponential growth in customer base and product mix, backed by an increase in footprint to 60 from just 11 branches, bears

testament to this. Therefore, today, CLC stands not just as another NBFI, but one that created value in many facets - from deposit taking, Islamic financing, insurance to microfinance, making CLC a fully-fledged financial service provider - a true all in one!

The highlight of the year was the launch of Islamic Finance and Microfinance units. These further enhanced customer convenience with the launch of an online banking portal and the establishment of an island wide network of 3,000 ATM’s in


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collaboration with a premier commercial bank in the country. This vibrant growth, in terms of reach, presence and portfolio during the year, was also combined with a commendable financial performance. CLC’s profits after tax grew by 10% with a 42% growth in the lending portfolio and a 28% growth in the deposit base.

It is noteworthy that this performance was achieved amidst challenges in the environment which negatively impacted the industry in particular. Most notable was the introduction of a 70% Loan to Value ratio by the Central Bank. Whilst this may reduce the Non Performing Loan (NPL) ratio of Finance Companies, it has had an adverse impact on business volumes in the short term in the Leasing sector. Moreover, the increased vehicle import taxes too contributed to a slowdown in vehicle imports thereby exacerbating the downward pressure on demand for vehicle Leasing solutions in the NBFI sector. The commendable resilience of the company in these circumstances was identified by our funding partners in particular. This year, we are particularly proud to share a significant landmark achievement which is also a milestone for the entire industry. CLC received funding amounting to U.S. Dollars 153.1 Mn - the largest ever syndicated loan obtained by a Sri Lankan Non Banking Financial Institution (NBFI), which was granted by a consortium led by FMO (Financierings Maatschappij Ontwikkelingslanden), the Dutch Development Bank who was the Mandated Lead Arranger and Facility Agent, and 11 other renowned international funders. The loan consists of a senior loan of USD

39.2 Mn from FMO and a USD 113.9 Mn syndicated loan from the other 11 funding partners which will facilitate the growth of our lending portfolio and our capacity for empowering the country’s SME and Micro sectors. In addition to the syndicated loan transaction, FMO, in partnership with other lenders in the syndicate, is also committed to supporting CLC with a tailored technical assistance programme to further enhance the Company’s operating standards through capacity building in the area of Asset and Liability Management, environmental, social and governance standards, client protection principles and a management development program focused on leadership and skills training for employees.

Outlook:The long term funding tranche obtained during the year through the syndicated loan has reinforced CLC’s platform for robust growth in the future. International agencies together account for 36% of your Company’s funding. And these partnerships established over the past few years with leading funding agencies are a significant endorsement of the role we play in Sri Lanka’s economic progress and the highest standards of governance and management that the Company adheres to.

CLC’s business model stands unique, with its financial products primarily benefitting the micro sector of the economy. We have been the incubator for many micro enterprises and progressively, the facilitator of their evolution from small to medium scale (SME) enterprises. The venture into micro financing during the year under review, thus well

augments CLC’s strengths in this sector and will create many synergies for win-win solutions. CLC will thus expand in the micro and SME sectors in the next few years and capitalize on the numerous opportunities that still remain untapped.

We also expect economic activity to accelerate in 2016/17 following greater policy clarity and direction. The new government’s export led growth strategy also augurs well for the economy and for the Leasing business in particular, to harness opportunities for win-win partnerships which support local entrepreneurship.

Going forward, improvement in investor sentiments, the new policy initiatives to spur growth across all major sectors of the economy and increased private sector participation through the creation of an investor-friendly environment, are factors which are expected to contribute to the growth trajectory of the economy over the medium term.

To this end, CLC will continue to exceed expectations of its many stakeholders and enhance the value it creates for all its stakeholders including the nation’s economy in the years ahead.

Acknowledgements:I would like to convey my sincere appreciation to the Board of Directors for their guidance, continued support and the confidence placed in me, and to the team at CLC whose talents, commitment and tireless effort have been the cornerstone of the Company’s success. My sincere gratitude also to our customers, funding partners, business introducers, shareholders, and all other stakeholders for their constant support as we look to the year ahead with much optimism revived by the vibrant pace we kept in the year that just ended.

Ishara NanayakkaraChairman

17th June 2016

THE LONG TERM FUNDING TRANCHE OBTAINED DURING THE YEAR THROUGH THE SYNDICATED LOAN HAS REINFORCED CLC’S PLATFORM FOR ROBUST GROWTH IN THE FUTURE.


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DIRECTOR’S REVIEW

Dear Stakeholder,This has been a remarkable year for CLC, one in which we have seized opportunities and surged ahead amidst challenging conditions. As a precursor to the Management Discussion and Analysis that will follow later in this report, let me hence provide a brief overview of some significant aspects that have shaped CLC’s year.

The Economic Environment: This has been a testing year, given the drastic socio-economic changes that took place in the country following the elections and period of transition. In the wake of this environment of uncertainty, the investor market wavered and economic activity remained subdued. Further key challenges arose due to slower growth in exports as demand from traditional export

markets fell as a result of complications in the global economy; key markets such as China dealt with a fluctuating stock market, whilst the Middle East was faced with critical geo-political conflicts and the European Union economies met with concerns of stagnation. The impact of these developments was however somewhat offset by lower international commodity prices. The economy regained momentum towards the


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CLC EXPANDED ITS PRESENCE AND PRODUCT RANGE DURING THE YEAR TO PROVIDE A TOTAL SOLUTIONS PACKAGE OF FINANCIAL SERVICES AND ALSO ACHIEVED ITS HIGHEST PROFITS TO DATE.

latter part of the year following the end of interim government, and GDP grew by 5.9% in 2015, led primarily by advances in the Agriculture and Financial Services Sector, growing by 5.5% and 15.8% respectively. The forecast for the future looks promising as global growth rates are expected to stabilise as top economies launch recovery efforts, with India leading the way with strong regulatory reforms.

Performance: CLC’s main strategic thrust this year was towards driving growth across all market segments and diversifying its product range in order to achieve its ultimate goal: providing a total financial solutions package for our clients. In doing so, I am pleased to say that CLC has also achieved its highest profits to date, with a 16% growth in profit before tax compared to the previous year. This momentous year was capped off in style, with a landmark achievement when the Company became the recipient of a US $ 153.1 Mn syndicated loan, the largest ever attained by a Sri Lankan Non-Banking Financial Institution (NBFI). The iconic transaction during the year has ensured long term funding for the Company and paved the way for robust portfolio growth, thus bolstering CLC’s ability to keep enhancing the value it creates for all its stakeholders.

The Company’s rapid expansion into new areas of business during the year has further underscored the importance of enriching

the value of its most important asset-the employees. Reflecting its commitment to the training and development of our people, CLC entered into another milestone agreement as the second component of the syndicated loan package: the largest technical assistance program in the history of Sri Lankan NBFIs, in partnership with The Frankfurt School of Management & Finance to deliver a tailor-made package including capacity building in the area of asset and liability management (ALM), Leadership for our employees and to obtain Client Protection Principles certification. The Company has thus harnessed one of its greatest strengths, its long-standing partnerships with foreign funding institutions, to further enhance CLC’s operations and secure its position in the top tiers of the industry.

Growth of our loan portfolio and expansion of our Microfinance arm was another crucial strategic objective for the year. Concluding its 2nd year under CLC, subsequent to the incorporation of LOLC’s MIS and Shared Service model, BRAC Lanka Finance PLC achieved truly staggering growth, increasing its portfolio by 159% while recording a PBT of Rs. 260 Mn.

Appreciation:I would like to convey my sincere appreciation to our Chairman and my colleagues on the Board for their guidance and to the entire team at CLC for their

unreserved effort and commitment which keep driving the company to surpass expectations. My gratitude also extends to our customers, funding partners, shareholders, and other stakeholders for their constant support and confidence in brand CLC.

Kapila JayawardenaDirector

17th June 2016


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CHIEF EXECUTIVE OFFICER’S REVIEW

The year under review has seen remarkable achievements, in terms of new initiatives as well as financial performance; and CLC became a truly one-stop-shop and the only finance company offering the entire range of Financial Services. Let me begin by sharing some of the highlights below. CLC,

∫ ventured into Microfinance.∫ launched Islamic Finance.∫ obtained the largest ever syndicated

loan by a Sri Lankan company, of USD 153.1 Mn.

∫ partnered with an islandwide ATM network of over 3,000 VISA ATM’s.

∫ launched an online banking platform. ∫ became one of the pioneering finance

companies to launch SLIPS.∫ became the first ever finance company

to launch CEFTS.

This vibrancy of our presence during the year, including expansion of our reach and portfolio, was also combined with a solid financial performance; thus lending

credence to our sense of pride in a truly remarkable year. CLC continues to be a significant contributor to LOLC Group in terms of top line, bottom line as well as assets. Some of the financial achievements during the year :

∫ the highest profits to date with a PBT growth of 16% reaching a PBT of Rs. 2,008 Mn,

∫ a portfolio growth of 42%,∫ a top line growth of 14%,


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THIS VIBRANCY OF OUR PRESENCE DURING THE YEAR, INCLUDING EXPANSION OF OUR REACH AND PORTFOLIO, WAS ALSO COMBINED WITH A SOLID FINANCIAL PERFORMANCE; THUS LENDING CREDENCE TO OUR SENSE OF PRIDE IN A TRULY REMARKABLE YEAR.

∫ a growth of 28% in deposit base,∫ a 105% growth in the Factoring portfolio, ∫ a 57% reduction in impairment

provisions.

It is also significant that we maintained one of the industry’s best profit level per employee, at Rs. 2.5 Mn; despite an increase in our cadre during the year, to support expansion and the increase in activity. Our team of employees number over 800 as at year end; their loyalty, talents and commitment will continue to be the driving force in propelling the company forward. We are also proud to note that the Company enjoys a staff retention ratio of over 84% which is well above industry average and is a preferred employer in the industry.

We are also proud to have been part of a significant milestone achievement in the industry; as CLC obtained the largest ever syndicated loan obtained by a Sri Lankan Non Banking Financial Institution. A loan of USD 153.1 Mn was granted to CLC by a consortium led by FMO (Financierings Maatschappij Ontwikkelingslanden), the

Dutch Development Bank who was the Mandated Lead Arranger and Facility Agent, and 11 other funding partners.

The CLC brand was reinforced during the year through an aggressive marketing communication strategy, and its efficacy has been confirmed by the continuing increase in our customer base. The relationships and partnerships we have established with many industry related business entities such as vehicle importers and digital commerce enterprises are an important factor in our sustainable profitability amidst changing landscapes, and we will continue to nurture and harness these partnerships.

During the year CLC joined CEFTS (Lanka Clear’s Common Electronic Fund Transfer System), becoming one of the first Non-Banking Financial Institutions in the country to register for CEFTS. We are now able to provide our savings account holders real-time retail interbank electronic fund transfer facilities, which allow them to conduct their transactions 24 hours, 365 days a year, from the convenience of their homes. This is an addition to the host of other benefits such as

GROWTH IN PORTFOLIO

42%

ATM facilities, an internationally accessible VISA Debit card and online facilities that our savings account holders enjoy. CLC also joined SLIPS (Sri Lanka Interbank Payment System) facility during the year.

Industry landscape: The year under review saw many regulatory and environmental changes. The most significant amongst them was the introduction of a 70% Loan to Value ratio by the Central Bank. Although it will reduce the Non-Performing Loan (NPL) ratio of finance companies it has had a negative impact on business volumes in the Leasing sector. Moreover, the increase in duties on vehicle imports also resulted in a slowdown in vehicle imports during the year thereby compounding the downward pressure on demand for the Non Banking Financial Institutions. In addition, a rise in interest rates further exacerbated the negative impact on vehicle imports and the Leasing sector in particular. This environment necessitates that we work harder to sustain and grow our volumes as well as profitability.


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CHIEF EXECUTIVE OFFICER’S REVIEW

WE WILL CONTINUE TO INNOVATE AND INTRODUCE NEW PRODUCTS AND EXPAND OUR FOOTPRINT, WHILST INVESTING IN NEW CHANNELS OF DISTRIBUTION AND ESTABLISHING NEW BUSINESS PARTNERSHIPS TO CREATE VALUE TO ALL OUR STAKEHOLDERS AS WE AIM TO BECOME THE MARKET LEADER.

Future Ready:The myriad new strategic initiatives that CLC has taken during the year, combined with its strong capital base, funding structure and pipelines, partnerships, management processes and procedures see it well poised for sustained growth with considerable resilience to external environmental challenges.

We will continue to innovate and introduce new products and expand our footprint, whilst investing in new channels of distribution and establishing new business partnerships to create value to all our stakeholders as we aim to become the market leader.

Acknowledgements:My heartfelt thanks to the Board of Directors led by the Chairman for their visionary leadership, guidance and the trust placed

in the company & its staff. My heartfelt appreciation also to the entire team that makes up CLC, all our business partners, funding agencies, banks and other financial institutions, and the regulators for their continuous support, and our customers for whom we will strive to continuously enhance the value we create, for their loyalty and patronage.

Krishan ThilakaratneChief Executive Officer

17th June 2016

GROWTH IN DEPOSIT BASE

28%


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THE BOARD OF DIRECTORS

Mr. Ishara Nanayakkara - Chairman

Mr. Kapila Jayawardena - Non-Executive DirectorMrs. Kalsha Amarasinghe - Non-Executive Director

Mr. Priyantha Fernando - Senior Independent Non-Executive DirectorMr. Krishan Thilakaratne - Director/CEO


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Mr. I C Nanayakkara Mr. Ishara Nanayakkara is a prominent entrepreneur serving on the Boards of many corporates and conglomerates in the region. He initially ventured into the arena of financial services with a strategic investment in Lanka ORIX Leasing Company PLC. Today, he is the Deputy Chairman of LOLC and the Executive Deputy Chairman of LOLC Finance PLC (previously known as Lanka ORIX Finance Company PLC), holding directorships in many of its subsidiaries and associate companies.

Backed by over a decade of professional experience in the industry, Mr. Nanayakkara holds the role of Chairman of Commercial Leasing & Finance PLC, one of Sri Lanka’s leading financial service providers for over 27 years, as well as LOLC Life Assurance Limited. He is also the Deputy Chairman of Seylan Bank PLC, a premier commercial bank in the country. His vision to cater to the entire value chain of the finance sector manifested in the development of Microfinance, Islamic Finance, factoring through LOLC Factors, LOLC Life & General Insurance Companies and Stock Broking through LOLC Securities Ltd.

Leveraging LOLC Group’s expertise in the SME sector, the expansion into the Micro sector was spearheaded by Mr. Nanayakkara, who is the Chairman of their Micro Credit Companies: LOLC Micro Credit Company Ltd; the only private sector microfinance institution in the country with foreign equity, PRASAC; the largest microfinance Company in Cambodia and BRAC Lanka Finance PLC. Mr. Nanayakkara’s interest in microfinance lead to the inauguration of LOLC Myanmar Microfinance Company Ltd, a green field investment in Myanmar in which he was the founding Chairman, and currently serves as a Director. His proficiency in micro-finance in the region is further demonstrated by his involvement at strategic level in LOLC Cambodia Ltd (Previously known as Thaneakea Phum Ltd); the 5th largest micro-finance company in Cambodia. He was also recently appointed as a Director in LOLC International Private Limited.

Mr. Nanayakkara’s motivation to expand into various growth peripheries is further illustrated through his role as the Executive Chairman of Brown & Company PLC and Browns Investments PLC. Browns Group is a renowned conglomerate with leading market position in trade, leisure, power generation, healthcare, manufacturing, consumer appliances and agriculture equipment. Through strategic investments, he is committed to catalysing development in the growth sectors of the Sri Lankan economy such as construction. Mr. Nanayakkara’s involvement in the Boards of AgStar Fertilizers PLC, Associated Battery Manufacturers (Cey) Ltd, Sierra Constructions Ltd and Sagasolar Power (Private) Limited reflects this business philosophy.

His passion for sustainable investment is reflected through his involvement in renewable energy, forestry and plantations. As such, Mr. Nanayakkara was also appointed as the Chairman of Browns Capital PLC (previously known as FLC Holdings PLC), Browns Hydro Power PLC (previously known as FLC Hydro Power PLC), and a Director at Pussellawa Plantations Ltd and FLMC Plantations (Pvt) Ltd, subsequent to a recent acquisition.

Endorsing his entrepreneurial spirit, Mr. Ishara Nanayakkara received the prestigious ‘Young Entrepreneur of the Year’ Award at the Asia Pacific Entrepreneurship Awards (APEA) in 2012. He holds a Diploma in Business Accounting from Australia.

Mr. W D K JayawardenaMr. Kapila Jayawardena counts over 33 years’ experience in Banking, Financial Management and Corporate Management. He was appointed as the Group Managing Director/CEO of Lanka ORIX Leasing Co., PLC in 2007. He was the former CEO/Country Head of Citibank Sri Lanka & Maldives.

He has played a pivotal role in the banking sector contributing to the financial market reforms, development and regularly advising regulators on prudential requirements, and

has widespread experience in introducing innovative financial service products to the market.

LOLC Group is one of the largest conglomerates in Sri Lanka with presence in diversified industries such as Financial Services, Trading, Manufacturing, Construction, Leisure and Renewable Energy.

As an individual with extensive international and domestic financial experience, he was a key member of the following committees.

∫ Chairman Sri Lanka Bank’s Association (SLBA) 2003/2004

∫ Member of the Financial Services Reforms Committee (FSRC) 2003/2004

∫ Director of Lanka Clear and was instrumental in completing the automated clearing project for the Sri Lankan banking industry 2004

∫ President of the American Chamber of Commerce Sri Lanka 2006/2007

∫ Member of the inaugural Sovereign Ratings Team for Sri Lanka

∫ Member of the National Council of Economic Development (NCED)

∫ Board Member of the United States - Sri Lanka Fulbright Commission

Presently, he holds Chairmanship/Directorship in the following companies:

∫ Lanka ORIX Leasing Company PLC - Managing Director/Group CEO

∫ LOLC Finance PLC - Chairman

∫ LOLC Securities Limited - Chairman

∫ Eden Hotels Lanka PLC - Chairman

∫ Palm Garden Hotels PLC - Chairman

∫ LOLC General Insurance Ltd - Chairman

∫ LOLC Micro Credit Ltd - Director

∫ Commercial Leasing & Finance PLC - Director

∫ Brown & Company PLC - Director

∫ Browns Investments PLC - Director

THE BOARD OF DIRECTORS


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∫ Seylan Bank PLC - Director

∫ BRAC Lanka Finance PLC - Director

∫ Riverina Resorts (Pvt) Ltd - Director

∫ Browns Capital PLC - Director

∫ Pussellawa Plantations Limited - Director

∫ Browns Hydro Power PLC - Director

∫ FLMC Plantations (Pvt) Ltd - Director

∫ LOLC International (Pvt) Ltd - Director

Qualifications: Master of Business Administration, American University of Asia. Fellow of the Institute of Bankers, Sri Lanka. Associate of the Institute of Cost and Executive Accountants, London.

Mrs. K U AmarasingheMrs. Kalsha Amarasinghe serves on the Boards of Lanka ORIX Leasing Company PLC, LOLC Finance PLC, LOLC Micro Credit Ltd, LOLC Life Assurance Ltd, Palm Garden Hotels PLC, and Eden Hotel Lanka PLC. She also serves as a Director on the Boards of Commercial Leasing & Finance PLC, Brown & Company PLC, Browns Investments PLC, Riverina Resorts (Pvt) Ltd, Browns Hydro Power PLC, Browns Capital PLC, Pussellawa Plantations Ltd, Melfort Green Teas (Private) Ltd and FLMC Plantations (Pvt) Ltd.

She holds an Honours Degree in Economics.

Mr. P D J Fernando Mr Priyantha Fernando has more than 35 years of experience at the Central Bank where he rose to the position of the Deputy Governor. He was the Deputy Governor of the Central Bank in 2010-2011, in charge of the Financial System Stability and the Corporate Services clusters. Mr. Fernando has extensive experience and expertise in the fields of Banking and Financial sector particularly at the policy making levels in financial regulation and supervision, information technology, national accounting, macro-economic analysis and statistics, finance and fund management. At the Central Bank he was the Chairman of the Financial Stability Committee, Member of the Monetary Policy Committee, Member of the

Risk Management Committee and Chairman of the National Payment Council. He also functioned as the Secretary to the Monetary Board during 2009/2010.

He was an ex-officio Board Member in several regulatory organisations, namely the Securities Exchange Commission, the Insurance Board of Sri Lanka, the Chairman of the Credit Information Bureau, Institute of Bankers - Sri Lanka and has also served as a Board Member at Employers Trust Fund, Lanka Clear (Pvt) Ltd and Lanka Financial Services Bureau.

During his career he has initiated and spearheaded several key projects of national importance, especially in the area of developing the infrastructure for the national payments and settlement system.

Mr Fernando has served a number of committees at national level covering a range of subjects representing the Central Bank.

He has been appointed the Chairman of Golden Key Credit Card Company and currently serves in the Boards of Commercial Leasing & Finance PLC, Union Bank of Sri Lanka PLC, Taprobane Holdings Ltd, Ceylon Leather Products PLC and Thomas Cook Travels Sri Lanka.

Mr. D M D K Thilakaratne Mr. Krishan Thilakaratne is the Director/CEO of Commercial Leasing & Finance PLC. He is also the Head of Islamic Finance Business of LOLC Group and the Head of Valuation Unit of LOLC under LOLC Motors Ltd. Mr. Thilakaratne also serves as a Director of Commercial Insurance Brokers (Pvt) Ltd, which is the market leader insurance brokering in Sri Lanka.

Previously he held the positions of CEO of Lanka ORIX Factors and CEO, Auto Finance of the LOLC Group. He conceptualised the introduction of Islamic Finance to LOLC Group in 2007.

He is an Associate Member of the Institute Bankers of Sri Lanka (AIB) and joined the LOLC Group in 1995.


22

MANAGEMENT TEAM

Mr. Krishan Thilakaratne - Director/Chief Executive OfficerMr. Jude Anthony - Deputy General Manager - Branch Network

Mr. Nihal Weerapana - Deputy General Manager - RecoveriesMr. Lal Aberathna - Assistant General Manager - Factoring (Marketing)

Mrs. Deepamalie Abhayawardane - Assistant General Manager - FactoringMr. Tharanga Indrapala - Assistant General Manager - Operations


23

Mr. Pradeep Madurasinghe -Assistant General Manager - Negambo RegionMrs. Nishanthi Kariyawasam - Head of Finance

Mr. Lasantha Peiris - Head of IT OperationsMr. Upul Samarasinghe - Assistant General Manager - Credit

Mr. Prasanna Dayarathna - Chief Manager - Operations (Factoring)Mr. Prasanna Karandagolla - Chief Manager - Head of Microfinance

Mr. Terence Kaushalya - Chief Manager - Savings & DepositsMr. Sarath Nawarathna - Chief Manager - Legal


24

Mr. Dishan Obeysinghe - Chief Manager - Asset Backed FinanceMr. Upul Suraweera - Chief Manager - Head of SME & Corporate Finance

Mr. Ruwan Wickremeratne - Chief Manager - RecoveriesMr. Jagath Jayasekara - Manager - Human Resource

Mr. Rasika Alwis - Head of AdministrationMr. Hasitha Hemasiri - Assistant Manager - Customer Services

Mr. Prasad Perera - Assistant Manager - Marketing CommunicationsMr. Ilsam Awfer - Head of Islamic Business Division

MANAGEMENT TEAM


25

REGIONAL MANAGEMENT TEAM

Mr. Samitha Aruggoda - Chief Manager - Gampaha RegionMr. Prasanna Goonethilleke - Chief Manager - Kandy Region

Mr. Suneetha Samarawickrama - Chief Manager - Colombo RegionMr. Sunil Shantha - Chief Manager - Galle Region

Mr. Sarath Wijenayake - Chief Manager - Ratnapura RegionMr. Sampath Palliyaguru - Regional Manager - Matara Region

Mr. Harsha Kumarage - Regional Manager - Anuradhapura RegionMr. Janaka Karunaratne - Assistant Regional Manager - Kandy Region


26

Operational Reviews


27

I N N O V A T I V EE X C E P T I O N A L

E N D U R I N GS T R O N G

V A L U E - D R I V E N

C O M P E L L I N G

E X E M P L A R YT R A N S P A R E N T

E N E R G E T I C


28

The Sector also focused on giving direction to the branch network with special emphasis on new products and markets. A wide range of training programmes, combined with the large spectrum of products contributed to the high growth achieved by CLC during the year. Though the prevalent economic uncertainty was not supportive of the finance market , the introduction of new and non-traditional products as substitutes for the traditional products of finance companies, helped to offset some of the negative impacts of the environment.

In addition to the expansion of our branch network and customer touch points and the launch of new products, recruitment of experienced sales personnel also contributed to the remarkable performance by the Company during the year. The growth and upgrade of our delivery channels and the professional customer service we provide, has placed CLC on par with the service standards of any leading banking institution and equipped it with an unique competitive advantage in the NBFI sector.

Increasing the Company’s revenue including other income sources via a strategy of cost management and the sustaining of a lower Non Performing Loans (NPL) ratio are amongst our priorities for the year ahead. In addition the Company will focus on strengthening our marketing team through continuous training to enhance their product demonstration skills and sales techniques to capture new market segments for the Company to reach new market horizons.

LeasingThe industry recorded a mixed performance during the year under review. Loans and Advances of the NBFI sector grew by 31.78% to reach Rs. 796 Bn in comparison to Rs. 604 Bn in 2015; primarily driven by motor vehicle financing and a new growth are of working capital financing for business clients.

Loans and advances granted by CLC recorded a remarkable growth of 42% to reach Rs. 46.8 Bn from Rs. 32.98 Bn in 2015. Opening of new branches, especially in metropolitan areas, has made a considerable

MANAGEMENT DISCUSSION & ANALYSIS

The year under review was one of the most vibrant years as Commercial Leasing & Finance PLC (CLC) achieved remarkable growth in terms of its presence, reach and product offerings whilst also underscoring this growth with a commendable financial performance. It is also noteworthy that the performance was despite unfavourable economic conditions particularly towards the latter half of the year under review.

CLC also continued to focus on enhancing customer convenience and service levels through the launch of several new channels and extensive training of its team, as elaborated on, in the ensuing sector reviews. It also continued to improve processes and enhance operational efficiency during the year through the infusion of technology and streamlining of processes. The refurbishment of our head office premises located on Bauddhaloka Mawatha was completed during the year providing a brand new appearance and an excellent ambience for an enhanced working environment for our people, and for customers.

A landmark achievement during the year, not just for CLC but for the entire industry was the receipt of international funding via the largest ever syndicated loan obtained by a Sri Lankan Non Banking Financial Institution (NBFI). CLC received funding amounting to U.S. Dollars 153.1 Mn which was granted by a consortium led by FMO (Financierings Maatschappij Ontwikkelingslanden), the Dutch Development Bank who was the Mandated Lead Arranger and Facility Agent,

and 11 other renowned international finance organisations. The loan consists of a senior loan of USD 39.2 Mn from FMO and a USD 113.9 Mn syndicated loan from the other 11 funding partners which will facilitate the growth of our lending portfolio and our capacity for empowering the country’s SME and Micro sectors.

Business ChannelsThe growth of Business Channels contributed remarkably to the Company’s performance during the year. CLC expanded its channels of delivery as well product portfolio. Becoming a “One Stop Shop” with the ability to meet all financial requirements of a client under one roof was a key factor which fuelled remarkable growth during the year and placed CLC well for sustained growth into the future.

The new products launched during the year include property mortgage loan facilities, Islamic Finance and Microfinance.

Moreover, the Company continued to expand its footprint across the country by establishing three new customer touch points, offering innovative financial solutions in convenient localities. In addition we further expanded our channels and accessibility and enhanced customer convenience by launching an island wide ATM network of 3,000 ATM’s, in partnership with HNB. Additionally, CLC also inaugurated 27 Super Dealer Points (SDPs) as a cost effective method to reach customers.

A LANDMARK ACHIEVEMENT DURING THE YEAR, NOT JUST FOR CLC BUT FOR THE ENTIRE INDUSTRY WAS THE RECEIPT OF INTERNATIONAL FUNDING VIA THE LARGEST EVER SYNDICATED LOAN OBTAINED BY A SRI LANKAN NON BANKING FINANCIAL INSTITUTION.


29

contribution to increase business volumes. Increasing the number of products in our portfolio, being more focused and engaging in segment-specific marketing activities were the other key factors which drove the performance of this sector.

Whilst these internal factors were the key drivers of the excellent performance of this sector, several external factors, such as stable interest rates which prevailed until November 2015, also supported the performance of the company as well as the industry. A favourable vehicle duty structure which existed at the beginning of 2015 propelled a sharp increase in vehicle imports, and this contributed to the increased demand for leases. However from November 2015 onwards saw a reversal of this scenario as the Central Bank of Sri Lanka raised the Loan to Value ratio (LTV) of leasing finances to 70% leading to a decline in demand for vehicle leasing.

Moreover the subsequent increase of import duty on vehicles by the budget proposals for 2016/17 lead to a drop in vehicle imports to further compound the negative impacts.

While we consolidated our presence in the lower and mid SME markets, we also began to focus on the upper-end SME sector for larger asset backed and non-asset backed facilities to meet their diverse business requirements. A clearly identifiable shift during the year, from vehicle financing to working capital financing, largely compensated for the drop in the vehicle leasing market.

Moreover, the sector also began to focus on the middle and upper end customers in the personal finances segment.

For the year ahead, the business unit will focus on improving the existing product lines, increasing accessibility and adding more innovative products and services to our portfolio. The focus on innovation will be two pronged i.e. introducing new, flexible and simplified products for the convenience of the customers combined with streamlined processes and systems to offer enhanced customer experience.

DepositsCLC continued to expand its deposit base with total deposits reaching Rs. 11.9 Bn during the year under review, compared to Rs. 9.3 Bn in the previous year. The well established brand name, exceptional customer service combined with the widened portfolio of products supported CLC’s achievement of a 28% growth in fixed deposits. Moreover, a focus on new product development, process development and improvements in customer service also bolstered the deposit base of the company.

Furthermore, the launch of an islandwide CLC ATM network in collaboration with HNB, for Savings account holders and the launch of an online banking facility which has enabled customers to carryout transactions 24x7x365, from the convenience of their home or office desk; enhanced customer convenience significantly and contributed to reinforcing customer loyalty. During the year under review, CLC became the first financial institution to join CEFTS (Lanka Clear’s Common Electronic Fund Transfer System) network to enable real-time fund transfer facilities. These new product developments and service enhancements have placed CLC’s service on par with the services of any high-end banking institution.

Customers are becoming increasingly more aware and savvy about the behaviour of financial markets and of the need to evaluate the stability of financial institutions before making their investments, CLC, which is rated “(SL) A” by ICRA Lanka Limited; as a trusted entity with proven stability thus stands to benefit from such increasing market awareness. The Deposits Division will continue to give priority to further enhancing customer service, the processes and systems and new product development in order for CLC to reach new milestones in deposits.

FactoringFactoring is a highly attractive product against receivables in order to fulfil cash flow constraints of entrepreneurs, complements CLCs basket of products well. The Factoring portfolio saw phenomenal growth of 105.5% during the year, to reach Rs. 4.9 Bn from

Rs. 2.4 Bn in 2014/15. As much as 60% of this growth came from the branch network. The sector’s contribution during the year to CLC’s total portfolio amounted to 11.6%, compared with 7.3% in 2014/15. The income in the sector grew from Rs. 521 Mn in 2014/15 to Rs. 703 Mn in 2015/16 contributing 8% to the company’s total income, a significant achievement during the year under review. Moreover, the sector’s active client base also grew significantly, from 398 clients in 2014/15 to 728 in 2015/16.

The year under review also saw CLC Factoring become the first Factoring business to move into SLIPS (Sri Lanka Interbank Payment System), as well as CEFT (Lanka Clear’s Common Electronic Fund Transfer System), the latest modes of electronic fund transfers, thereby creating a definitive competitive advantage for the Company.

The sector continued with the strategy they adopted in 2013, namely, of diversifying the market segment between Corporate to SME through a branch Factoring programme and the offer of more flexible and customised solutions to suit working capital related requirements.

The branch Factoring portfolio, which comprised 218 clients representing a portfolio of Rs. 985 Mn as at 31st March 2015, grew by 87% to 407 clients; increasing the contribution to the total Factoring portfolio by a remarkable 166%. Provision of customised working capital solutions with utmost flexibility, speed and excellent service, a user friendly online system and the 60 customer touch-points island-wide, were factors which propelled CLC ‘s Factoring business. Moreover, aggressive follow up on assigned branch targets and kindling a healthy competition among the branches also helped accelerate the steady pace of growth CLC has maintained. Continuous and comprehensive training also supported the marketing team in identifying potential clients and in the marketing of Factoring products. The Company’s aggressive marketing strategies and low market rates were amongst other internal factors which bolstered growth during the year.


30

MANAGEMENT DISCUSSION & ANALYSIS

At the same time limited liquidity in the banking system and intense market competition were key challenges which CLC had to overcome during the year. Moreover, the launch of similar products by competition also necessitated that we come up with unique features which help differentiate ours from competition. Furthermore, with the exception of the last quarter of the year, the stable economic environment in the country also contributed to the growth of trading and service sectors, which in turn opened up opportunities for lending and working capital solutions. Favourable weather conditions during the year also supported the performance of the company.

Building Human CapitalThe entire team that makes up CLC as at 31st March 2016 stood at 801, a 19.55% growth over the previous year, and an increase which reflects the growth of the Company in terms of presence, range and volumes. The 84% retention ratio of the company is most heartening and is a reflection of the high level of motivation and opportunities for career progression at CLC. The team of CLC includes professionals, with a significant 77% belonging to the 18-35 age group, indicating the high energy and passion which has translated into a vibrant performance by the Company.

The regular performance evaluations and training hours were also a key contributor to the high performance of our team. Training programmes conducted during the year included areas such as Credit Management and Islamic Finance to equip the team members with product and industry knowledge; as well as tailor-made soft skills training programs on leadership skills. The year under review also saw the formulation of Service Level Agreements (SLA’s) for all support Service Departments and the establishment of a centralised HR Service Desk in order to efficiently meet increasing HR requirements and challenges that are usually associated with the rapid growth of a Company. The HR service desk enabled us to offer a better service and as well as help optimise the utilisation of staff and achieve higher productivity.

Building a strong employee brand though Management Trainee, Apprenticeship and Internship programmes at CLC, and introducing a ”top talent” programme which would identify, reward and develop talents of our employees at different levels of the organisation, are priorities of the HR Department for the year ahead. In addition a “HR day” allocated for each branch, on which a HR team HR will meet branch employees to discuss and address any employee concerns and address HR challenges, will also be introduced in the year ahead. As a win-win sustainability initiative, CLC will also establish links with local universities to offer internships to students, thus providing opportunities to the nation’s topmost talent and supporting the country’s economic objectives.

Customer ServiceThe year under review saw CLC reap the dividends of its widened and increased focus on professional training; as evidenced by the continuous increase in efficiency levels; high customer retention and loyalty levels. A high level of technical job specific knowledge, team work and excellent communication skills were the corner stones of the successful functioning of this department which is a focal point that interlinks all other departments.

The year under review saw the department focus on identifying and eliminating factors which obstructed or inhibited service excellence. Moreover, CLC’s online banking portal was launched during the year to enable customers to transact from the comfort of their homes or office, 24 hours of the day during all 365 days. The marketing call centre which responds to any queries from the public with regard to ongoing promotional campaigns and new products continued to play a useful role in the delivery of customer service.

The department will continue to introduce state-of-the-art in technology as one of the key avenues for the continuous enhancement of service standards. Furthermore continuous training programmes will be carried out to sharpen and revitalise the performance of the customer service team members.

CreditDespite an inimical industry environment that prevailed throughout the year under review, CLC was able to penetrate into new markets with its comprehensive and competitive product portfolio that meets multiple needs of a customer. The increase in the Loan-to-Value Ratio and revised credit ceiling were key external challenges which adversely impacted the vehicle leasing market and the entire Finance sector. Expansion of our presence and penetration into new markets however, helped somewhat offset these negative impacts and enabled CLC to achieve robust credit growth.

The year under review saw CLC focus on improving processes and systems in the Credit Division to enhance customer service and strengthen process of credit evaluation. Marketing personnel were hence afforded external and internal training to upskill themselves and increase their contribution to the credit department. The training focused on increasing the marketing staff knowledge in areas of property mortgages, business loan facilities and personal loan schemes. In addition, the division carried out comprehensive credit audits in order to emphasise and ensure the importance of the quality of a company portfolio.

Moreover, the Credit Division also decentralised the decision making process thus empowering branch managers with a greater degree of authority.

In the year ahead, CLC will focus on improving the quality of its portfolio. Accordingly, further strengthening the post credit evaluation process to eliminate the anticipated risks will be a key priority.

Recoveries Teamwork and dedication saw the Recoveries team meet the organisation’s targets and achieve excellent results despite fierce competition in the market and interest rate fluctuations.

During the year under review, the department adopted region specific customised recovery


31

strategies as each region represented a unique set of attributes. A comparatively high risk market segment, for example the North and the East prompted more intense monitoring enabling us achieve low Non Performing Loan (NPL) ratios. The NPL declined to 1.09% during the year from 2.74% in 2014/15. Extensive training of our staff members also equipped them with greater resilience to adapt skilfully and quickly to changing market and environmental conditions, thus supporting the low NPL during the year. Moreover, adopting product wise strategies also contributed to our improved bottom lines It is noteworthy that these strategies were also win win as they also carefully addressed issues faced by the clients and offered them solutions rather than punitive or drastic recovery action. Moreover, specific strategies were introduced to control and eliminate losses and re-possessions.

Another key milestone during the year was the automation of the back office which resulted in an upgrade of services provided to customers at a minimal cost.

During the year ahead, the Recoveries department will look to attempt recovery to minimise the number of contracts that require legal action, We will hence customise our tactics in high risk areas, such as offer extended grace periods and concessionary repayment schemes, and continue to closely monitor every step of the recovery process.

Islamic FinanceCLC ventured into Islamic Finance on 27th of July 2015 by launching ‘CLC-Islamic Finance’, The Islamic Business Division (IBD). The main objective of the IBD is to offer Shari’ah Compliant financial products to its’ stakeholders. Thus, it has segregations between conventional operations in-terms Funding, Accounting, Banking, IT, Documentation and etc.

The IBD is governed by a 03 member Shari’ah Supervisory Board (SSB) and an In-House Shari’ah Advisor consisting of eminent scholars in the Islamic Finance Industry namely Ash-Shaikh Fazil Farook (Chairman - SSB), Ash-Shaikh Murshid Mulaffar (Member

– SSB), Ash-Shaikh / Mufthi Shafique Jakhura (Member – SSB) and Ash-Shaikh Zaid Nooramith (In-House Shari’ah Advisor).

CLC – IBD is a fully complaint on Shari’ah principles & offers a wide spectrum of products such as, Mudharabah (Profits Sharing Investments), Ijarah (Leasing), Murabaha (Trade Financing), Diminishing Musharaka (Property & Working Capital Finance), Wakala (Fixed Term Investments / Business & Working Capital Finance)

CLC-IBD completed its’ 08 months operation as at the financial year end and recorded a portfolio of Rs. 01 Billion. Currently, CLC is offering Islamic Finance solutions through their branch network with a fully trained staff force and having its’ dedicated ‘Islamic Finance Service Centres’ in a few Strategic locations at Eastern part of the country.

Marketing CommunicationsThe fast pace of innovation and developments in the telecommunication and digital space continue to open up a plethora of new paths for building brand equity. Futuristic modes of communication are especially used in the Finance and Banking sector in the country. In this backdrop CLC also ventured into extending its marketing communication via a digital platform The Company also invested in a synergised marketing campaign to revamp the corporate brand CLC as well the sub brands of the products with special focus on the new products launched during the year such as CLC Islamic Finance and CLC Microfinance. The brand equity earned by the mother brand CLC was a key factor which helped bolster the acceptance of these newly launched sub brands. Brand CLC received several external endorsements of its value during the year. CLC was listed 44th amongst the top 100 brands in Sri Lanka by LMD Brands Annual Magazine in 2015/2016. The brand was also nominated for SLIM Nielsen’s People’s Financial Provider of the year award in 2015.

During the year under review, the Company made effort to anchor the brand CLC on social media to enhance brand awareness and to capture new markets. At the same

time, the 360 degree integrated marketing communication strategy of the Company continues to deploy the traditional media streams to communicate its brand promise and brand personality to diverse audiences and customer segments.

In the year ahead, we will continue to explore and utilise new digital media and stay abreast with the fast evolving landscape of digital and mobile communication to create awareness of our products and services and how CLC can create value to individuals, enterprises and the country.

Future OutlookCLC, which has been one of the most trusted brands with an equity capital of Rs. 11.7 Bn, today offers the most comprehensive portfolio of financial products and services, as “an all in one” solutions provider which meets all financial requirements of a customer under one roof.

The year under review also saw an upgrade of the rating obtained by CLC, from ICRA Lanka Limited a Group Company of Moody’s Investor Services, to [SL] A with stable outlook from [SL] A- with stable outlook.


32

Nelliady

Jaffna

Killinochchi

Mannar Parakramapura

Thambuththegama

Trincomalee

Serunuwara

Batticaloa

Kalmunai

Ampara

Monaragala

BadullaNuwara Eliya

Welimada

RatnapuraMaharagama

Kalutara

NugegodaBambalapitiya

Pettah

KiribathgodaBattaramulla

Kaduwela

Avissawella

Kalawana

Tissamaharama

Embilipitiya

UdugamaAmbalangoda Pitigala

Baduraliya

GalleMatara

Tangalle

Anuradhapura

Nochchiyagama

DambullaPolonnaruwa

Bakamuna

Puttalam

ChilawKurunegala

Matale

MahiyanganayaKandy

Warakapola

Gampaha

Kuliyapitiya

Negombo

Wennappuwa

Medawachchiya

Vavuniya

CLC Branches

Post Office Services Centres

Specialised Factoring Branches

Dehiwala

Grandpass

Minuwangoda

Gampola

Nawala

BRANCH NETWORK

Wattala


33

FINANCIAL REVIEW

OverviewThe Company generated profit before income tax of Rs. 2,008 Mn to surpass Rs. 2 Bn mark for the financial year ended 31st March 2016, representing a dynamic growth of 16% in comparison to the previous year from Rs. 1,728 Mn. The after tax profit of the Company also improved by 10% moving to Rs. 1,574 Mn from Rs. 1,426 Mn whilst the earnings per share rose to Rs. 0.25 from Rs. 0.22 during the year. This growth in profitability was achieved amidst sharp increase in borrowing rates and continuous shrinking of net interest margins.

The Group includes its 94.35% owned subsidiary, BRAC Lanka Finance PLC (BRAC). The Group consolidated profit before tax grew by 19% to Rs. 2,268 Mn for the year ended 31st March 2016 compared with Rs.1,909 Mn reported in the previous year. The prior period includes only seven months performance of BRAC together with 12 months performance of the Company. BRAC contributed Rs. 260 Mn to profit before tax of the Group for the period ended 31st March 2016 compared to Rs. 157 Mn last year and the contribution from its 40% owned associate company, Commercial Insurance Brokers Ltd, was Rs. 8 Mn.

Interest IncomeThe core income of the Company increased by 14% over the previous year to Rs. 8,628 Mn from Rs. 7,590 Mn.

In Rs. Mn

Interest income FY2015/16

FY2014/15

Variance%

Leasing 2,882 2,821 2Loans & advances 4,284 3,451 24Hire purchase 14 122 (88)Factoring 703 521 35Overdue interest 516 536 (4)Other 229 139 76Total 8,628 7,590 14

20%8%

6% 3%

33%

32%

50%

45%

7%7% 2%

2%

2014/15

2015/16

Components of Interest Income

3

%7

Leasing

Loans & advances

Hire purchase

Factoring

Overdue interest

Other��

Interest income on leasing and loans increased to Rs. 2,882 Mn and Rs. 4,284 Mn from Rs. 2,821 Mn to and Rs. 3,451 Mn respectively. Interest income from hire purchase declined from Rs. 122 Mn to Rs.14 Mn with the dying hire purchase portfolio. Leasing and loan interest income are the main contributors to the total interest income and represents 83%. The factoring income stood at Rs. 703 Mn, with a remarkable increase of 35% from Rs. 521 Mn over the previous year. The overdue interest income dipped by 4% to reach Rs.516Mn compared with Rs. 536 Mn in the previous year with the strong collection ratio.

Group interest income grew by 31% to reach Rs.10,388 Mn from Rs. 7,907 Mn mainly due to increase in high yielding products offered by the subsidiary, BRAC Lanka Finance PLC.

Interest ExpenseInterest expense of the Company and the Group increased significantly by 44% and 65% to Rs. 3,467 Mn and Rs. 4,032 Mn from Rs. 2,406 Mn and Rs. 2,449 Mn respectively due to higher funding cost that supported the aggressive business growth. The main reason for the increase in interest expense is the borrowing cost of foreign loan obtained from FMO amounting to USD 153.1 Mn and backed to back financing.

Interest Income to Interest ExpenseRs. Mn

Interest income Interest expense

2011/12 2012/13 2013/14 2014/15 2015/160

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

10,000


34

Net Interest Income

In Rs. Mn

FY2015/16

FY2014/15

Variance%

Interest income 8,628 7,590 14Interest expense (3,467) (2,406) 44Net interest income 5,161 5,184 (0.4)

Disparity in the increase in average borrowing rates and the increase in average lending rates adversely impacted the Net Interest Income (NII) of the Company and witnessed a marginal decline from Rs. 5,184 Mn to Rs. 5,161 Mn. The aggressive growth in the portfolio enabled the Company to maintain the same level as in the previous year.

Other IncomeProfit before tax of the Company was complimented by other income which includes fee income, interest on government securities, local term deposits and capital gains and losses arising from mark to market valuation of quoted shares and unit trusts held for trading purposes. The increase in other income was Rs.184 Mn, reaching Rs. 762 Mn for the current year.

Operating expensesIn Rs. Mn

Expenses FY2015/16

FY2014/15

Variance%

Direct expenses 343 235 46Premises, equipment & establishment expenses 294 285 3Personnel costs 871 723 20Allowance for impairment & write offs 572 1,318 (57)Depreciation and amortisation 87 95 (9)Other operating expenses 1,487 1,212 (23)VAT on financial services 271 169 60

Total operating expenses 3,924 4,035 (3)

Operating expenses of the Company decreased to Rs. 3,924 Mn from Rs. 4,035 Mn largely due to decline in allowance for impairment and other operating expenses. Personnel expenses have risen by 20% to Rs. 871 Mn from Rs. 723 Mn, resulted from increase in sales cadres to align with the branch expansion and the increased level of business activity at the branches.

Allowance for Impairment and Write OffsThe allowance for impairment on leases, loans, hire purchase and factoring receivables for the year ended 31st March 2016 amounted to Rs. 572 Mn which is a significant decrease of 57% compared to Rs. 1,318 Mn impairment charge witnessed for the year ended 31st March 2015 due to the intense collection practices in the year under review. The impairment charge was calculated using the statistical model as in previous years, in line with the requirement of the Sri Lanka Financial Reporting Standards (SLFRS). The Company’s impairment balances remain healthy and conservative and well over the stipulated regulatory levels due to an additional provisioning being made on identified facilities in arrears including a few factoring facilities under litigation.

The Company strengthened the recovery efforts to create stability of the lending portfolio. Management of credit risk is well reflected in the overall improvement observed in asset quality and the gross NPL ratio of 1.09% improved from 2.74% since 31st March 2015, positioned well below industry average of 5.45%. The Company’s insistent efforts to achieve high credit quality and effectiveness in a NPA ratio, continued with the declining trend witnesses over the recent years.

TaxationThe current year’s profit after tax reached Rs. 1,574 Mn after providing Rs. 434 Mn for taxation. Rs. 545 Mn has been provided as income taxes and Rs.111Mn has been reversed as deferred tax. The Company’s tax expense increased by 44%, from Rs. 302 Mn to Rs.4 34 Mn in the year under review. The Company paid Rs. 271 Mn as VAT on financial services, NBT on financial services and Crop insurance levy during financial year 2015/2016 compared to Rs. 169 Mn over financial year 2014/2015.

Asset GrowthThe Company expanded its balance sheet by 99% over last year to reach total assets base to Rs. 84,359 Mn from Rs. 42,385 Mn, supported by the aggressive growth in the lending portfolio, backed to back foreign currency fixed deposits and investments. During the year, the Company sustained strong credit expansion, grew its net lending portfolio including factoring from Rs. 32,982 Mn to Rs. 46,793 Mn which prompted the highest ever lending growth recoding a rupee growth of Rs. 13,811 Mn. The net lending portfolio accounts for 55% of the total assets, a reduction of 23% from 78% in the previous year.

FINANCIAL REVIEW


35

The ratio dipped with the increase in financial investments in foreign currency term deposits made to manage the exchange risks, investment in unit trusts and regulatory investments.

Total Assets to Net Lending PortfolioRs. Mn

2012 2013 2014 2015 20160

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

Total assets Net lending portfolio

The Group assets improved by 103% and stood at Rs. 92.137 Mn mainly supported by the growth of the loan book of BRAC. During the year, the Group disbursed leases and loans amounting to Rs. 46 Bn, Rs. 32 Bn from CLC and Rs. 14 Bn from BRAC.

Net asset per share of the company was Rs.1.85, up from Rs. 1.59 since 31st March 2015.

Deposits from customersThe customer deposit base grew from Rs. 9,381 Mn to Rs. 11,981 Mn, a growth of 28% over last year despite fluctuating interest rates and the pressure to maintain margins. This accounted for 17% of the funding mix. The growth was largely driven by the concentrated efforts made on fund mobilisation, supported by the strong brand image. Launching of CLC ATM/Debit card in April 2015 helped the Company to improve its savings deposit base further.

FundingTotal sources of funding of the Company increased from Rs. 29,551 Mn to 69.952 Mn. The reason for the increase in borrowing is that the Company received a syndicated loan amounting to USD 153.1 Mn led by the FMO. Exchange rate risk was managed by placing the same in term deposit and backed-to-back financing equivalent to Rs. 22 Bn. The Company raised Rs. 5 Bn through a five year listed senior debenture during the period under review with the objective of growing the portfolio and minimising maturity mismatches in assets and liabilities.

Debt to Equity Ratio Times

2012 2013 2014 2015 20160

1.00

2.00

3.00

4.00

5.00

6.00

7.00

20%

17%

7%

36%

36%

1%

3%

Funding Mix as at 31st March 2016

Foreign funding agencies

Securitisation & others

Other long term

Short term

Customer deposits

Debenture

20%

32%

1%

22%

34%

9%

3%

Funding Mix as at 31st March 2015

Foreign funding agencies

Securitisation & others

Other long term

Short term

Customer deposits

Others


36

CapitalisationThe equity of the Company reached to Rs. 11,797 Mn from Rs. 10,115 Mn with the earnings from its operations. The Company’s rich repository of capital continued to energise and strengthen the Company’s growth prospects. Return on Average Equity (ROAE) decreased to 14.37% from 15.03% of the previous year.

Tier 1 and Tier 2 Capital Adequacy Ratios (CAR) stood at 20.22% and 18.42% (28.27% and 25.57% as at 31st March 2015) respectively as at the financial year ended 31st March 2016, well above the stipulated regulatory minimum of 5% and 10% each. The regulatory capital computation excludes Rs. 968 Mn invested in subsidiary company, BRAC Lanka Finance PLC, and Rs. 67 Mn invested in Myanmar Microfinance Company.

The market capitalisation of the Company exceeded Rs. 24 Bn as at 31st March 2016 with a closing share price of Rs. 3.80, which resulted in a Price Earning (PE) ratio of 15 (times).

The strong performance of the Company during the year and the strong balance sheet positions the Company to derive stronger performance in the coming years.

FINANCIAL REVIEW


37

SUSTAINABILITY REPORT

At CLC we are attempting to meet our own needs without compromising the ability of future generations to meet their own needs. We are firm believers of the idea that the power of a small group of thoughtful and committed people can change the world into a better place. Sustainability is a holistic approach that considers ecological, social and economic dimensions recognising that all must be considered together to achieve lasting prosperity as a business entity.

People SustainabilityOur approach to people sustainability is two-fold: (a) Employee Sustainability (b) Community Sustainability. We engulf “Sustainability” into our day-to-day activities that it becomes a congenital part of who we are. A key initiative which was executed in the previous financial year was awareness building on the prominence of sustainability. This successful effort became a catalyst in implementing sustainability driven programmes during the year under review as the already created consciousness provoked the active involvement in such activities.

Employees Our focus on “people” is centred on our corporate philosophy, “Hithawathkama” which encapsulates how the trust and progress of all our stakeholders will continue to be the priority in our hearts and minds. This has created a propitious environment where our employees have the room to manoeuvre their optimal yield.

The credence gained by CLC over time is evinced by the high employee retention rate. CLC has been able to maintain an average monthly retention rate well above 98% and year-to-date retention rate above 84% which is above the industry average.

Employee Development

During the year 20 staff members were rewarded with long service staff awards which is a clear reflection of the high retention levels maintained by CLC where 19 of them were rewarded for their impeccable service over 10 years at CLC. The employees were also recognised and acknowledged for their exceptional performances. This annual awards ceremony and dinner dance is one of the eagerly awaited events in the Company’s calendar.

Yet leadership can be an elusive characteristic, and developing leaders to their full potential remains one of the great challenges for organisations today, and we are focussed on developing leadership strength in order to remain competitive in the future. At CLC the absolute satisfaction of the customers is fabricated through the empowerment of employees which comes from developing leadership competencies.

Head Count

801

Female

27.43% Field Base

55.93%

Employee RetentionMonthly

98%Year-to Date

84%

People Growth FY16

19.55%

Average Training Hours per Employee

26 HrsTotal Training Investment

Rs. 10.3 MnInvestment per Employee

Rs. 15,411

Age Group 26-35 yrs

56.17%


38

Maintaining Work-Life BalanceAt CLC we reckon the concept of work-life balance as we always strive to offer the ultimate to our employees. In fact we impel our employees to reach their maximum capacity levels, concurrently we

SUSTAINABILITY REPORT

inspire them to lead an ideal work-life balanced lifestyle. We follow the criteria of Work, Home, Play plus T&D in all our employee related activities as a framework for people sustainability.

The annual sports day cum family day is such an effort of CLC to boost up the spirits of employees and encourage them to balance their hectic work-life with other priorities of their lives. There we rewarded the children of CLC staff members who successfully got through the grade five scholarship examination with cash and other prizes. The 70’s inspired annual get together was yet another glamorous event that showcased the talents of our employees. Our staff also takes part in mercantile competitions. These activities have proven to be advantageous for employees well-being and convey the Company’s underlying credo “Hithawathkama”.

Nurturing Culture In today’s highly diverse organisations, the ability to work in diverse cultures is extremely important. An organisation’s culture is driven by the values throughout that organisation. CLC has a unique performance driven culture which is well nourished with team spirit, professionalism and social ethos. The organisational culture stands out as one of the components that are important to sustaining performance and competitive advantage. Thus, CLC consistently focuses on building a positive work culture to vitalise the journey towards the Company’s topmost vision.

The CLC Poson Poya day programme organised by the CLC HR Department in collaboration with CLC staff was an impressive religiously and culturally aspired initiative in flourishing the religious values among employees. This event was conducted in three stages where the staff visited the Welisara Chest Hospital serving them a meal, spent time with the elders at Devsiriniwasa Elders’ Home providing them with dry rations, clothing, & other essentials and eventually contributed to the Dhamma Deshana held at Sri Vajirarama Temple, Colombo 4. Moreover the Ramadhan Ifthar was also celebrated at CLC head office hand in hand with the CLC Islamic Finance Division.

HOME(Functional Department) Performance Appraisal & Compensation/Functional Expertise/Process Expertise

WORK(Branch/Head Office) Geographical Location/Gain Experience

T&DCoaching & Mentoring/Career Guidance/Competency/Building

PLAY(Fun & Entertainment) Bonding/Network/Family/Social Capital

EMPLOYEE


39

Developing a Customer Centric Mind-SetOur employees work consistently to ensure the delivery of our brand promise to the our customers; as we are a customer centric organisation where we prioritise the needs and wants of our customers and work to serve them with the best available solutions. By delivering consistent customer care excellence, we not only create a loyal customer base, but we also encourage and motivate our employees to persist in raising the bar when it comes to delivering services. We are very conscious about the customer feedback and assess them carefully in order to improve and upgrade the lacking areas to reinforce customer loyalty. We are working towards bettering the life standards of our customers through our diversified quantum of products and creating lifetime values that would embed CLC in their hearts, which is the pre-eminent level of customer loyalty.

Community Engagement Our idea of community sustainability is based on the fundamental that communities are made up of social, economic and environmental aspects that are inalienable from each other and if, as a Company, we can balance all these aspects we will be leaving behind a legacy of sustainability. Engaging with communities and contributing towards community development is not only the right thing for companies to do, it also makes good business sense. We share our resources with the community not only to uphold the bond we have entrenched but also to give back something to the community as ethical corporate citizens.

Employees at the CLC head office joined hands with LOLC in organising a visit to the Mental Hospital-Angoda which was a preliminary lead taken to enhance community involvement. We donated dry rations and essential supplies to the hospital as it was an urgent need facing the hospital. Once again teaming up with LOLC, we organised a day out to the LOLC Child Care Orphanage which is entirely supported by the LOLC Group since we believe, that the world of tomorrow will inherit the children of today. Whether a nation grows and prospers will depend enormously on the survival, health, education and protection of their citizens, notably the younger generation.

At CLC we are pursuing objectives beyond gaining profits since our core values always addresses on “giving back to the society”. Our ideology encompasses economic, social and cultural development that is, all aspects of human life and well-being with a futuristic perspective. More simply, we endeavour to elevate our economy, while simultaneously uplifting the life standards of the community ensuring that we do not hinder the potential of the future generations in consuming economic resources.


40

REPORT ON CORPORATE GOVERNANCE

Commercial Leasing & Finance PLC (CLC) continued to maintain high standards of corporate governance and ethical business conduct across all aspects of its operations and decision-making processes during the year under review.

StructureFor CLC corporate governance is about ensuring an effective, transparent and accountable management of affairs by the Board of Directors, the highest governing body, with the ultimate objective of protecting the interests of all stakeholders. The governance structure of CLC ensures alignment of its business strategy and direction through effective engagement and communication with its stakeholders, Board of Directors, Board Sub-Committees and Management.

The corporate governance philosophy of CLC is within a framework of compliance and conformance, which has been established at all levels through a strong set of corporate values and a written Code of Conduct. All employees are required to embrace this philosophy in the performance of their official duties and in other situations that could affect the Company’s image.

Instruments of GovernanceThe corporate governance framework of CLC encompassing external and internal instruments of governance, enables the Board to provide assurance to investors that they have discharged their duties responsibly. The Board of Directors of CLC and staff at all levels consider it their duty and responsibility to act in the best interests of the Company. It is this strong set of values that has facilitated the trust that our stakeholders have continued to place on the core values underlying our corporate activities.

The external instruments of governance at CLC include the Companies Act No. 7 of 2007, the Finance Business Act No. 42 of 2011, the Finance Leasing Act, No. 56 of 2000, the Exchange Control Act, No. 24 of 1953, the Payment and Settlement Systems Act, No. 28 of 2005, the Securities and Exchange Commission of Sri Lanka Act, No. 36 of 1987, and any amendments thereto, including rules and directions issued to finance companies from time-to-time by the Monetary Board of the Central Bank of Sri Lanka and the Listing Rules of the Colombo Stock Exchange. The internal instruments of governance include the Articles of Association, the Role of the Board, Board Approved Policies, Procedures, and Processes for internal controls and anti-money laundering.

Policies and procedures have been established taking into consideration governance principles that define the structure and responsibility of the Board to ensure legal and regulatory compliance, to protect stakeholder interests, to manage risk and enhance the integrity of financial reporting. A whistleblowing policy has been introduced and the number of the related ‘hotline’ has been shared with all employees. This was done to enhance accountability, so that

deliberate deviations from controls and/or processes and procedures could be highlighted by any employee and thus addressed promptly.

Board of DirectorsThe Board is responsible for the stewardship of the Company and the Directors ensure good governance at Board level and below on the basis of sound principles that provide the framework of how the business is conducted.

The members of the Board consist of persons with multiple industrial/professional backgrounds in which they have achieved eminence, who contribute effectively to decisions made by the Board to guide CLC towards achieving its objectives. In accordance with best practices, the offices of Chairman and Chief Executive Officer are separate, and the Chairman is a Non-Executive Director. This ensures a balance of power and enhances accountability. To bring in a greater element of independence, the Board appointed Mr. P D J Fernando as the Senior Independent Director.

Monitoring and Evaluation by the BoardCLC has in place a number of mandatory and voluntary Board Sub- Committees to fulfil regulatory requirements and for better governance of its activities. These committees meet periodically to deliberate on matters falling within their respective charters/terms of reference and their recommendations are duly communicated to the main Board. The main Board held 12 scheduled monthly meetings during the year.

Audit CommitteeThe Audit Committee was established for the purpose of assisting the Board in fulfilling their responsibilities relating to financial governance. The Committee held six meetings during the year.

Integrated Risk Management CommitteeThe Integrated Risk Management Committee was established to assist the Board in performing its oversight function in relation to different types of risk faced by the Company in its business operations and ensures, adequacy and effectiveness of the risk management framework of the Company. The Committee held four meetings during the year.

Remuneration CommitteeThe Remuneration Committee was established to assist the Board in evaluating and recommending remuneration for Board Members including the Chief Executive Officer.

Nomination CommitteeThe Nomination Committee was established to assist the Board in assessing the skills required and recommending Director Nominees for election to the Board and to nominate members to its Sub- Committees to effectively discharge their duties and responsibilities. The Committee held two meetings during the year.


41

Related Party Transaction Review CommitteeOn behalf of the Board, the Committee ensures that all related party transactions of the Company are consistent with the Code of Best Practice on Related Party Transactions issued by the SEC. The Committee held four meetings during the year.

Moreover the following mechanisms are in place for the Board to oversee the accomplishment of the targets in the business plan: review the performance of CLC at monthly Board meetings; seeking recommendations through Board appointed Sub-Committees on governance, including compliance with internal controls, human resources, risk management, credit and IT; review of statutory and other compliances through a monthly paper on compliance submitted to the Board covering the operations of CLC.

Skills and Performance of the BoardThe updating of the skills and knowledge of all Directors is achieved by updates on proposed/new regulations, industry best practices, market trends and changes in the macro environment. It is also facilitated by providing them access to external and internal auditors, access to other external professional advisory services and the company secretaries, keeping them fully briefed on important developments in the business activities of the Group and by periodic reports on performance, and opportunities to meet Senior Management.

As required by the Finance Companies Corporate Governance Direction, CLC has established a well defined self evaluation mechanism undertaken by each Director annually to evaluate performance of the Board. These evaluations are subsequently tabled at a Board meeting and the records are maintained by the company secretaries.

Avoiding Conflicts of InterestThe governance structure at CLC ensures that the Directors take all necessary steps to avoid conflicts of interest in their activities with, and commitments to other organisations or related parties. If a Director has a conflict of interest in a matter to be considered by the Board, such matters are disclosed and discussed at Board Meetings, where Independent Directors who have no material interest in the transaction are present.

Engagement with ShareholdersThe shareholders of CLC have multiple ways of engaging with the Board: the Annual General Meetings which are the main forum at which the Board maintains effective communication with its shareholders on matters which are relevant and of concern to the general membership such as the performance and their return on investment of CLC; access to the Board and the Company Secretaries; written correspondence from the Company Secretaries to inform shareholders of relevant matters; the website of CLC which is accessible by all stakeholders and the general public; and disclosures disseminated through the Colombo Stock Exchange including interim reporting.

Engagement with EmployeesCLC recognises that employee involvement is a critical pre-requisite towards ensuring the effectiveness of the corporate governance system and therefore attaches great importance to employee communications and employee awareness of key events and significant developments.

The necessity of sincere and regular communication in gaining employee commitment to organisational goals and values are stressed extensively and intensively through various communiques issued periodically by the Directors’ Office. CLC follows an open-door policy for its employees at all levels. Regular dialogue is also maintained on work related issues as well as on matters pertaining to general interest that affect employees and their families.

In terms of engaging with the employees, the key channels used by the Board include the Executive Director/CEO who is an employee director and the main link between the Board and the rest of the employees; and the Board Members and Board Sub-Committees who conduct effective dialogue with the members of the Management on matters of strategic direction.

External AuditM/s KPMG, Chartered Accountants were re-appointed as External Auditors of the Company by the shareholders at the Annual General Meeting held in August 2015. Their services were also engaged to seek: a) an assessment of the Company’s compliance with the requirements of the Finance Companies Corporate Governance Direction No. 3 of 2008 issued by the Monetary Board; and b) the Company’s level of adherence to the internal controls on financial reporting.


42

Direction No.

Reference to the Finance Companies Corporate Governance Direction No. 3 of 2008

CLC’s Level of Compliance

2 The Responsibilities of the Board of Directors

2.1 The Board of Directors shall strengthen the safety and soundness of the finance company by:

a. approving and overseeing the finance company’s strategic objectives and corporate values and ensuring that such objectives and values are communicated throughout the finance company;

Complied with

b. approving the overall business strategy of the finance company, including the overall risk policy and risk management procedures and mechanisms with measurable goals, for at least immediate next three years;

Complied withA financial forecast for the period 2016/17 to 2018/19 has been approved by the Board.

All identified risks have been taken into account when preparing this forecast.

Further, a Risk Management Policy has been approved by the Board which includes risk management procedures and mechanisms.

c. identifying risks and ensuring implementation of appropriate systems to manage the risks prudently;

Complied withThe Board has delegated this function to its Sub-Committee, the Integrated Risk Management Committee (IRMC).

Approved minutes of the quarterly meetings of IRMC are tabled at Board Meetings for review and guidance.

Risk Management Reports on liquidity and maturity of deposits are submitted to the Board on a monthly basis.

d. approving a policy of communication with all stakeholders, including depositors, creditors, shareholders and borrowers;

Complied with

e. reviewing the adequacy and the integrity of the finance company’s internal control systems and management information systems;

Complied withThe Board is of the view that the system of internal controls and management information systems in place are sound and adequate to provide reasonable assurance regarding the reliability of management information and financial reporting.

The key processes that have been established by the Board to review the adequacy and integrity of the Company’s Internal Controls and Management Information Systems, include the following:

1. The Board Audit Committee and the Board Integrated Risk Management Committee ensures that the Company’s controls and risks are being appropriately managed and actions proposed for mitigation of risks.

These two Committees facilitate an ongoing process for identifying, evaluating and managing significant risks faced by the Company, including enhancing the system to cater to changes in the business and regulatory environment.



43

Direction No.



2. The CEO through the Heads of Departments ensures that approved business strategies are implemented and that agreed policies and procedures on risk/internal control are implemented and adhered to.

The Heads of Departments are therefore accountable and responsible for their respective areas of operation, including the accuracy of information presented to the Management/Board, and managing risk in their day-to-day activities through established processes and controls. In addition the Internal Audit ensures that staff adheres to such processes and controls.

Where there is a breach of authority, such issues are escalated to the Board through the Board Audit Committee.

3. The Internal Audit performs a comprehensive exercise that entails reviewing of all aspects of MIS including operational and regulatory risks. Product-wise MIS reviews have been periodically carried out by the Internal Audit.

The Internal Audit also provides an independent assurance that the Company’s risk management, governance and internal control processes are operating effectively and fit for purpose.

f. identifying and designating key management personnel, who are in a position to:

(i) influence policy; (ii) direct activities; and (iii) exercise control over business activities, operations and

risk management;

Complied withBoard Members including the CEO and members of the Operational Management have been identified and designated as Key Management Personnel (KMP) by the Board as defined in the Sri Lanka Accounting Standards.

This is annually reviewed by the Board.

g. defining the areas of authority and key responsibilities for the Board and for the key management personnel;

Complied withArticles 76-78 of the Company’s Articles of Association defines the powers and duties of the Board of Directors.

Further the responsibilities of the Board have been defined and approved based on the role of the Board of its parent company, Lanka ORIX Leasing Company PLC.

The areas of authority and responsibilities of the Key Management Personnel defined in individual job descriptions have been approved by the Board.


44

Direction No.



h. ensuring that there is appropriate oversight of the affairs of the finance company by key management personnel, that is consistent with the finance company’s policy;

Complied withThe Company has a policy on oversight of the affairs of the Company by KMPs including a process to review the delegation process approved by the Board.

Delegated authority given to KMPs is reviewed periodically by the Board to ensure that they remain relevant to the needs of the Company.

i. periodically assessing the effectiveness of its governance practices, including:

(i) the selection, nomination and election of directors and appointment of key management personnel;

(ii) the management of conflicts of interests; and (iii) the determination of weaknesses and implementation of

changes where necessary;

Complied withA Board approved procedure is in place for the appointment of Directors. Election of Directors is effected in accordance with the requirements of the directions issued by the Central Bank of Sri Lanka and the Companies Act No. 7 of 2007.

Directors are selected and nominated to the Board for skills and experience in order to bring about an objective judgment on issues of strategy, performance and resources. Effectiveness of this process is ascertained by their contribution at Board Meetings in their respective fields.

A Nomination Committee has been appointed to assist the Board in identifying qualified individuals as potential Directors.

KMPs are selected and recruited in terms of the HR Policy of the Company. KMPs directly report to the CEO and performance appraisals are completed at least twice a year.

Conflicts of interest are managed on a monthly basis where Directors disclose their directorships in other companies. KMPs declare any interest annually. Weaknesses are identified from the above processes and changes may be implemented where necessary.

Annual self evaluations of Directors were tabled subsequent to the financial year end, to determine any weaknesses of the above process and to implement changes where necessary.

j. ensuring that the finance company has an appropriate succession plan for key management personnel;

Complied withA Board approved succession plan is available. This will be reviewed to take into account any changes in the organisation structure, when necessary.

k. meeting regularly with the key management personnel to review policies, establish lines of communication and monitor progress towards corporate objectives;

Complied withKey Management Personnel are called in by the members of the Board during Board and Board Committee Meetings when the need arises to explain matters relating to their area of functions.



45

Direction No.



l. understanding the regulatory environment; Complied withAs a practice the Company Secretary includes an agenda item in monthly Board Meetings tabling correspondence with regulators which enable the Directors to understand the regulatory environment, concerns and changes and make appropriate decisions.

A monthly compliance report is also submitted to the Board. This report includes details of weekly, monthly, and annual returns duly submitted to the CBSL and the requirements of all the directions issued by the Monetary Board and the Company’s current position with regard to each direction.

A monthly confirmation is provided by the Head of Finance of statutory payments made such as VAT, VAT on financial services, WHT on FD’s and savings interest, EPF, ETF, PAYE Stamp duty and Economic Service Charge.

m. exercising due diligence in the hiring and oversight of external auditors.

Complied withThe Board Audit Committee is responsible for the hiring and overseeing the External Auditors.

Section 122 of the Company’s Articles of Association lays down a process for appointing of External Auditors at the AGM.

The Audit Committee has recommended that the auditors be re-appointed for 2015/16.

The Audit Committee is governed by a Board approved Audit Charter/TOR. This is periodically reviewed by the Board to ensure that it remains relevant.

No reviews were carried out during the year under review.

2.2 The Board shall appoint the chairman and the chief executive officer and define and approve the functions and responsibilities of the chairman and the chief executive officer in line with paragraph 7 of this Direction.

Complied withThe Chairman and CEO have been duly appointed and their functions and responsibilities have been defined and approved by the Board.

2.3 There shall be a procedure determined by the Board to enable directors, upon reasonable request, to seek independent professional advice in appropriate circumstances, at the finance company’s expense. The Board shall resolve to provide separate independent professional advice to directors to assist the relevant director(s) to discharge the duties to the finance company.

Complied withA Board approved detailed procedure has been established to obtain independent professional advice when necessary.


46

Direction No.



2.4 A director shall abstain from voting on any Board resolution in relation to a matter in which he or any of his relatives or a concern in which he has substantial interest, is interested, and he shall not be counted in the quorum for the relevant agenda item at the Board meeting.

Complied with.Article 79 of the Company’s Articles of Association requires an interested Director to disclose his/her interest at Board Meetings.

Article 83 requires such a Director to abstain from voting on any Board resolution. He/she will not to be counted in the quorum.

In addition a Board approved procedure is established to manage conflicts of interest of the Board Members.

2.5 The Board shall have a formal schedule of matters specifically reserved to it for decision to ensure that the direction and control of the finance company is firmly under its authority.

Complied withThe Board has put in place systems and controls to facilitate the effective discharge of Board functions. Pre-set agenda of meetings ensure the direction and control of the Company is firmly under Board control and authority.

The agenda of the monthly Board Meetings includes reports on performance and on compliance with relevant regulations. This enables the Board to ensure that the company performs at an optimal level, while being fully compliant.

2.6 The Board shall, if it considers that the finance company is, or is likely to be, unable to meet its obligations or is about to become insolvent or is about to suspend payments due to depositors and other creditors, forthwith inform the Director of the Department of Supervision of Non-Bank Financial Institutions of the situation of the finance company prior to taking any decision or action.

Will comply with if the need arises. The Board has implemented a procedure to alert them of any such event - in that, the Compliance Officer reports in the monthly compliance statement that the Company could remain as a going concern.

2.7 The Board shall include in the finance company’s Annual Report, an annual corporate governance report setting out the compliance with this Direction.

Complied withThis report serves the said requirement

2.8 The Board shall adopt a scheme of self-assessment to be undertaken by each director annually, and maintain records of such assessments.

Complied withThe Directors carry out a self evaluation annually.

Self evaluations for the year 2015/16 have been obtained and were submitted to the Board for their review. Related records are in the custody of the Company Secretaries.

3 Meetings of the Board

3.1 The Board shall meet at least twelve times a financial year at approximately monthly intervals. Obtaining the Board’s consent through the circulation of written or electronic resolutions/papers shall be avoided as far as possible.

Complied withThe Board met 12 times during the year. Please see page 64 for further details.

Approvals obtained through the circulation of resolutions (25) were subsequently tabled at the following Board Meeting.



47

Direction No.



3.2 The Board shall ensure that arrangements are in place to enable all directors to include matters and proposals in the agenda for regular Board meetings where such matters and proposals relate to the promotion of business and the management of risks of the finance company.

Complied withA Board approved Policy on Board’s relationship with the Company Secretary is in place to enable all Directors to include matters and proposals in the agenda for regular Board Meetings.

3.3 A notice of at least 7 days shall be given of a regular Board meeting to provide all directors an opportunity to attend. For all other Board meetings, a reasonable notice shall be given.

Complied withA schedule of all meetings for the coming year is circulated to all Directors at the end of December or beginning of January. At the beginning of each month, a reminder of all meetings during that month is also sent out. In addition, notices are sent out 7 days prior to the meeting. All these enable any Director to seek to include matters in the Agenda.

3.4 A director who has not attended at least two-thirds of the meetings in the period of 12 months immediately preceding or has not attended the immediately preceding three consecutive meetings held, shall cease to be a director. Provided that participation at the directors’ meetings through an alternate director shall, however, be acceptable as attendance.

Complied withAll the members have attended two-thirds or more of the meetings during the year. Please see page 64 for further details.

Mr. W D K Jayawardena has been appointed as Alternate Director to Mr. I C Nanayakkara and vice versa.

3.5 The Board shall appoint a company secretary whose primary responsibilities shall be to handle the secretarial services to the Board and shareholder meetings and to carry out other functions specified in the statutes and other regulations.

Complied with LOLC Corporate Services (Pvt) Ltd has been appointed as Company Secretaries to the Company.

3.6 If the chairman has delegated to the company secretary the function of preparing the agenda for a Board meeting, the company secretary shall be responsible for carrying out such function.

Complied withThe Board approved Policy on Board’s relationship with the Company Secretary provides powers to the Chairman to delegate authority to the Company Secretary for preparation of agenda for Board Meetings.

3.7 All directors shall have access to advice and services of the company secretary with a view to ensuring that Board procedures and all applicable laws, directions, rules and regulations are followed.

Complied withThe Board approved Policy on Board relationship with the Company Secretary provides that all directors shall have access to the advice/services of the Company Secretary.

3.8 The company secretary shall maintain the minutes of Board meetings and such minutes shall be open for inspection at any reasonable time, on reasonable notice by any director

Complied with


48

Direction No.



3.9 Minutes of Board meetings shall be recorded in sufficient detail so that it is possible to gather from the minutes, as to whether the Board acted with due care and prudence in performing its duties. The minutes of a Board meeting shall clearly contain or refer to the following:

(a) a summary of data and information used by the Board in its deliberations;

(b) the matters considered by the Board;

(c) the fact-finding discussions and the issues of contention or dissent which may illustrate whether the Board was carrying out its duties with due care and prudence;

(d) the explanations and confirmations of relevant executives which indicate compliance with the Board’s strategies and policies and adherence to relevant laws and regulations;

(e) the Board’s knowledge and understanding of the risks to which the finance company is exposed and an overview of the risk management measures adopted; and

(f) the decisions and Board resolutions.

Complied withDetailed minutes are kept covering the given criteria.

4 Composition of the Board

4.1 The number of directors on the Board shall not be less than 5 and not more than 13.

Complied withThe Board comprises of five directors.

4.2 The total period of service of a director other than a director who holds the position of chief executive officer or executive director shall not exceed nine years. The total period in office of a non-executive director shall be inclusive of the total period of service served by such director up to the date of this Direction.

Complied withNo Director has completed nine years as a Non-Executive Director.

4.3 An employee of a finance company may be appointed, elected or nominated as a director of the finance company (hereinafter referred to as an “executive director”) provided that the number of executive directors shall not exceed one-half of the number of directors of the Board. In such an event, one of the executive directors shall be the chief executive officer of the company.

Complied withThere is one Executive Director (the CEO) and four Non-Executive Directors on the Board.



49

Direction No.



4.4 The number of independent non-executive directors of the Board shall be at least one fourth of the total numbers of directors. A non-executive director shall not be considered independent if such director:

a) has shares exceeding 2% of the paid up capital of the finance company or 10% of the paid up capital of another finance company;

b) has or had during the period of two years immediately preceding his appointment as director, any business transactions with the finance company as described in paragraph 9 hereof, aggregate value outstanding of which at any particular time exceeds 10% of the capital funds of the finance company as shown in its last audited balance sheet;

c) has been employed by the finance company during the two year period immediately preceding the appointment as director;

d) has a relative, who is a director or chief executive officer or a key management personnel or holds shares exceeding 10% of the paid up capital of the finance company or exceeding 12.5% of the paid up capital of another finance company.

e) represents a shareholder, debtor, or such other similar stakeholder of the finance company;

f) is an employee or a director or has a shareholding of 10% or more of the paid up capital in a company or business organisation:

(i) which has a transaction with the finance company as defined in paragraph 9, aggregate value outstanding of which at any particular time exceeds 10% of the capital funds as shown in its last audited balance sheet of the finance company; or

(ii) in which any of the other directors of the finance company is employed or is a director or holds shares exceeding 10% of the capital funds as shown in its last audited balance sheet of the finance company; or

(iii) in which any of the other directors of the finance company has a transaction as defined in paragraph 9, aggregate value outstanding of which at any particular time exceeds 10% of the capital funds, as shown in its last audited balance sheet of the finance company.

Complied withThere is one Independent Non-Executive director on the Board.

Mr. P D J Fernando, Senior Independent Director.

Dr. H Cabral, Independent Non Executive Director (resigned with effect from 31st August 2015).

4.5 In the event an alternate director is appointed to represent an independent non-executive director, the person so appointed shall also meet the criteria that apply to the independent non-executive director.

Complied withPrior to his resignation in August 2015, Dr. H Cabral was appointed as alternate to Mr. P D J Fernando.


50

Direction No.



4.6 Non-executive directors shall have necessary skills and experience to bring an objective judgment to bear on issues of strategy, performance and resources.

Complied withDirectors profiles are provided on pages 20 to 21.

4.7 A meeting of the Board shall not be duly constituted, although the number of directors required to constitute the quorum at such meeting is present, unless at least one half of the number of directors that constitute the quorum at such meeting are non-executive directors.

Complied withThe Company’s Articles of Association (Article 98) provide that a quorum for a meeting is a majority provided that half of such quorum is Non-Executive.

The quorum had been maintained at all Board Meetings held during the financial year 2015/16.

Details of attendance at meetings are provided on page 64.

4.8 The independent non-executive directors shall be expressly identified as such in all corporate communications that disclose the names of directors of the finance company. The finance company shall disclose the composition of the Board, by category of directors, including the names of the chairman, executive directors, non-executive directors and independent non-executive directors in the annual corporate governance report which shall be an integral part of its Annual Report.

Complied withThe current directorate is as given below :

Mr. I C Nanayakkara, Non Executive Chairman Mr. W D K Jayawardena, Non Executive Director Mrs. K U Amarasinghe, Non Executive DirectorMr. P D J Fernando, Senior Independent DirectorMr. D M D K Thilakaratne, Executive Director/CEODr. H Cabral, PC, Independent Director (resigned with effect from 31st August 2015)

The Directors profiles are given on pages 20 to 21.

4.9 There shall be a formal, considered and transparent procedure for the appointment of new directors to the Board. There shall also be procedures in place for the orderly succession of appointments to the Board.

Complied withA Board approved procedure is in place for the Board Members to select and appoint new Directors to the Board. Company’s Articles 70-74 address the general procedure for appointment and removal of Directors to the Board.

The Board has also formed a Nomination Committee to assist in assessing the skills required and recommending nominees for election to the Board and to nominate members to its Sub-Committees to effectively discharge their duties and responsibilities.

4.10 All directors appointed to fill a casual vacancy shall be subject to election by shareholders at the first general meeting after their appointment.

Complied withArticle 70 of the Company’s Articles of Association provides that Directors appointed shall be subject to election by shareholders at the first AGM.

4.11 If a director resigns or is removed from office, the Board shall announce to the shareholders and notify the Director of the Department of Supervision of Non-Bank Financial Institutions of the Central Bank of Sri Lanka, regarding the resignation of the director or removal and the reasons for such resignation or removal, including but not limited to information relating to the relevant director’s disagreement with the Board, if any.

Complied withDirectors’ resignation and the reason for such resignation are duly informed to the Central Bank of Sri Lanka (CBSL) and Colombo Stock Exchange (CSE).

The Board announces such situations to the shareholders through its Annual Report.

Changes to the directorate during the year (resignation of Dr. H Cabral, PC) was approved by the Central Bank of Sri Lanka.



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Direction No.



5 Criteria to Assess the Fitness and Propriety of Directors

5.1 Subject to the transitional provisions contained herein, a person over the age of 70 years shall not serve as a director of a finance company

Complied withThe Board of Directors have been assessed as fit and proper in terms of the Finance Companies (Assessment of Fitness and Propriety of Directors and Officers Performing Executive Functions) Direction No. 3 of 2011.

The age of the current Directors is within the period permitted under this direction.

5.2 A director of a finance company shall not hold office as a director or any other equivalent position in more than 20 companies/societies/bodies corporate, including associate companies and subsidiaries of the finance company.

Complied withNo Director holds directorships of more than 20 companies/entities/institutions inclusive of subsidiaries or associate companies.

6 Delegation of Functions

6.1 The Board shall not delegate any matters to a board committee, chief executive officer, executive directors or key management personnel, to an extent that such delegation would significantly hinder or reduce the ability of the Board as a whole to discharge its functions.

Complied withThe Board has established a procedure under which powers have been delegated to the Director/CEO as sanctioned by the Company’s Articles of Association.

Article 77 of the Company’s Articles of Association empowers the Board to delegate its powers to a Committee of Directors or to a Director or employee upon such terms and conditions and with such restrictions as the Board may think fit.

6.2 The Board shall review the delegation processes in place on a periodic basis to ensure that they remain relevant to the needs of the finance company.

Complied withThe delegated powers are reviewed periodically by the Board and a process to review the delegation process has been approved by the Board.

7 The Chairman and the Chief Executive Officer

7.1 The roles of chairman and chief executive officer shall be separated and shall not be performed by the one and the same person.

Complied with.The roles of Chairman and CEO are separate and held by two individuals appointed by the Board.

7.2 The chairman shall be a non-executive director. In the case where the chairman is not an independent non-executive director, the Board shall designate an independent non-executive director as the Senior Director with suitably documented terms of reference to ensure a greater independent element. The designation of the Senior Director shall be disclosed in the finance company’s Annual Report.

Complied with The Chairman is a Non-Executive director.

The Board has designated Mr. P D J Fernando as the Senior Independent Director to ensure a greater element of independence with suitably documented terms of reference.


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Direction No.



7.3 The Board shall disclose in its corporate governance report, which shall be an integral part of its Annual Report, the name of the chairman and the chief executive officer and the nature of any relationship [including financial, business, family or other material/relevant relationship(s)], if any, between the chairman and the chief executive officer and the relationships among members of the Board.

Complied withThe Company as a practice discloses relationships in the Annual Corporate Governance Report.

There is no financial, business, family or other relationship between the Chairman and the CEO.

Mr. I C Nanayakkara and Mrs. K U Amarasinghe share a family relationship.

There is no financial, business, family or other material relationship between any other members of the Board .

A process has been developed for Directors to disclose any relationships between the Chairman and the CEO and or between any other Board Members.

7.4 The chairman shall:

(a) provide leadership to the Board; (b) ensure that the Board works effectively and discharges its

responsibilities; and (c) ensure that all key issues are discussed by the Board in a

timely manner.

Complied with

7.5 The chairman shall be primarily responsible for the preparation of the agenda for each Board meeting.

The chairman may delegate the function of preparing the agenda to the company secretary.

Complied withThe Chairman has delegated this function to the Company Secretary.

This has been included in the “Policy on Board’s relationship with the Company Secretary” approved by the Board.

7.6 The chairman shall ensure that all directors are informed adequately and in a timely manner of the issues arising at each Board meeting.

Complied withThe Chairman ensures that all Directors are properly briefed on issues arising at Board Meetings by submission of the agenda and board papers with sufficient time prior to meetings.

Further, minutes of previous month’s Board Meeting are distributed to the Board Members and tabled at the next Board Meeting for review and approval.

7.7 The chairman shall encourage each director to make a full and active contribution to the Board’s affairs and take the lead to ensure that the Board acts in the best interests of the finance company.

Complied with

7.8 The chairman shall facilitate the effective contribution of non-executive directors in particular and ensure constructive relationships between executive and non-executive directors.

Complied withThe Company’s self-evaluation process assesses the contribution of Non-Executive Directors.

7.9 Subject to the transitional provisions contained herein, the chairman, shall not engage in activities involving direct supervision of key management personnel or any other executive duties whatsoever.

Complied with



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Direction No.



7.10 The chairman shall ensure that appropriate steps are taken to maintain effective communication with shareholders and that the views of shareholders are communicated to the Board.

Complied withA Board approved communication policy covers this aspect.

The Annual General Meeting of the Company is the main forum at which the Board maintains effective communication with shareholders.

Periodic announcements made to the Colombo Stock Exchange also contribute towards this purpose.

7.11 The chief executive officer shall function as the apex executive-in-charge of the day-to-day-management of the finance company’s operations and business.

Complied with

8 Board Appointed Committees

8.1 Every finance company shall have at least the two Board committees set out in paragraphs 8(2) and 8(3) hereof. Each committee shall report directly to the Board. Each committee shall appoint a secretary to arrange its meetings, maintain minutes, records and carry out such other secretarial functions under the supervision of the chairman of the committee. The Board shall present a report on the performance, duties and functions of each committee, at the annual general meeting of the company.

Complied withThe Company has established an Audit Committee and an Integrated Risk Management Committee.

Reports of these committees have been submitted to the main Board for their review.

Please refer the Reports on pages 76 to 77.

8.2 Audit Committee Please refer page 76 for the Committee Report

a. The chairman of the committee shall be a non-executive director who possesses qualifications and experience in accountancy and/or audit.

Complied withMr. W D K Jayawardena, Non-Executive Director, has been appointed as the Chairman of the Audit Committee by the Board.

His qualifications are as follows:

∫ MBA in Financial Management ∫ Fellow Member of the Institute of Bankers ∫ Over 30 years of Banking (of which 9 years was as CEO of

Citibank Sri Lanka) ∫ Associate of the Institute of Cost and Executive

Accountants.

As Mr Jayawardena is also the Managing Director of LOLC, in order to give clarity to his Non-Executive status at CLC, members of the operational management were identified as KMPs. A majority of these KMPs are direct employees of CLC.

b. The Board members appointed to the committee shall be non-executive directors.

Complied withThe remaining member of the Committee is Mr. P D J Fernando, Senior Independent Non-Executive Director.


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Direction No.



c. The committee shall make recommendations on matters in connection with:

(i) the appointment of the external auditor for audit services to be provided in compliance with the relevant statutes;

(ii) the implementation of the Central Bank guidelines issued to auditors from time to time;

(iii) the application of the relevant accounting standards; and

(iv) the service period, audit fee and any resignation or dismissal of the auditor, provided that the engagement of an audit partner shall not exceed five years, and that the particular audit partner is not re-engaged for the audit before the expiry of three years from the date of the completion of the previous term.

Complied withA formal Agenda for Audit Committee meetings including items prescribed by the Direction is followed for the conduct of Audit Committee meetings.

The implementation of CBSL guidelines and relevant accounting standards; and the evaluation of the service period, fees and rotation of External Auditors are carried out by the Audit Committee in consultation with the Chief Financial Officer.

d. The committee shall review and monitor the external auditor’s independence and objectivity and the effectiveness of the audit processes in accordance with applicable standards and best practices.

Complied withThe external Auditors are independent as they report direct to the Audit Committee of the Board.

Further, the Auditor’s Engagement Letter submitted to the committee evidence the External Auditor’s independence, and that the audit is carried out in accordance with SLAuS.

e. The committee shall develop and implement a policy with the approval of the Board on the engagement of an external auditor to provide non-audit services that are permitted under the relevant statutes, regulations, requirements and guidelines. In doing so, the committee shall ensure that the provision by an external auditor of non-audit services does not impair the external auditor’s independence or objectivity. When assessing the external auditor’s independence or objectivity in relation to the provision of non-audit services, the committee shall consider:

(i) whether the skills and experience of the auditor make it a suitable provider of the non-audit services;

(ii) whether there are safeguards in place to ensure that there is no threat to the objectivity and/or independence in the conduct of the audit resulting from the provision of such services by the external auditor; and

(iii) whether the nature of the non-audit services, the related fee levels and the fee levels individually and in aggregate relative to the auditor, pose any threat to the objectivity and/or independence of the external auditor.

Complied withThe Board has approved a specific procedure for engagement of the External Auditors for providing non-audit services.



55

Direction No.



f. The committee shall, before the audit commences, discuss and finalise with the external auditors the nature and scope of the audit, including:

(i) an assessment of the finance company’s compliance with Directions issued under the Act and the management’s internal controls over financial reporting;

(ii) the preparation of financial statements in accordance with relevant accounting principles and reporting obligations; and

(iii) the co-ordination between auditors where more than one auditor is involved.

Complied with

g. The committee shall review the financial information of the finance company, in order to monitor the integrity of the Financial Statements of the finance company, its Annual Report, accounts and periodical reports prepared for disclosure, and the significant financial reporting judgments contained therein. In reviewing the finance company’s Annual Report and accounts and periodical reports before submission to the Board, the committee shall focus particularly on:

(i) major judgemental areas;

(ii) any changes in accounting policies and practices;

(iii) significant adjustments arising from the audit;

(iv) the going concern assumption; and

(v) the compliance with relevant accounting standards and other legal requirements.

Complied withThe Committee has a process to review financial information of the Company when the quarterly Financial Statements and annual audited Financial Statements and the reports prepared for disclosure are presented to the Committee.

The Board has reviewed the financial information for the year under review and has confirmed that they are satisfied with the integrity and adequacy of the said information.

h. The committee shall discuss issues, problems and reservations arising from the interim and final audits, and any matters the auditor may wish to discuss including those matters that may need to be discussed in the absence of key management personnel, if necessary.

Complied withOut of the six meetings held during the year, the Committee met the External Auditors at four meetings.

Furthermore on two occasions, the Auditors met the Committee in the absence of the Executive Management.

i. The committee shall review the external auditor’s management letter and the management’s response thereto.

Complied withThe management letter for 2014/15 has been reviewed by the Audit Committee.

j. The committee shall take the following steps with regard to the internal audit function of the finance company:

Complied with

(i) Review the adequacy of the scope, functions and resources of the internal audit department, and satisfy itself that the department has the necessary authority to carry out its work;

The Committee has considered the scope of the internal audit function and noted the adequacy of resources and that necessary authority had been allocated to carry out its work.


56

Direction No.



(ii) Review the internal audit programme and results of the internal audit process and, where necessary, ensure that appropriate actions are taken on the recommendations of the internal audit department;

The Audit Plan for 2015/16 was tabled by the Head of Internal Audit and discussed at a Committee meeting and results of the internal audit process has been reviewed and appropriate actions obtained where necessary.

(iii) Review any appraisal or assessment of the performance of the head and senior staff members of the internal audit department;

An overall assessment of performance of the senior staff members and the Head of Internal Audit for the year 2015/16 has been carried out by the Committee.

(iv) Recommend any appointment or termination of the head, senior staff members and outsourced service providers to the internal audit function;

No such situation has arisen during the year.

(v) Ensure that the committee is apprised of resignations of senior staff members of the internal audit department including the chief internal auditor and any outsourced service providers, and to provide an opportunity to the resigning senior staff members and outsourced service providers to submit reasons for resigning;

No such situation has arisen during the year.

(vi) Ensure that the internal audit function is independent of the activities it audits and that it is performed with impartiality, proficiency and due professional care;

The Committee is satisfied that the Internal Audit function is performed with independence, impartiality and proficiency.

The Internal Auditor reports direct to the Board Audit Committee.

k. The committee shall consider the major findings of internal investigations and management’s responses thereto;

Complied with

l. The chief finance officer, the chief internal auditor and a representative of the external auditors may normally attend meetings. Other Board members and the chief executive officer may also attend meetings upon the invitation of the committee. However, at least once in six months, the committee shall meet with the external auditors without the executive directors being present.

Complied with.The Committee has had two meetings with the External Auditors in the absence of the Executive Directors and the management.

m. The committee shall have:

(i) explicit authority to investigate into any matter within its terms of reference;

(ii) the resources which it needs to do so;

(iii) full access to information; and

(iv) authority to obtain external professional advice and to invite outsiders with relevant experience to attend, if necessary.

Complied withThe Board approved Terms of Reference of the Audit Committee ensures that it has the authority for points i to iv as required by the direction.

n. The committee shall meet regularly, with due notice of issues to be discussed and shall record its conclusions in discharging its duties and responsibilities.

Complied withDuring the year 2015/16 the Committee has held six meetings and conclusions of such meetings have been recorded by the Company Secretary in the minutes of the relevant meetings.



57

Direction No.



o. The Board shall, in the Annual Report, disclose in an informative way,

(i) details of the activities of the audit committee;

(ii) the number of audit committee meetings held in the year; and

(iii) details of attendance of each individual member at such meetings.

Complied withPlease refer Report on page 76.

p. The secretary to the committee (who may be the company secretary or the head of the internal audit function) shall record and keep detailed minutes of the committee meetings

Complied with

q. The committee shall review arrangements by which employees of the finance company may, in confidence, raise concerns about possible improprieties in financial reporting, internal control or other matters. Accordingly, the committee shall ensure that proper arrangements are in place for the fair and independent investigation of such matters and for appropriate follow-up action and to act as the key representative body for overseeing the finance company’s relations with the external auditor.

Complied withA whistleblowing policy has been introduced and the number of the related “hot line” has been publicised to all Company employees. This was done to enhance accountability, so that deliberate deviations from controls and/or processes and procedures could be highlighted by any employee and thus addressed promptly.

The related policy is periodically reviewed and strengthened to cover the method of reporting any matters investigated to the Board Audit Committee.

8.3 Integrated Risk Management Committee Please refer page 77 for the Committee Report

a. The committee shall consist of at least one non-executive director, CEO and key management personnel supervising broad risk categories, i.e., credit, market, liquidity, operational and strategic risks. The committee shall work with key management personnel closely and make decisions on behalf of the Board within the framework of the authority and responsibility assigned to the committee.

Complied withThe Integrated Risk Management Committee comprises:

Mr. P D J Fernando Committee Chairman/Senior Independent Director Mrs. K U Amarasinghe Non-Executive Director Mr. D M D K Thilakaratne Director/CEO Mrs. S Wickremasekera Chief Risk Officer Mrs. S Kotakadeniya Chief Financial Officer Mr. J Kelegama Chief Credit Officer Mr. R Perera Group Treasurer Mr. C Dias Chief Information Officer Mr. N Weerapane Deputy General Manager/ Recoveries


58

Direction No.



b. The committee shall assess all risks, i.e., credit, market, liquidity, operational and strategic risks to the finance company on a monthly basis through appropriate risk indicators and management information. In the case of subsidiary companies and associate companies, risk management shall be done, both on the finance company basis and group basis

Complied withAs delegated by the Committee, the Chief Risk Officer assesses risks which have been identified by Heads of Divisions on a monthly basis and summarised and submitted to the quarterly Committee meetings.

ERM has set up number of risk indicators and stress testing under different risk categories as follows.

∫ Liquidity Risk∫ Operational Risk∫ Strategic Risk∫ Credit Risk∫ Business Risk∫ Profitability Risk

c. The committee shall review the adequacy and effectiveness of all management level committees such as the credit committee and the asset-liability committee to address specific risks and to manage those risks within quantitative and qualitative risk limits as specified by the committee

Complied withDuring the year the Committee monitored the activities of the ALCO through direct reports and minutes of ALCO meetings which are tabled at the quarterly IRMC meetings.

Matters reported by the ALCO include :

∫ Funding Gap analysed through Maturity Gap Analysis∫ Foreign Currency Position∫ Inter-company Exposures∫ Cost of Funds∫ Investments∫ Borrowings

The lending rates are also periodically reviewed by the ALCO in line with regulatory requirements and market trends. Credit facilities are approved based on rates decided by the ALCO within the delegated authority limits.

Treasury dealer limits have already been established and approved by the Board. Furthermore a new treasury management system has been implemented which would cover limit for total Net Open Position (NOP) USD/LKR intraday and overnight limits; limits for Total Net Open Position of other currencies; Aggregate Gap Limits (AGL); Loss limits for FX operations; Loss Limits on marked-to-market (MtM) and counter party limits.

At the financial year end, the Committee reviewed the adequacy and effectiveness of the ALCO against its terms of reference and addressed areas that required improvement.

Going forward the Committee will also review the adequacy and effectiveness of the Credit Committee against its TOR/Policies through periodic reports.



59

Direction No.



d. The committee shall take prompt corrective action to mitigate the effects of specific risks in the case such risks are at levels beyond the prudent levels decided by the committee on the basis of the finance company’s policies and regulatory and supervisory requirements.

Complied withDecisions taken at Committee Meetings are followed up by the ERM team.

All reported risks are constantly monitored and remedial corrective action is taken if an adverse movement of the risk is evident.

e. The committee shall meet at least quarterly to assess all aspects of risk management including updated business continuity plans.

Complied withFour meetings were held during the financial year 2015/16.

f. The committee shall take appropriate actions against the officers responsible for failure to identify specific risks and take prompt corrective actions as recommended by the committee, and/or as directed by the Director of the Department of Supervision of Non-Bank Financial Institutions of the Central Bank of Sri Lanka.

Complied withSpecific risks and limits are identified by the IRMC and decisions are taken collectively.

Moreover, a formal documented disciplinary action procedure involving Internal Audit & HR is in place.

g. The committee shall submit a risk assessment report within a week of each meeting to the Board seeking the Board’s views, concurrence and/or specific directions.

Moving towards complianceThe CRO submits a summary report to the Members of the Board after the Committee meeting. This includes the risks discussed at the meeting, mitigation actions proposed by ERM and the responses received from the risk owners. Measures will be taken to dispatch the report within a week of each meeting.

Further, approved Committee minutes are tabled at the subsequent Board Meeting seeking the Board’s views and specific direction.

h. The committee shall establish a compliance function to assess the finance company’s compliance with laws, regulations, directions, rules, regulatory guidelines, internal controls and approved policies on all areas of business operations. A dedicated compliance officer selected from key management personnel shall carry out the compliance function and report to the committee periodically.

Complied withA Compliance Officer has been appointed by the Board. She monitors compliance of CBSL rules, regulations and directions issued under the Finance Business Act and submits a monthly and quarterly compliance report to the Board and the IRMC respectively for their review.

Monitoring compliance of other applicable laws, internal controls and approved policies on all areas of business operations is carried out by the ERM Division under the supervision of the CRO.

9 Related Party Transactions

9.1 The following shall be in addition to the provisions contained in the Finance Companies (Lending) Direction, No. 1 of 2007 and the Finance Companies (Business Transactions with Directors and their Relatives) Direction, No. 2 of 2007 or such other directions that shall repeal and replace the said directions from time to time.


60

Direction No.



9.2 The Board shall take the necessary steps to avoid any conflicts of interest that may arise from any transaction of the finance company with any person, and particularly with the following categories of persons who shall be considered as “related parties” for the purposes of this Direction:

a) A subsidiary of the finance company;

b) Any associate company of the finance company;

c) A director of the finance company;

d) A key management personnel of the finance company;

e) A relative of a director or a key management personnel of the finance company;

f) A shareholder who owns shares exceeding 10% of the paid up capital of the finance company;

g) A concern in which a director of the finance company or a relative of a director or a shareholder who owns shares exceeding 10% of the paid up capital of the finance company, has substantial interest.

9.2 - 9.4 Complied withA Board approved process is in place to ensure that the Company does not engage in related party transactions as defined in this direction and to enable Directors to take measures to avoid a conflict of interest.

Transactions with related parties are made with the sanction of the Board subject to such transactions being in the normal course of business.

Further, Directors are individually requested to declare their transactions with the Company at each Board Meeting and in the Annual Declaration.

A Board approved procedure is in place to ensure that the Directors and the CEO make relevant disclosures in a timely manner, in the event they make an acquisition or disposal of shares in the entity, to facilitate disclosure.

The Board appointed a Related Party Transaction Review Committee comprising the following membership:

Mr. P D J Fernando - Committee Chairman (Senior Independent Director) Mr. W D K Jayawardena, Non-Executive Director Mrs. K U Amarasinghe - Non-Executive Director Mr. D M D K Thilakaratne - Director/CEOMrs. N Kariyawasam/Head of Finance & Compliance OfficerMr. R Perera - GM TreasuryMr. J Kelegama - Chief Credit OfficerMrs. S Kotakadeniya - Chief Financial Officer

The Committee was formed in order to adhere to the Code of Best Practice on Related Party Transactions (RPTs) issued by the Securities & Exchange Commission of Sri Lanka under Sections 13 (c) of the SEC Act No. 36 of 1987 (as amended). Under the said direction all public listed companies were required to adopt the code with effect from 1st January 2014 on a voluntary basis for an initial period of two years from the effective date.

During the financial year, the Committee has held four meetings.

The Company will further strengthen the favourable treatment monitoring mechanism by implementing an online system.

9.3 The transactions with a related party that are covered in this Direction shall be the following:

a) Granting accommodation,

b) Creating liabilities to the finance company in the form of deposits, borrowings and investments,

c) providing financial or non-financial services to the finance company or obtaining those services from the finance company,

d) creating or maintaining reporting lines and information flows between the finance company and any related party which may lead to share proprietary, confidential or otherwise sensitive information that may give benefits to such related party.



61

Direction No.



9.4 The Board shall ensure that the finance company does not engage in transactions with a related party in a manner that would grant such party “more favourable treatment” than that is accorded to other similar constituents of the finance company. For the purpose of this paragraph, “more favourable treatment” shall mean:

a) Granting of “total net accommodation” to a related party, exceeding a prudent percentage of the finance company’s regulatory capital, as determined by the Board. The “total net accommodation” shall be computed by deducting from the total accommodation, the cash collateral and investments made by such related party in the finance company’s share capital and debt instruments with a remaining maturity of five years or more.

b) Charging of a lower rate of interest than the finance company’s best lending rate or paying a rate of interest exceeding the rate paid for a comparable transaction with an unrelated comparable counterparty;

c) Providing preferential treatment, such as favourable terms, covering trade losses and/or waiving fees/commissions, that extends beyond the terms granted in the normal course of business with unrelated parties;

d) Providing or obtaining services to or from a related party without a proper evaluation procedure;

e) Maintaining reporting lines and information flows between the finance company and any related party which may lead to share proprietary, confidential or otherwise sensitive information that may give benefits to such related party, except as required for the performance of legitimate duties and functions.

Refer page 60.

10 Disclosures

10.1 The Board shall ensure that: (a) annual audited financial Statements and periodical Financial Statements are prepared and published in accordance with the formats prescribed by the regulatory and supervisory authorities and applicable accounting standards, and that (b) such statements are published in the newspapers in an abridged form, in Sinhala, Tamil and English.

Complied withThe Financial Statements are prepared in accordance with the Sri Lanka Accounting Standards (SLFRSs/LKASs) and the formats prescribed by the regulators.

Annual Financial Statements are disclosed in the Annual Report; biannual (unaudited) Financial Statements are published in newspapers in all three languages and the quarterly statements are posted on the CSE website.

10.2 The Board shall ensure that at least the following disclosures are made in the Annual Report:

a. A statement to the effect that the annual audited Financial Statements have been prepared in line with applicable accounting standards and regulatory requirements, inclusive of specific disclosures.

Complied withPlease refer the Directors Report on pages 73 to 75.


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Direction No.

Reference to the Finance Companies Corporate Governance Direction No. 3 0f 2008

CLC’s Level of compliance

b. A report by the Board on the finance company’s internal control mechanism that confirms that the financial reporting system has been designed to provide a reasonable assurance regarding the reliability of financial reporting, and that the preparation of financial statements has been done in accordance with relevant accounting principles and regulatory requirements.

Complied withPlease refer the Directors Statement on Internal Controls on page 81.

c. The external auditor’s certification on the effectiveness of the internal control mechanism in respect of any statements prepared or published after 31st March 2010.

Complied withThe Company has obtained a certification on the effectiveness of the internal controls over financial reporting from M/s KPMG, Chartered Accountants.

d. Details of directors, including names, transactions with the finance company.

Complied withDirectors names and details are given in pages 19 to 21.Transactions with Directors during the year are as follows.∫ Remuneration paid - 43,204,615∫ Accommodations granted - Nil∫ Deposits with the Company - 13,904,398∫ Interest for the year - 1,049,626

e. Fees/remuneration paid by the finance company to the directors in aggregate, in the Annual Reports published after 1st January 2010.

Complied withRemuneration paid amounted to Rs. 43,204,615/.

f. Total net accommodation as defined in paragraph 9(4) outstanding in respect of each category of related parties and the net accommodation outstanding in respect of each category of related parties as a percentage of the finance company’s capital funds.

Complied withNet accommodations granted to each category of related parties as a percentage of capital funds of the Company at the year-end was 13%. (Disclosed on pages 138 to 142)

g. The aggregate values of remuneration paid by the finance company to its key management personnel and the aggregate values of the transactions of the finance company with its key management personnel during the financial year, set out by broad categories such as remuneration paid, accommodation granted and deposits or investments made in the finance company.

Complied with∫ Remuneration paid - 17,179,640∫ Accommodations granted - 2,257,887∫ Deposits with the Company - 7,906,133∫ Interest for the year - 1,238,945

h. A report setting out details of the compliance with prudential requirements, regulations, laws and internal controls and measures taken to rectify any non-compliances.

Complied withStatus of compliance with prudential requirements, regulations and laws are in the Directors Report set out on pages 73 to 75.

i. A statement of the regulatory and supervisory concerns on lapses in the finance company’s risk management, or non-compliance with the Act, and rules and directions that have been communicated by the Director of the Department of Supervision of Non-Bank Financial Institutions, if so directed by the Monetary Board to be disclosed to the public, together with the measures taken by the finance company to address such concerns.

Complied withThere were no significant supervisory concerns/lapses in the Company’s risk management and compliance with this direction to be directed by the Monetary Board to be disclosed to the public.

j. The external auditor’s certification of the compliance with the Act and rules and directions issued by the Monetary Board in the annual corporate governance reports published after 1st January 2011.

Complied withThe Company has engaged the services of the External Auditors to assess the Company’s level of compliance with the Finance Companies Corporate Governance Direction No. 3 of 2008 issued by the Monetary Board.



63

Section No.

Rules of the Colombo Stock Exchange CLC’s Level of Compliance

7.10 Rules on Corporate Governance

7.10 Statement confirming that as at the date of the Annual Report that the Company is in compliance with these rules.

The Company is in compliance with the listing rules of the Colombo Stock Exchange with the exceptions stated below.

7.10.1 Non-Executive DirectorsThe Board of Directors of a listed entity shall include at least : two non-executive directors; or such number of non executive directors equivalent to one third of the total number of directors whichever is higher.

Complied withAs at 31st March 2016 the Board comprised five Directors of whom four were Non-Executive Directors.

7.10.2 Independent DirectorsWhere the constitution of the Board of Directors includes only two non executive directors in terms of 7.10.1, both such non executive directors shall be independent. In all other instances two or one third of the non-executive directors appointed to the Board, whichever is higher shall be independent.

Moving towards complianceAs at 31st March 2016 the Board comprised one Independent Director from whom a signed declaration of independence was obtained.

The Company is currently in the process of identifying a suitable nominee to be appointed as an Independent Director.

7.10.3-4 Directors DisclosuresAnnual determination as to the independence or non- independence of each non-executive director.

Complied withThe Board has determined the Independent/Non-Independent status based on the criteria set out by the CSE.

Please refer Directors Profiles on pages 20 to 21.

7.10.5 Remuneration CommitteeShall comprise of a minimum of two independent non-executive directors or of non-executive directors a majority of whom shall be independent, which ever shall be higher.

Moving towards complianceAs at 31st March 2016 the Committee comprised two Non-Executive Directors of whom one was independent.


For further details, please see the Committee Report on page 78.

7.10.6 Audit CommitteeShall comprise of a minimum of two independent non-executive directors or of non-executive directors a majority of whom shall be independent, which ever shall be higher.

Moving towards complianceAs at 31st March 2016 the Committee comprised two Non-Executive Directors of whom one was independent.


For further details, please see the Committee Report on page 76.

9.2.2 Related Party Transactions Review CommitteeVoluntary compliance with effect from 1st January 2014 and mandatory compliance with effect from 1st January 2016.

Complied with On 29th October 2014 the Board appointed a Related Party Transaction Review Committee.

As at 31st March 2016, the Committee comprised the Senior Independent Director who is the Committee Chairman, two Non-Executive Directors, and one Executive Director.

For further details please refer the Committee Report on page 80.


64

Member Attendance at MeetingsBoard Meetings

Name of Director IN NI EX NEX Date of

appointment

Meeting Dates Total

22/0

4/20

15

21/0

5/20

15

18/0

6/20

15

24/0

7/20

15

11/0

8/20

15

25/0

9/20

15

30/1

0/20

15

13/1

1/20

15

16/1

2/20

15

21/0

1/20

16

11/0

2/20

16

18/0

3/20

16

12

Mr. I C Nanayakkara 17/06/2008 * * * * x 12Mr. W D K Jayawardena 17/06/2008 12Mrs. K U Amarasinghe 17/06/2008 x x x 09Dr. H Cabral (Resigned w.e.f. 31/08/2015) 08/12/2011 x 04Mr. P D J Fernando 30/03/2012 * 12Mr. D M D K Thilakaratne 06/03/2012 x x 10

Audit Committee Meetings

Name of Director Meeting Dates Total

21/05/2015 11/08/2015 25/09/2015 13/11/2015 11/02/2016 18/03/2016 06

Mr. W D K Jayawardena 06Dr. Harsha Cabral PC, (Resigned w.e.f. 31/08/2015) 02Mr. P D J Fernando * 06Mr. D M D K Thilakaratne, Director/CEO - 05Mrs. N Kariyawasam, Head of Finance 06

*Present by Alternate Director

IN Independent DirectorNI Non-Independent DirectorEX Executive DirectorNEX Non-Executive Director



65

Integrated Risk Management Committee Meetings

Name of the Director Meeting Dates Total

22/04/2015 11/08/2015 30/10/2015 21/01/2016 04

Mr. P D J Fernando 04Mrs. K U Amarasinghe 04Mr. D M D K Thilakaratne - - 02

Nomination Committee Meetings


25/09/2016 18/03/2016 02

Mr. P D J Fernando 02Mr. I C Nanayakkara * 02Mr. W D K Jayawardena 02

Related Party Transaction Review Committee


21/05/2015 11/08/2015 13/11/2015 11/02/2016 04

Mr. P D J Fernando * 04Mr. W D K Jayawardena 04Mrs. K U Amarasinghe x 03Mr. D M D K Thilakaratne - 03

*Present by Alternate Director

IN Independent DirectorNI Non-Independent DirectorEX Executive DirectorNEX Non-Executive Director


66

RISK MANAGEMENT

Integrating Capabilities and Deriving SynergiesRisk Management at LOLC is a Group level centralised function. The risk governance structures adopted for each entity is structured in such a way so as to retain uniformity among entities thus enabling us to replicate all risk management processes across any organisation in a seamless manner. This strategy allows us to transfer our skills knowledge and capabilities within least possible lead times’ thus optimising our resource utilisation.

Risk Management is an organisation-wide effort and the Board of Management drives the risk governance effort via the Integrated Risk Management Committee and the Audit Committee. The functions of the Enterprise Risk Management Department is centralised at the holding company level. ERM processes at Commercial Leasing and Finance PLC is co-ordinated by a dedicated Risk Officer who reports to the centralised Enterprise Risk Management Department at the holding company level. Such risk officers are appointed for each of the regulated main companies of the Group.

Risk governance structures at Commercial Leasing and Finance PLC is a combination of Risk Management, Internal Audit and IS Audit functions which forms the Enterprise Risk Management

Department while the Compliance Department is segregated. The Audit function and the Risk Management function works in cohesion to derive the best possible synergies which are on offer. The Risk Management function identify possible risks which could impede the achievement of our organisational level and operational level objectives and advices the Management and draws their attention to emerging risks as well as the behavior of the risks already identified and monitored. The effectiveness of the internal controls implemented by the Management to ensure that risks are managed within tolerable levels are reviewed by Internal Audit with a view of providing the Board of Management with a reasonable assurance that the Internal Control framework functions consistently as intended. Both functions draw heavily from the expertise of each other and exchange risk and Internal Control related information in an effort to optimise the effectiveness of the risk mitigation strategies. Enterprise Risk Management Department retains its total independence via the reporting line established to the Chairman of the Board Via the Integrated Risk Management Committee and the Audit Committee thus allowing them to express their opinion without any bias or influence which is vital for good decision making and critical evaluation of the organisation’s strategies in order to identify potential risks and rectification of the same in a timely manner.

Board of Management

AuditCommittee

Internal Audit Function

Integrated Risk Management Committee

Information Systems Audit Function

Risk Management Function


67

Enterprise Risk Management at Commercial Leasing & Finance PLC is an organisational level process where responsibility cascades down from the Board of Management to the operational level employees. With our vision in risk management “Building an organisational Culture where Protection, Assurance, Reliability, Accountability, Transparency and Confidentiality are treasured and lasting values“, we always believe in empowering employees to evaluate every action, decision taken with in their scope of duty with a conscious assessment of risk. Enterprise Risk Management Department believes that dissemination of the knowledge on risk and risk management initiatives to operational level staff elevate their ability to make the correct response. So, with a view of enriching and enhancing the employees’ perspective on risk, The Enterprise Risk Management Department has plans to conduct structured training in co-ordination with the Human Resources Function targeting staff engaged in critical operational activities in the organisation.

The complexities and the ground realities has necessitated transforming the traditional approaches of risk management and auditing in to more dynamic and innovative methodologies. Therefore, the audit strategy of centralised annual audits were transformed to a hybrid system between the traditional annual audits and continuous field base audits. Audit at operational level takes a more aggressive approach with obtaining an all clear sign off from the auditee on rectifications and implemented controls and random follow up audits scheduled to be executed within the next financial year. Data analytics techniques were introduced for auditing purposes which had transformed the reach of the auditors from a sample based review to analysing the entire audit universe where ever appropriate. We expect the full potential of this capability to be realised within the next financial year.

Holistic View of Information The information network, whether system based or more traditional, is vital to both the Auditing function and Risk Management function. We are constantly enhancing our technical capabilities as well as our network of information sources. The rapid expansion of operations of Commercial Leasing and Finance PLC has necessitated an increase of presence and reach of audit at operational level. The field based auditors are located in six regions and this move has increased our reach tremendously and put most of the branches within the reach of the audit team as and when required. The field based reviews are done in addition to the annual branch audits carried out. The Data analytics gives us more in-depth knowledge of the information reviewed and allows us to identify and detect anomalies in a much faster and accurate manner.

The ERM team plays a consultative role in major process design initiatives and product formulations, thus ensuring that the internal control aspects are given due recognition. The same approach is adopted for ICT developments where the IS Audit team does knowledge sharing on control aspects.

Correct information at the right time is vital to both risk management and audit. In addition to improving on the data capture from the existing business information systems we have established other lines of communications with various stakeholders. The whistleblower hotline is available for employees to report any irregularities, while the customer feedback line is made available for customers to bring to our notice any matter which needs resolution. Both these communication lines are operated by the ERM Department. Any information provided via these methods are treated confidentially

Internal Audit

Information Systems

Audit

Risk Management


68

and are followed up until resolution. All risk owners and sources have a compulsory reporting line to ERM where all identifiable risks are communicated to Enterprise Risk Management Department on a monthly basis.

The Risk Management function draws information from sources both internal and external. They appraise the management of the potential risks arising and recommend action for the mitigation, avoidance or capitalising on the opportunities. The risks identified and addressed are constantly monitored and any adverse movement of such risk indicators are highlighted for appropriate action via risk reports submitted monthly to the board as well as in quarterly Integrated Risk Management Committee Meetings. The identified risk parameters need to be monitored constantly and consistently therefore we strive to improve our risk information system capabilities continuously.

Growth Continuous quality improvement is key to the success of any initiative and we are well aware of the need to fine tune the knowledge, skills and capabilities of our risk management and audit teams. Both internal and external training facilities are used for this purpose and the value it adds to the process is immense. An internal quality management system and mechanism is now well established and this ensures that all reporting done by the Enterprise Risk Management team undergoes a stringent quality assurance process to ensure uniformity and consistency of its reporting.

A shift in the audits towards continuous reviews are expected within the next financial year and enhanced interactions with the customers too are planned, as this enables us to obtain firsthand information on the effectiveness of the internal control structure of our delivery channels. The automation of risk monitoring allows our Risk Management team to focus more on forecasting and predicting the behavior of risk indicators and we expect enhanced technical aspects in risk reporting in the next financial year. The consolidation of the initiatives we have so far undertaken is essential for us to elevate our capabilities and the potential to the next level as the risk management process matures.

RISK MANAGEMENT

Risk Profile The following is based on the perceived risk and is a high level categorisation of risk used only for the illustration purposes of this Report.

Risk Levels Risk Score

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


69

Technology Risk

Business Strategy Risk

Internal Systems &

Operational Risk

Mis Management

&Fraud Risk

Operational Risks

5

4

3

2

1

0

Legal Risk

Systemic Risk

Image Risk

Industry Risk

Policy Risk

Financial Infrastructure Risk

Business Risks

5

4

3

2

1

0

Currency Risk

Market Risk

Liquidity Risk

Credit Risk

CapitalAdequacy Risk

Profitability& Income Risk

Asset &Liability Risk

Interest Rate Risk

Financial Risks

5

4

3

2

1

0

DisasterManagement & Business

Risk

Event Risk

ContagionRisk

ExogenousRisk

5

4

3

2

1

0

Event Risks


70

Statutory Reports and Financial Information


71

B O L DD E T E R M I N E D

E Q U I T A B L EF A S T - G R O W I N G

T R U S T E D


72

Financial Calendar 2015/16

1st Quarter results 2015/16 released on 14th August 2015

2nd Quarter results 2015/16 released on 13th November 2015

3rd Quarter results 2015/16 released on 12th February 2016

4th Quarter results 2015/16 released on 31st May 2016

Annual report for 2015/16 released on August 2016

24th Annual General Meeting on 6th September 2016

Proposed Financial Calendar 2016/17

1st Quarter results 2016/17 will be released on 15th August 2016

2nd Quarter results 2016/17 will be released on 15th November 2016

3rd Quarter results 2016/17 will be released on 15th February 2017

4th Quarter results 2016/17 will be released on 31st May 2017

Annual report for 2016/17 will be released in August 2017

25th Annual General Meeting on August 2017

73ANNUAL REPORT 2015/16

Your Directors have pleasure in presenting their Annual Report together with the Audited Financial Statements for the year ended 31st March 2016.

Principal Activities and Nature of Operations During the year the principal activities of the Company comprised provision of leasing, hire purchase, loans, receivable financing, mobilising of fixed and savings deposits, Islamic financing and microfinancing.

Markets Served The Company operates in all provinces of Sri Lanka with the largest concentration of branches being in Western and North Central Provinces.

Directorate The Directors during the year under review were as follows:

1. Mr. I C Nanayakkara (Alternate to Mr. W D K Jayawardena)

Non-Executive Chairman

2. Mr. W D K Jayawardena (Alternate to - Mr. I C Nanayakkara)

Non-Executive Director

3. Mrs. K U Amarasinghe Non-Executive Director

4. Mr. P D J Fernando Senior Independent Director

5. Dr. H Cabral, PC (resigned with effect from 31.08.2015)

Independent Non-Executive Director

6. Mr. D M D K Thilakaratne Executive Director/CEO

Dr. Harsha Cabral relinquished duties as Independent Director with effect from 31st August 2015. The Board wishes to thank Dr. Cabral for his valuable contribution to discussions and decisions of the Board.

Recommendations for Re-election of DirectorsIn terms of Article 75 of the Articles of Association Mr. I C Nanayakkara and Mrs. K U Amarasinghe retire by rotation at the Annual General Meeting of the Company and offer themselves for re-election. The Board recommends their re-election.

The approval of the Central Bank of Sri Lanka has been obtained for these re-elections.

Directors Interests in Contracts The Directors have made the declarations required by the Companies Act No. 7 of 2007. These have been noted by the Board, recorded in the Minutes and entered into the Interest Register which is maintained by the Company.

Lists of companies in which these Directors serve are included on page 75.

Directors’ Remuneration The Company paid Rs. 43,204,615 as Directors’ remuneration for the financial year ended 31st March 2016.

Director’s Shareholding

Director’s Name As At 31.03.2016

As At 31.03.2015

1. Mr. I C Nanayakkara Nil Nil

2. Mr. W D K Jayawardena Nil Nil

3. Mrs. K U Amarasinghe Nil Nil

4. Mr. P D J Fernando Nil Nil

5. Mr. D M D K Thilakaratne Nil Nil

Shareholding Structure The stated capital of the Company is Rs. 1,425,946,629 divided into 6,377,711,170 shares.

Meetings of the Board of DirectorsTwelve regular monthly meetings were held during the year. A schedule of Directors attendance at Board Meetings and Sub-Committee Meetings has been included on pages 64 to 65.

Corporate GovernanceCLC is governed by the requirements of the Finance Companies (Corporate Governance) Direction No. 3 of 2008 and the Listing Rules of the Colombo Stock Exchange and subsequent amendments thereto. The manner in which CLC ensures adherence with the above requirements has been disclosed on pages 40 to 65.

Board Sub-Committees In compliance with regulatory guidelines and also with best practices, the Board has formed the following Sub-Committees:

• The Audit Committee • The Integrated Risk Management Committee • The Remuneration Committee • The Nomination Committee• The Related Party Transaction Review Committee

The Reports of these Committees can be found on pages 76 to 80.

REPORT OF THE BOARD OF DIRECTORS


74

Compliance with Laws and Regulations The Company has not engaged in any activity that contravenes any applicable law or regulation, and to the best of the knowledge of the Directors, the Company has been in compliance with all prudential requirements, regulations and laws.

BRAC Lanka Finance PLC - Subsidiary Under the Financial Sector Consolidation Programme of the Central Bank of Sri Lanka, the Company acquired BRAC Lanka Finance PLC, formerly known as Nanda Investments and Finance PLC. At the conclusion of the mandatory offer the Company held 94.35% of its total number of shares. The remaining 5.65% of the number of shares were acquired according to the provisions of Section 246 of the Companies Act of 2007. The transfer of the said 5.65% of the total number of shares is pending approval by the Securities and Exchange Commission of Sri Lanka.

Commercial Insurance Brokers (Private) Limited - Associate Company The Company holds 40% of the equity of Commercial Insurance Brokers (Private) Limited (CIB). Mr. D M D K Thilakaratne has been nominated to its Board by the Company. During the past 29 years CIB has been engaged in the business of life and general insurance. It is one of the premier insurance broking firms in the country.

Events After the Reporting Date No circumstances have arisen since the reporting date that would require disclosure.

Human Resources The total staff strength of the Company as at end March 2016 was 801 (2015 : 670).

Going Concern The Directors after making necessary inquiries have the expectation that the Company has adequate resources to continue in operational existence for the foreseeable future. Therefore the going concern basis has been adopted in the preparation of the Financial Statements.

Financial Statements & Auditor’s Report and Directors’ Responsibility for Financial Reporting The Financial Statements and the Auditor’s Report are given on pages 83 to 156.

The Directors are responsible for the preparation of Financial Statements of the Company to reflect a true and fair view of the state of its affairs. The Directors are of the view that the financials have been prepared in accordance with the requirements of the Sri Lanka Accounting Standards, the Companies Act No. 7 of 2007, the Finance Business Act No. 42 of 2011 and all relevant directions of the Central Bank of Sri Lanka.

Significant Accounting Policies The Accounting Policies adopted in the preparation of the Financial Statements and any changes thereof where applicable have been included in the Notes to the Financial Statements on pages 90 to 108.

Transactions with Related Parties Details of related party transactions are disclosed in the Financial Statements on pages 138 to 142 under Note 39.

Statutory Payments For the year under review, all known statutory payments have been made and all retirement gratuities have been provided for. Further, all management fees and payments to related parties for the year under review have been reflected in the accounts.

Auditors M/s KPMG, the Auditors of the company retire and offer themselves for reappointment. The Board recommends their re-appointment for the year 2016/17 at a fee to be decided upon by the Board.

Auditor’s remuneration is given in the Note 9 to the Audited Financial Statements on page 110.

As far as the Directors are aware, the Auditors do not have any other relationship with the Company or any of its subsidiaries nor do they have any interest in contracts with the Company or any of its subsidiaries.

Annual General Meeting The Annual General Meeting of the Company will be held on 06th September 2016 at 10.00 am, at the LOLC Auditorium, No. 100/1, Sri Jayawardenapura Mawatha, Rajagiriya. Should you be unable to attend, please complete the Proxy Form in the manner instructed therein and return it to the Company.

For and on behalf of the Board of Directors ofCommercial Leasing & Finance PLC

D M D K Thilakaratne Director/ CEO

I C NanayakkaraChairman

17th June 2016Colombo 04

REPORT OF THE BOARD OF DIRECTORS


DIRECTORSHIPS HELD BY THE DIRECTORS

Name Directorships held

Mr. I C Nanayakkara

Chairman:Commercial Leasing & Finance PLCBrown & Company PLCLOLC Micro Credit LimitedBrowns Investments PLCBRAC Lanka Finance PLCBrowns Capital PLCBrowns Hydro Power PLCLOLC Life Assurance Limited

Deputy Chairman:Lanka ORIX Leasing Company PLCLOLC Finance PLCSeylan Bank PLC

Director:PRASAC Microfinance InstituteSierra Constructions LimitedAgStar Fertilizers PLCLOLC Myanmar Microfinance Co. LtdAssociated Battery Manufacturers (Ceylon) LtdFLMC Plantations (Pvt) LtdPussellawa Plantations LtdLOLC International (Pvt) LtdSagasolar Power (Pvt) Ltd

Mr. W D K Jayawardena

Chairman:LOLC Securities LtdLOLC Finance PLCEden Hotel Lanka PLCLOLC General Insurance LimitedPalm Garden Hotels PLC

Managing Director/Group CEO:Lanka ORIX Leasing Company PLC

Director:LOLC Micro Credit LimitedCommercial Leasing & Finance PLCBrown & Company PLCBrowns Investments PLCRiverina Resorts (Pvt) LtdBRAC Lanka Finance PLCSeylan Bank PLCPusselawa Plantation LimitedBrowns Capital PLCBrowns Hydro Power PLCFLMC Plantations (Pvt) LtdLOLC International (Pvt) Ltd

Name Directorships held

Mrs. K U Amarasinghe

Director:Commercial Leasing & Finance PLCLOLC Finance PLCLanka ORIX Leasing Company PLCLOLC Life Assurance LimitedLOLC Micro Credit LimitedEden Hotel Lanka PLCPalm Garden Hotels PLCBrown & Company PLCBrowns Investments PLCRiverina Resorts (Pvt) LtdBrowns Hydro Power PLCBrowns Capital PLCPussellawa Plantations LtdMelfort Green Teas (Private) LtdFLMC Plantations (Pvt) Ltd

Mr. P D J Fernando

Chairman:Golden Key Credit Card Company

Director:Commercial Leasing & Finance PLCUnion Bank of Colombo PLCCommercial Insurance Brokers (Pvt) LtdCeylon Leather Products PLC Thomas Cook Sri Lanka

Mr. D M D K Thilakaratne

Director:Commercial Leasing & Finance PLCCommercial Insurance Brokers (Pvt) LtdCommercial Factors Limited


76

REPORT OF THE AUDIT COMMITTEE

CompositionThe Audit Committee was established for the purpose of assisting the Board in fulfilling their responsibilities relating to financial governance. The Committee comprises the following members:

Mr. W D K Jayawardane

Committee Chairman/Non-Executive Director

Mr. P D J Fernando Senior Independent Non-Executive Director

Dr. H Cabral, PC Independent Non-Executive Director (resigned with effect from 31.08.2015)

Terms of ReferenceThe Audit Committee is governed by the Audit Charter which defines its Terms of Reference. The composition of the Committee meets the requirements set out in the Finance Companies Corporate Governance Direction No. 3 of 2008. The Committee Charter was last reviewed and revised by the Board in February 2014. The Audit Committee Chairman counts over thirty years’ experience in Banking, Financial Management and Corporate Management and holds a Master’s Degree in Business Administration, from the American University of Asia. He is a Fellow Member of the Institute of Bankers and an Associate of the Institute of Cost and Executive Accountants, London.

The Committee has been mandated to ensure that a sound Financial Reporting System is established by: reviewing the appropriateness of procedures in place for the identification, evaluation and management of business risks; ensuring that internal controls relating to all areas of operations, including Human Resources and IT enhance good governance while not impeding business; seeking assurance that agreed control systems are in place, are operating efficiently and are regularly monitored; ensuring that appropriate controls are put in place prior to the implementation of significant business changes, facilitating monitoring of the changes; reviewing internal and external audit functions; and ensuring compliance with applicable laws, regulations, listing rules and established policies of the Company.

Activities of the CommitteeDuring the year under review the Committee reviewed interim and annual Financial Statements prior to publication, checking and recommending changes in accounting policies, significant estimates and judgments made by the management, compliance with relevant accounting standards/regulatory requirements, and issues arising from internal and external audit.

Effectiveness of the Company’s internal controls was evaluated through reports provided by the Management, and by the Internal and External Auditors. The Committee is satisfied that an effective system of internal control is in place to provide the assurance on safeguarding the assets and the integrity of financial reporting. On behalf of the Audit Committee, the Internal Auditor performs a comprehensive exercise that entails reviewing of all aspects of MIS including operational and regulatory risks.

The Committee addressed the External Auditor’s findings reported in the Management Letter relating to the previous financial year’s (2014/15) audit.

The Committee reviewed the independence and objectivity of the External Auditors, M/s KPMG, Chartered Accountants and has received a declaration confirming that they do not have any relationship or interest in the Company as required by the Companies Act No. 7 of 2007.

The Committee meets quarterly; and additional meetings are held as and when a need arises. Six meetings were held during the year and the members’ attendance at Audit Committee meetings is provided on page 64. The CEO was present at five such meetings and the Head of Finance was present at all six meetings. Minutes of such meetings which include details of matters discussed are reported regularly at Board meetings. The Audit Partner was invited to attend four such meetings and on two occasions the auditors were able to meet with the Audit Committee members without the presence of the other Directors and members of the Management.

W D K JayawardenaChairmanAUDIT COMMITTEE

Colombo17th June 2016


CompositionThe Integrated Risk Management Committee (IRMC) was established to assist the Board in performing its oversight function in relation to different types of risk faced by the Company in its business operations and ensures adequacy and effectiveness of the risk management framework of the Company. The Committee comprises the following members:

Mr. P D J Fernando Committee Chairman/Senior Independent Non-Executive Director

Mrs. K U Amarasinghe Non-Executive Director

Mr. D M D K Thilakaratne Director/CEO

Mrs. S Wickremasekera Chief Risk Officer

Mrs. S Kotakadeniya Chief Financial Officer

Mr. J Kelegama Chief Credit Officer

Mr. R Perera Group Treasurer

Mr. C Dias Chief Information Officer

Mr. N Weerapane Deputy General Manager/Recoveries

Terms of ReferenceThe IRMC has adopted the provisions of Section 8 (3) of the Finance Companies Corporate Governance Direction No. 3 of 2008 issued by the Monetary Board of the Central Bank of Sri Lanka as its Terms of Reference. The composition and the scope of work of the Committee are in conformity with the provisions of the aforesaid Direction.

The Committee is responsible for: identifying, assessing and managing broad risk categories, i.e., credit, market, liquidity, operational and strategic risks through risk indicators; reviewing the adequacy and effectiveness of all management level committees such as the credit committee and the asset-liability committee to address specific risks and to manage those risks within quantitative and qualitative risk limits; taking prompt corrective action to mitigate the effects of specific risks in the case such risks are at levels beyond the prudent levels decided by the committee on the basis of the Company’s policies; taking appropriate actions against the officers responsible for failure to identify specific risks and take prompt corrective actions; and establishing a compliance function to assess the Finance Company’s compliance with laws, regulations, directions, rules, regulatory guidelines, internal controls and approved policies on all areas of business operations.

REPORT OF THE INTEGRATED RISK MANAGEMENT COMMITTEE

Activities of the CommitteeThe Committee works closely with the key management personnel and the Board in fulfilling its duties in risk management. Credit, operational, market and liquidity risks were monitored by Divisional Heads and reported to the Chief Risk Officer on a monthly basis. These risks were then reviewed and assessed monthly by the Chief Risk Officer and summarised reports were submitted quarterly to the Committee for concurrence and/or specific directions in order to ensure that the risks are managed appropriately. As delegated by the Committee, the Chief Risk Officer submitted a risk assessment report to the Board, subsequent to each meeting within a week of each meeting, stating the risk mitigation actions pursued and seeking the Board’s views. In addition proceedings of meetings were also tabled at a subsequent meeting of the Board. During the year the Committee met four times on a quarterly basis. The attendance of members at meetings is stated on page 65.

P D J Fernando ChairmanINTEGRATED RISK MANAGEMENT COMMITTEE



78

CompositionThe Remuneration Committee was established to assist the Board in evaluating and recommending remuneration for Board members. The Committee comprises the following members:

Mr. I C Nanayakkara Committee Chairman/Non-Executive Chairman

Mr. P D J Fernando Senior Independent Non-Executive Director

Dr. H Cabral, PC Independent Non-Executive Director (resigned with effect from 31.08.2015)

Terms of ReferenceThe Remuneration Committee is governed by its Remuneration Policy which has vested it with powers to evaluate, assess and recommend to the Board for approval any fee, remuneration and ex-gratia to be paid out to its Directors including the Chief Executive Officer based on: the need of the Company to be competitive; the need to attract, motivate and retain talent; and the need to encourage and reward high levels of performance and achievement of corporate goals and objectives.

Activities of the CommitteeThe Committee is responsible for determining the remuneration policy relating to the Director/CEO; periodically evaluating the performance of the Director/CEO against the set targets and goals and determining the basis for revising remuneration, benefits and other payments of performance based incentives; determining the Remuneration Policy relating to Executive and Non-executive Directors including Alternate Directors and recommending these to the Board for adoption. All independent Directors receive a fee for attending Board meetings and Committee meetings. They do not receive any performance or incentive payments. Directors’ emoluments have been disclosed on page 73. There were no Remuneration Committee meetings held during the year under review.

I C Nanayakkara ChairmanREMUNERATION COMMITTEE


REPORT OF THE REMUNERATION COMMITTEE


REPORT OF THE NOMINATION COMMITTEECompositionThe Nomination Committee has been set up to assist the Board in assessing the skills required and recommending Director nominees for election to the Board (subject to ratification by the shareholders) and to nominate members to its Sub-Committees to effectively discharge their duties and responsibilities. The Committee comprises the following members:

Mr. P D J Fernando Committee Chairman/Senior Independent Non-Executive Director

Mr. I C Nanayakkara Non-Executive Director

Mr. W D K Jayawardena Non-Executive Director

Terms of ReferenceThe Committee is governed by its Charter which defines its terms of reference. The Committee is responsible for: assisting the Board in identifying qualified individuals to become Board members and determining the composition of the Board of Directors and its Committees; oversight of the evaluation of the Board and its Committees, as well as Senior Management of the Company, including succession planning; annually review the composition of each Sub-Committee and present recommendations/nominations for committee memberships to the Board; and maintain records and minutes of meetings and activities of the Committee; perform any other activities consistent with this Charter.

Activities of the CommitteeDuring the year the Committee assessed the composition of the Board and its Sub-Committees in terms of the requirements of the relevant regulations of the CBSL and CSE. Proceedings of meetings were also tabled at a subsequent meeting of the Board. Two Committee meetings were held during the year under review and proceedings of the meetings were reported to the Board. Attendance of the Committee Members at the meeting is on page 65.

P D J Fernando ChairmanNOMINATION COMMITTEE



80

REPORT OF THE RELATED PARTY TRANSACTION REVIEW COMMITTEECompositionThe Board appointed a Related Party Transaction Review Committee in compliance with the Code of Best Practice on Related Party Transactions (RPTs) issued by the Securities & Exchange Commission of Sri Lanka under Section 13 (c) of the SEC Act No. 36 of 1987 (as amended). Under the said Direction all public listed companies were required to adopt the code with effect from 1st January 2014 on a voluntary basis for an initial period of two years from the effective date. The Committee comprises the following members:

Mr. P D J Fernando Committee Chairman/ Senior Independent Non-Executive Director

Mr. W D K Jayawardena Non-Executive Director

Mrs. K U Amarasinghe Non-Executive Director

Mr. D M D K Thilakaratne Director/ CEO

Terms of ReferenceThe Committee has adopted the Code of Best Practice on Related Party Transactions as its Terms of Reference. On behalf of the Board, the Committee ensures that all related party transactions of the Company are consistent with the aforementioned Code.

Activities of the CommitteeThe Committee reviewed related party transactions entered into by the Company during the year under review and was satisfied that such transactions had been carried out at arm’s length in the normal course of business. The Committee held four meetings during the year under review and the attendance of Committee Members at meetings is on page 65. In addition proceedings of meetings were also tabled at a subsequent meeting of the Board.

P D J Fernando ChairmanRELATED PARTY TRANSACTION REVIEW COMMITTEE



DIRECTORS’ STATEMENT ON INTERNAL CONTROL OVER FINANCIAL REPORTINGResponsibilityIn line with the Finance Companies Direction No. 3 of 2008 Section 10(2) b), the Board of Directors present this report on Internal Control over Financial Reporting.

The Board of Directors (“the Board”) is responsible for the adequacy and effectiveness of the Internal Control mechanism in place at Commercial Leasing & Finance PLC. (“the Company”).

The Board has established an on-going process for identifying, evaluating and managing the significant risks faced by the Company and this process includes the system of Internal Control over Financial Reporting. The process is regularly reviewed by the Board.

The Board is of the view that the system of Internal Control over Financial Reporting in place, is sound and adequate to provide reasonable assurance regarding the reliability of Financial Reporting, and that the preparation of Financial Statements for external purposes is in accordance with relevant accounting principles and regulatory requirements.

The management assists the Board in the implementation of the Board’s policies and procedures pertaining to Internal Control over Financial Reporting. The Management initiated the process of documenting the system of Internal Control over Financial Reporting in 2011. In assessing the Internal Control System over Financial Reporting, identified officers of the Company collated all procedures and controls that are connected with significant accounts and disclosures of the Financial Statements of the Company and continue to review and update every year. These in turn are being observed and checked by the Internal Audit Department of the Company for suitability of design and effectiveness on an on-going basis.

ConfirmationBased on the above processes, the Board confirms that the Financial Reporting System of the Company has been designed to provide reasonable assurance regarding the reliability of Financial Reporting and the preparation of Financial Statements for external purposes and has been done in accordance with Sri Lanka Accounting Standards and regulatory requirements of the Central Bank of Sri Lanka.

External Auditor’s CertificationThe External Auditors have submitted a certification on the process adopted by the Directors on the system of Internal Controls over Financial Reporting. The matters addressed by the External Auditor’s in this respect, will be taken in to consideration and appropriate steps will be taken to incorporate same, where applicable.

By order of the Board;

I C NanayakkaraChairman

Krishan ThilakaratneDirector/CEO

W D K JayawardenaChairman/Audit Committee



82

CHIEF EXECUTIVE OFFICER’S AND CHIEF FINANCIAL OFFICER’S RESPONSIBILITY STATEMENTResponsibilityThe Financial Statements are prepared in compliance with the Sri Lankan Financial Reporting Standards (SLFRS/LKAS) issued by the Institute of Chartered Accountant of Sri Lanka, the requirements of the Companies Act No.7 of 2007, the Finance Business Act No.42 of 2011 and the Listing Rules of the Colombo Stock Exchange.

Accordingly, the Company has prepared Financial Statements which comply with SLFRSs/ LKASs and related interpretations applicable for the period ended 31st March 2016, together with the comparative period data as at and for the year ended 31st March 2015, as described in the Accounting Policies.

We accept responsibility for the integrity and accuracy of these Financial Statements. Significant Accounting Policies have been applied consistently. Application of Significant Accounting Policies and estimates that involve a high degree of judgment and complexity were discussed with the Audit Committee and the External Auditors. Estimate and judgment relating to the Financial Statements were made on a prudent and reasonable basis, in order to ensure that the Financial Statements are true and fair. To ensure this, our Internal Auditors have conducted periodic audits to provide reasonable assurance that the established policies and procedures of the Company were consistently followed.

We confirm that to the best of our knowledge, the Financial Statements and other financial information included in this Annual Report, fairly present in all material respects the financial position, results of operations and cash flows of the Company as of, and for, the periods presented in this Annual Report.

We are responsible for establishing and maintaining Internal Controls and procedures. We have designed such controls and procedures, or caused such controls and procedures to be designed under our supervision, to ensure that material information relating to the Company is made known to us and for safeguarding the Company’s assets and preventing and detecting fraud and error. We have evaluated the effectiveness of the Company’s internal controls and procedures and are satisfied that the controls and procedures were effective as of the end of the period covered by this Annual Report. We confirm, based on our evaluations that there were no significant deficiencies and material weaknesses in the design or operation of internal controls and any fraud that involves management or other employees.

The Financial Statements were audited by Messrs.KPMG, Chartered Accountants, the Independent Auditors. The Audit Committee pre-approves the audit and non-audit services provided by KPMG in order to ensure that the provision of such services does not impair KPMG’s independence and objectivity. The Audit Committee also reviews the External Audit Plan and the Management Letters and follows up on any issues raised during the statutory audit. The Audit Committee also meets with the External and Internal Auditors to review the effectiveness of the audit.

We confirm that the Company has complied with all applicable laws and regulations and guidelines and that there are no material litigations that are pending against the Company other than those arising in the normal course of conducting business.

By order of the Board;

Sunjeevani KotakadeniyaChief Financial Officer - LOLC Group

Krishan ThilakaratneDirector/CEO



TO THE SHAREHOLDERS OF COMMERCIAL LEASING & FINANCE PLC Report on the Financial StatementsWe have audited the accompanying financial statements of Commercial Leasing & Finance PLC, (“the Company”), and the consolidated financial statements of the Company and its subsidiary (“Group”), which comprise the statement of financial position as at March 31st 2016, and the statement of profit or loss and other 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 as set out on pages 84 to 156 of the annual report.

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 control as Board determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ ResponsibilityOur 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 auditors’ 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.

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

Report on Other Legal and Regulatory RequirementsAs required by section 163 (2) of the Companies Act No. 07 of 2007, we state the following:

a) The basis of opinion and 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 March 31, 2016, and of its financial performance and cash flows for the year then ended in accordance with Sri Lanka Accounting Standards.

∫ The financial statements of the Company, and the Group comply with the requirements of sections 151 and 153 of the Companies Act No. 07 of 2007.

CHARTERED ACCOUNTANTSColombo,17th June 2016

INDEPENDENT AUDITORS’ REPORT


84

STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME

Note Group Company

For the year ended 31st March 2016 2015 2016 2015Rs. Rs. Rs. Rs.

Interest Income 4 10,388,686,504 7,907,048,946 8,628,276,049 7,589,689,494

Interest Expense 5 (4,032,127,453) (2,449,180,012) (3,466,867,161) (2,406,103,135)Net interest income 6,356,559,051 5,457,868,934 5,161,408,888 5,183,586,359

Other Income 6 864,592,167 788,012,983 762,454,272 578,882,585

Operating expensesDirect expenses (345,823,097) (236,619,329) (342,593,160) (234,511,377)Premises, equipment & establishment expenses (333,673,305) (310,448,989) (293,762,218) (284,503,948)Personnel costs (1,217,922,452) (845,451,266) (870,768,659) (723,426,263)Allowance for impairment & write offs 7 (636,412,444) (1,350,924,860) (571,654,618) (1,317,730,605)Depreciation and amortisation 8 (97,399,975) (130,593,987) (87,034,248) (95,379,925)Other operating expenses (1,969,193,656) (1,275,176,170) (1,487,139,723) (1,212,143,049)Results from operating activities before value added tax on financial services and NBT 9 2,620,726,289 2,096,667,316 2,270,910,534 1,894,773,776

Value added tax on financial services and NBT 10 (360,088,573) (190,401,799) (270,657,788) (169,138,645)Results from operating activities 2,260,637,716 1,906,265,517 2,000,252,746 1,725,635,133

Share of profit of equity accounted investee (net of tax) 7,637,413 2,625,839 7,637,413 2,625,839

Profit before income tax expense 2,268,275,129 1,908,891,356 2,007,890,159 1,728,260,972Income tax expense 11 (542,746,923) (315,882,413) (433,882,710) (302,239,653)Profit for the year 1,725,528,206 1,593,008,943 1,574,007,449 1,426,021,319

Other comprehensive incomeActuarial (Losses) / Gain on defined benefit plan 34.2 (7,811,753) (664,378) 5,499,585 (582,503)Net Change in fair value of available for sale finance assets (127,759,524) 10,927,788 (127,517,001) 11,074,735Effective portion of changes in fair value of cash flow hedges 226,340,545 (177,335,936) 226,340,545 (177,335,933)Other comprehensive income/ (expense) for the year, net of tax 90,769,268 (167,072,526) 104,323,130 (166,843,701)Total comprehensive income for the year 1,816,297,474 1,425,936,417 1,678,330,579 1,259,177,618

Profit attributable to;Equity holders of the company 1,716,970,284 1,589,109,547 1,574,007,449 1,426,021,319Non controlling interest 8,557,922 3,899,396 - -

1,725,528,206 1,593,008,943 1,574,007,449 1,426,021,319

Total Comprehensive Income attributable to;Equity holders of the company 1,808,505,076 1,422,049,945 1,678,330,579 1,259,177,618Non controlling interest 7,792,398 3,886,472 - -

1,816,297,474 1,425,936,417 1,678,330,579 1,259,177,618Earnings per share 12 0.27 0.25 0.25 0.22

The accounting Policies and Notes form an integral part of these Financial Statements.Figures in brackets indicate deductions.


Note Group Company

As at 31st March 2016 2015 2016 2015Rs. Rs. Rs. Rs.

ASSETSCash and cash equivalents 13.1 2,280,294,711 639,716,513 836,056,671 515,679,795 Financial assets held for trading 14 4,232,811,100 228,344,666 4,232,811,100 228,344,666 Other investments 15 29,745,642,568 5,893,126,212 29,742,821,576 5,874,611,522 Rentals receivable on leases & hire purchases 16 14,783,489,462 12,815,031,878 14,693,482,139 12,718,721,039 Loans and advances 17 33,951,969,210 20,800,941,259 27,140,128,239 17,849,802,717 Factoring receivables 18 4,959,717,107 2,413,882,879 4,959,717,107 2,413,882,879 Due from related companies 19 143,940 1,406,416 7,704 3,301,539 Value Added Tax (VAT) recoverable 299,175,529 368,174,507 253,887,201 367,619,634 Current tax assets 20 12,303,428 17,482,034 11,297,049 14,300,502 Other current assets 21 395,276,948 845,886,045 374,196,989 308,684,692 Equity accounted investees 22 75,854,139 71,456,726 75,854,139 71,456,726 Investment properties 23 - 10,700,000 - 10,700,000 Investments in Subsidiaries 24 - - 967,862,518 967,862,518 Deferred tax assets 33.1 2,048,359 979,278 - - Goodwill 25 253,210,966 253,210,966 - - Property, plant and equipment 26 1,144,826,446 1,068,738,940 1,070,831,071 1,040,374,016 Total Assets 92,136,763,913 45,429,078,319 84,358,953,503 42,385,342,245 LIABILITIES AND EQUITYLiabilitiesBank overdraft 13.2 1,594,870,802 1,326,488,496 1,170,761,489 1,310,844,519 Derivative liabilities 27 - 289,491,818 - 289,491,818 Deposits from customers 28 12,764,287,741 9,795,028,601 12,347,646,453 9,701,569,972 Loans and borrowings-current 29.2 26,894,658,987 13,974,854,681 26,398,384,528 12,777,127,874 Loans and borrowings-non current 29.2 31,123,198,968 5,621,015,401 29,689,143,968 5,621,015,401 Current Tax Liabilities 30 588,902,778 398,471,780 464,454,830 363,234,642 Due to related companies 31 4,117,851,409 1,753,721,991 283,967,475 386,278,266 Trade and other payables 32 2,637,428,654 1,579,624,434 1,798,895,088 1,302,811,310 Deferred tax liabilities 33.2 357,931,658 469,356,358 357,931,658 469,356,358 Employee benefits 34 71,097,067 54,496,137 50,341,964 48,226,366 Total Liabilities 80,150,228,064 35,262,549,697 72,561,527,453 32,269,956,526 EquityStated capital 35 1,425,946,629 1,425,946,629 1,425,946,629 1,425,946,629 Reserves 36 892,093,173 707,222,044 927,827,424 750,303,507 Retained earnings 37 9,617,451,437 7,990,107,736 9,443,651,997 7,939,135,583 Total Equity 11,935,491,239 10,123,276,409 11,797,426,050 10,115,385,719 Non-controlling interests 51,044,610 43,252,213 - -

11,986,535,849 10,166,528,622 - - Total Liabilities & Equity 92,136,763,913 45,429,078,319 84,358,953,503 42,385,342,245

Net Assets Value Per Share 1.87 1.59 1.85 1.59

The accounting Policies and Notes form an integral part of these Financial Statements.Figures in brackets indicate deductions.These Financial Statements are prepared and presented in compliance with the requirements of Companies Act No. 7 of 2007.

Mrs. S S KotakadeniyaChief Financial Officer - LOLC GroupThe Board of Directors is responsible for the preparation and presentation of these financial statements.Approved and signed for and on behalf of the Board by:

I C Nanayakkara D M D K ThilakaratneChairman Director / CEO


STATEMENT OF FINANCIAL POSITION


86

Group Stated Capital

Revaluation Reserve

Hedging Reserve

Available-for-Sale Reserve

General Reserve

Statutory Reserve

Fund

InvestmentFund

Retained Earnings

Total Noncontrolling

Interest

TotalEquity

Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs.

Balance as at 01st April 2014 1,425,946,629 135,980,246 (2,734,323) 29,335,085 288,079,789 394,602,842 289,075,199 6,295,922,634 8,856,208,100 - 8,856,208,100

Total comprehensive income for the yearProfit for the year - - - - - - - 1,589,109,547 1,589,109,547 3,899,396 1,593,008,943 Other comprehensive income - - (177,335,936) 10,936,088 - - - (659,754) (167,059,602) (12,924) (167,072,526)Total comprehensive income for the period - - (177,335,936) 10,936,088 - - - 1,588,449,793 1,422,049,945 3,886,472 1,425,936,417

Transactions with Owners directly recorded in the EquityAcquisition of NCI - - - - - - - (154,981,637) (154,981,637) 39,365,741 (115,615,895)Transferred to/(from) during the year - - - - (56,300,000) 84,658,253 (289,075,199) 260,716,946 - - -

- - - - (56,300,000) 84,658,253 (289,075,199) 260,716,946 - - - Balance as at 31st March 2015 1,425,946,629 135,980,246 (180,070,259) 40,271,173 231,779,789 479,261,095 - 7,990,107,736 10,123,276,409 43,252,213 10,166,528,622

Total comprehensive income for the yearProfit for the year - - - - - - - 1,716,970,284 1,716,970,284 8,557,922 1,725,528,206 Other comprehensive income - - 226,340,545 (127,745,826) - - - (7,059,926) 91,534,793 (765,525) 90,769,268 Total comprehensive income for the period - - 226,340,545 (127,745,826) - - - 1,709,910,358 1,808,505,076 7,792,398 1,816,297,474

Transactions with Owners directly recorded in the EquityDividend Transferred to Retained Earnings - - - - - - - 3,709,753 3,709,753 - 3,709,753 Transferred to/(from) during the year - - - - - 86,276,410 - (86,276,410) - - -

- - - - - 86,276,410 - (82,566,657) 3,709,753 - 3,709,753 Balance as at 31st March 2016 1,425,946,629 135,980,246 46,270,286 (87,474,653) 231,779,789 565,537,505 - 9,617,451,437 11,935,491,239 51,044,610 11,986,535,849

Company Stated Capital

Revaluation Reserve

Hedging Reserve


General Reserve

Statutory Reserve

Fund

InvestmentFund

Retained Earnings

Total

Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs.

Balance as at 01st April 2014 1,425,946,629 135,980,246 (2,734,323) 29,335,085 288,079,789 394,602,842 289,075,199 6,295,922,634 8,856,208,100

Total comprehensive income for the yearProfit for the year - - - - - - - 1,426,021,319 1,426,021,319 Other comprehensive income - - (177,335,933) 11,074,735 - - - (582,503) (166,843,700)Total comprehensive income for the period - - (177,335,933) 11,074,735 - - - 1,425,438,816 1,259,177,619

Transactions with Owners directly recorded in the EquityTransferred to/(from) during the year - - - - - 71,301,066 (289,075,199) 217,774,133 -

- - - - - 71,301,066 (289,075,199) 217,774,133 - Balance as at 31st March 2015 1,425,946,629 135,980,246 (180,070,256) 40,409,820 288,079,789 465,903,908 - 7,939,135,583 10,115,385,719

Total comprehensive income for the yearProfit for the year - - - - - - - 1,574,007,449 1,574,007,449 Other comprehensive income - - 226,340,545 (127,517,001) - - - 5,499,585 104,323,130 Total comprehensive income for the period - - 226,340,545 (127,517,001) - - - 1,579,507,034 1,678,330,579

Transactions with Owners directly recorded in the EquityDividend Transferred to Retained Earnings - - - - - - - 3,709,753 3,709,753 Transferred to/(from) during the year - - - - - 78,700,372 - (78,700,372) -

- - - - - 78,700,372 - (74,990,619) 3,709,753 Balance as at 31st March 2016 1,425,946,629 135,980,246 46,270,289 (87,107,181) 288,079,789 544,604,281 - 9,443,651,997 11,797,426,050


STATEMENT OF CHANGES IN EQUITY


Group Stated Capital

Revaluation Reserve

Hedging Reserve


General Reserve

Statutory Reserve

Fund

InvestmentFund

Retained Earnings

Total Noncontrolling

Interest

TotalEquity

Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs.

Balance as at 01st April 2014 1,425,946,629 135,980,246 (2,734,323) 29,335,085 288,079,789 394,602,842 289,075,199 6,295,922,634 8,856,208,100 - 8,856,208,100

Total comprehensive income for the yearProfit for the year - - - - - - - 1,589,109,547 1,589,109,547 3,899,396 1,593,008,943 Other comprehensive income - - (177,335,936) 10,936,088 - - - (659,754) (167,059,602) (12,924) (167,072,526)Total comprehensive income for the period - - (177,335,936) 10,936,088 - - - 1,588,449,793 1,422,049,945 3,886,472 1,425,936,417

Transactions with Owners directly recorded in the EquityAcquisition of NCI - - - - - - - (154,981,637) (154,981,637) 39,365,741 (115,615,895)Transferred to/(from) during the year - - - - (56,300,000) 84,658,253 (289,075,199) 260,716,946 - - -

- - - - (56,300,000) 84,658,253 (289,075,199) 260,716,946 - - - Balance as at 31st March 2015 1,425,946,629 135,980,246 (180,070,259) 40,271,173 231,779,789 479,261,095 - 7,990,107,736 10,123,276,409 43,252,213 10,166,528,622

Total comprehensive income for the yearProfit for the year - - - - - - - 1,716,970,284 1,716,970,284 8,557,922 1,725,528,206 Other comprehensive income - - 226,340,545 (127,745,826) - - - (7,059,926) 91,534,793 (765,525) 90,769,268 Total comprehensive income for the period - - 226,340,545 (127,745,826) - - - 1,709,910,358 1,808,505,076 7,792,398 1,816,297,474

Transactions with Owners directly recorded in the EquityDividend Transferred to Retained Earnings - - - - - - - 3,709,753 3,709,753 - 3,709,753 Transferred to/(from) during the year - - - - - 86,276,410 - (86,276,410) - - -

- - - - - 86,276,410 - (82,566,657) 3,709,753 - 3,709,753 Balance as at 31st March 2016 1,425,946,629 135,980,246 46,270,286 (87,474,653) 231,779,789 565,537,505 - 9,617,451,437 11,935,491,239 51,044,610 11,986,535,849

Company Stated Capital

Revaluation Reserve

Hedging Reserve


General Reserve

Statutory Reserve

Fund

InvestmentFund

Retained Earnings

Total

Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs.

Balance as at 01st April 2014 1,425,946,629 135,980,246 (2,734,323) 29,335,085 288,079,789 394,602,842 289,075,199 6,295,922,634 8,856,208,100

Total comprehensive income for the yearProfit for the year - - - - - - - 1,426,021,319 1,426,021,319 Other comprehensive income - - (177,335,933) 11,074,735 - - - (582,503) (166,843,700)Total comprehensive income for the period - - (177,335,933) 11,074,735 - - - 1,425,438,816 1,259,177,619

Transactions with Owners directly recorded in the EquityTransferred to/(from) during the year - - - - - 71,301,066 (289,075,199) 217,774,133 -

- - - - - 71,301,066 (289,075,199) 217,774,133 - Balance as at 31st March 2015 1,425,946,629 135,980,246 (180,070,256) 40,409,820 288,079,789 465,903,908 - 7,939,135,583 10,115,385,719

Total comprehensive income for the yearProfit for the year - - - - - - - 1,574,007,449 1,574,007,449 Other comprehensive income - - 226,340,545 (127,517,001) - - - 5,499,585 104,323,130 Total comprehensive income for the period - - 226,340,545 (127,517,001) - - - 1,579,507,034 1,678,330,579

Transactions with Owners directly recorded in the EquityDividend Transferred to Retained Earnings - - - - - - - 3,709,753 3,709,753 Transferred to/(from) during the year - - - - - 78,700,372 - (78,700,372) -

- - - - - 78,700,372 - (74,990,619) 3,709,753 Balance as at 31st March 2016 1,425,946,629 135,980,246 46,270,289 (87,107,181) 288,079,789 544,604,281 - 9,443,651,997 11,797,426,050



88

Note Group Company


CASH FLOW FROM/ (USED IN) OPERATING ACTIVITIESProfit before income tax 2,268,275,129 1,908,891,356 2,007,890,159 1,728,260,972 Adjustment for:Profit on disposal of property, plant and equipment 6 (2,037,393) (202,506,668) (1,886,387) (849,080)Depreciation 22 97,399,975 130,593,987 87,034,248 95,379,925 Provision for Employee Benefits 31.1 15,420,730 11,665,947 11,109,131 9,809,455 Net impairment loss on financial assets 7 636,412,444 1,350,924,860 571,654,618 1,317,730,605 Change in fair value of investments 14.1 40,155,272 (13,272,480) 40,155,272 (13,276,230)Investment Income 6 (4,719,406) (4,236,044) (4,660,006) (4,236,044)Interest expense 5 4,032,127,453 2,449,180,012 3,466,867,161 2,347,106,976 Impairment of investments 10,700,000 3,338,000 10,700,000 3,338,000 Adjustment for Unamortised finance cost - Long term Borrowings (354,311,122) 7,155,972 (353,116,195) 9,686,589 FV gain on Other Investments - 3,750 - 3,750 Share of equity accounted investee 20.1 (7,637,413) (2,625,839) (7,637,413) (2,625,839)

6,731,785,669 5,639,109,103 5,828,110,588 5,490,329,079 Cash flows from operating activities before working capital changes(Increase) / Decrease in operating assets & liabilities(Increase)/decrease in leases, hire purchase receivables (2,410,079,497) (642,019,572) (2,414,582,397) (700,413,286)(Increase)/decrease in advances and other loans receivable (13,238,858,600) (6,664,985,410) (9,315,198,962) (5,166,172,138)(Increase)/decrease in factoring receivable (2,652,794,110) (824,418,085) (2,652,794,110) (824,418,085)(Increase)/decrease in other receivables and related party receivables 867,283,691 (712,732,370) (224,636,178) (21,264,698)Increase/(decrease) in trade and other payables and related party payable 3,341,291,058 1,791,211,038 450,391,278 97,049,465 (Increase)/decrease in customer deposits 2,969,259,137 1,999,977,502 2,646,076,480 2,023,292,309 Cash Generated from / (Used in) operations (4,392,112,652) 586,142,208 (5,682,633,301) 898,402,646

Finance cost paid (3,882,955,818) (2,518,233,401) (3,317,695,526) (1,987,895,748)Income tax paid (463,740,624) (407,798,353) (444,087,222) (405,420,018)Employee Benefits paid 30 (6,631,553) (5,383,385) (3,493,948) (2,503,400)

Net cash flows (Used in) / Generated from operating activities (8,745,440,647) (2,345,272,931) (9,447,909,997) (1,497,416,520)

STATEMENT OF CASH FLOWS


Note Group Company


CASH FLOW FROM INVESTING ACTIVITIESNet cash and cash equivalents on acquisition of subsidiary - (1,057,041,156) - (967,862,518)Acquisition of property, plant and equipment (173,487,482) (98,146,620) (117,491,304) (65,939,675)Acquisition / (Disposal) of investment properties - 526,357,588 - - Purchase of financial investments (28,024,897,586) (2,405,192,189) (27,910,463,536) (3,318,212,808)Proceeds from the sale of property, plant and equipment 2,037,393 849,080 1,886,387 849,080 Dividend received from investments 6 7,959,406 6,936,044 7,900,006 6,936,044 Net cash Used in investing activities (28,188,388,269) (3,026,237,253) (28,018,168,447) (4,344,229,877)

CASH FLOW FROM FINANCING ACTIVITIESNet cash proceeds from short-term interest bearing loans and borrowings 15,243,623,697 7,734,000,000 15,243,623,697 7,734,000,000 Net Movement in Derivatives (115,963,064) 14,604,267 (115,963,064) 14,604,267 Proceeds from long-term interest bearing loans and borrowings 25.1 25,859,253,997 2,401,000,000 23,625,135,000 2,401,000,000 Repayments of long-term interest bearing loans and borrowings 25.1 (7,680,889,821) (5,545,422,187) (5,826,257,282) (5,183,678,715)Proceeds from issuance of debentures 5,000,000,000 - 5,000,000,000 - Net cash flows Generated from financing activities 38,306,024,809 4,604,182,080 37,926,538,351 4,965,925,552

Net (decrease) / increase in cash and cash equivalents 1,372,195,892 (767,328,105) 460,459,907 (875,720,845)Cash and cash equivalents at the beginning of the year (686,771,983) 80,556,121 (795,164,724) 80,556,121 Cash and cash equivalents at the end of the year (Note A) 685,423,909 (686,771,983) (334,704,818) (795,164,724)

Note ACash in Hand and favourable bank balances 11.1 2,280,294,711 639,716,513 836,056,671 515,679,795 Unfavourable bank balances used for cash management purposes 11.2 (1,594,870,802) (1,326,488,496) (1,170,761,489) (1,310,844,519)Cash and cash equivalents at the end of the year 685,423,909 (686,771,983) (334,704,818) (795,164,724)

The accounting Policies and Notes form an integral part of these Financial Statements.

Figures in brackets indicate deductions.


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NOTES TO THE FINANCIAL STATEMENTS

1. Corporate Information1.1 General Commercial Leasing & Finance PLC was incorporated as a

Private Limited Company in April 1988 and in 1992 converted into a Public Limited Company and listed in the Colombo Stock Exchange. In 2008 with the acquisition by Lanka ORIX Leasing Company PLC, the company submitted an application to delist from Colombo Stock Exchange and it was treated as de-listed with effect from July 01, 2009.

Further to Finance Leasing Act No 56 of 2000, on 07th December 2011, the Company has obtained the License to carry on Finance Business under the Finance Business Act No 42 of 2011. Company has relisted in Colombo Stock Exchange in June 2012 in compliance with the CBSL Directions with the divestment of 10% of the stated capital.

Ordinary shares of the Company are listed on the Diri savi board of the Colombo Stock Exchange (CSE).

The Consolidated Financial Statements of the Company as at and for the year ended 31st March 2016 comprise of the Company and its subsidiary (together referred to as the “Group” and individually as “Group entities”) and the Group’s interest in associates.

The registered office and the principal place of business of the Company is located at No.68, Bauddhaloka Mawatha, Colombo 04.

1.2 Parent entity and Ultimate Parent Company Lanka ORIX Leasing Company PLC is the holding company

of the Group and therefore, it does not have an identifiable immediate or ultimate parent of its own.

1.3 Principal Activities and Nature of Operations The principal activities of the Company comprised of leasing,

hire purchase, loans, factoring, Islamic financing, micro financing and mobilisation of public deposits. The Company established an Islamic Business Division in August 2015 and launched Microfinance operation in March 2016.

Description of the nature of operations and principle activities of the subsidiary company and associate company are given on Note 24 and 22 respectively to these Financial Statements with any changes to the principal activities during the financial year under review.

1.4 Number of Employees The staff strength of the Company as at 31st March 2016 was

801 (31.03.2015 – 670).

2. Basis of Preparation2.1 Statement of Compliance The Financial Statements of the Company and those

consolidated with such are prepared in accordance with the Sri Lanka Accounting Standards (LKASs/SLFRSs) laid down by the Institute of Chartered Accountants of Sri Lanka (ICASL) and the requirements of the Companies Act No.7 of 2007.

The presentation of these Financial Statements is also in compliance with the requirements of the Finance Business Act no 42 of 2011 and the listing rules of the Colombo Stock Exchange

2.2 Presentation of Financial Statements The assets and liabilities of the Group presented in the

Statement of Financial Position are grouped by nature and listed in-order to reflect their relative liquidity and maturity pattern. An analysis regarding recovery or settlement within twelve months after the reporting date (current) and more than twelve months after the reporting date (non-current) is presented in Note 38 (Maturity analysis).

Financial assets and financial liabilities are offset and the net amount reported in the Statement of Financial Position only when there is a legally enforceable right to off-set the recognised amounts and there is an intention to settle on a net basis, or to realise the assets and settle the liability simultaneously. Income and expenses are not offset in the Statement of Profit or Loss unless required or permitted by an accounting standard or an interpretation, and as specially disclosed in the accounting policies of the Group.

2.3 Basis of Measurement The Financial Statements of the Group and the Company

have been prepared on the historical cost basis and applied consistently with no adjustments being made for inflationary factors affecting the financial Statements, except for the following material items in the Statement of Financial Position;

• Financial instruments at fair value through profit or loss are measured at fair value.

• Derivative financial instruments are measured at fair value.

• Available-for-sale financial assets are measured at fair value.

• The liability for defined benefit obligations are measured at present value, based on an actuarial valuation as explained in Note 34.

• Lands and buildings are measured at the revalued amounts.

• Investment properties are measured at fair value.


2.4 Functional and presentation currency The functional currency is the currency of the primary

economic environment in which the entities of the Group operates. These Financial Statements are presented in Sri Lankan Rupees (LKR), which is the Group’s functional currency and the presentation currency. All financial information has been rounded to the nearest Rupee unless stated otherwise.

2.5 Use of Significant Judgments, Estimates and Assumptions

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

Estimates and underlying assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results which form the basis of making the judgments about the carrying amount of assets and liabilities that are not readily apparent from other sources.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected. The respective carrying amounts of assets and liabilities are given in the related Notes to the Financial Statements.

Information about critical judgments, estimates and assumptions in applying accounting policies that have the most significant effect on the amounts recognised in the financial statements are included in the following notes to these Financial Statements.

Critical accounting estimate/judgment

Disclosure reference

Note

Financial Instruments – fair value disclosure 14 & 15

Useful lives of property, plant and equipment 3.5.1.7

Goodwill on acquisition 25

Employee Benefits 34

Allowance for impairment 16.1.3, 16.2.3,17.1.1 & 18.1

Determination in fair value of Investment Property 23

2.6 Comparative Information To facilitate comparison relevant balances pertaining to the

previous year have been re-classified to confirm to current classification and presentation.

2.7 Materiality, Presentation and Aggregation As per LKAS – 01 “Presentation of Financial Statements”,

each material class of similar items is presented separately in the Financial Statements. Items of dissimilar nature or function are presented separately unless they are immaterial.

2.8 Offsetting Assets and liabilities and income and expenses are not offset

unless required or permitted by SLFRSs/LKASs.

2.9 Going Concern The Board of Directors is satisfied that the Group has

adequate resources to continue its operations in the foreseeable future and management is not aware of any material uncertainties that may cast significant doubt upon the Group’s ability to continue as a going concern. Therefore going-concern basis has been adopted in preparing these Financial Statements.

2.10 Directors’ Responsibility for the Financial Statements

The Board of Directors is responsible for the preparation and fair presentation of these Financial Statements in accordance with Sri Lanka Accounting Standards and as per the provisions of the Companies Act No. 07 of 2007. This responsibility includes: designing, implementing and maintaining internal controls relevant to the preparation and fair presentation of Financial Statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.

These Financial Statements include the following components;

• A Statement of Profit or Loss providing the information on the financial performance of the Group and the Company for the year under review;

• A Statement of Other Comprehensive Income providing the information of the other comprehensive income of the Group and the Company;

• A Statement of Financial Position providing the information on the financial position of the Group and the Company as at the year end;


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• A Statement of Changes in Equity depicting all changes in shareholders’ funds during the year under review of the Group and the Company;

• A Statement of Cash Flows providing the information to the users, on the ability of the Group and the Company to generate cash and cash equivalents and the needs of entities to utilise those cash flows, and

• Notes to the Financial Statements comprising Accounting Policies and other explanatory information.

2.11 Approval of Financial Statements by the Board of Directors

The Financial Statements of the Group and the Company for the year ended 31st March 2016 (including comparatives) were approved and authorised for issue by the Board of Directors on 17th June 2016.

2.12 New Accounting Standards Issued But Not Effective at Reporting Date

The Accounting standards issued but not effective at the reporting date is given below with expected impact on Group financial statements. The Group will apply the accounting standards when they become effective.

2.12.1 SLFRS 9 - “Financial Instruments” SLFRS 9 - “Financial Instruments” replaces the existing

guidance in LKAS 39 - Financial Instruments: Recognition and Measurement. SLFRS 9 includes revised guidance on the classification and measurement of financial instruments including a new expected credit loss model for calculating impairment on financial assets.

SLFRS 9 is effective for annual period beginning on or after 01st January 2018 with early adoption permitted.

2.12.2 SLFRS 15 - Revenue Recognition from Contracts with Customers

SLFRS 15 - “Revenue from Contracts with Customers” establishes a comprehensive framework for determining whether, how much and when revenue is recognised. It replaces existing revenue recognition guidance LKAS 18 Revenue, LKAS 11 Construction Contracts.

SLFRS 15 is effective for annual reporting period beginning on or after 01st January 2018, with early adoption permitted.

The Group is assessing the potential impact on its Consolidated Financial Statements resulting from the above standards.

However, the following new or amended standards are not expected to have an impact on the Consolidated Financial Statements.

• SLFRS 14 - Regulatory Deferral Accounts-effective from 01st January 2016,

• Agriculture: Bearer Plants(Amendments to LKAS 16 and LKAS 41 - effective from 01st January 2016,

3. Significant Accounting Policies The accounting policies set out below have been applied

consistently to all periods presented in these Consolidated Financial Statements unless otherwise indicated.

These accounting policies have been applied consistently by entities within the Group.

3.1 Basis of Consolidation3.1.1 Business combinations The Group measures goodwill as the fair value of the

consideration transferred including the recognised amount of any non-controlling interest in the acquiree, less the net recognised amount (generally fair value) of the identifiable assets acquired and liabilities assumed, all measured as of the acquisition date. When the excess is negative, a bargain purchase gain is recognised immediately in Profit or Loss.

The Group elects on a transaction-by-transaction basis whether to measure non-controlling interest at its fair value, or at its proportionate share of the recognised amount of the identifiable net assets, at the acquisition date.

Transaction costs, other than those associated with the issue of debt or equity securities, that the Group incurs in connection with a business combination are expensed as incurred.

3.1.2 Subsidiaries Subsidiaries are entities controlled by the Group. Control

exists when the Company has the power, directly or indirectly, to govern the financial and operational policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that presently are exercisable or convertible are taken into account.

The Financial Statements of subsidiaries are included in the consolidated Financial Statements from the date that control commences until the date that control ceases. Acquisition of subsidiaries is accounted for using the acquisition method of accounting.



The accounting policies of subsidiaries have been changed where necessary to align them with the policies adopted by the Group. If a member of the group uses accounting policies other than those adopted in the consolidated Financial Statements for similar transactions and events in similar circumstances, appropriate adjustments are made to its Financial Statements in preparing the consolidated Financial Statements.

Any goodwill arising on the acquisition of a foreign operation and any fair value adjustments to the carrying amounts of assets and liabilities arising on the acquisition are treated as assets and liabilities of the foreign operation and translated at the closing rate.

3.1.3 Non-Controlling Interests Non-controlling Interests is the equity in a subsidiary not

attributable, directly or indirectly, to the parent are presented in the Statement of Financial Position within Equity, separately from the Equity attributable to Shareholders Holders of the Parent (Company).

3.1.4 Acquisition of Non-controlling interests Subsequent to the acquisition of control, any further

acquisition of net assets from non-controlling interest is accounted for as transactions with owners in their capacity as owners. Therefore no goodwill or gain on bargain purchase is recognised as a result of such transactions.

Any difference between the amount by which the non-controlling interests is adjusted and the fair value of the consideration paid or received shall be recognised directly in equity and attributed to the owners of the parent.

3.1.5 Transactions do not result a change in control Changes in the Group’s interest in a subsidiary that do

not result in a loss of control status are accounted for as transactions with owners in their capacity as owners. Adjustments to non-controlling interests and parent’s equity are based on a proportionate amount of the net assets of the subsidiary. No adjustments are made to goodwill recognised and no gain or loss is recognised in Profit or Loss.

3.1.6 Common control transactions A business combination involving entities or businesses

under common control is a business combination in which all of the combining entities or businesses ultimately are controlled by the same party or parties both before and after the combination, and that control is not transitory.

The acquirer of the common control transaction applies book value accounting for all common control transactions.

In applying book value accounting, no entries are recognised in Profit or Loss; instead, the result of the transaction is recognised in equity as arising from a transaction with shareholders.

3.1.7 Loss of Control The parent can lose control of a subsidiary with or without

a change in absolute or relative ownership levels. Upon the loss of control, the Group derecognises the assets and liabilities of the subsidiary, any minority interests and the other components of equity related to the subsidiary. Any surplus or deficit arising on the loss of control is recognised in the Statement of Profit or Loss.

If the Group retains any interest in the previous subsidiary, then such interest is measured at fair value at the date that control is lost. Subsequently it is accounted for as an equity-accounted investee or as other financial asset depending on the level of influence retained.

3.1.8. Equity accounted Investees - Associates Associates are those entities in which the Group has

significant influence, but not control, over the financial and operating activities. Significant influence is presumed to exist when the Group holds between twenty and fifty percent of the voting power of another entity.

Associates are accounted for using the equity method (equity accounted investees) and are initially recognised at cost in the terms of Sri Lanka Accounting Standards - LKAS 28 on “Investment in Associates”. The Group’s investment in associate includes goodwill identified on acquisition, net of any accumulated impairment losses.

The Consolidated Financial Statements include the Group’s share of the income and expenses and equity movements of equity accounted investees, after adjustments to align the accounting policies with those of the Group, from the date that significant influence commences until the date that significant influence ceases.

Acquisitions of additional stakes of equity accounted investees, until the control is established, are accounted as goodwill within the equity accounted investment if consideration paid is more than the net asset acquired or taken into to profit or loss as gain on bargain purchase if the net asset acquired is more than the consideration paid.

When the Group’s share of losses exceeds its interest in an equity accounted investee, the carrying amount of that interest (including any long-term investments) is reduced to zero and the recognition of further losses is discontinued


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except to the extent that the Group has an obligation or has made payments on behalf of the investee. Associate Companies of the Group which have been accounted for under the equity method of accounting are disclosed under Note 22 to these Financial Statements.

3.1.9 Reporting Date The Group’s Subsidiary Company has a common financial

year end which ends on 31st March. The financial year of Commercial Insurance Brokers Limited, an associate company of the Group ends on 31st December.

The difference between the reporting date of the above companies and that of the parent does not exceed three months.

3.1.10 Balances and Transactions Eliminated on Consolidation

Intragroup balances and transactions, including income, expenses and dividends, are eliminated in full. Profits and losses resulting from intragroup transactions that are recognised in assets, such as inventory and fixed assets, are eliminated in full.

Unrealised gains arising from transactions with equity-accounted investees are eliminated against the investment to the extent of the Group’s interest in the investee.

3.1.11 Business Combinations All business combinations have been accounted for by

applying the acquisition method in accordance with the SLFRS 3 - Business Combinations. Applying this method involves the entity that obtains control over the other entity to recognise the fair value of assets acquired and liabilities and contingent liabilities assumed, including those not previously recognised.

3.1.12 Cost of Acquisition The cost of an acquisition is measured as the fair value of

the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange. This excludes any transaction costs incurred.

3.1.13 Goodwill on Acquisition Goodwill represents the excess of the cost of any acquisition

of a subsidiary or an associate over the Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities acquired.

The Group tests the goodwill for impairment annually and assess for any indication of impairment to ensure that its carrying amount does not exceed the recoverable amount. If an impairment loss is identified, it is recognised immediately to the Statement of Profit or Loss. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to groups of cash-generating units that are expected to benefit from the synergies of the combination.

The impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets pro-rata to the carrying amount of each asset in the unit. Where goodwill forms part of a cash-generating unit and part of the operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation.

Carrying amount of the goodwill arising on acquisition of subsidiaries and joint ventures is presented as an intangible and the goodwill on an acquisition of an equity accounted investment is included in the carrying value of the investment.

3.1.14 Gain on Bargain Purchase (negative goodwill) If the Group’s interest in the net fair value of the identifiable

assets, liabilities and contingent liabilities exceeds the cost of the acquisition of the entity, the Group will reassess the measurement of the acquiree’s identifiable assets and liabilities and the measurement of the cost and recognise the difference immediately in the Consolidated Statement of Profit or Loss.

3.2 Foreign Currency 3.2.1 Foreign Currency Transactions Transactions in foreign currencies are translated to the

respective functional currency (Sri Lankan Rupees-LKR) at exchange rates at the dates of the transactions.

Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated to the functional currency at the exchange rate at that date. The foreign currency gain or loss on monetary items are the difference between amortised cost in the functional currency at the beginning of the year, adjusted for effective interest and payments during the year, and the amortised cost in foreign currency translated at the exchange rate at the end of the year.



Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are retranslated to the functional currency at the exchange rate at the date that the fair value was determined. Non-monetary items in a foreign currency that are measured in terms of historical cost are translated using the exchange rate at the date of the transaction.

Foreign currency differences arising on retranslation are recognised in Statement of Profit or Loss.

3.3 Financial Instruments3.3.1 Financial Assets Financial assets are within the scope of LKAS 39 are

classified appropriately as fair value through Profit or Loss (FVTPL), loans and receivables (L & R), held to maturity (HTM), available-for-sale (AFS) at its initial recognition.

All the financial assets are recognised at fair value at its initial recognition.

3.3.1.1 Financial Assets at Fair Value through Profit or Loss (FVTPL)

A financial asset is classified at fair value through Profit or Loss if it is classified as held for trading or is designated as such upon initial recognition. Financial assets are designated at fair value through Profit or Loss if the Group manages such investments and makes purchase and sale decisions based on their fair value in accordance with the Group’s documented risk management or investment strategy. Upon initial recognition, transaction costs are recognised in Profit or Loss as incurred.

Financial assets at fair value through Profit or Loss are measured at fair value, and subsequent therein are recognised in Profit or Loss.

The Group’s investments in certain equity securities and derivative instruments which are not accounted under hedge accounting are classified under fair value through profit or loss.

3.3.1.2 Loans and Receivables (L&R) Loans and receivables are financial assets with fixed or

determinable payments that are not quoted in an active market. Such assets are recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, loans and receivables are measured at amortised cost using the effective interest method, less any impairment losses.

Loans and receivables of the Group comprise of the following,

3.3.1.2.1 Rental receivables on Finance Leases and Hire purchases Assets leased to customers which transfer substantially

all the risks and rewards associated with ownership other than legal title, are classified as finance leases. Amounts receivable under finance leases are included under “Lease Rentals Receivable”. Leasing balances are stated in the Statement of Financial Position after deduction of initial rentals received, unearned lease income and the provision for impairment.

Assets sold to customers under fixed rate hire agreements, which transfer all risk and rewards as well as the legal title at the end of such contractual period are classified as ‘Hire Purchase Receivable’. Such assets are accounted for in a similar manner as finance leases.

3.3.1.2.2 Rental receivables on Operating Leases Leases where the Company as the lessor effectively retains

substantially all the risk and rewards incidental to the ownership are classified as operating leases. Lease rentals from operating leases are recognised as income on a straight-line basis over the lease term.

3.3.1.2.3 Advances and Other Loans to Customers Advances and other loans to customers comprised of

revolving loans, loans with fixed instalments. Revolving loans to customers are reflected in the statement of financial position at amounts disbursed less repayments and allowance for impairment losses. Loans to customers with fixed instalments are stated in the statement of financial position net of possible loan losses and net of interest, which is not accrued to revenue.

After initial measurement, ‘loans and advances’ are subsequently measured at amortised cost using the EIR, less allowance for impairment except when the Company recognises loans and receivables at fair value through profit or loss. Amortised cost is calculated by taking into account any discount or premium on acquisition and fees and costs that are an integral part of the EIR. The amortisation is included in ‘Interest Income’ in the Statement of Profit or Loss. The losses arising from impairment are recognised in the Statement of Profit or Loss.

3.3.1.2.4 Trade Receivables Trade receivables are stated at the amounts they are

estimated to realise, net of provisions for impairment. An allowance for impairment losses is made where there


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is objective evidence that the Group will not be able to recover all amounts due according to the original terms of receivables. Impaired receivables are written-off when identified.

3.3.1.3 Held-to-Maturity Financial Assets If the company has the positive intent and ability to hold

debt securities to maturity, then such financial assets are classified as held-to-maturity. Held-to-maturity financial assets are recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition held-to-maturity financial assets are measured at amortised cost using the effective interest method, less any impairment losses.

An sale or reclassification of a more than an insignificant amount of held-to-maturity investments not close to their maturity would result in the reclassification of all held-to-maturity investments as available-for-sale, and prevent the company from classifying investment securities as held-to-maturity for the current and the following two financial years.

The Group does not have any financial assets designated as “held to maturity” as at the reporting date of financial assets.

3.3.1.4 Available-for-Sale Financial Assets Available-for-sale financial assets are non-derivative financial

assets that are designated as available for- sale and that are not classified in any of the previous categories of financial assets. Available-for-sale financial assets are recognised initially at fair value plus any directly attributable transaction costs.

Subsequent to initial recognition, these are measured at fair value and changes therein, other than impairment losses are recognised in other comprehensive income and presented within equity in the fair value reserve. When an investment is derecognised, the cumulative gain or loss in other comprehensive income is transferred to Profit or Loss.

Available-for-sale financial assets comprise of Treasury Bonds.

3.3.1.5 Cash and Cash Equivalents Cash and cash equivalents comprise of cash in hand

and cash at banks and other highly liquid financial assets which are held for the purpose of meeting short-term cash commitments with original maturities of less than three months which are subject to insignificant risk of changes in their fair value.

Bank overdrafts that are repayable on demand and form an integral part of the Company cash management are included as a component of cash and cash equivalents for the purpose of the Statement of Cash Flows.

3.3.2 Financial Liabilities The Group initially recognises debt securities, deposits from

customers and loans & borrowings on the date that they are originated. All other financial liabilities are recognised at initially on the trade date, which is the date that the Group becomes party to the contractual provisions of the instruments.

The Group derecognises a financial liability when its contractual obligations are discharged, cancelled or expired.

The Group classifies non-derivative financial liabilities into the other financial liabilities category. Such financial liabilities are recognised initially at fair value plus any directly attributable transaction cost. Subsequent to initial recognition, these financial liabilities are measured at amortised cost using effective interest rate method.

Other financial liabilities comprise of loans & borrowings, bank overdraft, customer deposits and trade and other payables.

3.3.3 Accounting for Non-derivative Financial Instruments3.3.3.1 Recognition The Group initially recognises loans and advances,

deposits, debt securities and subordinated liabilities on the date at which they are originated. All the financial assets and liabilities other than regular purchases and sales are recognised on the date the Group becomes a party to the contractual provisions of the instrument.

3.3.3.2 De-recognition The Group derecognises a financial asset when the

contractual rights to the cash flows from the financial asset expires, or when it transfers the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred or in which the Group neither transfers nor retains substantially all the risks and rewards of ownership and it does not retain control of the financial asset. Any interest in transferred financial assets that qualify for de-recognition that is created or retained by the Group is recognised as a separate asset or liability in the statement of financial position. On



de-recognition of a financial asset, the difference between the carrying amount of the asset (or the carrying amount allocated to the portion of the asset transferred), and the sum of

(i) the consideration received (including any new asset obtained less any new liability assumed) and

(ii) any cumulative gain or loss that had been recognised in other comprehensive income is recognised in Profit or Loss.

The Group enters into transactions whereby it transfers assets recognised on its statement of financial position, but retains either all or substantially all of the risks and rewards of the transferred assets or a portion of them. If all or substantially all risks and rewards are retained, then the transferred assets are not derecognised.

Transactions in which the Group neither retains nor transfers substantially all the risks and rewards of ownership of a financial asset and it retains control over the asset, the Group continues to recognise the asset to the extent of its continuing involvement, determined by the extent to which it is exposed to changes in the value of the transferred asset.

3.3.3.3 Amortised cost measurement The amortised cost of a financial asset or liability is the

amount at which the financial asset or liability is measured at initial recognition, minus principal repayments, plus or minus the cumulative amortisation using the effective interest method of any difference between the initial amount recognised and the maturity amount, minus any reduction for impairment.

3.3.3.4 Fair value measurement SLFRS 13 Fair Value Measurement applies to SLFRSs that

require or permit fair value measurement or disclosures and provides a single SLFRS framework for measuring fair value and disclosures on fair value measurement. The Standard defines fair value on the basis of an ‘exit price’ notion and uses a ‘fair value hierarchy’, which results in a market-based, rather than entity-specific, measurement.

SLFRS 13, defines fair value, sets out in a single SLFRS a framework for measuring fair value disclosures on fair value measurements.

Fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s length transaction on the measurement date.

When available, the Group measures the fair value of an instrument using quoted prices in an active market for that instrument. A market is regarded as active if quoted prices are readily and regularly available and represent actual and regularly occurring market transactions on an arm’s length basis.

If a market for a financial instrument is not active, the Group establishes fair value using valuation techniques. Valuation techniques include using recent arm’s length transactions between knowledgeable, willing parties (if available), reference to the current fair value of other instruments that are substantially the same, discounted cash flow analysis and other equity pricing models.

The chosen valuation technique makes maximum use of market inputs, relies as little as possible on estimates specific to the Group, incorporates all factors that market participants would consider in setting a price, and is consistent with accepted economic methodologies for pricing financial instruments.

The best evidence of the fair value of a financial instrument at initial recognition is the transaction price, i.e. 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 or based on a valuation technique whose variables include only data from observable markets. When transaction price provides the best evidence of fair value at initial recognition, the financial instrument is initially measured at the transaction price and any difference between this price and the value initially obtained from a valuation model is subsequently recognised in Statement of Financial position.

3.3.3.5 Valuation of Financial Instruments The Group measures the 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 of an identical instrument.


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Level 2 – Valuation techniques based on observable inputs, either directly (i.e., as prices) or indirectly (i.e., derived from prices), this category included instruments valued using: quoted market prices in active markets similar instruments; quoted prices for identical or similar instruments in markets are considered less than active: or other valuation techniques where all significant inputs are directly observable from market data.

Level 3 – Valuation techniques use 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.

Fair values of financial assets and financial liabilities that are traded in active markets are based on quoted market prices or dealer price quotations. For all other financial instruments the Company determines fair values using valuation techniques

Valuation techniques include comparison to similar instruments for which market observable prices exist, other equity pricing models and other valuation models.

The objective of valuation techniques is to arrive at a fair value determination that reflects the price of the financial instruments at the reporting date that would have been determined by market participants acting at arm’s length.

The Group widely recognised valuation models for determining the fair value of common and more simple financial instruments. Observable prices and model inputs are usually available in the market for listed debt and equity securities. Availability of observable market inputs reduces the need of management judgment 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 are is prone to changes based on specific events and general conditions in the financial markets.

3.3.4. Impairment of Financial Instruments At each reporting date the Company assesses whether there

is objective evidence that financial assets not carried at fair value through Profit or Loss are impaired. A financial asset or

a group of financial assets is (are) impaired when objective evidence demonstrates that a loss event has occurred after the initial recognition of the asset(s), and that the loss event has an impact on the future cash flows of the asset(s) that can be estimated reliably.

Objective evidence that financial assets (including equity securities) are impaired can include:

• significant financial difficulty of the borrower or issuer,

• default or delinquency by a borrower

• restructuring of a loan or advance by the Group on terms that the Group would not otherwise consider

• indications that a borrower or issuer will enter bankruptcy,

• the disappearance of an active market for a security

• other observable data relating to a group of assets such as adverse changes in the payment status of borrowers or issuers in the group of economic conditions that correlate with defaults in the group.

In addition, for an investment in an equity security, a significant or prolonged decline in its fair value below its cost is objective evidence of impairment.

3.3.4.1 Impairment of Financial Assets carried at Amortised Cost

The Group considers evidence of impairment for loans and advances at both a specific and non - specific basis. All individually significant loans and advances and held-to-maturity investment securities are assessed for specific impairment. All individually significant loans and advances and held-to-maturity investment securities found not to be specifically impaired are then assessed for any impairment separately by grouping them.

Loans and advances that are not individually significant are assessed for impairment by grouping them together with similar risk characteristics based on product types.

In assessing non-significant impairment the Group uses statistical modeling of historical trends of the probability of default, timing of recoveries and the amount of loss incurred, adjusted for management’s judgment as to whether current economic and credit conditions are such that the actual losses are likely to be greater or less than suggested by historical modeling, Default rates, loss rates and the expected timing of future recoveries are regularly taken into account to ensure that they remain appropriate.



Impairment losses on assets carried at amortised cost are measured as the difference between the carrying amount of the financial asset and the present value of estimated future cash flows discounted at the asset’s original effective interest rate. Impairment losses are recognised in Profit or Loss and reflected in an allowance account against loans and advances. Interest on impaired assets continues to be recognised through the unwinding of the discount. When a subsequent event causes the amount of impairment loss to decrease, the decrease in impairment loss is reversed through Profit or Loss.

3.3.4.2 Impairment of Available for Sale Investment Securities Impairment losses on available for sale investment securities

are recognised by transferring the cumulative loss that has been recognised in other comprehensive income to Profit or Loss as a reclassification adjustment. The cumulative loss that is reclassified from other comprehensive income to Profit or Loss is the difference between the acquisition cost, net of any principal repayment and amortisation, and the current fair value, less any impairment loss previously recognised in Profit or Loss. Changes in impairment provisions attributable to time value are reflected as a component of interest income. If, in a subsequent period, the fair value of an impaired available-for-sale debt security increases and the increase can be related objectively to an event occurring after the impairment loss was recognised, then the impairment loss is reversed, with the amount of the reversal recognised in profit or loss. However, any subsequent recovery in the fair value of an impaired available-for-sale equity security is recognised in other comprehensive income.

In the case of equity investments classified as available for sale, objective evidence would also include a ‘significant’ or ‘prolonged’ decline in the fair value of the investment below its 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 recognised in the Statement of Profit or Loss is removed from equity and recognised in the Statement of Profit or Loss Income. However, any subsequent recovery in the fair value of an impaired available-for-sale equity security is recognised in Other Comprehensive Income.

3.3.4.3 Reversal of Impairment Loss If, in a subsequent period, the fair value of an impaired

available-for-sale debt security increases and the increase can be objectively related to an event occurring after the impairment loss was recognised in Profit or Loss, the

impairment loss is reversed, with the amount of the reversal recognised in Profit or Loss. However, any subsequent recovery in the fair value of an impaired available-for-sale equity security is recognised in Other Comprehensive Income. The Group writes off certain loans and advances and investment securities when they are determined to be uncollectible.

3.3.4.4 Stated capital Ordinary shares Ordinary shares are classified as equity. Incremental costs

directly attributable to the issue of ordinary shares are recognised as a deduction from equity, net of any tax effects.

3.3.4.5 De-recognition of Financial Assets and Financial Liabilities

Financial Assets Financial assets (or, where applicable or a part of a financial

asset or part of a group of similar financial assets) is derecognised when;

• The rights to receive cash flows from the asset have expired; or

• The Group has transferred its rights to cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a ‘pass through’ arrangement; and either:

• The Group has transferred substantially all the risks and rewards of the assets, or

• The Group has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

When the Group has transferred its rights to receive cash flow from an asset or has entered in to a pass through arrangement, and has neither transferred nor retained substantially all of the risks and rewards of the assets nor transferred control of it, the asset is recognised to the extent of the Group’s continuing involvement in it. In that case, the Group also recognises an associated liability. The transferred assets and the associated liabilities are measured on a basis that reflects the right and obligation that the Group has retained.

Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Company could be required to repay.


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Financial Liabilities A financial liability is derecognised when the obligation

under liability is discharged or cancelled or expired. Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts are recognised in the profit or loss.

3.3.5 Accounting for Derivative Financial Instruments Derivatives are initially recognised at fair value on the

date on which a derivative contract is entered into and are subsequently re-measured at their fair value. Fair values are obtained from quoted market prices in active markets, or using valuation techniques. All derivatives are carried as assets when the fair value is positive and as liabilities when the fair value is negative.

3.3.5.1 Hedge accounting The Group holds derivative financial instruments to hedge its

foreign currency risk exposure. On initial designation of the derivative as the hedge instrument, the company formally documents the relationship between the hedging instrument and hedged item, its risk management objective and its strategy in undertaking the hedge.

Central treasury documents the assessment, both at hedge inception and on an on-going basis, of whether or not the hedging instruments, primarily forward rate contracts, that are used in hedging transactions are highly effective in offsetting the changes attributable to the hedged risks in the fair values or cash flows of the hedged items.

Derivatives are recognised initially at fair value; any attributable transaction costs are recognised in profit or loss as incurred. Subsequent to initial recognition, derivatives are measured at fair value, and changes therein are accounted for as described below.

3.3.5.1.1 Cash flow hedge When a derivative is designated as the hedging instrument

in a hedge of the variability in cash flows attributable to a particular risk associated with a recognised asset or liability or a highly probable forecast transaction that could affect profit or loss, the effective portion of changes in the fair

value of the derivative is recognised in other comprehensive income and presented in the hedging reserve in equity. Any ineffective portion of changes in the fair value of the derivative is recognised immediately in profit or loss.

When the hedged item is a non-financial asset, the amount accumulated in equity is retained in other comprehensive income and reclassified to profit or loss in the same period or periods during which the non-financial item affects profit or loss. In other cases as well, the amount accumulated in equity is reclassified to profit or loss in the same period that the hedged item affects profit or loss.

If the hedging instrument no longer meets the criteria for hedge accounting, expires or is sold, terminated or exercised, or the designation is revoked, then hedge accounting is discontinued prospectively. If the forecast transaction is no longer expected to occur, then the balance in equity is reclassified to profit or loss.

3.3.5.1.2 Hedge Effectiveness Testing To qualify for hedge accounting, at the inception of the

hedge and throughout its life, each hedge must be expected to be highly effective and demonstrate actual effectiveness on an on-going basis. The documentation of each hedging relationship sets out how the effectiveness of the hedge is assessed.

The method adopted by the Company to assess hedge effectiveness is based on its risk management strategy. For expected effectiveness, the hedging instrument must be expected to be highly effective in offsetting changes in cash flows attributable to the hedged risk during the period for which the hedge is designated. For actual effectiveness to be achieved, the changes in fair value or cash flows must offset each other in the range of 80% to 125%. The ineffective portion of will be recognised immediately in income statement. In measuring the effectiveness the forecasted transaction of entering into another forward contract is also taken into consideration.

3.3.6 Other non-trading derivatives (Derivatives that do not qualify for Hedge Accounting)

When a derivative financial instrument is not designated in a hedge relationship that qualifies for hedge accounting, all changes in its fair value are recognised immediately in profit or loss.



3.3.7 Reclassification of Financial Instruments The Group reclassifies non-derivative financial assets out

of the ‘held for trading’ category and into the ‘available-for-sale’, ‘loans and receivables’ or ‘held to maturity’ categories as permitted by LKAS 39. Further, in certain circumstances, the Group is permitted to reclassify financial instruments out of the ‘available-for-sale’ category and into the ‘loans and receivables’ category. Reclassifications are recorded at fair value at the date of reclassification, which becomes the new amortised cost.

For a financial asset with a fixed maturity reclassified out of the ‘available-for-sale’ category, any previous gain or loss on that asset that has been recognised in equity is amortised to Profit or Loss over the remaining life of the investment using the EIR. Any difference between the new amortised cost and the expected cash flows is also amortised over the remaining life of the asset using EIR. In the case of a financial asset does not have a fixed maturity, the gain or loss is recognised in the Profit or Loss when such a financial asset is sold or disposed of. If the financial asset is subsequently determined to be impaired, then the amount recorded in equity is recycled to the Statement of Profit or Loss.

The group may reclassify a non-derivative trading asset out of the ‘held for trading’ category and into the ‘loans and receivables’ category if it meets the definition of loans and receivables and the Group has the intention and ability to hold the financial asset for the foreseeable future or until maturity. If a financial asset is reclassified, and if the Group subsequently increases its estimates of future cash receipts as a result of increased recoverability of those cash receipts, the effect of that increase is recognised as an adjustment to the EIR from the date of the change in estimate. Reclassification is at the election of management, and is determined on an instrument-by-instrument basis.

3.4 Investment Properties3.4.1 Basis of Recognition Investment property is the property held either to earn rental

income or for capital appreciation or for both, but not for sale in the ordinary course of business, use in the production or supply of goods or services or for administrative purposes.

3.4.2 Basis of Measurement3.4.2.1 Fair value Model Investment properties are initially recognised at cost.

Subsequent to initial recognition the investment properties

are stated at fair values, which reflect market conditions at the reporting date. Gains or losses arising from changes in fair value are included in the Statement of Profit or Loss in the year in which they arise.

Where Group companies occupy a significant portion of the investment property of a subsidiary, such investment properties are treated as property, plant and equipment in the Consolidated Financial Statements, and accounted for as per LKAS 16 - Property, Plant and Equipment.

3.4.2.2 De-recognition Investment properties are de-recognised when either they

have been disposed of or when the investment property is permanently withdrawn from use and no future economic benefit is expected from its disposal. Any gains or losses on the retirement or disposal of an investment property are recognised in the Statement of Profit or Loss in the year of retirement or disposal.

3.4.2.3 Subsequent Transfers to/from Investment Property Transfers are made to investment property when, and only

when, there is a change in use, evidenced by the end of owner occupation, commencement of an operating lease to another party or completion of construction or development.

Transfers are made from investment property when, and only when, there is a change in use, evidenced by commencement of owner occupation or commencement of development with a view to sale.

For a transfer from investment property to owner occupied property or inventories, the deemed cost of property for subsequent accounting is its fair value at the date of change in use. If the property occupied by the Company as an owner occupied property becomes an investment property, the Company, accounts for such property in accordance with the policy stated under property, plant and equipment up to the date of change in use.

For a transfer from inventories to investment property, any difference between the fair value of the property at that date and its previous carrying amount is recognised in the Statement of Profit or Loss. When the Company completes the construction or development of a self-constructed investment property, any difference between the fair value of the property at that date and its previous carrying amount is recognised in the Statement of Profit or Loss.


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3.4.2.4 Determining Fair Value External and independent valuers, having appropriate

recognised professional qualifications and recent experience in the location and category of property being valued, values the investment property portfolio as at each reporting date. In financial periods within that period the fair value is determined by the Board of Directors.

The fair values are based on market values, being the estimated amount for which a property could be exchanged on the date of the valuation between a willing buyer and a willing seller in an arm’s length transaction after proper marketing wherein the parties had each acted knowledgeably.

3.5 Property, Plant and Equipment 3.5.1 Freehold Property, Plant & Equipment3.5.1.1 Basis of Recognition Property, plant and equipment are recognised if it is

probable that future economic benefits associated with the asset will flow to the Company and cost of the asset can be reliably measured.

3.5.1.2 Basis of Measurement Items of property, plant and equipment are measured at cost/

revaluation less accumulated depreciation and accumulated impairment losses.

Cost includes expenditure that is directly attributable to the acquisition of the asset. The cost of self-constructed assets includes the cost of materials and direct labour, any other costs directly attributable to bringing the assets to a working condition for their intended use, the costs of dismantling and removing the items and restoring the site at which they are located and capitalised borrowing costs.

Purchased software that is integral to the functionality of the related equipment is capitalised as part of that equipment.

When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items of property, plant and equipment.

3.5.1.3 Cost Model The Company applies the cost model to all property, plant

and equipment except freehold land and buildings; which records at cost of purchase together with any incidental expenses thereon less any accumulated depreciation and accumulated impairment losses if any.

3.5.1.4 Revaluation Model The Company revalues its land and buildings which are

measured at its fair value at the date of revaluation less any subsequent accumulated depreciation and accumulated impairment losses. Revaluations are made with sufficient regularity to ensure that the carrying amount does not differ materially from that which would be determined using fair value at the reporting date.

On revaluation of lands and buildings, any increase in the revaluation amount is credited to the revaluation reserve through other comprehensive income in shareholder’s equity unless it off sets a previous decrease in value of the same asset that was recognised in the Statement of Profit or Loss. A decrease in value is recognised in the Statement of Profit or Loss where it exceeds the increase previously recognised in the revaluation reserve. Upon disposal, any related revaluation reserve is transferred from the revaluation reserve to retained earnings and is not taken into account in arriving at the gain or loss on disposal.

3.5.1.5 Subsequent Cost Subsequent expenditure is capitalised only when it is

probable that the future economic benefits associated with the expenditure will flow to the Company. Ongoing repairs and maintenance are expensed as incurred.

3.5.1.6 Reclassification to Investment Property When the use of a property changes from owner-occupied to

investment property, the property is re-measured to fair value and reclassified as investment property. Any gain arising on re-measurement is recognised in Profit or Loss to the extent that it reverses a previous impairment loss on the specific property, with any remaining gain recognised and presented in the revaluation reserve in equity. Any loss is recognised immediately in Profit or Loss.

3.5.1.7 Depreciation Depreciation is based on the cost of an asset less its

residual value. Significant components of individual assets are assessed and if a component has a useful life that is different from the remainder of that asset, that component is depreciated separately.

Depreciation is recognised in Profit or Loss on a straight-line basis over the estimated useful life of each component of an item of property, plant and equipment. Leased assets are depreciated over the shorter of the lease term and their useful lives unless it is reasonably certain that the Company will obtain ownership by the end of the lease term. Lands are not depreciated.



Depreciation of an asset begins when it is available for use and ceases at the earlier of the date that the asset is classified as held for sale and the date that the asset is de-recognised.

Depreciation methods, useful life values are assessed at the reporting date. The estimated useful lives for the current year are as follows:

Free-hold building 40 years Fixtures 05 years Office Furniture 05 years Office Equipment 05 years Free-hold motor Vehicles 04 years Computer Equipment 05 years

3.5.1.8 De-recognition An item of property, plant and equipment is de-recognised

upon disposal or when no future economic are expected from its use or disposal.

The gain or loss on disposal of an item of property, plant and equipment is determined by comparing the proceeds from disposal with the carrying amount of the property, plant and equipment, and is recognised net within other income/other expenses in the Statement of Profit or Loss. When revalued assets are sold, the amounts included in the revaluation surplus reserve are transferred to retained earnings.

3.5.2 Operating Lease Assets When acting as lessor, the Company includes the assets

subject to operating leases in ‘Property, Plant and Equipment’ and accounts for them accordingly. Impairment losses are recognised to the extent that residual values are not fully recoverable and the carrying value of the assets is thereby impaired.

3.5.3 Capital Work-in-Progress Capital work-in-progress represents the accumulated cost of

materials and other costs directly related to the construction of an asset. Capital work in progress is transferred to the respective asset accounts at the time it is substantially completed and ready for its intended use.

3.6 Impairment of Non-financial Assets The carrying amounts of the Company’s non-financial assets

are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated. An impairment loss is recognised if the carrying amount of an

asset or its related Cash-Generating Unit (CGU) exceeds its estimated recoverable amount.

The Company’s corporate assets do not generate separate cash inflows and are utilised by more than one CGU. Corporate assets are allocated to CGUs on a reasonable and consistent basis and tested for impairment as part of the testing of the CGU to which the corporate asset is allocated.

Impairment losses are recognised in Profit or Loss. Impairment losses recognised in respect of CGUs are allocated first to reduce the carrying amount of any goodwill allocated to the CGU (group of CGUs), and then to reduce the carrying amounts of the other assets in the CGU (group of CGUs) on a pro rata basis.

An impairment losses recognised in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation, if no impairment loss had been recognised.

3.7 Tax Expense Tax expense comprises current, deferred tax and other

statutory taxes. Income tax and deferred tax expense is recognised in Statement of Profit or Loss except to the extent that it relates to items recognised in the Statement of Other Comprehensive Income or Statement of Changes in equity.

3.7.1 Current Tax Expense Current tax is the expected tax payable or recoverable

on the taxable income or loss for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years. Current tax payable also includes any tax liability arising from the tax on dividend income.

The provision for income tax is based on the elements of income and expenditure as reported in the Financial Statements and computed in accordance with the provisions of the Inland Revenue Act. No 10 of 2006 and subsequent amendments thereto.

Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the Commissioner General of Inland Revenue.


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3.7.2 Deferred Tax Deferred tax is recognised in respect of temporary

differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognised for:

• Temporary differences on the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss;

• Temporary differences related to investments in subsidiaries and jointly controlled entities to the extent that it is probable that they will not reverse in the foreseeable future; and

• Taxable temporary differences arising on the initial recognition of goodwill.

• Taxable temporary differences arising on subsidiaries, associates or joint ventures who have not distributed their entire profits to the parent or investor.

Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date.

Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realised simultaneously.

A deferred tax asset is recognised for unused tax losses, tax credits and deductible temporary differences, to the extent that it is probable that future taxable profits will be available against which they can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised.

Deferred tax assets and liabilities are not discounted.

The net increase in the carrying amount of deferred tax liability net of deferred tax asset is recognised as deferred tax expense and conversely any net decrease is recognised as reversal to deferred tax expense, in the Statement of Profit or Loss.

3.7.3 Withholding Tax on Dividends Dividend distributed out of taxable profit of the local

companies attracts a 10% deduction at source and is not available for set off against the tax liability of the Company. Withholding tax that arises from the distribution of dividends by the Company is recognised at the same time as the liability to pay the related dividend is recognised.

3.7.4 Economic Service Charge (ESC) As per the provisions of Economic Service Charge Act No.

13 of 2006 and subsequent amendments thereto, ESC is payable on the liable turnover at specified rates. ESC is deductible from the income tax liability. Any unclaimed amount can be carried forward and set off against the income tax payable in the five subsequent years as per the relevant provision in the Act.

3.7.5 Nation Building Tax (NBT) As per the provisions of the Nation Building Tax Act, No. 9

of 2009 and the subsequent amendments thereto, Nation Building Tax should be payable at the rate of 2% with effect from 1 January 2011 on the liable turnover as per the relevant provisions of the Act.

3.7.6 Value Added Tax on Financial Services (VAT on FS) VAT on Financial Services is calculated in accordance

with the amended VAT Act No. 7 of 2003 and subsequent amendments thereto. The base for the computation of VAT on Financial Services is the accounting profit before income tax adjusted for the economic depreciation and emoluments of employees. VAT on financial services is computed on the prescribed rate of 11%.

The VAT on Financial service is recognised as expense in the period it becomes due.

3.7.7 Crop Insurance Levy (CIL) As per the provisions of the Section 14 of the Finance Act No.

12 of 2013, the CIL was introduced with effect from April 01, 2013 and is payable to the National Insurance Trust Fund. Currently, the CIL is payable at 1% of the profit after tax.

3.7.8 Borrowing Costs Borrowing costs that are directly attributable to the

acquisition, construction or production of qualifying assets that take a substantial period of time to get ready for its intended use or sale, are capitalised as part of the assets.



Borrowing costs that are not directly attributable to the acquisition, construction or production of a qualifying asset are recognised in Profit or Loss using the effective interest method.

Other Non-Financial Liabilities and Provisions Liabilities are recognised in the Statement of Financial

Position when there is a present obligation as a result of a past event, the settlement of which is expected to result in an outflow of resources embodying economic benefits. Obligations payable at the demand of the creditor within one year of the reporting date are treated as current liabilities. Liabilities payable after one year from the reporting date are treated as non-current liabilities.

3.7.9 Deposits due to Customers Deposits include term deposits and certificates of deposits.

They are stated in the Statement of Financial Position at amount payable. Interest paid / payable on these deposits based on effective interest rate is charged to the Statement of Profit or Loss.

3.7.10 Deposit Insurance Scheme In terms of the Finance Companies Direction No. 2 of 2010

“Insurance of Deposit Liabilities” issued on 27th September 2010, all Registered Finance Companies are required to insure their deposit liabilities in the Deposit Insurance Scheme operated by the Monetary Board in terms of Sri Lanka Deposit Insurance Scheme Regulations No. 1 of 2010 issued under Sections 32A to 32E of the Monetary Law Act with effect from 01st October 2010.

Deposits to be insured include time and savings deposit liabilities and exclude the following.

Deposit liabilities to member institutions Deposit liabilities to Government of Sri Lanka

Deposit liabilities to shareholders, directors, key management personnel and other related parties as defined in Finance Companies Act Direction No 03 of 2008 on Corporate Governance of Registered Finance Companies

Deposit liabilities held as collateral against any accommodation granted

Deposit liabilities falling within the meaning of dormant deposits in terms of the Finance Companies Act, funds of which have been transferred to Central Bank of Sri Lanka

Registered Finance Companies are required to pay a premium of 0.15% on eligible deposit liabilities as at end of the month to be payable within a period of 15 days from the end of the respective month.

3.8 Debt Securities Issued These represent the funds borrowed by the Group for long-

term funding requirements. Subsequent to initial recognition debt securities issued are measured at their amortised cost using the effective interest method, except where the Group designates debt securities issued at fair value through profit or loss. Interest paid/payable is recognised in profit or loss.

3.9 Other Liabilities Other liabilities are recorded at amounts expected to be

payable at the Reporting date.

3.10 Employee Benefits3.10.1 Defined Contribution Plans A Defined Contribution Plan is a post-employment benefit

plan under which an entity pays fixed contributions into a separate entity and will have no legal or constructive obligation to pay further amounts. Obligations for contributions to Defined Contribution Plans are recognised as an employee benefit expense in the Statement of Profit or Loss in the periods during which services are rendered by employees.

3.10.1.1 Employees’ Provident Fund (EPF) The Company and employees contribute 12% and 8%

respectively on the salary of each employee to the above mentioned funds.

3.10.1.2 Employees’ Trust Fund (ETF) The Company contributes 3% of the salary of each employee

to the Employees’ Trust Fund.

3.10.2 Defined Benefits Plans A defined benefit plan is a post-employment benefit plan

other than a defined contribution plan. The Group’s net obligation in respect of defined benefit pension plans is calculated by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods; that benefit is discounted to determine its present value. Any unrecognised past service costs are deducted.


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The calculation is performed every three years by a qualified actuary using the projected unit credit method. For the purpose of determining the charge for any period before the next regular actuarial valuation falls due, an approximate estimate provided by the qualified actuary is used.

When the benefits of a plan are improved, the portion of the increased benefit related to past service by employees is recognised in Profit or Loss on a straight-line basis over the average period until the benefits become vested. To the extent that the benefits vest immediately, the expense is recognised immediately in Profit or Loss.

The Group recognises all actuarial gains and losses arising from the defined benefit plan in other comprehensive income (OCI) and all other expenses related to defined benefit plans are recognise as personnel expenses in Statement of Profit or Loss. This retirement benefit obligation is not externally funded.

However, according to the Payment of Gratuity Act No.12 of 1983, the liability for the gratuity payment to an employee arises only on the completion of 5 years of continued service with the Company.

3.10.3 Short-term Employee Benefits Short-term employee benefit obligations are measured on an

undiscounted basis and are expensed as the related service is provided. A liability is recognised for the amount expected to be paid under short-term cash bonus if the company has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee, and the obligation can be estimated reliably.

3.11 Provisions, Contingent Assets and Contingent Liabilities

Provisions are made for all obligations (legal or constructive) existing as at the reporting date when it is probable that such an obligation will result in an outflow of resources and a reliable estimate can be made of the quantum of the outflow. The amount recognised is the best estimate of the consideration required to settle the present obligation at the reporting date, taking into account the risks and uncertainties surrounding the obligation at that date.

All contingent liabilities are disclosed as a note to the Financial Statements unless the outflow of resources is remote. Contingent assets are disclosed, where inflow of economic benefit is probable.

Statement of Profit or Loss and Other Comprehensive Income

3.12 Revenue Recognition Revenue is recognised to the extent that it is probable that

the economic benefits will flow to the Group, and the revenue and associated costs incurred or to be incurred can be reliably measured. Revenue is measured at the fair value of the consideration received or receivable, taking into account contractually defined terms of payment.

3.12.1 Interest Income on Leases, Hire Purchases, Loans and Advances

Interest income and expense are recognised in Profit or Loss using the effective interest method. The effective interest rate is the rate that exactly discounts the estimated future cash payments and receipts through the expected life of the financial asset or liability (or, where appropriate, a shorter period) to the carrying amount of the financial asset or liability. When calculating the effective interest rate, the Group estimates future cash flows considering all contractual terms of the financial instrument, but not future credit losses.

The calculation of the effective interest rate includes all transaction costs and fees paid or received that are an integral part of the effective interest rate. Transaction costs include incremental costs that are directly attributable to the acquisition or issue of a financial asset or liability.

Interest income and expense presented in the Statement of Profit or Loss includes,

• interest on financial assets and financial liabilities measured at amortised cost calculated on an effective interest basis

• interest on available for sale investment securities calculated on an effective interest basis

Interest income and expense on all trading assets and liabilities are considered to be incidental to the Company’s trading operations and are presented together with all other changes in the fair value of trading assets and liabilities in net trading income.

Fair value changes on other derivatives held for risk management purposes, and other financial assets and liabilities carried at fair value through Profit or Loss, are presented in net income from other financial instruments at fair value through Profit or Loss in the Statement of Profit or Loss.



The excess of aggregated contract receivable over the cost of the assets constitutes the total unearned income at the commencement of a contract. The unearned income is recognised as income over the term of the facility commencing with the month that the facility is executed in proportion to the declining receivable balance, so as to produce a constant periodic rate of return on the net investment.

3.12.2 Service Charge and Facility Fee from Microfinance Facilities

Collection on service charge and facility fee from microfinance facilities are accounted on cash basis.

3.12.3 Fees and Other Income Fees and commission income and expense that are integral

to the effective interest rate on a financial asset or liability are included in the measurement of the effective interest rate.

Other fees and commission income, including account servicing fees are recognised as the related services are performed.

Profit or loss on contracts terminated, collections on contracts written off, interest on overdue rentals, interest earned on property sale and buy back agreements are accounted for on cash basis.

3.12.4 Net Income from other Financial Instruments at Fair Value through Profit or Loss

Net income from other financial instruments at fair value through Profit or Loss relates to non-trading derivatives held for risk management purposes that do not form part of qualifying hedge relationships and financial assets and liabilities designated at fair value through Profit or Loss, and include all realised and unrealised fair value changes, interest, dividends and foreign exchange differences.

3.12.5 Factoring Income Revenue is derived from two sources, Funding and providing

Sales Ledger Related Services.

Funding - Discount income relating to factoring transactions is recognised at the end of a given accounting month. In computing this discount, a fixed rate agreed upon at the commencement of the factoring agreement is applied on the daily balance in the client’s current account.

Sales Ledger Related Services - A service charge is levied as stipulated in the factoring agreement.

Income is accounted for on an accrual basis and deemed earned on disbursement of advances for invoices factored.

The above revenue components are accounted on an accrual basis and deemed earned on disbursement of advances for invoices factored.

3.12.6 Other Income Rent income and non-operational interest income are

accounted for on accrual basis.

Dividend income is recognised when the right to receive payment is established.

Gain on disposal of property, plant and equipment and other non-current assets, including investments held by the Group have been accounted for in the Statement of Profit or Loss Income, after deducting from the net sales proceeds on disposal of the carrying amount of such assets.

3.12.7 Rental Income Rental income from investment property is recognised in

Profit or Loss on a straight-line basis over the term of the lease. Lease incentives granted are recognised as an integral part of the total rental income, over the term of the lease. Rental income from subleased property is recognised as other income.

3.13 Expenses Recognition Expenses are recognised in the Statement of Profit or Loss

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 & equipment in a state of efficiency has been charged to income in arriving at the profit for the year.

For the presentation of the Statement of Profit or Loss the Directors are of the opinion that the nature of the expenses method present fairly the element of the Company’s performance, and hence such presentation method is adopted.

3.14 Earnings per Share The Group presents basic earnings per share data for its

ordinary shares. Basic earnings per share is calculated by dividing the Profit or Loss attributable to ordinary shareholders of the Group by the weighted average number of ordinary shares outstanding during the year.


108

3.15 Statement of Cash Flows The Cash Flow Statement has been prepared using the

‘Indirect Method’ of preparing Cash Flows in accordance with the Sri Lanka Accounting Standard 7 ‘Cash Flow Statements.’ Cash and cash equivalents comprise short term, highly liquid investments that are readily convertible to known amounts of cash and are subject to an insignificant risk of changes in value.

Cash and cash equivalents comprise of cash in hand and cash at banks and other highly liquid financial assets which are held for the purpose of meeting short-term cash commitments with original maturities of less than three months which are subject to insignificant risk of changes in their fair value.

3.16 Movement of Reserves Movement of Reserves is disclosed in the Statement of

Changes in Equity.

3.17 Related Party Transactions Transactions with related parties are conducted on normal

business terms. The relevant disclosures are given in Note 39 to the Financial Statements.

3.18 Transactions with Related Parties The Company carries out transactions in the ordinary course

of its business with parties who are defined as related parties in Sri Lanka Accounting Standard 24.

3.18.1 Transactions with Key Management Personnel According to Sri Lanka Accounting Standard 24 “Related

Party Disclosures”, Key management personnel, are those having authority and responsibility for planning, directing and controlling the activities of the entity. Accordingly, the company has pre-defined approved list of key management personnel.

3.19 Operating Segments An operating segment is a component of the Company

that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Company’s other components. All operating segments operating results are reviewed regularly by Board of Directors of the Company to make decisions about resources to be allocated to the segment and to assess its performance, and for which discrete financial information is available.

Accordingly, the segment comprises of financial services are described in Note 45.

Segment results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Segment capital expenditure is the total cost incurred during the period to acquire segment assets that are expected to be used for more than one period.

Expenses that cannot be directly identified to a particular segment are allocated on bases decided by the management and applied consistently throughout the year.

3.20 Subsequent Events All material subsequent events have been considered and

where appropriate adjustments or disclosures have been made in the respective Notes to the Financial Statements.

3.21 Commitments and Contingencies All discernible risks are accounted for in determining the

amount of all known liabilities. Contingent Liabilities are possible obligations whose existence will be confirmed only by uncertain future events or present obligations where the transfer of economic benefit is not probable or cannot be reliably measured. Contingent Liabilities are not recognised in the statement of financial position but are disclosed unless they are remote.

3.22 Capital Management The Board of Directors monitors the return on capital

investment on a month basis. This review is mainly carried out through return on investment analysis prepared on a quarterly basis. The plan forecasts are also reviewed on a monthly basis to ensure that targets are met in order to manage the capital invested on the Group Companies.

The Board of Directors also decides and monitors the level of dividends to ordinary shareholders. The Company does not subject to any externally impose capital requirements. However companies within the group have such requirement based on the industry in which such company established. The group companies which require externally imposed capital will monitor such requirement on a regular basis and report to respective legal authority in order to ensure compliance with such regulatory requirement.



Group Company


4. Interest IncomeInterest income on -Finance Lease 2,895,447,426 2,828,721,955 2,881,658,468 2,820,335,073Hire Purchase 23,557,976 132,104,916 14,086,585 122,103,528Loans and Advances 6,083,486,447 3,746,080,144 4,283,635,265 3,450,943,098Hire rentals 15,944,090 17,510,651 15,944,090 17,510,651Overdue Rental 519,223,831 539,867,806 516,335,470 536,033,670Factoring 702,716,105 521,283,619 702,716,105 521,283,619Rentals & sales proceeds - contracts written off 148,310,629 121,479,855 213,900,066 121,479,855

10,388,686,504 7,907,048,946 8,628,276,049 7,589,689,494

5. Interest ExpenseInterest on other financial liabilities due to customers 1,195,751,334 655,789,477 1,155,828,541 889,576,569Interest on bank overdrafts and other short-term borrowings 900,156,305 274,940,652 878,385,380 274,940,652Interest on long term borrowings 1,445,992,632 1,241,266,968 942,426,058 941,180,811Interest on securitisation 55,321,437 241,408,944 55,321,437 241,408,944Debenture interests 340,582,192 - 340,582,192 -Costs incidental to obtaining loans 94,323,553 35,773,971 94,323,553 58,996,159

4,032,127,453 2,449,180,012 3,466,867,161 2,406,103,135

6. Other IncomeDividend Income 4,719,406 4,236,044 4,660,006 4,236,044Interest received from government securities 260,171,236 183,699,558 235,663,808 183,908,189Interest income on commercial papers and fixed deposits 241,399,408 100,177,420 241,398,980 100,165,637Gain on disposal of property, plant and equipment 2,037,393 202,506,668 1,886,387 849,080Appreciation in market value of quoted investments 4,466,434 13,272,480 4,466,434 13,272,480Gain/(loss) on sale of treasury bonds 9,429,641 - 9,429,641 -Documentation fees 213,900,066 118,118,315 148,310,629 118,118,315Staff loan interest 2,187,044 16,052,403 2,187,044 15,949,749Commission Income 46,825,896 57,522,388 46,704,684 57,522,388Sundry income 79,307,538 36,117,700 67,746,659 31,899,797Foreign exchange gain / (loss) - 53,609,965 - 52,960,907Rental income 148,104 2,700,042 - -

864,592,167 788,012,983 762,454,272 578,882,585

7. Allowance for Impairment and Write OffsLease receivables 411,972,512 620,134,912 400,198,191 611,884,101Hire purchases 21,349,418 90,841,891 21,299,557 77,230,687Advances & loans 81,536,879 387,240,970 41,347,391 376,108,730Factoring 106,959,882 213,569,261 106,959,882 213,569,261Insurance receivables 1,849,598 38,937,826 1,849,598 38,937,826Available-for-sale investment securities - 200,000 - -Provision for termination 12,744,155 - - -

636,412,444 1,350,924,860 571,654,618 1,317,730,605


110

Group Company


8. Depreciation and amortisationDepreciation of property, plant and equipment (Note 26) 97,399,975 102,960,860 87,034,248 95,379,925Written off of intangible assets (Note 26.6) - 27,633,127 - -

97,399,975 130,593,987 87,034,248 95,379,925

9. Result from Operating ActivitiesProfit from ordinary activities before VAT on financial services, NBT and tax stated after charging all expenses including the following:Directors' fees & other Emoluments 53,610,116 32,701,110 43,204,615 32,701,110Auditors' remuneration - statutory audit 1,725,000 1,700,000 1,125,000 1,125,000 - audit related services 1,361,500 1,335,000 800,000 800,000Depreciation on Property Plant & Equipment 97,399,975 102,960,860 87,034,248 95,379,925Legal and professional expenses 14,420,661 14,455,151 14,045,211 14,045,211Personnel costs (Note 9.1) 1,217,922,452 845,451,266 870,768,659 723,426,263

9.1 Personnel CostsSalaries and other benefits 1,125,394,902 760,736,626 805,816,232 669,830,669Defined contribution plan cost - EPF 62,460,543 59,842,963 43,074,637 35,028,911 - ETF 14,646,277 13,205,730 10,768,659 8,757,228Defined benefit plan costs - Employee Benefits 15,420,730 11,665,947 11,109,131 9,809,455

1,217,922,452 845,451,266 870,768,659 723,426,263

10. Value added tax on financial services and NBTGroup Company


Value added tax on financial services 285,664,399 174,843,802 215,110,938 153,580,648Nation Building tax on financial services 74,424,174 15,557,997 55,546,850 15,557,997

360,088,573 190,401,799 270,657,788 169,138,645

11. Income Tax ExpenseCurrent tax expense (Note 11.1) 655,240,704 475,659,283 545,307,410 442,807,082Deferred tax (reversal) / charge (Note 33.3) (112,493,782) (159,776,870) (111,424,700) (140,567,429)Current income tax expense 542,746,923 315,882,413 433,882,710 302,239,653

The Company is liable for tax at the rate of 28% on its taxable income in accordance with the Inland Revenue Act No 10 of 2006 and subsequent amendments made thereon.



Group Company


11.1 Current Tax ExpenseCurrent year income tax expense on ordinary activities (Note 11.2) 635,308,155 472,974,193 525,374,861 441,158,352Under provision of taxes in respect of previous years 19,932,549 2,685,090 19,932,549 1,648,730

655,240,704 475,659,283 545,307,410 442,807,082

11.2 Numerical Reconciliation of accounting profits to income tax expense,

Accounting profit before income tax 2,268,275,129 1,908,891,356 2,007,890,159 1,728,260,972Aggregate disallowable expenses 9,298,960,071 8,262,579,160 9,089,396,955 8,000,522,847Aggregate tax deductible expenses (9,512,299,410) (8,482,276,969) (9,456,612,134) (8,153,218,275)Tax exempt income 214,021,907 235,663,808 -Taxable profit 2,268,957,698 1,689,193,547 1,876,338,789 1,575,565,544

Income tax at 28% 635,308,155 472,974,193 525,374,861 441,158,352Current income tax expense 635,308,155 472,974,193 525,374,861 441,158,352

11.3 Deferred tax has been computed using the enacted tax rate of 28%

12. Earnings per ShareAmount Used as the NumeratorNet profit attributable to equity holders of the Company 1,716,970,284 1,589,109,547 1,574,007,449 1,426,021,319

Number of Ordinary Shares Used as the DenominatorWeighted average number of ordinary shares in issue (shares) 6,377,711,170 6,377,711,170 6,377,711,170 6,377,711,170Earnings per Share 0.27 0.25 0.25 0.22

Basic earnings per share is calculated by dividing the net profit for the year attributable to the ordinary shareholders by the weighted average number of ordinary shares outstanding during the year.

13. Cash and Cash EquivalentsComponents of Cash Equivalents

Group Company


13.1 Favourable Cash & Cash Equivalent BalancesCash in hand 90,520,870 21,738,589 23,565,637 20,161,552Investment in REPO 850,000,000 88,700,000 - -Balances with banks 1,339,773,841 529,277,924 812,491,034 495,518,243

2,280,294,711 639,716,513 836,056,671 515,679,795

13.2 Unfavourable Cash & Cash Equivalent BalancesBank overdraft (1,594,870,802) (1,326,488,496) (1,170,761,489) (1,310,844,519)Total cash and cash equivalents in the cash flow statement 685,423,909 (686,771,983) (334,704,818) (795,164,724)


112

Group Company


14. Financial Assets Held for TradingEquity shares (Note 14.1) 188,189,393 228,344,666 188,189,393 228,344,666Unit Trust (Note 14.2) 4,044,621,707 - 4,044,621,707 -

4,232,811,100 228,344,666 4,232,811,100 228,344,666

14.1 Equity SharesBalance as at beginning of the year 228,344,666 234,793,565 228,344,666 215,068,436Marked to market adjustments (40,155,272) (6,448,899) (40,155,272) 13,276,230Balance as at end of the year 188,189,393 228,344,666 188,189,393 228,344,666

Group Group Company

As at 31st March 2016 As at 31st March 2015 As at 31st March 2016 As at 31st March 2015

No. ofShares

CostRs.

Fair ValueRs.

No. ofShares

CostRs.

Fair ValueRs.

No. ofShares

CostRs.

Fair ValueRs.

No. ofShares

CostRs.

Fair ValueRs.

14.1.1 Equity Shares - Portfolio Colombo Drydocks PLC 4,315 85,997 466,452 4,315 85,997 714,133 4,315 85,997 466,452 4,315 85,997 714,133DFCC Bank PLC 38 380 5,206 38 380 7,706 38 380 5,206 38 380 7,706Overseas Realty Ceylon PLC 113,680 1,664,891 2,660,112 113,680 1,664,891 2,671,480 113,680 1,664,891 2,660,112 113,680 1,664,891 2,671,480Seylan Bank PLC 74,261 1,104,210 4,678,443 74,261 1,104,210 4,708,147 74,261 1,104,210 4,678,443 74,261 1,104,210 4,708,147Hayleys Limited 734,144 216,803,911 180,379,181 734,144 216,803,911 220,243,200 734,144 216,803,911 180,379,181 734,144 216,803,911 220,243,200

219,659,389 188,189,393 219,659,389 228,344,666 219,659,389 188,189,393 219,659,389 228,344,666

Group Group Company


No. ofShares

CostRs.

Fair ValueRs.

No. ofShares

CostRs.

Fair ValueRs.

No. ofShares

CostRs.

Fair ValueRs.

No. ofShares

CostRs.

Fair ValueRs.

14.2 Unit Trust CAL High Yield Fund 99,969,343 1,500,000,000 1,526,171,974 - - - 99,969,343 1,500,000,000 1,526,171,974 - - -First Capital Wealth Fund 413,627 500,000,000 490,122,597 - - - 413,627 500,000,000 490,122,597 - - -First Capital Money Market Fund 462,877 500,000,000 508,396,588 - - - 462,877 500,000,000 508,396,588 - - -NDB Wealth Money Plus Fund 105,229,927 1,500,000,000 1,519,930,548 - - - 105,229,927 1,500,000,000 1,519,930,548 - - -

4,000,000,000 4,044,621,707 - - - 4,000,000,000 4,044,621,707 - - -



Group Company


14. Financial Assets Held for TradingEquity shares (Note 14.1) 188,189,393 228,344,666 188,189,393 228,344,666Unit Trust (Note 14.2) 4,044,621,707 - 4,044,621,707 -

4,232,811,100 228,344,666 4,232,811,100 228,344,666

14.1 Equity SharesBalance as at beginning of the year 228,344,666 234,793,565 228,344,666 215,068,436Marked to market adjustments (40,155,272) (6,448,899) (40,155,272) 13,276,230Balance as at end of the year 188,189,393 228,344,666 188,189,393 228,344,666

Group Group Company


No. ofShares

CostRs.

Fair ValueRs.

No. ofShares

CostRs.

Fair ValueRs.

No. ofShares

CostRs.

Fair ValueRs.

No. ofShares

CostRs.

Fair ValueRs.

14.1.1 Equity Shares - Portfolio Colombo Drydocks PLC 4,315 85,997 466,452 4,315 85,997 714,133 4,315 85,997 466,452 4,315 85,997 714,133DFCC Bank PLC 38 380 5,206 38 380 7,706 38 380 5,206 38 380 7,706Overseas Realty Ceylon PLC 113,680 1,664,891 2,660,112 113,680 1,664,891 2,671,480 113,680 1,664,891 2,660,112 113,680 1,664,891 2,671,480Seylan Bank PLC 74,261 1,104,210 4,678,443 74,261 1,104,210 4,708,147 74,261 1,104,210 4,678,443 74,261 1,104,210 4,708,147Hayleys Limited 734,144 216,803,911 180,379,181 734,144 216,803,911 220,243,200 734,144 216,803,911 180,379,181 734,144 216,803,911 220,243,200

219,659,389 188,189,393 219,659,389 228,344,666 219,659,389 188,189,393 219,659,389 228,344,666

Group Group Company


No. ofShares

CostRs.

Fair ValueRs.

No. ofShares

CostRs.

Fair ValueRs.

No. ofShares

CostRs.

Fair ValueRs.

No. ofShares

CostRs.

Fair ValueRs.

14.2 Unit Trust CAL High Yield Fund 99,969,343 1,500,000,000 1,526,171,974 - - - 99,969,343 1,500,000,000 1,526,171,974 - - -First Capital Wealth Fund 413,627 500,000,000 490,122,597 - - - 413,627 500,000,000 490,122,597 - - -First Capital Money Market Fund 462,877 500,000,000 508,396,588 - - - 462,877 500,000,000 508,396,588 - - -NDB Wealth Money Plus Fund 105,229,927 1,500,000,000 1,519,930,548 - - - 105,229,927 1,500,000,000 1,519,930,548 - - -

4,000,000,000 4,044,621,707 - - - 4,000,000,000 4,044,621,707 - - -


114

Group Company


15. Other InvestmentsFinancial investments - Available-for-sale (Note 15.1) 1,531,999,744 355,209,540 1,529,178,752 352,146,025Loans and receivables (Note 15.2) 28,152,831,033 5,529,916,672 28,152,831,033 5,514,465,497Derivative assets held for risk management (Note 15.3) 60,811,791 8,000,000 60,811,791 8,000,000

29,745,642,568 5,893,126,212 29,742,821,576 5,874,611,522

15.1 Financial Investments - Available-for-saleInvestments in treasury bonds (Note 15.1.1) 1,465,009,994 355,019,790 1,462,200,002 351,967,275Unquoted Shares (Note 15.1.2) 67,189,750 389,750 66,978,750 178,750Specific allowances for impairment (15.1.3) (200,000) (200,000) - -

1,531,999,744 355,209,540 1,529,178,752 352,146,025

15.1.1 Investments in Treasury Bonds

Group Company


Cost Fair Value Cost Fair Value Cost Fair Value Cost Fair Value

Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs.

Softlogic Finance PLC 39,740,200 37,758,227 37,585,520 38,842,000 39,740,200 37,758,227 37,585,520 38,842,000Entrust Securities PLC 21,367,125 25,058,552 19,015,800 25,120,000 21,367,125 25,058,552 19,015,800 25,120,000First Capital Treasuries Limited 61,553,779 53,782,868 83,845,470 79,437,050 61,553,779 53,782,868 83,845,470 79,437,050Wealth Trust Securities Limited - - 11,239,800 12,648,125 - - 11,239,800 12,648,125Capital Alliance 223,216,820 210,467,790 180,481,520 195,920,100 223,216,820 210,467,790 180,481,520 195,920,100Bank of Ceylon - - 3,199,462 3,052,515 - - - -Nations Trust Bank 3,199,462 2,809,992 - - - - - -Seylan Bank PLC 1,159,354,332 1,135,132,565 - - - 1,135,132,565 - -

1,508,431,718 1,465,009,994 335,367,572 355,019,790 345,877,924 1,462,200,002 332,168,110 351,967,275

15.1.2 Unquoted Shares

Group Company


No. ofShares

CostRs.

Fair ValueRs.

No. ofShares

CostRs.

Fair ValueRs.

No. ofShares

CostRs.

Fair ValueRs.

No. ofShares

CostRs.

Fair ValueRs.

Equity Investments Lanka Ltd 16,875 172,500 168,750 16,875 172,500 168,750 16,875 172,500 168,750 16,875 172,500 168,750Credit Information Bureau 110 10,000 10,000 110 21,000 21,000 100 10,000 10,000 100 10,000 10,000Finance Houses Consortium (Pvt) Ltd. 20,000 211,000 211,000 20,000 200,000 200,000 - - - - - -LOLC Myanmar Micro-Finance Company Limited 519,520 0.26 66,800,000 - - - 519,520 0.26 66,800,000 - - -

67,189,750 389,750 66,978,750 178,750



Group Company


15. Other InvestmentsFinancial investments - Available-for-sale (Note 15.1) 1,531,999,744 355,209,540 1,529,178,752 352,146,025Loans and receivables (Note 15.2) 28,152,831,033 5,529,916,672 28,152,831,033 5,514,465,497Derivative assets held for risk management (Note 15.3) 60,811,791 8,000,000 60,811,791 8,000,000

29,745,642,568 5,893,126,212 29,742,821,576 5,874,611,522

15.1 Financial Investments - Available-for-saleInvestments in treasury bonds (Note 15.1.1) 1,465,009,994 355,019,790 1,462,200,002 351,967,275Unquoted Shares (Note 15.1.2) 67,189,750 389,750 66,978,750 178,750Specific allowances for impairment (15.1.3) (200,000) (200,000) - -

1,531,999,744 355,209,540 1,529,178,752 352,146,025

15.1.1 Investments in Treasury Bonds

Group Company


Cost Fair Value Cost Fair Value Cost Fair Value Cost Fair Value


Softlogic Finance PLC 39,740,200 37,758,227 37,585,520 38,842,000 39,740,200 37,758,227 37,585,520 38,842,000Entrust Securities PLC 21,367,125 25,058,552 19,015,800 25,120,000 21,367,125 25,058,552 19,015,800 25,120,000First Capital Treasuries Limited 61,553,779 53,782,868 83,845,470 79,437,050 61,553,779 53,782,868 83,845,470 79,437,050Wealth Trust Securities Limited - - 11,239,800 12,648,125 - - 11,239,800 12,648,125Capital Alliance 223,216,820 210,467,790 180,481,520 195,920,100 223,216,820 210,467,790 180,481,520 195,920,100Bank of Ceylon - - 3,199,462 3,052,515 - - - -Nations Trust Bank 3,199,462 2,809,992 - - - - - -Seylan Bank PLC 1,159,354,332 1,135,132,565 - - - 1,135,132,565 - -

1,508,431,718 1,465,009,994 335,367,572 355,019,790 345,877,924 1,462,200,002 332,168,110 351,967,275

15.1.2 Unquoted Shares

Group Company


No. ofShares

CostRs.

Fair ValueRs.

No. ofShares

CostRs.

Fair ValueRs.

No. ofShares

CostRs.

Fair ValueRs.

No. ofShares

CostRs.

Fair ValueRs.

Equity Investments Lanka Ltd 16,875 172,500 168,750 16,875 172,500 168,750 16,875 172,500 168,750 16,875 172,500 168,750Credit Information Bureau 110 10,000 10,000 110 21,000 21,000 100 10,000 10,000 100 10,000 10,000Finance Houses Consortium (Pvt) Ltd. 20,000 211,000 211,000 20,000 200,000 200,000 - - - - - -LOLC Myanmar Micro-Finance Company Limited 519,520 0.26 66,800,000 - - - 519,520 0.26 66,800,000 - - -

67,189,750 389,750 66,978,750 178,750


116

Group Company


15.1.3 Specific allowances for impairmentAs at 01st April 200,000 - - -Impairement loss for the period Charge for the year - 200,000 - -Balance as at 31st March 200,000 200,000 - -

15.2 Loans and Receivables

Group Company

As at 31st March 2016




Rs. Rs. Rs. Rs.

Treasury Bills & Repos 4,593,221,027 1,765,451,175 4,593,221,027 1,750,000,000Investments in term deposits 23,559,610,006 3,764,465,497 23,559,610,006 3,764,465,497

28,152,831,033 5,529,916,672 28,152,831,033 5,514,465,497

15.3 Derivative Assets Held for Risk ManagementForward rate contracts (Note.15.3.1) 60,811,791 8,000,000 60,811,791 8,000,000

15.3.1 Forward rate contracts The company uses a mixture of forward foreign exchange contracts to hedge the foreign currency translation risk on its foreign borrowings.

The fair value of the derivatives designated as cash flow hedges are as follows,

Group Company


Assets Liabilities Assets Liabilities Assets Liabilities Assets Liabilities Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs.

60,811,791 - 8,000,000 289,491,818 60,811,791 - 8,000,000 289,491,818

The time periods in which the hedged cash flows are expected to occur and affect the statement of comprehensive income are as follows:

Group Company


Within 1 Year

1-5 Years

Over 5 Years

Within 1 Year

1-5 Years

Over 5 Years

Within 1 Year

1-5 Years

Over 5 Years

Within 1 Year

1-5 Years

Over 5 Years

Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs.

2,497,256,157 - - 4,884,350,967 - - 2,497,256,157 - - 4,884,350,967 - -

For the year ended 31st March 2016 net loss of Rs. 226 Mn (2015: Net loss of Rs. 177 Mn) relating to the effective portion of cash flow hedges were recognised in other comprehensive income.



Group Company


16. Rentals Receivable on Leases and Hire PurchasesFinance lease receivables (Note 16.1) 14,745,331,507 12,615,404,889 14,671,376,772 12,574,150,592Hire purchase receivables (Note 16.2) 38,157,954 199,626,989 22,105,368 144,570,447

14,783,489,462 12,815,031,878 14,693,482,139 12,718,721,039

Rentals Receivable on Leases and Hire PurchasesGross rental receivables 19,920,552,431 17,485,019,485 19,742,331,037 17,323,924,023Unearned income (4,926,256,615) (4,376,295,328) (4,880,417,835) (4,342,061,814)Total Rentals Receivable (Note 16.3) 14,994,295,816 13,108,724,157 14,861,913,202 12,981,862,209

Allowance for impairment (Note 16.3) (210,806,354) (293,692,279) (168,431,063) (263,141,170)Net receivables 14,783,489,462 12,815,031,878 14,693,482,139 12,718,721,039

16.1 Finance Lease ReceivablesGross rentals receivable 19,824,954,578 17,203,130,870 19,687,178,847 17,136,810,942Unearned income (4,921,266,635) (4,336,118,736) (4,879,434,822) (4,321,267,966)

14,903,687,943 12,867,012,134 14,807,744,025 12,815,542,976

Allowance for impairment (Note 16.1.3) (158,356,436) (251,607,245) (136,367,253) (241,392,384)14,745,331,507 12,615,404,889 14,671,376,772 12,574,150,592

Finance Lease ReceivablesReceivables within one year (Note 16.1.1) 3,757,591,850 4,151,981,990 3,744,021,632 4,147,516,242Receivable from one to five years (Note 16.1.2) 10,681,072,267 8,240,771,668 10,617,483,781 8,198,916,548Overdue rental receivable 465,023,826 474,258,477 446,238,612 469,110,186(-) Allowance for impairment (Note 16.1.3) (158,356,436) (251,607,245) (136,367,253) (241,392,384)

14,745,331,507 12,615,404,889 14,671,376,772 12,574,150,592

16.1.1 Receivables within One YearGross rentals receivable 6,051,679,280 6,373,357,379 6,037,598,281 6,368,360,956Unearned income (2,294,087,430) (2,221,375,389) (2,293,576,649) (2,220,844,714)

3,757,591,850 4,151,981,990 3,744,021,632 4,147,516,242

16.1.2 Receivable from One to Five Years Gross rentals receivable 13,308,251,472 10,355,515,014 13,203,341,954 10,299,339,800Unearned income (2,627,179,205) (2,114,743,346) (2,585,858,173) (2,100,423,252)

10,681,072,267 8,240,771,668 10,617,483,781 8,198,916,548

16.1.3 Allowance for ImpairmentAllowance for individually significant impairmentBalance as at 01st April 26,789,500 409,263,307 18,694,969 408,463,271Charge / (Reversal) for the year 338,864,932 365,584,849 346,959,464 358,290,354Write offs (290,571,355) (748,058,656) (290,571,355) (748,058,656)Balance as at 31st March 75,083,077 26,789,500 75,083,078 18,694,969

Allowance for individually non-significant ImpairmentBalance as at 01st April 224,817,745 143,183,895 222,697,415 142,019,881Charge / (Reversal) for the year 73,107,581 254,550,063 53,238,727 253,593,747Write offs (214,651,967) (172,916,213) (214,651,967) (172,916,213)Balance as at 31st March 83,273,359 224,817,745 61,284,175 222,697,415Total allowances for impairment 158,356,436 251,607,245 136,367,253 241,392,384


118

Group Company


16.2 Rentals Receivable on Hire PurchasesGross rentals receivable 95,597,853 281,888,615 55,152,190 187,113,081Unearned income (4,989,980) (40,176,592) (983,013) (20,793,848)

90,607,873 241,712,023 54,169,177 166,319,233

Allowance for impairment (Note 16.2.3) (52,449,919) (42,085,034) (32,063,809) (21,748,786)Net receivables 38,157,954 199,626,989 22,105,368 144,570,447

Hire Purchase ReceivablesReceivables within one year (Note 16.2.1) 56,723,420 140,888,014 48,428,355 130,163,211Receivables from one to five years (Note 16.2.2) 10,585,658 66,627,829 60,884 14,097,849Overdue rental receivable 23,298,795 34,196,180 5,679,938 22,058,173(-) Allowance for impairment (Note 16.2.3) (52,449,919) (42,085,034) (32,063,809) (21,748,786)

38,157,954 199,626,989 22,105,368 144,570,447

16.2.1 Receivables within One YearGross rentals receivable 58,093,681 162,418,684 49,411,368 150,417,797Unearned income (1,370,261) (21,530,670) (983,013) (20,254,586)

56,723,420 140,888,014 48,428,355 130,163,211

16.2.2 Receivables from One to Five YearsGross rentals receivable 14,205,377 85,273,751 60,884 14,637,111Unearned income (3,619,719) (18,645,922) - (539,262)

10,585,658 66,627,829 60,884 14,097,849

16.2.3 Allowance for ImpairmentAllowance for individually significant impairmentBalance as at 01st April 12,386,259 46,469,820 165,602 43,727,622Charge / (Reversal) for the year 23,307,514 47,858,891 35,528,170 38,380,432Write offs (4,455,560) (81,942,452) (4,455,560) (81,942,452)Balance as at 31st March 31,238,213 12,386,259 31,238,212 165,602

Allowance for individually non-significant ImpairmentBalance as at 01st April 29,698,775 10,916,667 21,583,184 6,933,821Charge / (Reversal) for the year (1,958,096) 42,982,999 (14,228,613) 38,850,254Write offs (6,528,974) (24,200,891) (6,528,974) (24,200,891)Balance as at 31st March 21,211,705 29,698,775 825,597 21,583,184Total allowances for impairment 52,449,919 42,085,034 32,063,809 21,748,786



Group Company


16.3 Allowance for Impairment for Leases and Hire Purchases Receivables

Balance as at 01st April 293,692,279 609,833,689 263,141,170 601,144,595Charge / (Reversal) for the year 433,321,930 710,976,803 421,497,748 689,114,788Write offs (516,207,855) (1,027,118,212) (516,207,855) (1,027,118,212)Balance as at 31st March 210,806,354 293,692,279 168,431,063 263,141,170

Group Company

Gross amount % Gross amount % Gross amount % Gross amount %As at 31.03.2016 As at 31.03.2015 As at 31.03.2016 As at 31.03.2015

Manufacturing 1,026,375,060 7% 778,974,767 6% 1,026,375,060 7% 778,974,767 6%Agriculture 2,865,221,606 19% 2,221,573,903 17% 2,865,221,606 19% 2,221,573,903 17%Trade 3,154,079,280 21% 2,955,541,679 23% 3,154,079,280 21% 2,955,541,679 23%Transport 2,433,842,866 16% 1,678,587,943 13% 2,301,460,252 15% 1,551,725,994 12%Construction 557,012,821 4% 406,616,560 3% 557,012,821 4% 406,616,560 3%Services 3,769,267,765 25% 3,056,118,151 23% 3,769,267,765 25% 3,056,118,152 24%Micro and Others 1,188,496,417 8% 2,011,311,154 15% 1,188,496,417 8% 2,011,311,154 15%

14,994,295,816 13,108,724,157 14,861,913,202 12,981,862,209

Lease & Hire Purchase receivables amounting to Rs. 3,748,595,413 /- assigned under funding arrangement (2015 - Rs. 8,848,511,589/-) also included under lease and hire purchase receivables.


120

Group Company


17. Loans and AdvancesAdvances and loans 33,951,969,210 20,800,941,259 27,140,128,239 17,849,802,717

33,951,969,210 20,800,941,259 27,140,128,239 17,849,802,717

17.1 Rentals Receivable on Loans to CustomersRentals receivable on loans to customers 33,104,285,751 20,615,631,848 26,792,418,348 17,663,790,863Overdue loan installments 1,092,967,287 434,658,195 538,494,803 421,051,210Total Rentals Receivable (Note 17.2) 34,197,253,038 21,050,290,043 27,330,913,151 18,084,842,073

Allowance for impairment (Note 17.1.1) (245,283,828) (249,348,784) (190,784,912) (235,039,356)33,951,969,210 20,800,941,259 27,140,128,239 17,849,802,717

17.1.1 Allowance for ImpairmentAllowance for individually significant impairmentBalance as at 01st April 18,096,671 77,754,254 11,278,949 75,831,857Charge / (Reversal) for the year 116,084,025 110,489,599 122,901,747 105,594,274Write off (32,239,549) (170,147,182) (32,239,549) (170,147,182)Balance as at 31st March 101,941,147 18,096,671 101,941,147 11,278,949

Allowance for individually non-significant ImpairmentBalance as at 01st April 231,252,113 39,924,191 223,760,407 38,669,400Charge / (Reversal) for the year (34,547,146) 276,751,371 (81,554,356) 270,514,456Write off (53,362,287) (85,423,449) (53,362,286) (85,423,449)Balance as at 31st March 143,342,680 231,252,113 88,843,764 223,760,407Total allowances for impairment 245,283,828 249,348,784 190,784,912 235,039,356



17.2 Concentration by Sector

Group Company


Manufacturing 4,279,081,191 12% 1,997,461,191 9% 1,492,335,859 5% 978,265,191 5%Agriculture 3,925,328,996 11% 2,034,145,538 10% 1,674,526,217 6% 1,289,853,538 7%Trade 8,788,740,628 25% 5,823,040,437 28% 6,499,350,151 24% 5,034,272,437 28%Transport 3,143,723,345 9% 2,201,941,701 10% 3,100,712,184 11% 2,181,316,701 12%Construction 1,564,449,496 4% 839,427,020 4% 1,524,124,273 6% 834,840,020 5%Services 7,685,151,879 25% 5,544,639,880 26% 8,452,144,311 31% 5,379,999,880 30%Micro and Others 4,810,777,503 14% 2,609,634,276 12% 4,587,720,155 17% 2,386,294,305 13%

34,197,253,038 21,050,290,043 27,330,913,151 18,084,842,073

Loan receivables amounting to Rs. 10,743,181,594 /- assigned under funding arrangement (2015 - Rs. 8,502,938,982/-) also included under loan receivables.

Group Company


18. Factoring ReceivablesFactoring receivables (Note 18.2) 5,085,264,974 2,778,117,011 5,085,264,974 2,778,117,011Allowance for impairment (Note 18.1) (125,547,867) (364,234,132) (125,547,867) (364,234,132)Balance as at 31st March 4,959,717,107 2,413,882,879 4,959,717,107 2,413,882,879

18.1 Allowance for Impairment

Group Company


Allowance for individually significant impairmentBalance as at 01st April 343,024,081 404,104,713 343,024,081 404,104,713Charge / (Reversal) for the year 72,569,947 216,509,423 72,569,947 216,509,423Write off (345,646,147) (277,590,056) (345,646,147) (277,590,056)Balance as at 31st March 69,947,881 343,024,081 69,947,881 343,024,081

Allowance for individually non-significant ImpairmentBalance as at 01st April 21,210,052 24,150,214 21,210,052 24,150,214Charge / (Reversal) for the year 34,389,934 (2,940,162) 34,389,934 (2,940,162)Balance as at 31st March 55,599,986 21,210,052 55,599,986 21,210,052Total allowances for impairment 125,547,867 364,234,132 125,547,867 364,234,132


122

18.2 Concentration by Sector

Group Company


Agriculture 196,867,618 4% 389,521,865 14% 196,867,618 4% 389,521,865 14%Manufacturing 1,372,345,466 27% 1,148,559,657 41% 1,372,345,466 27% 1,148,559,657 41%Services 408,077,175 8% 206,552,515 7% 408,077,175 8% 206,552,515 7%Trading 2,324,075,116 46% 869,578,233 31% 2,324,075,116 46% 869,578,233 31%Transport 783,899,599 15% 163,904,741 6% 783,899,599 15% 163,904,741 6%

5,085,264,974 2,778,117,011 5,085,264,974 2,778,117,011

Group Company


19. Due from Related PartiesLOLC Motors Limited 143,825 1,317,000 - -BRAC Lanka Finance PLC - - 7,589 3,212,123Dikwella Resort (Private) Limited - 2,055 - 2,055Eden Hotel Lanka PLC - 24,028 - 24,028Browns & Company PLC - 40,419 - 40,419Excel Restaurant (Private) Limited - 564 - 564Green Paradise Resorts (Private) Limited - 22,350 - 22,350LOLC General Insurance Limited 115 - 115 -

143,940 1,406,416 7,704 3,301,539

20. Current Tax AssetsWith-Holding Tax recoverable 10,955,013 14,300,502 10,955,013 14,300,502Nation Building Tax (NBT) recoverable 342,036 3,073,688 342,036 -Other Tax recoverable 1,006,379 107,844 - -

12,303,428 17,482,034 11,297,049 14,300,502



21. Other Current Assets

Group Company


Financial AssetsLoans to employees (Note 21.1) 1,339,513 82,672,153 1,339,513 82,672,153Advance to share issue - LOLC Myanmar Microfinance LTD - 66,800,000 - 66,800,000Receivable from ODEL PLC - 525,000,000 - -Amount reserved for Force buy - BRAC shares 54,828,695 54,039,138 54,828,695 54,039,138Other Financial Assets 342,145 14,321,308 - -

56,510,353 742,832,599 56,168,207 203,511,291

Non-financial AssetsPrepayments and advances 263,114,965 59,688,973 242,257,175 52,380,040Other non-financial receivables 75,651,629 43,364,473 75,771,607 52,793,361

338,766,594 103,053,446 318,028,782 105,173,401Total other current assets 395,276,948 845,886,045 374,196,989 308,684,692

21.1 Loans to EmployeesBalance at the beginning of the year 82,672,153 92,617,646 82,672,153 92,617,646Loans granted during the year 10,588,522 62,415,150 10,588,522 62,415,150Loans recovered during the year (67,775,465) (72,360,643) (67,775,465) (72,360,643)Transferred to loan portfolio (24,145,697) - (24,145,697) -Balance at end of the year 1,339,513 82,672,153 1,339,513 82,672,153


124

22. Equity Accounted Investees

Group Group Company


Principle Activity Holding % No. of Shares Balance (Rs.) Holding % No. of Shares Balance (Rs.) Holding % No. of Shares Balance (Rs.) Holding % No. of Shares Balance (Rs.)

Commercial Insurance Brokers Limited Insurance Brokering 40% 240,000 800,000 40% 240,000 800,000 40% 240,000 800,000 40% 240,000 800,000

Add : Share of profits applicable to the CompanyBalance at the beginning of the year 70,656,726 70,730,887 70,656,726 70,730,887Current year's share of profits before taxation 13,000,462 6,144,677 13,000,462 6,144,677Taxation (4,987,322) (3,067,290) (4,987,322) (3,067,290)Current year's share of profits after taxation 8,013,140 3,077,387 8,013,140 3,077,387Actuarial loss (521,842) (627,149) (521,842) (627,149)Income tax on other comprehensive income 146,116 175,602 146,116 175,602Dividends received during the year (3,240,000) (2,700,000) (3,240,000) (2,700,000)Sub Total 75,054,139 70,656,726 75,054,139 70,656,726Balance at the end of the year 75,854,139 71,456,726 75,854,139 71,456,726

22.1 Current Year’s share of profitThe Share of Equity Accounted Investee profit is based on the audited Financial Statements for the year ended 31st December 2015.

Summarised Financial data as at 31st December 2015 of Commercial Insurance Brokers (Pvt) Ltd is stated below.

Group Company


Revenue 218,636,318 199,709,364 218,636,318 199,709,364Profit before tax 32,501,155 15,361,692 32,501,155 15,361,692Profit after tax 20,032,850 7,693,468 20,032,850 7,693,468Total assets 257,851,308 230,676,813 257,851,308 230,676,813Total liabilities 61,501,904 50,420,943 61,501,904 50,420,943

23. Investment properties

Group Company


Balance at the beginning of the year 10,700,000 14,038,000 10,700,000 14,038,000Change in fair value during the year - (3,338,000) - (3,338,000)Written off of Investment Property (10,700,000) (10,700,000) -Balance at the end of the year - 10,700,000 - 10,700,000

23.1 This had been provided fully. Legal action has already been taken to secure the title from a third party.



22. Equity Accounted Investees

Group Group Company


Principle Activity Holding % No. of Shares Balance (Rs.) Holding % No. of Shares Balance (Rs.) Holding % No. of Shares Balance (Rs.) Holding % No. of Shares Balance (Rs.)

Commercial Insurance Brokers Limited Insurance Brokering 40% 240,000 800,000 40% 240,000 800,000 40% 240,000 800,000 40% 240,000 800,000

Add : Share of profits applicable to the CompanyBalance at the beginning of the year 70,656,726 70,730,887 70,656,726 70,730,887Current year's share of profits before taxation 13,000,462 6,144,677 13,000,462 6,144,677Taxation (4,987,322) (3,067,290) (4,987,322) (3,067,290)Current year's share of profits after taxation 8,013,140 3,077,387 8,013,140 3,077,387Actuarial loss (521,842) (627,149) (521,842) (627,149)Income tax on other comprehensive income 146,116 175,602 146,116 175,602Dividends received during the year (3,240,000) (2,700,000) (3,240,000) (2,700,000)Sub Total 75,054,139 70,656,726 75,054,139 70,656,726Balance at the end of the year 75,854,139 71,456,726 75,854,139 71,456,726

22.1 Current Year’s share of profitThe Share of Equity Accounted Investee profit is based on the audited Financial Statements for the year ended 31st December 2015.

Summarised Financial data as at 31st December 2015 of Commercial Insurance Brokers (Pvt) Ltd is stated below.

Group Company


Revenue 218,636,318 199,709,364 218,636,318 199,709,364Profit before tax 32,501,155 15,361,692 32,501,155 15,361,692Profit after tax 20,032,850 7,693,468 20,032,850 7,693,468Total assets 257,851,308 230,676,813 257,851,308 230,676,813Total liabilities 61,501,904 50,420,943 61,501,904 50,420,943

23. Investment properties

Group Company


Balance at the beginning of the year 10,700,000 14,038,000 10,700,000 14,038,000Change in fair value during the year - (3,338,000) - (3,338,000)Written off of Investment Property (10,700,000) (10,700,000) -Balance at the end of the year - 10,700,000 - 10,700,000

23.1 This had been provided fully. Legal action has already been taken to secure the title from a third party.


126

23.2 Valuation of Investment PropertiesThe fair value of the investment properties were determined as at 31st March 2015, by Mr. P. W. Senaratne, an independent valuers who hold recognised and relevant professional qualification and have recent experience in the location and category of the investments properties.

Group Company

Property & Location Method of Valuation

Land Extent Land Extent Building Extent

Fair Value Fair Value

2016 2015 2016 2015Rs. Rs. Rs. Rs.

Kodagoda, Imaduwa, Galle Market approach 0A. 0R 30P 1,632 sqft 7,500,000 - 4,000,000 - 4,000,000Imaduwa, Galle Market approach 0A. 0R 3.66P 958 sqft 6,000,000 - 6,700,000 - 6,700,000

- 10,700,000 - 10,700,000

24. Investment on Subsidiaries

Company

2016 2015

Principle Activity No. of Shares

Holding % Cost (Rs.) No. of Shares

Holding % Cost (Rs.)

BRAC Lanka Finance PLC

Leasing, Hire purchase, Secured Loans, Microfinance, Property mortgaged loans and mobilisation of public deposits. 99,779,641 94.35% 967,862,518 99,779,641 94.35% 967,862,518

99,779,641 967,862,518 99,779,641 967,862,518

25. Goodwill

Group Company

2016 2015 2016 2015Rs. Rs. Rs. Rs.

Goodwill on Acquisition (Note 25.1) 253,210,966 253,210,966 - -

25.1 Goodwill is attribute to the acquisition of BRAC Lanka Finance PLC.Goodwill on acquisition is recognised as follows;

AmountRs.

Fair value of consideration paid 608,635,308Acquisition of NCI 243,611,315Identifiable Assets Acquired (599,035,657)Goodwill 253,210,966

Goodwill as at the reporting date has been tested for impairment and no impairment was found in carrying value. Recoverable values have been estimated based on fair value less cost to sell and value in use for the above test.



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128

26.1 Property, plant & equipment included fully depreciated assets that are still in use having a gross amount of Rs. 203,370,072.67/- as at 31st March 2016 (2014/15 - Rs. 152,078,567).

26.2 The Company’s land & building at No. 68 Bauddhaloka Mawatha, Colombo 04, was revalued based on the fair value by Mr. P. W Senaratna, an Independent Chartered Valuer, as at 31st March 2014, at Rs. 258,500,000. The resultant revaluation surplus is Rs. 98,787,980/- and is included in revaluation Reserve.

26.3 If land and buildings were measured using the cost model,the carrying amounts would be as follows:

Group Company


Cost 66,446,828 112,749,688 66,446,828 66,446,828Accumulated depreciation (18,873,331) (24,367,533) (18,873,331) (17,212,161)

47,573,497 88,382,155 47,573,497 49,234,667

26.4 Information on Freehold Land and Building of the Company

Valuation of Net Book Value of ExtentLand

ExtentBuilding (Sq.Ft)

AccommodationLocation Land Building Land Building

Rs. Rs. Rs. Rs.

Bauddhaloka Mawatha,Colombo 04 123,500,000 135,000,000 123,500,000 125,357,143 19 Perches 21,890 Head OfficeNo. 305/5, Rajagiriya road, Nawala 578,239,040 - 578,239,040 - 0A- 3R- 19.14P - Nawala - Riyapola

26.5 There were no restrictions on the title of the property plant and equipment as at the reporting date. Further there were no items pledged as securities for liabilities.

26.6 Intangible Assets

Group Company

2016 2015 2016 2015Rs. Rs. Rs. Rs.

Balance as at 01.04.2015Acquisition through business combination (Note 25) - 20,967,127 - -Addition - 6,666,000 - -Written off - (27,633,127) - -Balance as at 31.03.2016 - - - -



Group Company


27. Derivative LiabilitiesDerivative liabilities held for risk management (Note 15.3.1) - 289,491,818 - 289,491,818

- 289,491,818 - 289,491,818

28. Deposits from customersFixed and Savings Deposits at Amortised CostFixed deposits 12,158,763,556 9,323,470,241 11,766,572,803 9,234,810,087Saving deposits 214,047,156 146,052,811 214,047,156 146,052,811Interest payable on customer deposits 391,477,029 325,505,549 367,026,494 320,707,074

12,764,287,741 9,795,028,601 12,347,646,453 9,701,569,972

29. Loans and BorrowingsCommercial papers and promissory notes 3,000,000 13,435,289 3,000,000 13,435,289Short-term loans and others (Note 29.3) 23,988,058,986 8,734,000,000 23,988,058,986 8,734,000,000Debentures 5,000,000,000 - 5,000,000,000 -Long-term borrowings (Note 29.1) 29,026,798,969 10,848,434,793 27,096,469,510 9,650,707,986

58,017,857,955 19,595,870,082 56,087,528,496 18,398,143,275

29.1 Long-Term BorrowingsBalance at the beginning of the year 10,926,684,503 12,509,105,796 9,726,427,081 12,509,105,796Acquisition through business combination - 1,562,000,894 - -Loans obtained 25,859,253,997 2,401,000,000 23,625,135,000 2,401,000,000Repayments (7,326,578,700) (5,545,422,187) (5,826,257,282) (5,183,678,715)Balance at the end of the year - Gross (Note 29.4) 29,459,359,800 10,926,684,503 27,525,304,799 9,726,427,081Unamortised finance cost (432,560,831) (78,249,710) (428,835,289) (75,719,095)Balance at the end of the year 29,026,798,969 10,848,434,793 27,096,469,510 9,650,707,986

29.2 Loans and BorrowingsLoans and Borrowings - CurrentDue to related companies 42,857,167 190,462,857 42,857,167 190,462,857Other Loans and borrowings 26,851,801,820 13,784,391,824 26,355,527,361 12,586,665,017

26,894,658,987 13,974,854,681 26,398,384,528 12,777,127,874

Loans and Borrowings - Non CurrentDue to related companies - 32,522,157 - 32,522,157Other Loans and borrowings 31,123,198,968 5,588,493,244 29,689,143,968 5,588,493,244

31,123,198,968 5,621,015,401 29,689,143,968 5,621,015,401Total loans and borrowings 58,017,857,955 19,595,870,082 56,087,528,496 18,398,143,275


130

Group Company


29.3 Short-Term loans and othersCommercial Bank of Ceylon 8,715,168,986 3,804,000,000 8,715,168,986 3,804,000,000Hong Kong Bank - 300,000,000 - 300,000,000Bank of Ceylon - 750,000,000 - 750,000,000Union Bank - 850,000,000 - 850,000,000Sampath Bank 1,440,000,000 1,700,000,000 1,440,000,000 1,700,000,000Hatton National Bank - 930,000,000 - 930,000,000Muslim Commercial Bank - 200,000,000 - 200,000,000Nations Trust Bank - 200,000,000 - 200,000,000Peoples Bank 12,960,890,000 - 12,960,890,000 -Reverse Repo 872,000,000 - 872,000,000 -

23,988,058,986 8,734,000,000 23,988,058,986 8,734,000,000

29.4 Long-Term BorrowingsCommercial Bank of Ceylon 140,000,000 350,000,000 140,000,000 350,000,000Bank of Ceylon 3,944,425 110,116,971 3,944,425 110,116,971Hatton National Bank 1,218,750,000 1,051,300,000 218,750,000 351,300,000Habib Bank - 333,333,333 - 333,333,333Sampath Bank 1,780,935,000 1,685,275,000 1,780,935,000 1,185,275,000Ishara Traders 42,857,167 222,985,019 42,857,167 222,985,019Nederlandses Development Finance Company (FMO) 22,923,525,000 3,628,478,666 22,923,525,000 3,628,478,666PROPARCO 602,660,999 785,072,727 602,660,999 785,072,727DEG 1,697,499,903 2,001,000,000 1,697,499,903 2,001,000,000Securitisation loans 115,132,305 758,865,365 115,132,305 758,865,365Public Bank - 257,421 - -MIFA Loan 434,055,000 - - -People’s Bank 500,000,000 - - -

29,459,359,800 10,926,684,503 27,525,304,799 9,726,427,081



Group Company


30. Current Tax LiabilitiesIncome tax payables 588,902,778 398,471,780 464,454,830 363,234,642

588,902,778 398,471,780 464,454,830 363,234,642

31. Amount due to Related CompaniesLanka ORIX Leasing Company PLC 455,263,326 1,247,974,494 136,366,059 379,047,769LOLC Motors Limited 3,890,748 - 3,890,748 1,483,000Lanka ORIX Finance PLC 3,400 2,653,108 - 2,653,108LOLC Factors Limited 3,231,801,336 500,000,000 - -LOLC Realty Limited 1,350,000 1,350,000 1,350,000 1,350,000LOLC Micro Credit Limited 755,422 1,744,389 736,755 1,744,389LOLC Technologies Limited 424,787,178 - 141,623,913 -

4,117,851,409 1,753,721,991 283,967,475 386,278,266

32. Trade and Other PayablesFinancial liabilitiesAccrued Expenses 422,596,224 355,445,372 349,867,925 231,929,501Creditors for cost of equipment 778,110,028 574,323,926 774,313,083 549,080,964Other payable 77,246,311 86,654,747 81,336,110 158,879,863Interest payable 510,105,822 359,211,226 508,382,864 359,211,228Loan Security Deposit 764,375,162 200,279,410 - -Total financial liabilities 2,552,433,547 1,575,914,681 1,713,899,982 1,299,101,557

Non-Financial LiabilitiesOther payable 84,995,107 - 84,995,107 -Dividend payable - 3,709,753 - 3,709,753Total non-financial liabilities 84,995,107 3,709,753 84,995,107 3,709,753Total trade and other payables 2,637,428,654 1,579,624,434 1,798,895,088 1,302,811,310


132

33 Deferred Tax Assets & Liabilities33.1 Recognised Deferred Tax Assets

Group Company


As at 31st March TemporaryDifference

Tax Effect TemporaryDifference



Tax Effect


Property, Plant & Equipment (24,757,436) (6,932,082) 2,117,331 (592,853) - - - -Lease Receivables 11,317,900 3,169,012 10,869,881 (3,043,567) - - - -Provision for inventories - - (6,269,771) 1,755,536 - - - -Provision for loan loss impairment - - (10,214,861) 2,860,161 - - - -Employee benefits 20,755,104 5,811,429 - - - - - -

7,315,568 2,048,359 (3,497,420) 979,278 - - - -

33.1.2 Movement in recognised deferred tax assets

Group Company


Balance as at the beginning of the period 979,278 - - -Acquisition Through business combination - (18,230,163) - -Originations / Reversal to the Income Statement 1,069,082 19,209,441 - -

2,048,360 979,278 - -

33.2 Recognised Deferred Tax Liabilities

Group Company


As at 31st March TemporaryDifference




Tax Effect


Property, Plant & Equipment 121,499,980 34,019,994 128,036,586 35,850,244 121,499,980 34,019,994 128,036,586 35,850,244Lease Receivables 1,136,881,353 318,326,779 1,526,174,506 427,328,862 1,136,881,353 318,326,779 1,526,174,506 427,328,862Employee Benefits (50,341,964) (14,095,750) (48,226,366) (13,503,382) (50,341,964) (14,095,750) (48,226,366) (13,503,382)Revaluation of Property, plant and equipment 70,287,980 19,680,635 70,287,980 19,680,635 70,287,980 19,680,635 70,287,980 19,680,635

1,278,327,349 357,931,658 1,676,272,706 469,356,358 1,278,327,349 357,931,658 1,676,272,706 469,356,358



33.2.2 Movement in recognised deferred tax liabilities

Group Company


Balance as at the beginning of the periodAcquisition Through business combination 469,356,358 609,923,787 469,356,358 609,923,787Originations / Reversal to the Income Statement (111,424,700) (140,567,429) (111,424,700) (140,567,429)

357,931,658 469,356,358 357,931,658 469,356,358

33.2.2 Amount originating / (reversing) during the year

Group Company


Recognised in profit and loss (Note 33.3) (112,493,782) (159,776,870) (111,424,700) (140,567,429)(112,493,782) (159,776,870) (111,424,700) (140,567,429)

33.3 Deferred Tax ExpenseDeferred Tax AssetsOriginations / reversal during the period (1,069,082) (19,209,441) - -Deferred Tax LiabilitiesOriginations / reversal during the period (111,424,700) (140,567,429) (111,424,700) (140,567,429)

(112,493,782) (159,776,870) (111,424,700) (140,567,429)

34 Employee Benefits

Group Company


Present Value of Unfunded Gratuity Balance as at the beginning of the year 54,496,137 40,337,807 48,226,366 40,337,807Acquisition Through business combination - 7,211,389 - -Benefit paid during the year (6,631,552) (5,383,385) (3,493,948) (2,503,400)Expense recognised in the income statement (Note 34.1) 15,420,730 11,665,947 11,109,131 9,809,455Expense recognised in the other comprehensive income (Note 34.2) 7,811,753 664,378 (5,499,585) 582,503

71,097,067 54,496,137 50,341,964 48,226,366

34.1 Expense Recognised in the Income StatementCurrent service cost 10,212,249 7,423,212 6,527,627 5,775,675Interest on obligation 5,208,481 4,242,735 4,581,504 4,033,780

15,420,730 11,665,947 11,109,131 9,809,455

34.2 Expenses Recognised in other Comprehensive IncomeActurial Loss / (Gain) 7,811,753 664,378 (5,499,585) 582,503

7,811,753 664,378 (5,499,585) 582,503


134

34 Employee Benefits (Contd.)The employee benefit liability was actuarial valued under the projected Unit Credit (PUC) method by professionally qualified actuary firm Messers Piyal S. Goonethilake and Associates on 31st March 2016.

The principle financial assumptions used in the valuation for the current and comparative years are as follows;

2016 2015Rs. Rs.

Actuarial AssumptionsRate of discount 11.0% 9.50%Salary increment rates 8.5% 8.50%Retirement age 55 years 55 years

34.3 Sensitivity of the Actuarial AssumptionsReasonably possible changes at the reporting date to one of the relevant actuarial assumptions, holding other assumptions constant, would have affected Defined Benefit Obligation by the amounts shown below;

AssumptionsRate change Financial

Position - Liability

Discount rate +1 46,600,112-1 54,614,376

Future salary increases +1 55,342,310-1 45,921,543

35. Stated Capital

2016 2015Rs. Rs.

Issued and Fully Paid (Note 35.1) 1,425,946,629 1,425,946,629

No. of Shares (Note 35.2) 6,377,711,170 6,377,711,170

All shares rank equally with regard to the Company’s residual assets. The holders of ordinary shares are entitled to receive dividends as declared from time to time, and are entitled to one vote per share at meetings of the Company.

35.1 Movement in Stated Capital

2016 2015Rs. Rs.

Balance at the beginning of the year 1,425,946,629 1,425,946,629Balance at the end of the year 1,425,946,629 1,425,946,629

35.2 Movement in Number of Ordinary sharesBalance at the beginning of the year (No.) 6,377,711,170 6,377,711,170Balance at the end of the year 6,377,711,170 6,377,711,170



Group Company


36. ReservesStatutory reserve (Note 36.1) 565,537,505 479,261,095 544,604,281 465,903,908Revaluation reserve (Note 36.2) 135,980,246 135,980,246 135,980,246 135,980,246General reserve 231,779,789 231,779,789 288,079,789 288,079,789Fair value reserve on AFS (Note 36.3) (87,474,653) 40,271,173 (87,107,181) 40,409,820Hedging reserve (Note 36.4) 46,270,286 (180,070,259) 46,270,289 (180,070,256)Total 892,093,173 707,222,044 927,827,424 750,303,507

36.1 Statutory ReserveThe reserve is created according to Direction No.1 of 2003 issued under the Finance Business Act No.42 of 2011. The Company transfers 5% of its annual net profit after tax to this reserve in compliance with this direction.

36.2 Revaluation ReserveThe revaluation reserve relates to the revaluation surplus of Property, Plant and Equipments and the Long term investments. Once the respective revalued items have been disposed, the relevant portion of revaluation surplus is transferred to retained earnings.

36.3 Fair Value Reserve on Available for Sale This reserve is maintained to recognise the fair value changes of Available for Sale Financial Assets.

36.4 Hedging ReserveThe hedging reserve comprises of the effective portion of the cumulative net change in fair value of cash flow hedging instruments related to hedge transactions that have not yet affected the profit or loss.

Group Company


37. Retained EarningsBalance brought forward 7,990,107,736 6,295,922,634 7,939,135,583 6,295,922,634Transfers to statutory reserves (86,276,410) (84,658,253) (78,700,372) (71,301,066)Transfer from Investment fund - 289,075,199 - 289,075,199Net profit for the year 1,716,970,284 1,589,109,547 1,574,007,449 1,426,021,319Other comprehensive income (7,059,926) (659,754) 5,499,585 (582,503)Acquisition of NCI - (154,981,637) - -Transfer from General Reserve - 56,300,000 - -Dividends Transferred to Retained Earnings 3,709,753 - 3,709,753 -Balance at the end of the year 9,617,451,437 7,990,107,736 9,443,651,997 7,939,135,583

The carrying amount of the retained earnings represents the undistributed earnings held by the Company. This could be used to absorb future losses and dividend declaration.


136

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138

39. Related Party DisclosuresThe Company carried out transactions in the ordinary course of it’s business with parties who are defined as related parties in Sri Lanka Accounting Standard 24 (LKAS 24) ‘Related Party Disclosures’, the details of which are reported below.

39.1 Identity of Related PartiesThe Company has related party transactions with, its subsidiary BRAC Lanka Finance PLC, equity accounted investee Commercial Insurance Brokers (Pvt) Ltd, Lanka ORIX Leasing Company PLC which is the main shareholder of the Company and with its Directors.

39.2 Transactions with Key Management Personnel (KMP)According to Sri Lanka accounting Standard 24 “ Related Party Disclosure” key management personnel, are those having authority and responsibility for planning, directing and controlling the activities of the entity. Accordingly, the Board of directors of the company and it’s parent and personnel holding designation Assistant general manager and above have been classified as Key Management Personnel of the company.

(i) Loans to DirectorsNo loans have been given to the Directors of the Company.

(ii) Compensation of Key Management Personnel

Short-term employment benefits

Group Company

2016 2015 2016 2015Rs. Rs. Rs. Rs.

Directors fees and other emoluments 53,610,116 32,701,110 43,204,615 32,701,110Other KMP emoluments 17,179,640 18,713,103 17,179,640 14,996,103

70,789,756 51,414,213 60,384,255 47,697,213

Long-term employment benefitsThere are no long term employment benefits to Key management Personnel during the year.

39.3 Transactions with Related Parties (i) Transactions with Subsidiary, Associate and other Related Companies Accordingly, the value of all transactions carried out by the Company with its Related Companies during the year ended 31st March 2016 are summarised below.

Group

Name of the Company

Relationship Nature of the Transaction Transactionvalue for theyear ended

31st March 2016

Amount duefrom/(to)

as at 31/3/2016

Amount duefrom/(to)

as at31/3/2015

Rs. Rs. Rs.

Lanka ORIX Leasing Company PLC

Parent Interest expense (216,568,901)Transfer of funds 28,314,701,124Funds received (25,205,310,904)Handling fee (491,914,545)Guarantee Fees (9,750,000)Asset Hire Expenses (21,821,997)Expense reimbursements (1,576,623,611) (455,263,326) (1,247,974,494)

Commercial Insurance Brokers (Pvt) Ltd

Associate Insurance Commission Received43,576,559 10,530,988 6,110,793



Name of the Company


31st March 2016

Amount duefrom/(to)

as at 31/3/2016

Amount duefrom/(to)

as at31/3/2015

Rs. Rs. Rs.

LOLC Finance PLC Fellow Subsidiary

Interest expense 2,441,096FD investment 600,000,000FD withdrawal (602,441,096)Transfer of funds 2,958,458Settlement of expenses (308,750) (3,400) (2,653,108)

LOLC Motors Limited Fellow Subsidiary

Facilities Granted 135,290,000Fund Transfer (Settlement of Valuation Fee Income/Lottery Collection) 25,769,667Settlement of expenses LOMO (1,831,527)Valuation Fee Income of LOMO (15,115,314)Lottery Collection on behalf of LOMO (13,886,749) (3,746,923) (1,317,000)

Lanka ORIX Information Technology Services Ltd

Fellow Subsidiary

Provision for information services (173,160,000)Fund transfer to Settlement for Charges 173,160,000Cost of Implementation of ATM,Internet Banking,Mobile Banking,& CEFT Systems (424,744,898)Expenses shared (42,280) (424,787,178) -

Brown & Company PLC

Fellow Subsidiary

Lease vehicle purchased 371,765,844C/A Balance Settlement by Brown & Co.PLC (40,419) - 40,419

Ishara Traders Other Related Party

Lease vehicle purchased 17,050,000Loan settled during the year 180,127,851Interest paid 15,679,276 (42,857,167) (222,985,018)

LOLC Micro Credit Ltd.

Fellow Subsidiary

Yard fee (8,834,694)Settlement of Expenses by LOMC (1,848,123)Fund Transfer (Settlement of Expenses by CLC) 11,671,784 (755,422) (1,744,389)

LOLC Factors Ltd. Fellow Subsidiary

Transfer of funds Settlement of expenses 254,718,615Interest on Loan (277,019,951)Loan received (2,709,500,000) (3,231,801,336) (500,000,000)

LOLC Realty Ltd. Fellow Subsidiary

Rent Fee (16,200,000)Fund Transfer Settlement of rent fee 16,200,000 (1,350,000) (1,350,000)

Green Paradise Resorts (Private) Limited

Fellow Subsidiary

CLC Inventory (Stationery) Use by Green Paradise Resorts 8,730C/A Balance Settlement by Green Paradise (31,080) - 22,350

Excel Restaurant (Private) Limited

Fellow Subsidiary

CLC Inventory (Stationery) Use by Excel Restaurant 6,270C/A Balance Settlement by Excel Restaurant Ltd (6,834) - 564

Eden Hotel Lanka PLC Fellow Subsidiary C/A Balance Settlement by Eden Hotel Lanka PLC 24,028 - 24,028


140

Name of the Company


31st March 2016

Amount duefrom/(to)

as at 31/3/2016

Amount duefrom/(to)

as at31/3/2015

Rs. Rs. Rs.

Dickwella Resort (Private) Limited

Fellow Subsidiary

CLC Inventory (Stationery) Use by Dickewella Resort (Pvt) Ltd. 7,426C/A Balance Settlement by Dickwella Resort (Pvt) Ltd. (9,481) - 2,055

Browns Hotels and Resorts Limited

Fellow Subsidiary

CLC Inventory (Stationery) Use by Browns Hotels and Resort Ltd. 1,788C/A Balance Settlement by Browns Hotels and Resorts Ltd. (1,788) - -

Galoya Plantations Limited

Fellow Subsidiary Facilities Granted 260,000,000 - -

LOLC General Insurance Limited

Fellow Subsidiary

CLC Inventory(Stationery) Use by LOLC Insurance Ltd. 115 115 -

Company

Name of the Company


31st March 2016

Amount duefrom/(to)

as at 31/3/2016

Amount duefrom/(to)

as at31/3/2015

Rs. Rs. Rs.

Lanka ORIX Leasing Company PLC

Parent Interest expense (64,328,498)Transfer of funds 22,596,091,588Funds received (21,444,650,904)Handling fee (461,668,872)Guarantee Fees (9,750,000)Asset Hire Expenses (21,821,997)Expense reimbursements (351,189,609) (136,366,059) (379,047,769)

BRAC Lanka Finance PLC

Subsidiary Facilities Granted 1,000,000,000Interest Received 12,671,233Funds Received (128,204,535)Transfer of Funds 125,000,000 7,589 3,212,124

Commercial Insurance Brokers (Pvt) Ltd

Associate Insurance Commission Received43,576,559 10,530,988 6,110,793

LOLC Finance PLC Fellow Subsidiary

Transfer of funds 2,958,458Settlement of Expenses (305,350) - (2,653,108)

LOLC Motors Limited Fellow Subsidiary

Facilities Granted 135,290,000Fund Transfer (Settlement of Valuation Fee Income) 18,979,592Lottery Collection Income of LOMO (4,440,499)Settlement of expenses (1,831,527)Valuation Fee Income of LOMO (15,115,314) (3,890,748) (1,483,000)



Name of the Company


31st March 2016

Amount duefrom/(to)

as at 31/3/2016

Amount duefrom/(to)

as at31/3/2015

Rs. Rs. Rs.

Lanka ORIX Information Technology Services Ltd

Fellow Subsidiary

Provision for information services (133,200,000)Payments 133,200,000Cost of Implementation of ATM, Internet Banking,Mobile Banking,& CEFT Systems (141,581,633)Expenses shared (42,280) (141,623,913) -

Browns & Company PLC

Fellow Subsidiary

Lease vehicle purchased 371,765,844C/A balance Settlement by Brown & Co. PLC (40,419) - 40,419

Ishara Traders Other Related Party

Lease vehicle purchased 17,050,000Loan settled during the year 180,127,851Interest paid 15,679,276 (42,857,167) (222,985,018)

Lanka ORIX Micro Credit Ltd.

Fellow Subsidiary

Yard fee (8,834,694)Settlement of Expenses by LOMC (1,760,378)Fund Transfer (Settlement of Expenses by CLC) 11,602,706 (736,755) (1,744,389)

LOLC Realty Ltd. Fellow Subsidiary

Rent Fee (16,200,000)Fund Transfer Settlement of rent fee 16,200,000 (1,350,000) (1,350,000)

Green Paradise Resorts (Private) Limited

Fellow Subsidiary

CLC Inventory (Stationery) Use by Green Paradise Resorts 8,730C/A Balance Settlement by Green Paradise (31,080) 22,350

Excel Restaurant (Private) Limited

Fellow Subsidiary

CLC Inventory (Stationery) Use by Excel Restaurant 6,270C/A Balance Settlement by Excel Restaurant Ltd (6,834) - 564

Eden Hotel Lanka PLC Fellow Subsidiary CLC Inventory (Stationery) Use by EDEN (24,028) - 24,028

Dickwella Resort (Private) Limited

Fellow Subsidiary

CLC Inventory (Stationery) Use by Dickewella Resorts 7,426C/A Balance Settlement by Dickwella Resort (Pvt) Ltd (9,481) - 2,055

Browns Hotels and Resorts Limited

Fellow Subsidiary

CLC Inventory (Stationery) Use by Browns Hotels 1,788Fund Received Settlement of Exp by Browns Hotels (1,788) - -

Galoya Plantations Limited

Fellow Subsidiary

Facilities Granted 260,000,000 - -

LOLC General Insurance Ltd.

Fellow Subsidiary

CLC Inventory (Stationary) Use by LOLC Insurance Ltd. 115 115 -

(ii) Transactions, Arrangement and Agreements involving KMP and their close family members (CFM)CMF of a KMP are those family members who be expected to influence, or be influenced by, that individual in their dealings with the entity. They may include;

(a) the individual’s domestic partner and children;(b) children of the individual’s domestic partner; and(c) dependants of the individual or the individual’s domestic partner

CFM are related parties to the entity. There were no transaction with CMF during the year.


142

39.4 Related party transactions exceeding 10% of the equity or 5% of the total assets of the entity as per Audited financial statements, whichever is lower

There are no related party transactions those require specified disclosure in accordance with the continuing listing requirements of Colombo Stock Exchange.

39.5 The terms and conditions of the transactions with key management personal and their related parties were no more favourable than those available, or which might reasonably be expect to be available, on similar transactions to non-key management personnel related entities on an arm’s length basis.

40. Contingent Liabilities

As at 31st March As at 31st March

Group Company


Guarantees issued to banks and other institutions 45,100,000 3,850,500 45,100,000 3,850,500

41. Capital Commitments

As at 31st March As at 31st March

Group Company


Forward exchange contracts 2,497,256,157 4,884,350,967 2,497,256,157 4,884,350,967Facility limits not utilised 945,651,269 278,490,312 945,651,269 278,490,312

On this commitment the Company will receive US $ 16,671,611 on conversion.

42. Litigation and ClaimsThere is no material Litigations and Claims as at the Reporting date

43. Events After Reporting Period There have been no material events occurring after the reporting period that require adjustment to or disclosure in these Financial Statements.



44. Valuation of Financial Instruments44.1 Fair Value Hierarchy

Group

As at 31st March 2016 Carryingamount

Level 1 Level 2 Level 3 Total

Rs. Rs. Rs. Rs. Rs.

AssetsEquity Securities 188,189,393 188,189,393 - - 188,189,393Unit Trust 4,044,621,707 4,044,621,707 - - 4,044,621,707Derivative assets held for risk management 60,811,791 - 60,811,791 - 60,811,791

4,293,622,891 4,232,811,100 60,811,791 - 4,293,622,891

Investment securitiesAvailable-for-sale investment securitiesCorporate bonds 1,531,999,744 1,531,999,744 - - 1,531,999,744Unquoted equity securities 67,189,750 - - 67,189,750 67,189,750

1,599,189,494 1,531,999,744 - 67,189,750 1,599,189,494

5,892,812,385 5,764,810,844 60,811,791 67,189,750 5,892,812,385

As at 31st March 2015 Carryingamount

Level 1 Level 2 Level 3 Total

Rs. Rs. Rs. Rs. Rs.

AssetsEquity Securities 228,344,666 228,344,666 - - 228,344,666Derivative assets held for risk management 8,000,000 - 8,000,000 - 8,000,000

236,344,666 228,344,666 8,000,000 - 236,344,666

Investment securitiesAvailable-for-sale investment securitiesCorporate bonds 355,209,540 355,209,540 - - 355,209,540Unquoted equity securities 189,750 - - 189,750 189,750

355,399,290 355,209,540 - 189,750 355,399,290

591,743,956 583,554,206 8,000,000 189,750 591,743,956


144

44.2 Financial Instruments not Measured at Fair ValueThe following table sets out the fair values of financial instruments not measured at fair value and analyses them by the level in the fair value hierarchy into which each fair value measurement is categorised.

Group

As at 31st March 2016 Level 1 Level 2 Level 3 Total Fair Value Total Carrying amount

Rs. Rs. Rs. Rs. Rs.

AssetsInvestment securities

Loans & receivables - - - - -Government securities - 1,465,009,994 4,593,221,027 6,058,231,021 6,058,231,021Others - - 23,559,610,006 23,559,610,006 23,559,610,006

- 1,465,009,994 28,152,831,033 29,617,841,027 29,617,841,027

Finance lease receivables, hire purchases and operating leasesFinance lease receivables - 14,868,856,836 - 14,868,856,836 14,745,331,507Hire purchase receivables - 34,102,289 - 34,102,289 38,157,954

- 14,902,959,125 - 14,902,959,125 14,783,489,462

Advances and other loansAdvances and loans - 33,490,620,973 - 33,490,620,973 33,951,969,210Factoring receivables - - 4,959,717,107 4,959,717,107 4,959,717,107

- 33,490,620,973 4,959,717,107 38,450,338,080 38,911,686,318

Trade and other current assetsTrade receivable - - 1,339,513 1,339,513 1,339,513Other financial assets - 55,170,840 55,170,840 55,170,840

- - 56,510,353 56,510,353 56,510,353- 49,858,590,091 33,169,058,494 83,027,648,585 83,369,527,160

LiabilitiesDeposits liabilities - 12,419,212,621 - 12,419,212,621 12,764,287,741

Interest bearing borrowingsCommercial papers & Promissory Notes - - 3,000,000 3,000,000 3,000,000Short-term loans and others - - 23,988,058,986 23,988,058,986 23,988,058,986Long-term borrowings 1,935,777,958 27,216,594,060 - 29,152,372,018 29,459,359,800

1,935,777,958 27,216,594,060 23,991,058,986 53,143,431,004 53,450,418,786

Trade and other payablesTrade payables - - 1,339,512 - 1,339,512Other financial liabilities - - 55,170,841 55,170,841 55,170,841

- - 56,510,353 55,170,841 56,510,3531,935,777,958 39,635,806,681 24,047,569,339 65,617,814,466 66,271,216,880



Group


Rs. Rs. Rs. Rs. Rs.


Government securities - 355,019,790 1,765,451,175 2,120,470,965 2,120,470,965Others - - 3,764,465,497 3,764,465,497 3,764,465,497

- 355,019,790 5,529,916,672 5,884,936,462 5,884,936,462


- 12,627,137,479 - 12,627,137,479 12,815,031,878


- 17,949,817,177 2,413,882,879 20,363,700,056 23,214,824,138

Trade and other current assetsTrade receivable - - 82,672,153 82,672,153 82,672,153Other financial assets - - 660,160,446 660,160,446 660,160,446

- - 82,672,153 742,832,599 742,832,599- 30,931,974,446 8,026,471,703 39,618,606,595 42,657,625,077


Interest bearing borrowingsCommercial papers & Promissory Notes - - 13,435,289 13,435,289 13,435,289Short-term loans and others - - 8,734,000,000 8,734,000,000 8,734,000,000Long-term borrowings - 10,926,684,503 - 10,926,684,503 10,926,684,503

- 10,926,684,503 8,747,435,289 19,674,119,793 19,674,119,793

Trade and other payablesTrade payables - - - - 574,323,926Other financial liabilities - - - - 1,001,590,755

- - - - 1,575,914,681- 20,721,713,104 8,747,435,289 29,469,148,394 31,045,063,074


146

44.2 Financial Instruments not Measured at Fair Value (Contd.)Company


Rs. Rs. Rs. Rs. Rs.

Trading assets - fair value through profit or lossEquity Securities 188,189,393 188,189,393 - - 188,189,393Unit Trust 4,044,621,707 4,044,621,707 - - 4,044,621,707Derivative assets held for risk management 60,811,791 - 60,811,791 - 60,811,791

4,293,622,891 4,232,811,100 60,811,791 - 4,293,622,891

Investment securitiesAvailable-for-sale investment securitiesCorporate bonds 1,462,200,002 1,462,200,002 - - 1,462,200,002Unquoted equity securities 66,978,750 - - 66,978,750 66,978,750

1,529,178,752 1,462,200,002 - 66,978,750 1,529,178,752

5,822,801,643 5,695,011,102 60,811,791 66,978,750 5,822,801,643


Rs. Rs. Rs. Rs. Rs.

Trading assets - fair value through profit or lossCorporate bonds - - - - -Government securities - - - - -Equity Securities 228,344,666 228,344,666 - - 228,344,666Derivative assets held for risk management 8,000,000 - 8,000,000 - 8,000,000

236,344,666 228,344,666 8,000,000 - 236,344,666

Investment securitiesAvailable-for-sale investment securitiesCorporate bonds 352,146,025 352,146,025 - - 352,146,025Government securities - - - - -Designated available-for-sale investment securities - - - - -Equity securities with readily determinable fair values - - - - -Unquoted equity securities 178,750 - - 178,750 178,750

352,324,775 352,146,025 - 178,750 352,324,775

588,669,441 580,490,691 8,000,000 178,750 588,669,441



44.3 Financial Instruments not Measured at Fair ValueThe following table sets out the fair values of financial instruments not measured at fair value and analyses them by the level in the fair value hierarchy into which each fair value measurement is categorised.

Group


Rs. Rs. Rs. Rs. Rs.


Government securities - - 4,593,221,027 4,593,221,027 4,593,221,027Others - - 23,559,610,006 23,559,610,006 23,559,610,006

- - 28,152,831,033 28,152,831,033 28,152,831,033


- 14,804,068,666 - 14,804,068,666 14,693,482,139


- 26,266,830,671 4,959,717,107 31,226,547,779 32,099,845,346

Trade and other current assetsTrade receivable - - 1,339,513 1,339,513.31 1,339,513

- - 1,339,513 1,339,513 1,339,513- 41,070,899,337 33,113,887,654 74,184,786,991 74,947,498,032



- 27,216,594,060 23,990,982,061 51,207,576,121 51,516,363,785

Trade and other payablesTrade payables - - 774,313,083 774,313,083 774,313,083Other financial liabilities - - 939,586,899 939,586,899 939,586,899

- - 1,713,899,982 1,713,899,982 1,713,899,982- 38,450,645,361 25,704,882,043 64,155,527,404 65,210,883,726


148

44.3 Financial Instruments not Measured at Fair Value (Contd.).Company


Rs. Rs. Rs. Rs. Rs.


Loans & receivablesGovernment securities - 351,967,275 1,750,000,000 2,101,967,275 2,101,967,275Others - - 3,764,644,247 3,764,644,247 3,764,644,247

- 351,967,275 5,514,644,247 5,866,611,522 5,866,611,522

Finance lease receivables, hire purchases and operating leases

Finance lease receivables - 12,297,792,632 - 12,297,792,632 12,574,150,592Hire purchase receivables - 233,034,007 - 233,034,007 144,570,447

- 12,530,826,639 - 12,530,826,639 12,718,721,039

Advances and other loansAdvances and loans - 14,998,678,635 14,998,678,635 17,849,802,717Factoring receivables - - 2,413,882,879 2,413,882,879 2,413,882,879

- 14,998,678,635 2,413,882,879 17,412,561,514 20,263,685,596

Trade and other current assetsTrade receivable - - - - -Other financial assets - - 82,672,153 82,672,153 82,672,153

- - 82,672,153 82,672,153 82,672,153- 27,881,472,549 8,011,199,279 35,892,671,828 38,931,690,310



- 9,726,427,081 8,747,435,289 18,473,862,370 18,473,862,370

Trade and other payablesTrade payables - - 549,080,964 549,080,964 549,080,964Other financial liabilities - - 750,020,593 750,020,593 750,020,593

- - 1,299,101,557 1,299,101,557 1,299,101,557- 18,208,161,675 10,046,536,846 28,254,698,521 29,153,826,825



45. Segment InformationGroup

Business Segment

Leasing Hire Purchase Loans Factoring Others Total Rs.' 000 Rs.' 000 Rs.' 000 Rs.' 000 Rs.' 000 Rs.' 000

For the year ended 31st March 2016 Total revenue 3,293,839,829 72,452,727 6,400,857,123 706,509,785 779,619,206 11,253,278,671Net interest cost (1,107,840,999) (2,955,531) (2,552,605,638) (368,725,286) - (4,032,127,453)

Profit before operating expenses 2,185,998,830 69,497,197 3,848,251,485 337,784,499 779,619,206 7,221,151,218Operating expenses (1,618,947,629) (62,181,283) (2,202,636,364) (292,588,677) (424,070,976) (4,600,424,928)Value added tax on financial services and NBT (98,837,739) (263,682) (227,734,549) (33,252,603) - (360,088,573)Profit from operations 468,213,463 7,052,232 1,417,880,573 11,943,219 355,548,231 2,260,637,716

For the year ended 31st March 2015 Total revenue 3,176,330,622 194,588,081 4,011,012,488 521,283,619 791,847,119 8,695,061,930Net interest cost (883,751,911) (13,984,548) (1,390,124,087) (161,319,466) - (2,449,180,012)

Profit before operating expenses 2,292,578,711 180,603,533 2,620,888,401 359,964,153 791,847,119 6,245,881,918Operating expenses (1,649,997,573) (171,823,967) (1,549,175,436) (375,270,859) (402,946,768) (4,149,214,603)Value added tax on financial services and NBT - (1,809,919) (188,591,880) - - (190,401,799)Profit from operations 642,581,138 6,969,647 883,121,085 (15,306,706) 388,900,351 1,906,265,517

For the year ended 31st March 2016 Capital expenditure - - - - 173,487,482 173,487,482Depreciation of property plant and equipment - - - - 97,399,975 97,399,975Provision for/(reversal of provision for)doubtful debts and bad debts written off 417,632,789 23,989,124 87,830,649 106,959,882 - 636,412,444

For the year ended 31st March 2015 Capital expenditure - - - - 98,146,620 98,146,620Depreciation of property plant and equipment - - - - 130,593,987 130,593,987Provision for/(reversal of provision for)doubtful debts and bad debts written off 620,134,912 90,841,891 387,240,970 213,569,261 39,137,826 1,350,924,860

As at 31st March 2016 Total assets 14,741,920,325 39,328,927 33,967,233,752 4,959,717,107 38,428,563,802 92,136,763,913Total liabilities 21,864,449,371 58,330,618 50,378,434,170 7,277,216,065 571,797,840 80,150,228,064

As at 31st March 2015 Total assets 12,615,404,889 199,626,989 20,800,941,259 2,413,882,879 9,399,222,303 45,429,078,319Total liabilities 12,286,724,847 194,425,935 19,326,772,524 2,242,810,300 1,211,816,094 35,262,549,697


150

45. Segment Information (Contd.)Company

Business Segment

Leasing Hire Purchase Loans Factoring Others Total Rs.' 000 Rs.' 000 Rs.' 000 Rs.' 000 Rs.' 000 Rs.' 000

For the year ended 31st March 2016Total revenue 3,316,439,436 50,885,830 4,702,795,152 706,466,261 614,143,642 9,390,730,321Interest cost (1,112,326,826) (1,675,943) (1,989,326,513) (363,537,879) - (3,466,867,161)

Profit before operating expenses 2,204,112,610 49,209,887 2,713,468,639 342,928,383 614,143,642 5,923,863,160Operating expenses (1,548,533,756) (47,235,467) (1,447,085,418) (283,175,206) (326,922,779) (3,652,952,626)Value added tax on financial services and NBT (84,860,868) (127,860) (156,983,507) (28,685,553) - (270,657,788)Profit from operations 570,717,986 1,846,559 1,109,399,714 31,067,623 287,220,863 2,000,252,746

For the year ended 31st March 2015Total revenue 3,167,943,741 184,586,693 3,715,875,441 521,283,619 578,882,586 8,168,572,080Net interest cost (942,471,724) (10,842,967) (1,279,797,000) (172,991,444) - (2,406,103,135)

Profit before operating expenses 2,225,472,017 173,743,726 2,436,078,441 348,292,175 578,882,586 5,762,468,945Operating expenses (1,601,512,242) (154,343,565) (1,443,982,170) (368,448,201) (299,408,990) (3,867,695,168)Value added tax on financial services and NBT - (1,381,236) (167,757,409) - - (169,138,645)Profit from operations 623,959,775 18,018,925 824,338,862 (20,156,026) 279,473,596 1,725,635,133

For the year ended 31st March 2016Allowance for impairment and write off 400,198,191 21,299,557 41,347,391 106,959,882 1,849,598 571,654,618

For the year ended 31st March 2015Allowance for impairment and write off 611,884,101 77,230,687 376,108,730 213,569,261 38,937,826 1,317,730,605

As at 31st March 2016Total assets 14,671,376,772 22,105,368 27,140,128,239 4,959,717,107 37,565,626,017 84,358,953,503Total liabilities 23,280,999,750 35,077,489 41,636,581,727 7,608,868,487 - 72,561,527,453

As at 31st March 2015Total assets 12,089,856,060 617,566,480 13,059,739,309 1,803,034,055 14,815,146,340 42,385,342,245Total liabilities 10,313,182,294 526,811,540 10,896,796,746 1,504,417,137 9,028,748,811 32,269,956,526



46. Financial Risk ManagementOverview The Company has exposure to the following risks from financial instruments:

1. Credit risk2. Liquidity risk3. Market risk4. Operational risk

This note presents information about the Company’s exposure to each of the above risks, the Company’s objectives, policies and processes for measuring and managing risk, and the Company’s management of capital.

Risk management frameworkThe board of directors has overall responsibility for the establishment and oversight of the Company’s risk management framework. The Board has established the Integrated Risk Management Committee (IRMC), which are responsible for developing and monitoring Company risk management policies in their specified areas. All Board committees have both executive and non-executive members and report regularly to the board of directors on their activities.

The Company’s risk management policies are established to identify and analyse the risks faced by the Company, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions, products and services offered. The Company, through its training and management standards and procedures, aims to develop a disciplined and constructive control environment, in which all employees understand their roles and obligations.

The Company Audit Committee and the IRMC are responsible for monitoring compliance with the Company’s risk management policies and procedures, and for reviewing the adequacy of the risk management framework in relation to the risks faced by the Company. The Company Audit Committee is assisted in these functions by Enterprise Risk Management division (ERM). ERM undertakes both regular and ad-hoc reviews of risk management controls and procedures, the results of which are reported to the Company Audit Committee.

Credit riskCredit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Company’s loans and advances to customers and other Company’s, and investment debt securities. For risk management purposes, credit risk arising on trading assets is managed independently.


152

46. Financial Risk Management (Contd.)Management of credit risk Facilities granted to customers (Lease / Hire purchase / Loans)Credit department has a Credit committee formed internally, is responsible for management of the Company’s credit risk, including:

1. Formulating credit policies in consultation with Branch and Regional Heads, covering collateral requirements, credit assessment, risk grading and reporting, documentary and legal procedures, and compliance with regulatory and statutory requirements.

2. Establishing the authorisation structure for the approval and renewal of credit facilities. Authorisation limits are allocated to branch and Regional Heads, Senior Marketing Officers at Head Office. Larger facilities require approval by Company/Group Credit, Head of Company Credit, Company Credit Committee or the board of directors as appropriate.

3. Reviewing and assessing credit risk. Company 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.

4. Limiting concentrations of exposure to counterparties, geographies and industries (for loans and advances), and by issuer, credit rating band and market liquidity (for investment securities).

5. Developing and maintaining the Company’s risk grading in order to categorise exposures according to the degree of risk of financial loss faced and to focus management on the attendant risks. The risk grading system is used in determining where impairment provisions may be required against specific credit exposures. The current risk grading framework consists of eight grades reflecting varying degrees of risk of default and the availability of collateral or other credit risk mitigation. The responsibility for setting risk grades lies with the final approving executive/committee as appropriate. Risk grades are subject to regular reviews by Company Risk.

6. 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 Company Credit who may require appropriate corrective action to be taken.

7. Providing advice, guidance and specialist skills to business units to promote best practice throughout the Company in the management of credit risk.

Each Branch and Regional Head is required to implement Company credit policies and procedures, with credit approval authorities delegated from the Company Credit Committee. Each Branch and Regional Head is responsible for the quality and performance of its credit portfolio and for monitoring and controlling all credit risks in its portfolios, including those subject to central approval.

Regular audits of business units and Company Credit processes are undertaken by ERM.

Allowances for impairmentThe Company establishes an allowance for impairment losses on assets carried at amortised cost that represents its estimate of incurred losses in its lease and loan portfolio. The main components of this allowance are a specific loss component that relates to individually significant exposures, and, for assets measured at amortised cost,individually non-significant impairment established for groups of homogeneous assets as well as for individually significant exposures that were subject to individual assessment for impairment but not found to be individually impaired.

Write-off policyThe Company writes off a loan or an investment debt security balance, and any related allowances for impairment losses, when Board of Directors determines that the loan or security is uncollectible. This determination is made after considering information such as the occurrence of significant changes in the borrower’s/issuer’s financial position such that the borrower/issuer can no longer pay the obligation, or that proceeds from collateral will not be sufficient to pay back the entire exposure. For smaller balance standardised loans, write-off decisions generally are based on a product-specific past due status.



Exposure to credit risk1. Lease and hire purchase portfolio

Note Group Company

Finance Lease

Hire Purchase

Total FinanceLease

HirePurchase

Total

Rs. Rs. Rs. Rs. Rs. Rs.

Carrying amount 16 14,745,331,507 38,157,954 14,783,489,462 14,671,376,772 22,105,368 14,693,482,139Assets at amortised costIndividually significant impairment

Gross amount 75,083,077 31,238,213 106,321,290 75,083,078 31,238,212 106,321,290Allowance for impairment (75,083,077) (31,238,213) (106,321,290) (75,083,078) (31,238,212) (106,321,290)Carrying amount - - - - - -

for the rest of portfolio where individually non-significant Impairment is applicableGross amount 14,828,604,866 59,369,660 14,887,974,526 14,732,660,947 22,930,965 14,755,591,912Allowance for impairment (83,273,359) (21,211,705) (104,485,064) (61,284,175) (825,597) (62,109,773)Carrying amount 14,745,331,507 38,157,954 14,783,489,462 14,671,376,772 22,105,368 14,693,482,139

14,745,331,507 38,157,954 14,783,489,462 14,671,376,772 22,105,368 14,693,482,139

2. Advances and other loans

Note Group Company

Advancesand Loans

FactoringReceivables

Total Advancesand Loans

FactoringReceivables

Total

Rs. Rs. Rs. Rs. Rs. Rs.

Carrying amount 17,18 33,951,969,210 4,959,717,107 38,911,686,318 27,140,128,239 4,959,717,107 32,099,845,346Assets at amortised costIndividually significant impairment

Gross amount 101,941,147 69,947,881 171,889,028 101,941,147 69,947,881 171,889,028Allowance for impairment (101,941,147) (69,947,881) (171,889,028) (101,941,147) (69,947,881) (171,889,028)Carrying amount - - - - - -

for the rest of portfolio where individually non-significant Impairment is applicableGross amount 34,095,311,891 5,015,317,093 39,110,628,984 27,228,972,004 5,015,317,093 32,244,289,097Allowance for impairment (143,342,680) (55,599,986) (198,942,666) (88,843,764) (55,599,986) (144,443,750)Carrying amount 33,951,969,210 4,959,717,106 38,911,686,318 27,140,128,239 4,959,717,106 32,099,845,346

33,951,969,210 4,959,717,106 38,911,686,318 27,140,128,239 4,959,717,106 32,099,845,346


154

46. Financial Risk Management (Contd.)3. Trade & Other ReceivablesThe Company’s exposure to credit risk is influenced mainly by the individual characteristics of each customer. However, management also considers the demographics of the Company’s customer base, including the default risk of the industry in which customers operate, as these factors may have an influence on credit risk.

The Credit Committee has established a credit policy under which each new customer is analysed individually for creditworthiness before the Company’s standard payment and delivery terms and conditions are offered. The Company’s review includes external ratings, when available, and in some cases Company references. Purchase limits are established for each customer, which represents the maximum open amount without requiring approval from the Credit Committee; these limits are reviewed quarterly. Customers that fail to meet the Company’s benchmark creditworthiness may transact with the Company only on a prepayment basis.

More than 59 percent of the Company’s customers have been transacting with the Company for over one year. In monitoring customer credit risk, customers are Companied according to their credit characteristics, including whether they are an individual or legal entity, whether they are a wholesale, retail or end-user customer, geographic location, industry, aging profile, maturity and existence of previous financial difficulties.

4. Cash and cash equivalentsThe Company held cash and cash equivalents of Rs. 836 Mn at 31st March 2016 (2015 : Rs. 516 Mn) which represents its maximum credit exposure on these assets.

5. Excessive risk concentrationConcentrations arise when a number of counterparties are engaged in similar business activities, or activities in the same geographical region, or have economic features that would cause their ability to meet contractual obligations to be similarly affected by changes in economic, political or other conditions. Concentrations indicate the relative sensitivity of the Company’s performance to developments affecting a particular industry.

In order to avoid excessive concentrations of risk, the Company’s policies and procedures include specific guidelines to focus on maintaining a diversified portfolio. Identified concentrations of credit risks are controlled and managed accordingly. Selective hedging is used within the Company to manage risk concentrations at both the relationship and industry levels.

Liquidity riskLiquidity risk is the risk that the Company will encounter difficulty in meeting obligations associated with its financial liabilities that are settled by delivering cash or another financial asset.

Management of liquidity risk The Company’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Company’s reputation.

Company central Treasury receives information from other business units regarding the liquidity profile of their financial assets and liabilities and details of other projected cash flows arising from projected future business. Company central Treasury then maintains a portfolio of short-term liquid assets, largely made up of short-term liquid investment securities, loans and advances to Company’s and other inter-Company facilities, to ensure that sufficient liquidity is maintained within the Company as a whole. The liquidity requirements of business units and subsidiaries are met through short-term loans from Company central Treasury to cover any short-term fluctuations and longer term funding to address any structural liquidity requirements.

The Company relies on bank borrowings and deposits from customers and Company’s, as its primary sources of funding. While the Company’s bank borrowings have maturities of over one year, deposits from customers and Company’s generally have shorter maturities and a large proportion of them are repayable on demand. The short-term nature of these deposits increases the Company’s liquidity risk and the Company actively manages this risk through maintaining competitive pricing and constant monitoring of market trends.



Exposure to liquidity riskThe key measure used by the Company for managing liquidity risk is the ratio of net liquid assets to deposits from customers. For this purpose net liquid assets are considered as including cash and cash equivalents and Treasury bills and Repos maturing with in next financial year. A similar, but not identical, calculation is used to measure the Company’s compliance with the liquidity limit established by the Company’s lead regulator, [Central Bank of Sri Lanka - CBSL]. Details of the reported Company ratio of net liquid assets to deposits from customers at the reporting date and during the year were as follows:

Group Company

As at 31st March 2016 2015 2016 2015

238.42 62.99 234.77 62.16

Maturity analysis for financial assets and liabilities Note no 38 of the financials statements summarises the maturity profile of the undiscounted cash flows of the company’s financial assets and liabilities as at 31st March 2016. The Company’s expected cash flows on these instruments vary significantly from this analysis.

Market RiskMarket risk is the risk that changes in market prices, such as interest rates, equity prices, foreign exchange rates and credit spreads (not relating to changes in the obligor’s/issuer’s credit standing) will affect the Company’s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return on risk.

Management of market risksInterest rate risk arises from the possibility that changes in interest rates will affect future cash flows or the fair values of financial instruments. The company’s policy is to continuously monitor positions on a daily basis and hedging strategies are used to ensure positions are maintained within prudential levels.

The following table demonstrates the sensitivity to a reasonable possible change in interest rates, with all other variables held constant, of the company’s income statement.

Group CompanyIf Market rates up by 1 % the

effect of the same to the

Interest Income/(Expense)

If Market rates drop by 1 % the effect of

the same to the Interest Income/

(Expense)”

If Market rates up by 1 % the

effect of the same to the

Interest Income/(Expense)

If Market rates drop by 1 % the effect of

the same to the Interest Income/

(Expense)”Rs. Rs. Rs. Rs.

Effect on Rate sensitive Assets 341,972,530 (341,972,530) 273,309,132 (273,309,132)Effect on Rate sensitive Liabilities (511,366,243) 511,366,243 (511,366,243) 511,366,243Sensitivity of profit or loss (169,393,714) 169,393,714 (238,057,112) 238,057,112

Operational RiskOperational risk is the risk of direct or indirect loss arising from a wide variety of causes associated with the Company’s involvement with financial instruments, including processes, personnel, technology and infrastructure, and from external factors other than credit, market and liquidity risks such as those arising from legal and regulatory requirements and generally accepted standards of corporate behaviour.

The Company’s objective is to manage operational risk so as to balance the avoidance of financial losses and damage to the Company’s reputation with overall cost effectiveness and to avoid control procedures that restrict initiative and creativity.


156

46. Financial Risk Management (Contd.)The primary responsibility for the development and implementation of controls to address operational risk is assigned to senior management within each business unit. This responsibility is supported by the development of overall Company standards for the management of operational risk in the following areas:

Requirements for appropriate segregation of duties, including the independent authorisation of transactions;

Requirements for the reconciliation and monitoring of transactions;

∫ compliance with regulatory and other legal requirements;∫ documentation of controls and procedures;∫ requirements for the periodic assessment of operational risks faced, and the adequacy of controls and procedures to address the risks

identified;∫ requirements for the reporting of operational losses and proposed remedial action;∫ development of contingency plans;∫ training and professional development;∫ ethical and business standards; and∫ risk mitigation, including insurance where this is effective.

Compliance with Company standards is supported by a programme of periodic reviews undertaken by ERM. The results of ERM reviews are discussed with the department heads to which they relate, with summaries submitted to the Audit Committee and senior management of the Company.

47. Capital Management The Company’s capital management is performed primarily considering regulatory capital.

The Company’s lead regulator, the Central Bank of Sri Lanka (CBSL) sets and monitors capital requirements for the Company.

The Company is required to comply with the provisions of the Finance Companies (Capital Funds) Direction No.01 of 2003, Finance Companies (Risk Weighted Capital Adequacy Ratio) Direction No.02 of 2006 and Finance Companies (Minimum Core Capital) Direction No.01 of 2011 in respect of regulatory capital.

The Company’s regulatory capital consists primarily of tier 1 capital, which includes ordinary share capital, retained earnings and statutory reserves.

The Company’s policy is to maintain a strong capital base so as to ensure investor, creditor and market confidence and to sustain future development of the business. The impact of the level of capital on shareholders’ return is also recognised and the Company recognises the need to maintain a balance between the higher returns that might be possible with greater gearing and the advantages and security afforded by a sound capital position.

The Company’s regulatory capital under the CBSL guidelines is as follows;

In Rs. ‘Mn As at

In Rs. ‘Mn As at

Capital Element 31.03.2016 31.03.2015

Ordinary share capital 1,426 1,426 Statutory Reserve 545 466 General Reserve 288 288 Retained earnings 9,444 7,939 Tier I capital / Total Capital 11,702 10,119



Analysis of Ordinary Shares as at 31st March

2016 2015

Range No. ofShareholders

No. ofShares

% ofShares

No. ofShareholders

No. ofShares

% ofShares

1 - 1,000 527 130,255 0.00 477 128,875 0.00 1,001 - 10,000 192 858,766 0.01 177 822,581 0.01 10,001 - 100,000 133 5,029,861 0.07 141 5,210,003 0.08 100,001 - 1,000,000 26 9,513,835 0.15 26 9,371,258 0.15 Over 1,000,000 Shares 6 6,362,178,453 99.76 6 6,362,178,453 99.76 Total 884 6,377,711,170 100.00 827 6,377,711,170 100.00

Shareholders as at 31st March

2016 2015

No. ofShares

% of IssuedCapital

No. ofShares

% of IssuedCapital

1 Lanka ORIX Leasing Company PLC 6,308,876,426 98.92 6,308,876,426 98.922 Browns Investments PLC 40,000,000 0.63 40,000,000 0.633 Sinharaja Hills Plantation Pvt Limited 5,302,027 0.08 5,302,027 0.084 Chemical Industries (Colombo) Ltd/ CIC Charitable &

Educational Trust Fund 4,000,000 0.06 4,000,000 0.065 Ceylon Biscuits Limited 2,000,000 0.03 2,000,000 0.036 Seylan Developments PLC 2,000,000 0.03 2,000,000 0.037 Miss. N.R. Mather 1,000,000 0.02 1,000,000 0.028 Mrs. R.L. Mather 1,000,000 0.02 1,000,000 0.029 Mr. S.R. Mather 1,000,000 0.02 1,000,000 0.02

10 Mr. D.N.N. Lokuge 890,660 0.01 893,500 0.0111 Mr. A.N. William 650,000 0.01 650,000 0.0112 Mr. W.V.A.N. Fernando & Mrs. K.M.M.V.R.Jayasuriya 500,000 0.01 500,000 0.0113 Seylan Bank PLC/ K L Udayananda 460,573 0.01 0 014 Mr. W. Gunarathne 422,717 0.01 0 015 Dr. H.S.D. Soysa 400,100 0.01 400,100 0.0116 Bansei Securities Capital (Pvt) Ltd/ Mr. C.P.A. Gunasekera 400,000 0.01 0 0.0017 Mr. P.B. Jayasundara 260,000 0.00 260,000 0.0018 Mr. S.M.M. Abdul Ghaffoor 200,000 0.00 200,000 0.0019 Mr. H.E.P. Babapulle & Mrs. I.J. Babapulle 200,000 0.00 0 020 Mr. J.B.W. Kelegama 200,000 0.00 200,000 0.00

6,369,762,503 99.88 6,368,282,053 99.86

The Public Shareholding as at 31st March 2016 was 1.08% comprising 882 shareholders

SHAREHOLDER INFORMATION


158

Highest, Lowest and Closing Share Prices as at 31st March

2016 2015

Rs. Rs.

Highest 4.80 5.50 Lowest 3.50 3.80 Closing 3.80 4.00

Shareholders as at 31st March

2016 2015

No. of % of No. of % of

Residents 6,377,678,940 100.00 6,377,683,170 100.00 Non Residents 32,230 - 28,000 - Total 6,377,711,170 100.00 6,377,711,170 100.00

SHAREHOLDER INFORMATION


CompanyIncome Statement (Rs.‘000)

2015/16 2014/15

For the 3 months ended 30-Jun 30-Sep 31-Dec 31-Mar 30-Jun 30-Sep 31-Dec 31-Mar

Gross income 1,955,696 2,156,058 2,273,121 2,243,402 1,825,897 1,940,630 1,963,138 1,860,024Other Income/(Expenses) 150,769 112,149 89,239 417,934 136,989 109,307 96,677 238,535Interest Costs (637,828) (733,573) (850,250) (1,245,216) (636,069) (580,405) (596,725) (592,904)Profit before operating expenses 1,468,637 1,534,634 1,512,110 1,416,120 1,326,817 1,469,532 1,463,090 1,505,656Other operating expenses (976,411) (968,165) (953,833) (1,025,202) (945,528) (781,337) (832,488) (1,477,481)Results from operating activities 492,226 566,469 558,277 390,918 381,289 688,195 630,602 28,175Income tax expense (137,351) (157,772) (155,603) 16,843 (106,273) (192,696) (178,216) 174,946Net profit after tax 354,875 408,697 402,674 407,761 275,016 495,499 452,386 203,121

Financial Position (Rs.’000)

As at 30-Jun-15 30-Sep-15 31-Dec-15 31-Mar-16 30-Jun-14 30-Sep-14 31-Dec-14 31-Mar-15

Assets 45,073,448 51,650,493 53,608,834 84,358,953 33,400,106 37,444,128 39,845,975 42,385,342Liabilities 34,442,283 40,603,615 42,159,915 72,561,527 24,290,786 27,801,545 29,628,250 32,269,957Net Assets 10,631,165 11,046,878 11,448,919 11,797,426 9,109,320 9,642,583 10,217,725 10,115,386

Share capital & reserves 10,631,165 11,046,878 11,448,919 11,797,426 9,109,320 9,642,583 10,217,725 10,115,386Share capital 1,425,946 1,425,947 1,425,946 1,425,946 1,425,947 1,425,947 1,425,947 1,425,947Reserves 9,205,219 9,620,931 10,022,973 10,371,480 7,683,373 8,216,636 8,791,778 8,689,439

GroupIncome Statement (Rs.‘000)

2015/16 2014/15

For the 3 months ended 30-Jun 30-Sep 31-Dec 31-Mar 30-Jun 30-Sep 31-Dec 31-Mar

Gross income 2,219,358 2,565,001 2,834,148 2,770,179 1,825,897 1,969,555 2,056,775 2,054,821Other Income/(Expenses) 153,890 117,758 92,728 507,853 136,989 95,665 115,543 442,442Interest Costs (702,279) (845,847) (1,042,169) (1,441,832) (636,069) (617,491) (623,999) (571,621)Profit before operating expenses 1,670,969 1,836,912 1,884,707 1,836,200 1,326,817 1,447,729 1,548,319 1,925,642Other operating expenses (1,109,366) (1,133,701) (1,161,336) (1,556,110) (945,528) (770,912) (908,235) (1,714,941)Results from operating activities 561,603 703,211 723,371 280,090 381,289 676,818 640,084 210,701Income tax expense (152,851) (202,254) (202,387) 14,745 (106,273) (192,695) (178,883) 161,968Net profit after tax 408,752 500,957 520,984 294,835 275,016 484,123 461,201 372,669

Financial Position (Rs.’000)

As at 30-Jun-15 30-Sep-15 31-Dec-15 31-Mar-16 30-Jun-14 30-Sep-14 31-Dec-14 31-Mar-15

Assets 49,323,106 57,893,939 62,300,350 92,136,764 33,400,106 37,935,440 41,746,088 45,429,078Liabilities 38,586,924 46,649,854 50,535,864 80,150,228 24,290,786 28,058,120 31,644,037 35,262,550Net Assets 10,736,182 11,244,085 11,764,486 11,986,536 9,109,320 9,877,320 10,102,051 10,166,529

Share capital,reserves & non controlling interest

10,736,182 11,244,085 11,764,486 11,986,536 9,109,320 9,877,320 10,102,051 10,166,529

Share capital 1,425,947 1,425,947 1,425,947 1,425,947 1,425,947 1,425,947 1,425,947 1,425,947Reserves 9,263,940 9,766,636 10,280,353 10,509,544 7,683,373 8,212,712 8,641,005 8,697,330Non controlling interest 46,295 51,502 58,186 51,045 - 238,661 35,099 43,252

SUMMARISED QUARTERLY STATISTICS


160

For the year ended 31st December 31st March

(Rs. ‘Mn) 2006 2007 2008/2009

2010 2011 2012 2013 2014 2015 2016

Operating ResultsProfit before interest 1,053 1,399 2,146 1,722 2,047 5,405 4,110 4,321 4,132 5,467Profit before tax 368 406 514 362 741 3,245 1,603 1,289 1,728 2,008Profit after tax 268 328 415 354 664 2,964 1,168 936 1,426 1,574

AssetsTotal assets 7,745 7,976 9,451 12,534 21,351 26,398 27,229 32,934 42,385 84,359LiabilitiesTotal Liabilities 6,708 6,681 7,776 10,505 17,656 19,635 19,392 24,078 32,270 72,562

Shareholders' FundsStated capital 418 418 418 418 1,426 1,426 1,426 1,426 1,426 1,426Reserves 620 878 1,257 1,612 2,269 5,337 6,411 7,430 8,689 10,371Shareholders' funds 1,038 1,296 1,675 2,030 3,695 6,763 7,837 8,856 10,115 11,797

Investor RatiosLong term borrowings to shareholders funds 2.22:1 2.02:1 0.94:1 0.69:1 1.85:1 1.43:1 0.58:1 0.83:1 0.66:1 2.33:1Total borrowings to shareholders funds 5.63:1 4.1:1 4.64:1 4.55:1 4.19:1 2.73:1 1.87:1 1.62:1 2.91:1 5.96:1Book value per share (Rs.) 0.16 0.20 0.26 0.32 0.58 1.06 1.23 1.39 1.59 1.85Earnings per share (Rs.) 0.04 0.05 0.07 0.06 0.10 0.46 0.18 0.15 0.22 0.25Return on capital employed (%) 26 25 28 19 23 57 16 11 15 14Return on assets (%) 3 4 2 3 4 14 6 4 5 3Gross dividends (Rs. Mn) 70.58 70.58 35.29 - - - - - - -

Non Financial InformationNumber of branches 11 11 22 26 40 50 53 53 58 60Number of employees 211 221 276 388 413 511 539 610 670 801

TEN YEAR SUMMARY


2007 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16

Rs.'000 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Rs.'000 Rs.'000

Sources of incomeLease income 889,209 771,110 510,411 854,536 1,837,041 2,591,200 3,162,957 2,820,335 2,881,658Hire purchase income 955,694 1,571,718 1,414,179 1,633,327 1,708,993 1,055,987 495,423 122,104 14,087Loan income - 7,323 113,129 292,738 732,975 1,330,038 2,645,630 3,450,943 4,283,635Vehicle hire income 48,380 56,241 42,242 34,133 16,583 13,189 14,046 17,511 15,944Factoring income 113,867 270,410 304,777 460,887 830,050 723,414 694,703 521,284 702,716Interest on overdue rentals 60,659 147,073 110,733 126,866 191,754 281,793 445,595 536,034 516,335Collection from contracts written off 55,843 121,480 213,900Other income 23,169 116,001 116,001 177,757 2,205,055 217,184 259,867 581,506 770,092

2,090,978 2,939,876 2,611,472 3,580,244 7,522,451 6,212,805 7,774,064 8,171,197 9,398,367

Distribution of incomeTo banks and other lenders 1,000,460 1,640,440 1,362,588 1,309,331 2,167,290 2,514,873 3,039,090 2,406,103 3,466,867To government as taxation 472,061 166,050 166,050 224,778 366,115 550,047 471,911 471,378 704,540To employees as emoluments 134,165 214,870 253,183 381,732 411,034 464,518 571,070 723,426 870,769To providers of services 100,162 228,494 386,355 847,652 1,299,046 1,185,150 1,570,038 1,731,158 2,123,495To shareholders as dividends 70,583 35,292 - - - - - - -Depreciation 51,012 66,023 52,636 44,047 47,360 57,178 54,546 95,380 87,034Provision for doubtful debts 53,527 80,454 85,436 115,414 267,322 272,586 1,131,450 1,317,731 571,655Reserves (including provision for deferred taxation) 209,008 508,253 305,224 657,290 2,964,284 1,168,453 935,959 1,426,021 1,574,007

2,090,978 2,939,876 2,611,472 3,580,244 7,522,451 6,212,805 7,774,064 8,171,197 9,398,367

SOURCES AND DISTRIBUTION OF INCOME


162

Company

As at 31st March 2015/16 (%) 2014/15 (%)(Rs.’000) (Rs. ‘000)

Value addedIncome 8,628,275 7,589,691Other income 770,092 581,506

9,398,367 8,171,197Cost of services (2,123,495) (1,731,158)Provision for losses (571,655) (1,317,731)

6,703,217 5,122,308

Distribution of value addedTo employees 13% 14%Remuneration and other benefits 870,769 723,426

To government 11% 9%Income tax,value added tax and VAT on financial services 704,540 471,378

To banks and other lenders 51% 47%Interest and bank charges on borrowings 3,466,867 2,406,103

To providers of capital - -Dividends to shareholders - -

To expansion and growth 25% 30%Depreciation 87,034 95,380Retained profits 1,574,007 1,426,021

6,703,217 100% 5,122,308 100%

STATEMENT OF VALUE ADDED

20%25%

13%

14%11%

9%

51%

47%

30%

2014/15

2015/16

Distribution of Value added

%To employees

To Goverment

To Bank & other lenders

To expansion & growth


GLOSSARY TERMS

AAccounting PoliciesThe specific principles, bases, conventions, rules and practices adopted by an entity in preparing and presenting financial statements.

Accrual BasisRecognising the effects of transactions and events when they occur, without waiting for receipt or payment of cash or cash equivalents.

Associate Company - Equity accounted investeeAn associate is an entity in which the investor has significant influence and which is neither a subsidiary nor an interest in a joint venture

Available - For-Sale Financial AssetsNon derivate financial assets that are designated as available for sale or are not classified as

(a) Loans and receivables,

(b) Held to maturity investments or

(c) Financial assets at fair value through profit or loss.

CCapital Adequacy RatioThis is ratio between core capital and risk weighted assets.

Cash BasisRecognising the effects of transactions and events when receipts or payments of cash or cash equivalent occur.

Cash EquivalentsShort term highly liquid investment that are readily convertible to known amount of cash and which are subject to an insignificant risk in change in value.

Consolidated Financial StatementsFinancial Statements of a Group presented as those of a single company.

ContingenciesA condition or situation existing on the statement of financial position where the outcome will be confirmed only by occurrence or non occurrence of one or more future event.

Core CapitalCore capital is the minimum amount of capital that finance company should have on hand to comply with the regulatory requirement. Core capital consists of equity capital and declared reserves.

Corporate GovernanceThe process by which corporate entities are governed. It covers the way in which power is exercised over the management and direction of entity, the supervision of executive actions and accountability to owners and others.

Credit RiskCredit Risk is the potential that a borrower or counterparty will fail to meet its obligations in accordance with agreed terms & conditions.

DDeferred TaxationSum set aside for tax in the financial statements that may become payable/receivable in a financial year other than the current financial year.

DepreciationDepreciation is the allocation of the depreciable amount of an asset over its estimated useful life.

EExecutionsAdvances granted to customers under leasing, hire purchase and loan facilities.

FFair ValueFair value is the amount for which an asset could be exchanged or a liability settled between knowledgeable, willing parties in an arm’s length transaction.

Financial AssetsAny asset that is cash, an equity instrument of another entity or contractual right to receive cash or another financial asset from another entity.


164

Finance LeaseA contract where by a lessor conveys to the lessee the right to use an asset for rent over an agreed period of time which is sufficient to amortise the capital outlay of the lessor. The lessor retains ownership of the asset but transfers substantially all the risk and rewards incidental to ownership of the asset to the lessee.

Financial LiabilityIs a contractual obligation to deliver cash or another financial asset to another entity

GGoodwillAny excess of the cost of the acquisition over the acquirer’s interest in the fair value of the identifiable assets and liabilities acquired as at the date of the exchange transaction and is recognised as an asset.

Gross PortfolioTotal rental receivable of the advances granted to customers under leasing, hire purchase and loan facilities.

HHire PurchaseA hire purchase is a contract between hirer and financier where the hirer takes on hire a particular article from the financier, with the option to purchase the article at the conclusion of the agreed rental payments.

IImpairmentAmount by which the carrying amount of an asset or cash generating unit exceeds its recoverable amount.

Interest CostThe sum of monies accrued and payable to the sources of borrowed working capital.

Investment PropertyInvestment Property is a property (land or a building - or part of a building - or both) held (by the owner or by the lessee under a finance lease) to earn rentals or for capital appreciation or both rather than for use in the production or supply of goods or services or for administrative purposes or sale in the ordinary course of business.

KKey Management PersonnelKey Management Personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the entity, directly or indirectly.

LLeaseA lease is an agreement whereby the lessor conveys to the lessee in return for a payment or series of payments the right to use an asset for an agreed period of time.

NNegative GoodwillAny excess, as at the date of the exchange transaction, of the acquirer’s interest in the fair values of the identifiable assets and liabilities acquired over the cost of the acquisition and is treated as income in the period it arises.

Net PortfolioTotal rental instalment receivable excluding interest of the advances granted to customers under leasing, hire purchase and loan facilities.

Non Controlling InterestPart of the net results of operations and of net assets of a subsidiary attributable to interests who are not owned, directly or indirectly through subsidiaries, by the Parent.

Non Performing PortfolioFacilities granted to customers who are in default for more than six months.

OOperating LeaseAn operating lease is a lease other than a finance lease.

PProvisionAmount set aside against possible losses or net receivable of facilities granted to customers, as a result of them becoming partly or wholly uncollectible.

GLOSSARY TERMS


RRelated PartiesParties are considered to be related if one party has the ability to control the other party or exercise significant influence over the other party in making financial or operating decisions.

Related Party TransactionsA transfer of resources or obligations between related parties, regardless of whether a price is charged.

Residual ValueThe estimated amount that is currently realisable from disposal of asset, after deducting estimated cost of disposal, if the asset was already of the age and in the condition expected at the end of its useful life.

SSegmental AnalysisAnalysis of information by different products

Shareholder’s Funds (equity)Total of issued and fully paid ordinary share capital and reserves.

Stated CapitalAll amount received by the Company or due and payable to the Company -

(a) In respect of the issue of shares,

(b) In respect of calls on shares.

Subsidiary CompanySubsidiary is a company that is controlled (power to govern the financial and operating policies of an enterprise so as to obtain benefits from its activities) by another company known as the Parent.

Substance over FormThe consideration that the accounting treatment and the presentation in Financial Statements of transactions and the events should be governed by their substance and financial reality and not merely by legal form.

TTier 1 CapitalCore capital representing permanent shareholders’ equity and reserves created or increased by appropriations of retained earnings or other surpluses.

Tier 11 CapitalSupplementary capital representing general provisions and other capital instruments which combine certain characteristics of equity and debt, such as hybrid capital instruments and unsecured subordinated term debt.

UUnearned IncomeUnearned interest is an accounting method used by lending institutions to deal with long-term, fixed-income securities. Initially recorded as a liability, the unearned interest will eventually be recorded as income in the lending institution’s books over the life of the loan as time passes and the interest is earned.

VValue AdditionValue of wealth created by providing leasing and other related services considering the cost of providing such services.

RATIOSMethod of computation and indicates

DDebt to Equity(Gearing)RatioTotal debts divided by equity. The extent to which debt contributes to fund total assets, compared to the contribution from equity.

EEarnings Per Share (EPS)Profit attributable to ordinary shareholders divided by the weighted average number of ordinary shares outstanding during the year. Share of current year’s earnings attributable to an ordinary shares in use.

IInterest CoverEarnings before interest and tax divided by interest expense. Ability to cover or service interest charges of the debt holders.


166

MMarket CapitalisationNumber of ordinary shares in issue multiplied by market value of a share. Total market value of all ordinary shares in issue.

NNet Assets Value per Ordinary ShareOrdinary shareholders’ funds divided by the number of ordinary shares in issue. Book value of an ordinary share.

Non Performing RatioTotal gross non-performing portfolio divided by total gross portfolio. Percentage of total gross non-performing portfolio against the total gross portfolio.

PPrice Earnings Ratio (PE Ratio)Market price of a share divided by earnings per share (EPS). Number of years that would be taken to recoup shareholders’ capital outlay in the form of earnings.

RReturn On Assets (ROA)Net profit expressed as a percentage of average total assets. Overall effectiveness in generating profit with available assets; earning power of invested total capital.

Return on Equity (ROE)Net profit, less preference share dividends if any, expressed as a percentage of average ordinary share holders’ funds. Earning power on shareholders’ book value of investment (equity).

GLOSSARY TERMS


NOTICE OF MEETING

NOTICE IS HEREBY GIVEN THAT THE 24TH ANNUAL GENERAL MEETING of Commercial Leasing & Finance PLC Company will be held on 06th September 2016 at 10.00 am, at the LOLC Auditorium, No. 100/1, Sri Jayawardenapura Mawatha, Rajagiriya for the following purposes:

1. To receive and consider the Annual Report and Financial Statements for the year ended 31st March, 2016, with the Report of the Auditors thereon.

2. To re-elect as Director Mr. I C Nanayakkara, who retires by rotation in terms of Article 75 of the Articles of Association of the Company.

3. To re-elect as Director Mrs. K U Amarasinghe, who retires by rotation in terms of Article 75 of the Articles of Association of the Company.

4. To re-appoint as auditors M/s KPMG, Chartered Accountants at a remuneration to be fixed by the Directors.

BY ORDER OF THE BOARDCommercial Leasing & Finance PLC

R SeneviratneLOLC Corporate Services (Private) Limited Secretaries

15th August 2016Rajagiriya (in the greater Colombo)

NOTE:

1) A member entitled to attend and vote at the Meeting is entitled to appoint a Proxy to attend and vote instead of him/her. A Proxy need not be a member of the Company.

2) The completed Form of Proxy should be deposited at the registered office of the Company, 68, Baudhaloka Mawatha, Colombo 04, not later than 10:00 am on 04th September 2016.

3) A Form of Proxy accompanies this Notice.


168

NOTES



170

NOTES


I / We .............................................................................................................................................................................................................................

of ............................................................................................................................................................................... .......being a member/members of

Commercial Leasing & Finance PLC hereby appoint ...................................................................................................................................................

................................................................................................................... of ............................................................................................ whom failing

Mr. Ishara Chinthaka Nanayakkara of Colombo or failing him

Mr. Waduthanthri Dharshan Kapila Jayawardena of Colombo or failing him

Mrs. Kalsha Upeka Amarasinghe of Colombo or failing her

Mr. Priyantha Damian Joseph Fernando of Colombo or failing him

Mr. Don Manuwelge Don Krishan Thilakaratna of Colombo

as my/our proxy to represent me/us and vote on my/our behalf at the Annual General Meeting of the Company to be held on 06th September 2016 and at any adjournment thereof and at every poll which may be taken in consequence of the aforesaid Meeting.

For Against

1. To re-elect as Director Mr. I C Nanayakkara, who retires by rotation in terms of Article 75 of the Articles of Association of the Company.

2. To re-elect as Director Mrs. K U Amarasinghe, who retires by rotation in terms of Article 75 of the Articles of Association of the Company.

3. To re-appoint as auditors M/s KPMG Chartered Accountants at a remuneration to be fixed by the Directors.

dated this ……….………………….. day of ……………., Two Thousand Sixteen

………………………………………

Signature of Shareholder

NOTE:

1) a proxy need not be a member of the company

2) Instruction as to completion appear on the reverse hereof

FORM OF PROXY


172

INSTRUCTIONS AS TO COMPLETION

1 Please return the completed Form of Proxy after filling in legibly your full name and address, signing on the space provided and filling in the date of signature.

2 The completed Form of Proxy should be deposited at the registered office of the Company, 68, Bauddhaloka Mawatha, Colombo 04 not less than 48 hours before the time appointed for the holding of the Meeting.

FORM OF PROXY

CORPORATE INFORMATION

Name of the CompanyCommercial Leasing & Finance PLC

Country of IncorporationSri Lanka

Legal FormA quoted public company with limited liability

Date of Incorporation22nd April 1988

Company Registration No.PQ 131/PB/PQ

Stock Exchange ListingThe ordinary shares of the Company were listed on the Diri Savi Board of the Colombo Stock Exchange on 5th June 2012.

Credit RatingICRA Lanka assigned the company an issuer rating of (SL) A - (Stable).

Registered Office and Head OfficeNo. 68, Bauddhaloka Mawatha, Colombo 04. Tel: 0114526500/526 Fax: 0114526559 Website: http://www.clc.lk

DirectorsMr. I C Nanayakkara - Non-Executive Chairman(alternate to Mr. W D K Jayawardena)Mr. W D K Jayawardena - Non-Executive Director(alternate to Mr. I C Nanayakkara )Mrs. K U Amarasinghe - Non-Executive Director Mr. P D J Fernando - Senior Independent DirectorMr. D M D K Thilakaratne - Executive Director/ CEO

SecretariesLOLC Corporate Services (Private) Limited100/1 Sri Jayawardenapura Mawatha, RajagiriyaTel: 011 5880354/7 0115880880 (general)

AuditorsKPMG, Chartered Accountants

LawyersJulius & Creasy, Attorneys-at-LawNithya Partners

RegistrarsPW Corporate Secretarial (Private) LtdNo. 3/17 Kynsey Road, Colombo 8. Tel: 011 4897733-5

Principal ActivitiesDuring the year the principal activities of the Company comprised provision of leasing, hire purchase, loans and mobilizing of fixed and savings deposits.

BankersBank of CeylonCiti Bank N AHatton National Bank PLCHongkong and Shanghai Banking Corporation LtdDeutsche BankNation Trust Bank PLC Commercial Bank of Ceylon PLC NDB BankSeylan Bank PLC MCB BankSampath Bank PLC DFCC Vardhana BankUnion Bank of Colombo PLC People’s BankHabib Bank

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