THE ROAD AHEAD - First Capital€¦ · · 2016-06-30THE ROAD AHEAD First Capital ... Annual Report 2010/2011 First Capital Holdings PLC - Annual Report 2010/2011. Contents Overview

THE ROAD AHEAD

First Capital Holdings PLCAnnual Report 2010/2011

www.firstcapital.lk

First Cap

ital Hold

ings PLC

- Annual R

eport 2010/2011

ContentsOverview

Milestones 2Financial Highlights 4

Management Reports

Executive Director’s Review 5Board of Directors 8Group Structure 9Corporate Management Team 10Human Resource Development 11Principal Activities and Products 13

Financial Reports

Annual Report of the Board of Directors 16Statement of Directors’ Responsibility 19Corporate Governance 20Independent Auditors’ Report 21Income Statement 22Balance Sheet 23Statement of Changes in Equity 24Cash Flow Statement 25Notes to the Financial Statements 26

Investors’ Information 49Ten Year Summary 51Glossary of Financial Terms 52Notice of Meeting 54Form of Proxy 55Corporate Information Inner Back Cover

Corporate Information

Name of Company - First Capital Holdings PLC

Name of Subsidiaries - First Capital Limited First Capital Treasuries Limited First Capital Markets Limited First Capital Asset Management Limited

Legal form - Public limited liability company listed on the Colombo Stock Exchange (Incorporated in Sri Lanka on 23 March 1992)

Company registration number - PQ 44

Registered office - No. 75, Arnold Ratnayake Mawatha Colombo 10 Sri Lanka

Board of Directors - Ms. Manjula Mathews Mr. Dinesh Schaffter Mr. Nihara E. Rodrigo

Secretaries - K H L Corporate Services Limited No. 75, Arnold Ratnayake Mawatha Colombo 10 Tel: 0112 639807 / 0112 639898

Registrars - SSP Corporate Services (Pvt) Limited No. 101, Inner Flower Road Colombo 03 Tel: 0112 573894

Lawyers - M/s. D.L. & F De Saram Attorneys - at - Law 47, Alexandra Place Colombo 10.

External Auditors - M/s. KPMG Ford Rhodes Thornton & Company Chartered Accountants 32 A, Sir Mohamad Macan Marker Mawatha P.O.Box 186 Colombo 03

Principal Bankers - Hatton National bank PLC Nations Trust Bank PLC

Produced by Copyline (Pvt) Ltd Printed by Printel (Pvt) Ltd

It has been an outstanding year for us at First Capital and we are happy to let the numbers do the talking. But we’re not done yet. Our sights are firmly set on the future, with plans to expand on every area of business. In an environment that is set for success, we are formulating innovative strategies, providing exceptional service and adding value to our stakeholders. The way ahead is bright and we are embracing every opportunity to reach the pinnacle in our industry.

THE ROAD AHEAD

First Capital Holdings PLCAnnual Report 2010/2011Overview

2

Milestones

March 1992Company incorporated as CF Venture Fund Limited.

December 2006Company acquires a 30 % stake in First Capital Limited, a financial services group comprising of four subsidiaries and an associate company namely, First Capital Treasuries Limited (Licensed Primary Dealer in Government Securities), First Capital Markets Limited (Licensed Margin Provider), First Capital Asset Management Limited (Licensed Investment Manager), First Capital Money Brokers Limited (Inter-Bank Money Broker) and First Capital Equities (Private) Limited (Licensed Stock Broker) respectively.

July 2007The company increases its share capital by Rs.187.5 million via a Rights Issue and acquires a further 28 % stake in First Capital Limited.

August 2010An application made by First Capital Asset Management Limited to function as a Unit Trust Managing Company is approved by the Securities and Exchange Commission of Sri Lanka.

April 2009The company acquires a further 20 % in First Capital Limited taking its holding up to 99%.

November 2009First Capital Limited divests 100% of First Capital Money Brokers Limited and exits the money-broking sector.

June 2010The company reports record profits for the year ended 2009/10 of Rs 682m boosted by cyclical profits from its primary dealer arm.

September 2010Group net assets exceed Rs 1 billion.

March 2011Group net assets stand at Rs 1.5 billion.


Overview

3

January 2005Name changed from CF Venture Fund Limited to V Capital Limited.

September 2007The company changes its name from V Capital Limited to First Capital Holdings PLC.

First Capital Limited divests its 40% stake in First Capital Equities (Private) Limited and exits the stock broking sector.

June 2009The company acquires 29.99% of the listed entity Kotmale Holdings PLC via a subsidiary.

May 2010The company sub-divides its shares by splitting every one share into three ordinary shares. Stated capital remains unchanged.

November 2010First Capital Markets Limited becomes a member of the Debt Exchange of the Colombo Stock Exchange. Margin trading portfolio receivables soar to Rs 800m, from just Rs 220 million at the end of March 2010.

The Group divests its stake in Kotmale Holdings PLC realising a capital gain of Rs. 180 million

March 2007The company acquires a further stake of 21 % in First Capital Limited and becomes the parent company of First Capital Limited and its subsidiaries.


4

Financial Highlights

Year ended 31 March 2011 2010 2009 Rs. 000 Rs. 000 Rs. 000

Operating PerformanceGross Income 1,716,279 2,728,174 2,333,106Profit before Taxation 605,172 1,164,349 349,263Profit after Taxation 983,475 682,244 191,584Profit attributable to Equity Holders of Parent 934,806 646,137 132,403

Balance Sheet HighlightsShareholders’ Funds (Capital and Reserves) 1,515,637 580,831 453,649Total Liabilities 9,922,529 10,193,359 10,949,883Total Assets 11,496,573 10,823,828 11,551,562

Rs. Rs. Rs.

Investor InformationEarnings per Share 9.23 6.38 1.31Net Assets per Share 15.04 17.21 13.44Market Value at the Year End 22.10 58.00 9.75

Number of Shares in Issue at Year End 101,250,000 33,750,000 33,750,000

Group Turnover

Rs. Mn.

4,000

2008

/09

2,33

3

1,71

6

2,72

820

09/1

0

2010

/11

2,000

3,000

1,000

0

Group Profit After Tax

Rs. Mn.

1,000

800

192

983

682

2008

/09

2009

/10

2010

/11

400

600

200

0

Group Net Assets

Rs. Mn.

2,000

2008

/09

2009

/10

2010

/11

1,000

1,500

500

0

454

581

1,51

6

5First Capital Holdings PLC

Annual Report 2010/2011Management Reports

Executive Director’s Review

On behalf of the Board of Directors, it is with great pleasure that I welcome you to the 19th Annual General Meeting of First Capital Holdings PLC and present to you the Annual Report and audited financial statements for the year ended 31 March 2011.

Economic OverviewThe year 2010 was a year of recovery from a national and a global perspective. The global economy rebounded in 2010 anchored by strong growth in emerging and developing countries and moderate but sustained growth in advanced economies. The recovery was characterised by the decline in commodity prices, easing of liquidity levels, increase in exports, and stability in oil prices.

After the cessation of the war, Sri Lanka performed impressively with a GDP growth of 8% during 2010 with improved contributions from all key sectors of the economy. Inflation continued to remain at a single digit throughout the year with annual average inflation recording 5.9% in 2010. Demand management policies, improved domestic supply conditions and supportive fiscal policies contributed towards containing inflation at these low levels.

The exchange rate remained stable throughout the year consequent to the recovery of external trade and increase in export earnings. The recovery of the global economy, improved conditions in financial markets and restoration of investor confidence enabled the external sector to remain buoyant.

The sovereign rating of the country was raised, allowing Sri Lanka to project itself stronger and steadier in the eyes of the global investor community and to multilateral agencies. Increases in workers’ remittances and in foreign investments helped increase the country’s external reserves to comfortable levels. Dividends of these changes also impacted

our capital markets with the Colombo Stock Exchange (CSE) performing amongst the best in the world and with the debt markets resurrected by borrowers targeting low cost long term funding in a liquid environment.

Industry OverviewThe Central Bank eased its monetary policy stance further in 2010 reducing policy interest rates in the second half of 2010 to stimulate credit growth and to support economic activity. Both the repurchase rate and the reverse repurchase rate were reduced by 25 basis points in July with the latter being reduced by a further 50 basis points in August, thereby narrowing the policy rate corridor. These rates stood at 7.25% and 9.00% at the end of the year compared to 7.50% and 9.75% at the beginning of the year.

Interest rates on government securities which had declined below 10% by end 2009 stimulated by the cessation of hostilities and the subsequent intervention by the IMF to boost foreign reserves, continued to decline at a more measured pace, dipping below 8% and settling there.

Rates are expected to be stable at current levels for the foreseeable future in the absence of any significant global or local influences.

The fourth quarter of 2010 saw some upheavals with floods in most parts of the country that damaged agricultural crops and exerted pressure on food prices while crude oil prices rose sharply by around 30% as a result of instability in the Middle East. If price pressures such as these persist, we could experience interest rate hikes in an effort to counter inflation.

Operational OverviewHaving reported exceptional profits in the wake of declining interest rates in 2009, First Capital Treasuries Limited, the company’s Primary Dealer arm, saw its

profits moderate in 2010. Although high-yielding bonds in its portfolio continued to generate capital gains, with interest rates flattening out, portfolios were re-positioned to reflect a more conservative risk perspective.

With the resurgence in the share market, the demand for margin advances grew, resulting in the Margin Trading portfolio of First Capital Markets Limited increasing from Rs. 200 million in March 2010 to over Rs. 800 million by the end of the year. In the latter half of 2010, Commercial Banks entered the Margin Trading business aggressively and around the same time, the Securities and Exchange Commission placed Margin lending restrictions on Stock Brokers, leading many such firms to apply for Margin Trading licenses. However, with over 50 IPO’s in the CSE’s pipeline, it is expected that there would be sufficient interest in the share market to keep up the demand for Margin loans. Although there is opportunity for further growth in this area, First Capital Markets Limited is aiming for restrained growth balanced with careful management of exposure.

With the reduction of interest rates, the debt capital markets offered better long term, fixed rate borrowing solutions to companies than could commercial banks. First Capital Limited, as one of the principal debt structuring companies in Sri Lanka was able to maintain its dominant role in this area by structuring and placing corporate debt for several leading listed and rated entities. Structuring assignments of Securitisations, Commercial Paper, Debentures, Asset Backed Loans, Promissory Notes, and Interest Rate Swaps were some of the fee-generating activities executed during the year.

First Capital Asset Management Limited continued to generate income from the customized management of clients funds. An application made by the company

First Capital Holdings PLCAnnual Report 2010/2011Management Reports

6

The asset base of the group which stood at Rs. 10.8 billion as at March 31, 2010 grew reasonably to reach Rs. 11.5 billion as at March 31, 2011.Shareholders’ Funds increased by 161% to Rs.1.5 billion in 2010/11.

to function as a Unit Trust Managing Company was approved by the Securities and Exchange Commission of Sri Lanka (SEC) in August 2010, following which, a Unit Trust with a focus on fixed income securities, the First Capital Wealth Fund, was set up. This initiative was welcomed by the SEC as a step in the direction of developing the Unit Trust industry. Investors, corporates in particular, can benefit from a fixed income Unit Trust as no further tax is payable on dividends received.

With regulation of the debt market deemed to be the future, First Capital Markets Limited applied to become a member of the Debt Exchange (DEX). This application was approved by the Colombo Stock Exchange in November of 2010. However as the Debt Exchange in Sri Lanka is only minimally active at present, this does not provide significant income generating opportunities to the company.

Financial PerformanceIn 2010/11 although conditions were less conducive than those in the previous year in which a highly favourable bond trading environment resulted in exceptional profits by the Group’s primary dealer arm, the Company was able to sustain its momentum helped by strong performance in all areas. For the financial year ended 31 March 2011, the group recorded a gross turnover of Rs. 1.7 billion compared to Rs. 2.7 billion in the previous year. The reduction was primarily due to moderation in the activity level within the primary dealership following on from exceptionally high trading volumes and capital gains opportunities in 2009.

Gains on sale of dealing securities contributed Rs. 213 million (28%) to group net income before expenses compared to Rs. 920 million in 2009, while interest income from dealing securities, re-sale agreements and other income contributed Rs. 558 million (72%) compared to Rs 434 million in the previous year.

Consolidated Profit after Tax amounted to Rs. 983 million recording a growth of 44% compared to Rs. 682 million recorded the previous year. Profits were boosted by a one-off capital gain of Rs. 180 million from the sale of 29.99% in an associate company, Kotmale Holdings PLC, which had been acquired in June 2009. In addition a decision in the company’s favour with respect to First Capital Treasuries Limited, by the Inland Revenue Board of Review resulted in tax reversals of Rs. 413 million relating to previous years. Operating profits excluding these items were Rs. 570 million for the year.

The asset base of the group which stood at Rs. 10.8 billion as at March 31, 2010 grew reasonably to reach Rs. 11.5 billion as at March 31, 2011. Shareholders’ Funds increased by 161% to Rs.1.5 billion in 2010/11.

The FutureSri Lanka is expected to register a growth of 8% in 2011 with positive contributions from all sectors of the economy and with employment opportunities expected to rise with the boom in tourism and increased levels of livelihood activity, particularly in the North and the East. Domestic inflation in 2011 is expected to remain subdued within single digits. Sri Lanka’s external sector is expected to improve further in 2011 recording a surplus in the Balance of Payments, thus increasing the country’s external reserves further. Export performance is expected to expand with deeper regional economic integration while imports too are projected to grow in 2011 due to increased economic activity, low financing costs

Executive Director’s Review Contd.

Group Profit After Tax

Rs. Mn.

1,000

800

2006

/07

2007

/08

2008

/09

2009

/10

2010

/11

400

600

200

0

14 75 192

682

983


Management Reports

7

and reduced import duties. The Central Bank is expected to allow moderate Rupee appreciation to curb import related inflation.

First Capital Treasuries Limited, having identified that significant capital gains opportunities may not be forthcoming in the year ahead, has re-aligned its strategies and re-positioned its portfolios to focus less on trading gains and more on gains arising from yield curve management. This strategy will present a lower risk profile and a more moderate, though steady income for the company. First Capital Treasuries Limited will also endeavor to broaden its customer base through promotional efforts both in Colombo and in the ‘out-stations’ through the group’s branches in Matara and Kandy.

With borrowing costs expected to stay low and with the share market set to remain robust, First Capital Markets Limited will continue as a front runner in its role as a SEC-approved Margin Provider. First Capital Markets Limited will continue to provide its high level of customer service while focusing on the heightened risk and new challenges arising from larger volumes and broader activity in the share market. With aggressive interest by Commercial Banks in the business of Margin Trading, First Capital Markets Limited will be challenged to keep both its clients and its interest rate margins intact.

With continued expansion in the debt capital markets, First Capital Limited is well placed to grow its structuring and placement business by broadening both its ‘issuer’ base by innovating the product range and its investor base through awareness programs and marketing efforts to educate the investing community of the level of security, liquidity, and yields they can expect from investing across a range of corporate debt securities.

In 2011 the group will continue to report strong performances from all of its key business units. With an asset base of Rs. 11.5 billion and the strength of the First Capital brand, the group is well-positioned to leverage opportunities in the market place.

AcknowledgementsI take this opportunity to express my deep appreciation to my fellow Board members for their unstinted support and guidance given throughout the year. I wish to place on record our appreciation to Mr. Jude Fernando who resigned as director on 5 January 2011 for his services during his tenure.

My sincere gratitude to our clients and all shareholders for the confidence and trust placed in us and the management team and staff of the First Capital Group, without whose dedication and effort, we would not have been able to achieve all that we did.

(Sgd.)Manjula Mathews (Ms.)Executive Director

24 June 2011


8

Board of Directors

Ms. Manjula MathewsMBA, FCMAExecutive Director

Ms. Mathews brings to the Board over 20 years experience in General Management and Finance, both in Sri Lanka and overseas. She currently serves as Managing Director of Dunamis Capital PLC, a listed entity and as a Director of other Dunamis subsidiaries.

Ms. Mathews was formerly the Finance Director at Janashakthi Insurance PLC one of the leading insurers in the country. She continues to hold a Non-Executive position at Janashakthi Insurance PLC

Ms. Mathews is a Fellow Member of the Chartered Institute of Management Accountants of (UK), and holds a Masters Degree in Business Administration from the University Cambridge (UK).

Mr. Dinesh SchaffterACMA, LLBNon-Executive Director

Mr. Dinesh Schaffter counts over 20 years experience in the Financial Services and Manufacturing sectors. He also serves as a Director of Dunamis Capital PLC, and its subsidiaries.

Mr. Schaffter is an Associate Member of the Chartered Institute of Management Accountants (UK), and holds a Bachelor of Laws - Honours Degree (LLB) from the United Kingdom.

Mr. Nihara E. RodrigoPresident’s CounselIndependent Non-Executive Director

Mr. Rodrigo’s professional career span of over 30 years is enriched with diversified expertise and experience in various fields including different aspects of law and e-commerce. He serves as the Chairman of the Grants Board of the Information and Communication Technology Agency of Sri Lanka - Capacity Building Program. He was appointed as a President’s Counsel in May 2010.

Mr. Rodrigo also serves as a Director of Dunamis Capital PLC and its listed subsidiary, Kelsey Developments PLC.


Management Reports

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Group Structure

99.88%

94.45%100%98.72%

FIRST CAPITAL HOLDINGS PLC

Investments & Managing of Subsidiaries

Executive DirectorMs. Manjula Mathews

FIRST CAPITAL LIMITEDCorporate Finance Service Provider

Group MD: Ms. Manjula Mathews

FIRST CAPITAL ASSET MANAGEMENT LIMITED

Fund Manager/ Managing Company of Unit Trust

Head of Capital Markets & Fund Management: Chandima Desinghe

FIRST CAPITAL TREASURIES LIMITED

Primary DealerDirector / CEO: Mahinda

Godakandaarachchi

FIRST CAPITAL MARKETS LIMITED

Margin ProviderHead of Capital Markets & Fund

Management: Chandima Desinghe AGM: Romesh Fernando

Senior Manager: Ms. Dharshani De Silva


10

Corporate Management Team

Name and Designation Company

Manjula Mathews (Ms.) Executive Director First Capital Holdings PLCManaging Director First Capital LimitedManaging Director First Capital Markets LimitedManaging Director First Capital Asset Management LimitedDirector First Capital Treasuries Limited

Dinesh SchaffterDirector First Capital Holdings PLC First Capital Limited First Capital Treasuries Limited First Capital Markets Limited First Capital Asset Management Limited

Nihara E. RodrigoDirector First Capital Holdings PLC Mahinda Godakandaarachchi Director / CEO First Capital Treasuries Limited Chandima DesingheHead of Capital Markets and Fund Management First Capital Limited First Capital Markets Limited First Capital Asset Management Limited Mangala JayashanthaChief Financial Officer First Capital Holdings PLC Romesh Fernando AGM – Investments and Margin Trading First Capital Limited First Capital Markets Limited

Mallika Mahanama (Ms.) Senior Manager - Business Processing First Capital Limited First Capital Treasuries Limited First Capital Markets Limited First Capital Asset Management Limited

Suhini Fernando (Ms.)Senior Manager - Fixed Income Securities First Capital Treasuries Limited Dharshani De Silva (Ms.)Senior Manager - Fixed Income Securities First Capital Markets Limited


Management Reports

11

Human Resource Development

At First Capital Holdings PLC, we pride ourselves on the skill, dedication and commitment of our work-force. Service excellence remains at the heart of the organisation and over the years the relationships between our team and our customers has grown and strengthened to form lasting bonds of loyalty.

It is the collective dynamism and enterprise of our employees that has enabled the company to overcome challenges to drive forward new opportunities. A commitment towards maintaining the highest standards of professional excellence has resulted in overall customer satisfaction.

As a leader in the financial services sector, First Capital is able to attract and retain talented individuals. The recruitment process meets the evolving needs of the organisation and an enviable working environment has resulted in a high level of staff retention.

Staff training and development is accorded a high priority within the company and in the year under review, a substantial number of staff members of the company attended training programs. Regular appraisals and feedback on performance are linked to the rewards mechanism to ensure high levels of employee motivation and performance.

All employees and their immediate families are provided medical insurance cover and a comprehensive health check-up is undertaken for all employees each year. The company has an active Sports Guild that organises bi-annual events that foster team spirit and encourage interaction beyond the scope of day to day duties. Active participation by all employees ensures fun-filled events that provide a welcome respite from the pressures of work.

Group - Corporate /Senior Management and above - Qualifications

Discipline/Field DPQ DQ PQ AL Total

Accounting, Finance, & Business 3 1 1 - 5

Law - - 1 - 1

Engineering - - - -

Mathematics / Science /Information Technology - - - -

GCE Advanced Level - - 5 5

Total 3 1 2 5 11

DPQ – Degree and Professional Qualifications , DQ - Degree Qualifications, PQ - Professional Qualifications, AL - GCE Advanced Level

Service Analysis of Staff as at 31 March 2011

Service(Years)

Corporate/Senior Management

Operations Management

Executives Other Total

20 & above 1 - - 2 3

16 to 20 1 - - 1 2

11 to 15 1 3 - - 4

6 to 10 1 5 4 - 10

5 & below 7 3 8 2 20

11 11 12 5 39

Average service of employees as at 31 March 2011 was 7.6 years.


12

Group - Training Analysis

2010/11

Personal skills 01

IT knowledge and skills 01

Job related technical skills and professionalism 23

Total 25

70% staff attended training programmes during the year.

Human Resource Development Contd.


Management Reports

13

Principal Activities and Products

First Capital LimitedFirst Capital Limited performs the corporate finance function of the group. It is the group’s arm dealing with non-government securities and has a mandate to intermediate in debt capital markets by utilising vehicles such as commercial papers, promissory notes, asset backed papers, debentures, interest rate swaps, forward rate agreements and loan syndications. The Company interacts closely with corporate entities in assisting them with structuring and placing both short term and long term debt issues. In doing so, First Capital Limited draws from a pool of resources which includes corporate lawyers, market researchers, custodians, trustees, underwriters, broking houses and regulators.

First Capital Limited is the holding company of First Capital Treasuries Limited, First Capital Asset Management Limited and First Capital Markets Limited.

The Company has branch office in Kandy and Matara which serve the needs of its expanding client base.

First Capital Treasuries Limited First Capital Treasuries Limited is a Primary Dealer appointed by the Central Bank of Sri Lanka (CBSL) in June 1992. It continues to enjoy that status, being one of only 11 fully functioning dedicated Primary Dealer. All outright issues of fixed income securities by the CBSL are channeled exclusively through this Primary Dealer network.

a) Primary Auctions Participate in auctions conducted by the CBSL for Treasury Bills (investments up to one year), Treasury

Bonds (investments beyond one year) and instruments issued by the Government and the CBSL.

b) Secondary Market Activities Engage in the secondary market in Treasury Bills, Treasury Bonds and other Government and CBSL Securities with The CBSL by,

l participating in auctions of Open Market Operations (OMO)

l accessing the CBSL Repo and Reverse Repo Corridor.

Retail and Corporate Clients by,l bidding on their behalf, at Primary

Auctionsl distributing the securities purchased

from CBSL by way of “outright sale” or on basis of a “repurchase agreement”

l providing a specialised and personalised advisory service for better investment options.

c) Promoting and developing a secondary market in Treasury Bills, Treasury Bonds and other Government and CBSL Securities by

l maintaining a Trading Portfolio (leveraged within parameters placed by CBSL) of a range of these securities, and trading actively based on a view of market movements.

l quoting narrow buy/ sell spreads and trading with a wide range of counter parties which includes commercial banks, other primary dealers, specialised banks, corporate clients with the objective of contributing to a vibrant trading environment.

d) Advisory Services – Fixed Income Securities

Dedicated market research is conducted in examining trends in Sri Lankan macro statistics and global factors to arrive at yield curve forecasts and market positioning.

e) Structure/ Place or underwrite derivatives in the form of Interest rate Swaps and Forward Arrangements for hedging purposes where the underlying security is a gilt edged government debt paper.

First Capital Markets LimitedFirst Capital Markets Limited is a Margin Provider licensed by the Securities and Exchange Commission of Sri Lanka for listed equity. In this function, the Company facilitates leveraging for investors in the share market enabling them to capitalise on both short term and medium term market opportunities. In 2010, margin trading volumes increased four fold and numerous improvements were made to the computerised system and operational checks and balances in order to better manage risks arising from larger market volumes and price movements in the share market.

First Capital Asset Management LimitedFirst Capital Asset Management Limited is an Investment Manager licensed by the Securities and Exchange Commission of Sri Lanka specializing in managing wealth for Trusts, Provident Funds, High Net Worth Individuals and Companies.

As part of a group with high visibility and understanding of the financial markets, the Company is able to avail clients of investment options which would otherwise not be available to them. In doing so, First Capital Asset Management Limited can secure significantly higher returns on funds entrusted to them for management.

Additionally, First Capital Asset Management Limited manages the business of Unit Trust as a licensed manager by the Securities Exchange Commission of Sri Lanka.


14

Financial Calendar 2010/2011Interim Financial Reports in terms of Rule 8.3 of the Colombo Stock Exchange (CSE).1st Quarter 2010/2011 Interim Financial Report (Unaudited) 29 July 20102nd Quarter 2010/2011 Interim Financial Report (Unaudited) 4 November 20103rd Quarter 2010/2011 Interim Financial Report (Unaudited) 4 February 20114th Quarter 2010/2011 Interim Financial Report (Unaudited) 10 May 2011


Overview

15

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Financial ReportsAnnual Report of the Board of Directors 16Statement of Directors’ Responsibility 19Corporate Governance 20Independent Auditors’ Report 21Income Statement 22Balance Sheet 23Statement of Changes in Equity 24Cash Flow Statement 25Notes to the Financial Statements 26

First Capital Holdings PLCAnnual Report 2010/2011Financial Reports

16

The Directors of First Capital Holdings PLC have pleasure in presenting their Annual Report together with the Audited Financial Statements for the year ended 31 March 2011 which was approved by the Directors on 24 June 2011.

Review of Operations The company had a successful year of operations with profits being generated by all of its business units. A more comprehensive review of the operations of the Company during the financial year and the results of those operations are contained in the Executive Director’s Report on pages 5 - 7 of the Annual Report. This report forms an integral part of the Directors’ Report.

Principal Activities The main activity of the company is the investment and management of subsidiaries. Further information on the activities of subsidiary companies is contained on page 13 of the Annual Report.

Legal Status First Capital Holdings PLC was incorporated in 1992 under the provisions of the Companies Act No. 17 of 1982 and re-registered under the Companies Act No. 7 of 2007.

Financial Results The Company’s net profit after tax was Rs. 983 Mn compared with Rs. 682Mn for the year 2009/10.

A summary of the financial results for the year is set out below.

Annual Report of the Board of Directors

The financial statements of the Company are set out in pages 21 to 48 of the Annual Report.

Directors’ Responsibility for Financial ReportingThe Directors’ responsibility in relation to the financial statements is detailed under the Statement of Directors’ Responsibility.

DirectorateThe following were the Directors of the Company as at 31 March 2011.

1. Ms. Manjula Mathews2. Mr. Dinesh Schaffter3. Mr. Nihara E. Rodrigo

Mr. Jude Fernando resigned from the board with effect from January 5, 2011. There were no new appointments with respect to Directorate during the Year.

The profiles of the Directors are given in page 8 of the Annual Report.

Directors and their shareholdings as at 31st March 2011 were as follows :

2010/11 2009/10 Rs. ‘000 Rs. ‘000

Revenue 1,716,279 2,728,174Profit before Tax 605,172 1,164,349Income Taxes 378,303 (482,105)Profit after Tax 983,475 682,244Attributable to equity holders of the parent 934,806 646,137Minority interest 48,669 36,107Total 983,475 682,244

No. of Shares No. of Shares 31.03.2011 01.04.2010

Mrs. Manjula Mathews Nil NilMr. Dinesh Schaffter Nil 956,702Mr. Nihara E. Rodrigo Nil Nil

Retirement by Rotation and Re-ElectionMr. Nihara E. Rodrigo retires by rotation in terms of Article 93 and being eligible offers himself for re-election. The continuing Directors recommend his re-election.

Related Party TransactionsRelated party transactions have been declared at meetings of the Directors and are detailed in Note 33 to the financial statements.

Directors’ InterestsAs required by the Companies Act No. 7 of 2007 an Interests Register was maintained by the Company during the period under review. All Directors have made declarations as provided for in Section 192 (2) of the Companies Act aforesaid. The Interests Register is available for inspection as required under the Companies Act.

The Company carries out transactions in the ordinary course of business with entities in which a Director of the Company is a Director. The transactions

with entities where a Director of the Company either has control or exercises significant influence have been classified as related party transactions and disclosed in Note 33 to the Financial Statements.

Remuneration and Fees Details of Directors remuneration and fees are set out in Note 08 to the financial statements. All fees and remuneration have been duly approved by the Board of Directors of the Company.


Financial Reports

17

Risk and Internal ControlThe Board of Directors has satisfied itself that there exists an effective and comprehensive system of internal controls to monitor, control and manage the risks to which the Company is exposed, to carry on its business in an orderly manner, to safeguard its assets and to secure as far as possible the reliability and accuracy of records.

Corporate GovernanceThe Directors acknowledge their responsibility for the Group’s corporate governance and the system of internal control. The Directors are responsible to the shareholders for providing strategic direction to the Company and safeguarding the assets of the Company. The Board is satisfied with the effectiveness of the system of internal control for the period up to the date of signing the financial statements. The compliance to recommended corporate governance practices are disclosed in page 20 of the Annual Report.

The performance of the Company is monitored by way of regular review meetings. These meetings provide an opportunity to ensure that progress is in line with agreed targets. Regular Board meetings are held to further strengthen the review process and ensure compliance with all statutory and regulatory obligations. DividendsThe Directors did not declare dividend for the year ended 31 March 2011.

Significant Accounting PoliciesThe accounting policies adopted in the preparation of the financial statements is given on pages 26 to 30. There were no changes in the accounting policies adopted by the Company during the year under review.

Information relating to earnings, net assets per share, market value of a share and information on share trading is stated under Shareholder and Investor information in page 49 of the Annual Report.

Corporate DonationsDuring the year under review the group made charitable donations of Rs.1.1 Mn.

Statutory Payments and Compliance with Laws and Regulations

The Directors, to the best of their knowledge and belief are satisfied that all statutory payments due to the Government and in relation to the employees have been made on time, and that neither the company nor its subsidiaries has engaged in any activities contravening laws and regulations.

Equal OpportunitiesThe Group is committed to providing equal opportunities to all employees irrespective of their gender, marital status, age, religion, race or disability. It is the Group’s policy to give full and fair consideration to persons, with respect to applications for employment, continued employment, training, career development and promotion, having regard for each individual’s particular aptitudes and abilities.

Events after the Balance Sheet DateNo material events have taken place after the balance sheet date which requires an adjustment to or a disclosure in the financial statements, other than as disclosed in Note 34 to the Financial Statements.

Independent AuditorsThe Company’s Auditors during the period under review were Messrs KPMG Ford, Rhodes, Thornton & Company, Chartered Accountants. The fees paid to auditors are disclosed in Note 8 to the Financial Statements.

Going ConcernThe Board of Directors has reviewed the Company’s business plans and is satisfied that the Company has adequate resources to continue its operations in the foreseeable future. Accordingly, the Financial Statements are prepared on a going concern basis.

Capital ExpenditureDetails of property, plant & equipment and their movements during the year are given in Note 20 to the financial statements.

Fixed AssetsDetails of movements in fixed assets of the Group during the year are set out in Note 20 to the financial statements.

ReservesThere were no other material transfers to or from reserves during the financial year other than disclosed in Note 29 to the financial statements.

Income Tax ExpensesIncome tax expenses have been computed in accordance with the provision of the Inland Revenue Act No. 10 of 2006 and subsequent amendments thereto as disclosed in Note 09 to the financial statements.

Stated CapitalThe stated capital of the Company as at 31 March 2011 was Rs. 227.5 Million consisting of 101,250,000 ordinary shares.

The movements in profits and reserves are given in the statement of changes in equity on page 24 to the financial statements.

Share Information & Substantial ShareholdersAs at 31 March 2011, there were 7,035 registered shareholders. Share information and the twenty largest shareholders as at 31 March 2011 are listed in pages 49 to 50 of the Annual Report.


18

Based on the declaration from Messrs KPMG Ford, Rhodes, Thornton & Company, and as far as the Directors are aware, the Auditors do not have any relationship or interest in the Company or its subsidiaries, other than as disclosed in the above paragraph.

Messrs KPMG Ford, Rhodes, Thornton & Company, Chartered Accountants, have expressed their willingness to continue in office as Auditors of the Company for the ensuing year.

In accordance with the Companies Act No. 7 of 2007, a resolution proposing the re-appointment of Messrs KPMG Ford, Rhodes, Thornton & Company, Chartered Accountants, as Auditors to the Company will be submitted at the Annual General Meeting.

Independent Auditor’s ReportThe independent Auditor’s report on the financial statements is given on page 21 of the Annual Report.

Auditors’ Right to InformationEach person who is a Director of the Company at the date of approval of this report confirms that:

l As far as each Director is aware, there is no relevant audit information of which the Company’s Auditors are unaware.

l Each Director has taken all the steps that he or she ought to have taken as a Director to make him or herself aware of any relevant audit information and to establish that the Company’s Auditors are aware of that information.

Annual Report of the Board of Directors Contd.

Annual General MeetingThe 19th Annual General Meeting of the Company will be held on 29 July 2011. The notice convening the Meeting and the Agenda are given on page 54.

This Annual Report is signed for and on behalf of the Board.

(Sgd) Ms. Manjula Mathews Executive Director

(Sgd) Mr. Dinesh Schaffter Director

24 June 2011Colombo


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19

Set out below are the responsibilities of the Directors in relation to the Financial Statements of the company.

The Directors of the Company are responsible for ensuring that the Company and its subsidiaries keep proper books of accounts of all the transactions, and prepare financial statements that give a true and fair view of the state of affairs of the Company at balance sheet date and of the profit or loss for the year ending on that balance sheet date in accordance with the Companies Act No. 07 of 2007. The directors are required to prepare these accounts on a going concern basis unless it is not appropriate.

The financial statements of the Company and the Group have been certified by the Chief Financial Officer of the Company who is responsible for the preparation of financial statements as required by the Act. The financial statements have been signed by two Directors on 24 June 2011 in accordance with Section 150 (1) (c) and 152 (1) (c) of the Companies Act.

Directors are also responsible for ensuring that proper accounting records which correctly record and explain the Company’s transactions and also determine the Company’s financial position with reasonable accuracy at any time are maintained by the Company enabling the preparation of financial statements and further enabling the financial statements to be readily and properly audited, in accordance with the Section 148 (1) of the Act. The Directors have therefore caused the Company and its subsidiaries to maintain proper books of accounts and regularly review financial reports at their meetings. The Board also reviews and approves all interim financial statements prior to their release.

Statement of Directors’ Responsibility

The Board of Directors accepts the responsibility for the integrity and objectivity of the financial statements presented. The Directors confirm that the financial statements have been prepared using appropriate accounting policies in a consistent basis and appropriate estimates and judgments made to reflect the true substance and form of transactions.

The financial statements of the Company for the year ended 31 March 2011 are in conformity with the requirements of Sri Lanka Accounting Standards laid down by the Institute of Chartered Accountants of Sri Lanka (ICASL). Directors have taken reasonable measures to safeguard the assets of the Company and its subsidiaries and to prevent and detect frauds and other irregularities. In this regard, the Directors have laid down effective and comprehensive internal control system.

The Auditors of the Company, Messrs KPMG Ford, Rhodes, Thornton & Company who were reappointed in accordance with a resolution passed at the last Annual General Meeting were provided with all necessary information required by them in order to carry out their audit and to express an opinion which is contained on page 21 of this Annual Report.

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

Directors further confirm that after considering the financial position, operating conditions and regulatory

and other factors, the Directors have a reasonable expectation that the Company possesses adequate resources to continue in operation for the foreseeable future and that the Going Concern basis is the most appropriate in the preparation of these financial statements.

(Sgd.)K H L Corporate Services LimitedSecretaries

24 June 2011,At Colombo.


20

The Directors acknowledge their responsibility for the Company’s corporate governance and the need to ensure the highest standards of accountability to all stakeholders. First Capital Holdings PLC is fully committed to the principles of good governance and recognizes that good corporate governance is the corner-stone of a successful organisation.

The company is committed to acting with integrity, transparency and fairness in all of its dealings, and considerable emphasis is placed by the Board on the development of systems, processes and procedures to ensure the maintenance of high standards throughout the organisation.

The Board comprises of two non-executive directors and one executive director all of whom possess a broad range of skills and experience across a range of industries and functional areas. Detailed profiles of each member of the Board are provided in a separate section of this Annual Report.

The board meets frequently in order to ensure the effective discharge of its duties. Formal board meetings were held 5 times during the year and performance review meetings were held monthly.

The Board reviews strategic and operational issues, approves interim and annual financial statements and annual budgets, assesses performance and ensures compliance with all statutory and regulatory obligations. Members of the Board are expected to attend the Annual General Meeting of Shareholders and board and review meetings. Material is provided to members of the board well in advance of scheduled meetings to allow adequate time for review and familiarisation and to facilitate decision making at meetings.

Advice and guidance is provided to the senior management team at monthly performance review meetings which provide an opportunity to evaluate progress and ensure accountability of the senior management team. A strong focus on training and career development has created a committed and empowered workforce who continue to generate value and drive the company towards high standards of achievement.

The directors are responsible for the formulation of the company’s business

Corporate Governance

strategy and in ensuring the existence of an adequate risk management framework. The non-executive directors bring independent judgement to bear on issues of strategy and performance. The Board is satisfied with the effectiveness of the system of internal control in the Company for the period up to the date of signing the financial statements. The Board holds responsibility for ensuring that the senior management team possesses the relevant skills and expertise required in the management of the company and that a suitable succession planning strategy is in place. Directors also ensure adherence to laws and regulations pertaining to the functioning of the organisation. The Chief Financial Officer functions as the Compliance Officer to ensure compliance with all regulatory and statutory requirements and proper reporting of all compliance matters to the Board.

First Capital Holdings PLC is in the process of regularising the composition of the Board of Directors to comply with the requirements of the CSE Listing Rules. The company has two non-executive directors on its board and therefore meets the requirements of Rule 7.10.1 (a). However it is currently not in compliance with Rule 7.10.2 (b) which requires two or one-third of the non-executive directors (whichever is higher) to be independent.

The independent non-executive director on the Board, Mr. Nihara Rodrigo has submitted a declaration of his independence. Mr. Rodrigo does not qualify as independent against the criteria set out in the listing rules because he is a director of other companies in which a majority of the other directors of the Company are employed or are directors. However the Board is of the opinion that this does not affect his independence as he does not have a business relationship or a significant shareholding in either First Capital Holdings PLC or other associate companies of which he is a director.

The Remuneration Committee currently consists of two non-executive directors namely, Mr. Nihara Rodrigo and Mr. Dinesh Schaffter. The committee is dedicated to ensuring accountability, transparency and fairness in reward structures that recognise the relationship between performance and reward. The committee operates under delegated authority from the Board and is responsible for setting the company’s

remuneration policy and for ensuring its continued ability to attract and retain high caliber candidates.

The Company bases remuneration on both individual and company performance whilst paying due regard to staff retention. The committee recommends increment levels and determines the remuneration payable to the Executive Director. Mr. Rodrigo functions as the Chairman of the committee which met twice during the year.

The proper constitution of Remuneration and Audit committees that meet the requirements of the CSE listing rules have been hampered due to the lack of adequate independent directors within the company. The company is in the process of regularising the composition of the Board to comply with the requirements of the listing rules.

The Remuneration Committee does not currently comply with the criteria of listing rule 7.10.5(a) which requires the committee to comprise of a majority of independent non-executive directors.

The company currently does not meet the requirements of the listing rules with respect to an audit committee. In the absence of an audit committee the Board performs this function by reviewing all reports issued by the company’s internal auditors and the management letter issued by the External auditors. Adequate follow-up action is initiated on audit recommendations to ensure that there is a continuous strengthening of internal processes and controls. KHL Corporate Services Limited serves as the Company Secretaries for First Capital Holdings PLC. The company secretary ensures compliance with Board procedures, The Companies Act, and Securities and Exchange Commission and Colombo Stock Exchange regulations. The Company Secretary keeps the Board informed of relevant new regulations and requirements.

(Sgd)Mangala JayashanthaChief Financial Officer

(Sgd)Manjula Mathews (Ms.)Executive Director


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Independent Auditors’ Report

TO THE SHAREHOLDERS OF FIRST CAPITAL HOLDINGS PLC

Report on the Financial StatementsWe have audited the accompanying financial statements of First Capital Holdings PLC (the “Company”), the consolidated financial statements of the Company and its subsidiaries as at 31 March 2011, which comprise the balance sheet as at 31 March 2011, and the income statement, statement of changes in equity and cash flow statement for the year then ended, and a summary of significant accounting policies and other explanatory notes.

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

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

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

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

Opinion - CompanyIn our opinion, so far as appears from our examination, the Company maintained proper accounting records for the year ended 31 March 2011 and the financial

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

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

Report on Other Legal and Regulatory RequirementsThese financial statements also comply with the requirements of Sections 153(2) to 153(7) of the Companies Act No. 07 of 2007.

(Sgd.)Chartered Accountants

24 June 2011Colombo


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Group CompanyFor the year ended 31 March 2011 2010 2011 2010 Note Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000

Income 4 1,716,279 2,728,174 110,946 570,359

Direct income 5 1,532,848 2,684,484 2,977 10,871

Direct expenses 6 (945,547) (1,374,335) (314) (20,482)

Net operating income / (expense) 587,301 1,310,149 2,663 (9,611)

Other income 7 183,431 43,690 107,969 559,488 770,732 1,353,839 110,632 549,877

Operating expenses 8Personnel expenses 56,899 72,592 - -Premises, equipment and establishment expenses 22,995 17,539 - 20Staff retirement benefit cost 2,375 1,771 - -Other expenses 93,237 112,786 3,770 8,009 (175,506) (204,688) (3,770) (8,029)

Share of associate company profit (net of taxation) 9,946 15,198 - -Profit before taxation 605,172 1,164,349 106,862 541,848

Taxation 9 378,303 (482,105) (97) (10)

Profit for the year 983,475 682,244 106,765 541,838

Attributable to:Equity holders of the parent 934,806 646,137 106,765 541,838Minority interest 48,669 36,107 - - 983,475 682,244 106,765 541,838

Earnings per share (Rs.) 10 9.23 6.38 1.05 5.35Dividend per share (Rs.) 11 - 15.00 - 15.00

The Notes disclosed on pages 26 to 48 form an integral part of these Financial Statements.

Income Statement


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23

Group CompanyAs at 31 March 2011 2010 2011 2010 Note Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000

ASSETSCash at banks and in hand 6,436 6,748 594 1,938Short term investments 12 10,403,371 9,756,816 6,908 51,606Trade and other receivables 13 877,390 261,589 109,785 2,306Group balances receivable 14 - - - -Investment securities 1,000 379,259 1,000 1,000Assets held for sale 15 80,218 80,218 - -Tax receivables 5,684 5,684 5,684 5,684Investment in venture capital 16 8,000 8,000 8,000 8,000Investment in associates 17 - 203,198 - -Investment in subsidiary 18 - - 398,204 398,204Deferred tax asset 19 49,625 56,831 - -Property, plant & equipment 20 8,128 10,070 - -Intangible assets 21 56,721 55,415 - -TOTAL ASSETS 11,496,573 10,823,828 530,175 468,738

LIABILITIESBank overdrafts 9,578 1,586 - -Securities sold under re-purchase agreements 22 8,688,591 9,128,799 - 3,577Short term borrowings 23 997,342 391,053 - -Trade and other payables 24 203,781 212,560 10,535 15,816Group balances payable 25 - - 163,530 200,000Tax payables 26 15,754 453,724 17,670 17,670Retirement benefit obligations 27 7,483 5,637 - -Total Liabilities 9,922,529 10,193,359 191,735 237,063

EQUITYStated capital 28 227,500 227,500 227,500 227,500Risk Reserve 29 432,916 224,287 - -Retained earnings 855,221 129,044 110,940 4,175Equity attributable to the equity holders of the parent 1,515,637 580,831 338,440 231,675Minority interest 58,407 49,638 - -Total Equity 1,574,044 630,469 338,440 231,675TOTAL EQUITY AND LIABILITIES 11,496,573 10,823,828 530,175 468,738

Net Asset Value per share (Rs.) 14.97 17.21 3.34 6.86


I certify that these Financial Statements have been prepared and presented in compliance with the requirements of the Companies Act No.07 of 2007.

(Sgd.)Mangala JayashanthaChief Financial Officer

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

(Sgd.) (Sgd.)Manjula Mathews (Ms.) Dinesh SchaffterDirector Director

24 June 2011Colombo

Balance Sheet


24

For the year ended 31 March 2011 Attributable to equity holders of parent Minority Total Stated Risk Retained Total Interest Equity Capital Reserve Earnings Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000

GROUPBalance as at 1 April 2009 387,480 61,082 5,087 453,649 148,030 601,679Capital reduction (159,980) - 159,980 - - -Profit for the year - - 646,137 646,137 36,107 682,244Adjustment due to acquisition - - (12,705) (12,705) (112,099) (124,804)Transfers to risk reserve - 163,205 (163,205) - - -Dividend paid - - (506,250) (506,250) (22,400) (528,650)Balance as at 31 March 2010 227,500 224,287 129,044 580,831 49,638 630,469

Balance as at 1 April 2010 227,500 224,287 129,044 580,831 49,638 630,469Profit for the year - - 934,806 934,806 48,669 983,475Re-purchase of ordinary shares (Note 30) - - - - (39,900) (39,900)Transfers to risk reserve - 208,629 (208,629) - - -Balance as at 31 March 2011 227,500 432,916 855,221 1,515,637 58,407 1,574,044

For the year ended 31 March 2011 Stated Retained Total Capital Earnings Equity Rs. ‘000 Rs. ‘000 Rs. ‘000

COMPANYBalance as at 1 April 2009 387,480 (191,393) 196,087Capital reduction (159,980) 159,980 -Profit for the year - 541,838 541,838Dividend paid - (506,250) (506,250)Balance as at 31 March 2010 227,500 4,175 231,675

Balance as at 1 April 2010 227,500 4,175 231,675Profit for the year - 106,765 106,765Balance as at 31 March 2011 227,500 110,940 338,440


Statement of Changes in Equity


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Cash Flow Statement

Group CompanyFor the year ended 31 March 2011 2010 2011 2010 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000

Cash flows from operating activitiesInterest receipts and gains realized 1,527,336 2,643,316 2,334 10,873Interest payments and other direct cost (921,966) (1,340,721) (314) (20,483)Other receipts 1,199 41,300 - -Cash payments to employees and suppliers (166,189) (129,052) (3,770) (8,010)Operating profit before changes in operating assets and liabilities 440,380 1,214,843 (1,750) (17,620)

(Increase)/decrease in short term investments (639,336) 891,490 44,905 259,569(Increase) / decrease in debtors and advances (617,937) (134,321) 926 (295)Increase / (decrease) in trade and other payables (8,792) (47,322) (7,333) 12,559Increase / (decrease) in group balances payable - (32,458) (34,418) 167,223Increase / (decrease) in short term borrowings (1,168,425) 1,015,766 - (309,745)Increase/ (decrease) in borrowings against re-purchase agreements 1,310,929 (2,174,746) (3,577) 3,578Cash generated from operations (683,181) 733,252 (1,247) 115,269

Tax paid (52,462) (122,932) (97) (10)Gratuity paid (528) (1,296) - -Net cash flow from / (used in) operating activities (736,171) 609,024 (1,344) 115,259

Cash flow from investing activitiesPurchase of property, equipment and intangible assets (6,259) (8,495) - -Investment in associate - (206,800) - -Proceeds on sale of investment in associate 376,000 - - -Investment in subsidiary - (178,720) - (178,720)Proceeds on sale of investment securities 378,259 237,975 - (339)Other long term investments - (119,121) - -Proceeds on disposal of subsidiary - 10,000 - -Proceeds on sale of venture capital investments - 11,486 - 11,486Sale of property and equipment - 102 - -Proceeds on sale of other long term investments - 150,833 - 786Dividend receipts 18,863 18,997 - 559,039Staff loans capital recovered 904 3,170 - -Net cash from / (used in) in investing activities 767,767 (80,573) - 392,252

Cash flow from financing activitiesDividend paid - (506,250) - (506,250)Net dividend payments to minority shareholders - (22,400) - -Share repurchase proceeds to minority (Note 30) (39,900) - - -Net cash flow from / (used in) financing activities (39,900) (528,650) - (506,250)

Net cash inflow / ( outflow ) for the year (8,304) (199) (1,344) 1,261Cash and cash equivalents at the beginning of the year (Note A) 5,162 5,361 1,938 677Cash and cash equivalents at the end of the year (Note B) (3,142) 5,162 594 1,938

Note ACash at bank and hand 6,748 5,361 1,938 677Bank overdraft (1,586) - - - 5,162 5,361 1,938 677Note BCash at bank and hand 6,436 6,748 594 1,938Bank overdraft (9,578) (1,586) - - (3,142) 5,162 594 1,938



26

1. Reporting Entity - Corporate Information

1.1 Domicile and Legal FormFirst Capital Holdings PLC (“Company”) is a limited liability company incorporated and domiciled in Sri Lanka on 23 March 1992. The registered office and place of business of the company is at No.75, Arnold Ratnayake Mawatha, Colombo 10.

In the Annual Report of the Board of Directors “the company’’ refers to First Capital Holdings PLC, as the holding company and “the group’’ refers to the consolidated results of First Capital Holdings PLC and its subsidiary companies of First Capital Limited, First Capital Treasuries Limited, First Capital Markets Limited and First Capital Asset Management Limited.

1.2 Principal Activities and Nature of Operations

The principal activity of the Company is engaging in investment activities (inclusive of venture capital) and the management of subsidiaries.

1.3 Parent Entity and Ultimate Parent Entity

The Company’s parent entity is PVIC Management Company Limited. In the opinion of the Directors, the Company’s ultimate parent undertaking and controlling party is Dunamis Capital PLC, which is incorporated in Sri Lanka.

1.4 Number of EmployeesThe number of employees of the group as at 31 March 2011 is 36. (31 March 2010 - 36)

2. Basis of Preparation2.1 Statement of ComplianceThe Financial Statements have been prepared in accordance with the Sri Lanka Accounting Standards (SLASs) laid down by the Institute of Chartered Accountants of Sri Lanka and are in compliance with the requirements of the Companies Act No. 07 of 2007.

Notes to the Financial Statements

2.2 Approval of Financial Statements by Directors

The Financial Statements were authorized for issue by the Board of Directors on 24 June 2011.

2.3 Basis of MeasurementThe Financial Statements have been prepared on the historical cost basis and applied consistently with no adjustments being made for inflationary factors affecting the financial statements.

The Group Financial Statements comprise a consolidation of the Financial Statements of the Company and its subsidiaries in accordance with Sri Lanka Accounting Standard (SLAS)-26 on “Consolidated and separate Financial Statements” and SLAS -27 “Investment in Associates”.

2.4 SubsidiariesSubsidiaries are those enterprises controlled by the Company. Controls exists when the company has the power, directly or indirectly, to govern the financial and operating policies of an enterprise so as to obtain benefits from its activities. The Financial Statements of subsidiaries are included in the Consolidated Financial Statements from the date that control commences until the date that control ceases. The Consolidated Financial Statements are prepared to a common financial year ending 31 March. All Subsidiaries in the Group have a common financial year ending 31 March. Details of investments in subsidiaries are set out in Note 18 to the Financial Statements. The Minority Interest is presented in the Consolidated Balance Sheet within equity, separately from the equity attributable to the Equity Holders of the Company. Minority Interest in the profit or loss of the Group is disclosed separately in the Consolidated Income Statement.

2.5 AssociatesAssociates are those enterprises in which the Group has significant influence, but not control, over the financial and

operating policies. The consolidated financial statements include the Group share of the total recognized gains and losses of associates on an equity accounted basis, from the date that significant influence effectively commences until the date that significant influence effectively ceases.

2.6 Goodwill and Negative Goodwill arise on the Acquisition of Subsidiaries

Goodwill represents the excess of the cost of the acquisition over the Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities of the acquired. When the excess is negative (negative goodwill), it is recognized immediately in the Consolidated Income Statement. Goodwill is stated at cost less accumulated impairment losses. Goodwill is tested for impairment as described in SLAS 25 (Revised) - “Business Combinations”.

Goodwill on the acquisition of subsidiaries is presented as intangible assets.

2.7 Transactions Eliminated on Consolidation

Intra-group balances and transactions, income, expenses and any unrealised gains arising from intra-group transactions and transactions with Joint Venture are eliminated in preparing the Consolidated Financial Statements. Unrealised gains arising from transactions with Associates are eliminated to the extent of the Group’s interest in the Associates against the investment in the Associate. Unrealised losses are eliminated in the same way as unrealised gains except that they are only eliminated to the extent that there is no evidence of impairment.

Where subsidiaries have been sold or acquired during the year, their operating results have been included to the date of disposal or from the date of acquisition.


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2.8 Functional and Presentation Currency

The Financial Statements are presented in Sri Lanka Rupees, which is the company’s functional currency. Financial information presented in Sri Lanka Rupees has been rounded to the nearest thousand unless indicated otherwise.

2.9 Use of Estimates and JudgmentsThe preparation of Financial Statements 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 reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised and in any future periods affected.

2.10 Classification of Dealing (Trading) and Investment Securities

In classifying securities as “Dealing” (Trading), the company has determined that it meets the description set out in Note 3.6.

In classifying securities as “Investment”, the company has determined that it has both the positive intention and ability to hold the securities until their maturity date as required by Note 3.6.

2.11 Assessment of ImpairmentThe Company assesses at each balance sheet date whether there is objective evidence that an asset or portfolio of assets is impaired. The recoverable amount of an asset or Cash Generating Unit (CGU) is the greater of its value in use and its fair value less costs to sell.

2.12 Employee Retirement BenefitsThe liability as at Balance Sheet date was assessed based on formula method as disclosed in Note 27.

2.13 Comparative InformationWhere necessary, amounts shown for the previous year have been reclassified to correspond the to current year to facilitate comparison.

2.14 Going ConcernThe Board of Directors certifies that the company has adequate resources to continue its operations in the foreseeable future. Therefore the going concern basis has been adopted in preparing the Financial Statements.

3 Significant Accounting PoliciesThe accounting policies are applied consistently with due regard to prudence, materiality and substance over form criteria as explained in Sri Lanka Accounting Standard No. 3 on “Presentation of Financial Statements”, on accrual basis. Where appropriate, the accounting policies are disclosed in the succeeding notes.

3.1 Changes in Accounting PoliciesThe accounting policies set out below have been applied consistently to all periods presented in these Financial Statements. The accounting policies of the Company have been consistently applied by Group entities where applicable and deviations if any have been disclosed accordingly.

New Accounting Standards issued but not effective as at Balance sheet dateThe Institute of Chartered Accountants of Sri Lanka has issued a new volume of Sri Lanka Accounting Standards which will become applicable for financial periods beginning on or after 1 January 2012. Accordingly, these Standards have not been applied in preparing these financial statements as they were not effective for the year ended 31 March 2011.

These Sri Lanka Accounting Standards comprise Accounting Standards prefixed both SLFRS (corresponding to IFRS) and LKAS (corresponding to IAS). Application

of Sri Lanka Accounting Standards prefixed SLFRS and LKAS for the first time shall be deemed to be an adoption of SLFRSs.

The Company is currently in the process of evaluating the potential effects of these Standards on its financial statements and the impact on the adoption of these Standards have not been quantified as at Balance Sheet date.

3.2 Transactions of Foreign ExchangeTransactions in foreign currencies are translated to Sri Lankan Rupees at the foreign exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies as at the Balance Sheet date are converted to Sri Lankan Rupees at the exchange rate at the date of the transaction. Exchange differences arising on transactions are recognized in the Income Statement.

ASSETS AND THE BASES OF THEIR VALUATION3.3 Cash and Cash EquivalentsCash and Cash Equivalents comprise cash in hand and balance with banks. They are brought to account at the face value or the gross value where appropriate.

3.4 Investment in Government Securities and Corporate Securities held for Dealing

Investments in Government Securities and Corporate Securities in dealing portfolio are those investments that the company acquires or incurs principally for the purpose of selling, or holds as a part of a portfolio that is managed for short term profit. These investments are accounted at the lower of cost and market value as at the Balance Sheet date on an aggregate portfolio basis in accordance with Sri Lanka Accounting Standard No. 22 - “Accounting for Investments”.


28

Securities denominated in foreign exchange have been converted into the reporting currency at rates prevailing at the balance sheet date.

3.5 Receivables under Resale Agreements

These are lendings collateralised by the purchase of Government Securities or Corporate Securities from the counter party to whom lending is made. The sale by the counter party is subject to a commitment by the company to sell back the underlying Debt securities to the borrower at a pre-determined price. The lendings are stated at cost plus interest as at the Balance Sheet date.

3.6 InvestmentsDealing (Trading) SecuritiesDealing (Trading) securities are those investments that are acquired or incurred principally for the purpose of selling or holding as part of a portfolio that is managed for short term profit.

These investments are the equivalent of Current Investments as defined in Sri Lanka Accounting Standard No. 22– “Accounting for Investments”, and are accounted for at the lower of cost or market value as at the Balance Sheet date on an aggregate portfolio basis. Dealing Securities currently comprise Treasury Bills, Bonds and Commercial Papers.

Securities denominated in foreign exchange have been converted into the reporting currency at the balance sheet date.

Investment SecuritiesThese are securities which are acquired and held for yield or capital growth in the medium/ long term with the positive intent and ability to hold until maturity. Such securities are recorded at cost.

3.7 Assets Held for SaleNon - current assets, that are expected to be recovered primarily through sale

rather than through continuing use, are classified as held for sale. Immediately before classification as held for sale, the assets is measured in accordance with the group accounting policies. Thereafter generally the assets are measured at the lower of their carrying amount and fair value less cost to sell. Impairment losses on initial classification as held for sale and subsequent gain or losses on re-measurement are recognised in profit and loss. Gains are not recognised in excess of any cumulative impairment loss.

3.8 Intangible AssetsAn intangible asset is an identifiable non monetary asset without physical substance held for use in the production or supply of goods or services, for rental to others or for administrative purposes.

3.8.1 Basis of RecognitionAn intangible asset is recognised if it is probable that the future economic benefits that are attributable to the asset will flow to the entity and the cost of the assets can be measured reliably. An intangible asset is initially measured at cost.

3.8.1 (a) GoodwillGoodwill arising on the acquisition represents the excess of the cost of acquisition over the Group’s interest in the net fair value of the acquiree’s identifiable assets, liabilities and contingent liabilities at the date of acquisition. Upon transition to revised Sri Lanka Accounting Standard No. 25 - “Business Combinations”, goodwill is no longer amortised. Instead, goodwill is tested for impairment annually and assessed for any indication of impairment at each reporting date to ensure that its carrying amount does not exceed its recoverable amount.

If an impairment loss is identified, it will be recognized immediately in the income statement. The negative goodwill is recognised immediately in the income statement.

3.8.1 (b) SoftwareAll computer software costs incurred, licensed for use by the Group, which are not integrally related to associated hardware, which can be clearly identified, reliably measured and it’s probable that they will lead to future economic benefits, are included in the Balance Sheet under the category intangible assets and carried at cost less accumulated amortisation and any accumulated impairment losses.

3.8.2 Subsequent ExpenditureExpenditure incurred on software is capitalised only when it is probable that this expenditure will enable the asset to generate future economic benefits in excess of its originally assessed standard of performance and this expenditure can be measured and attributed to the asset reliably. All other expenditure is expensed as incurred.

3.8.3 AmortisationIntangible assets, except for goodwill, are amortised on a straight line basis in the Income Statement from the date when the asset is available for use, over the best estimate of its useful economic life based on a pattern in which the asset’s economic benefits are consumed by the Company. The estimated useful life of software is six years. Expenditure on an intangible item that was initially recognised as an expense by the Company in previous Annual Financial Statements or Interim Financial Reports are not recognised as part of the cost of an intangible asset at a later date.

3.8.4 Retirement and DisposalAn intangible asset is derecognised on disposal or when no future economic benefits are expected from its use and subsequent disposal.

3.9 Property, Plant and EquipmentProperty, Plant and Equipment are stated on the Balance Sheet at cost less accumulated depreciation, and any impairment losses. Leased assets

Notes to the Financial Statements Contd.


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are capitalised at their cash cost, and depreciated thereon.

Depreciation is calculated on the cost or valuation of Property, Plant and Equipment in order to write off such amounts over the estimated useful lives of such assets. Depreciation is provided from the time the asset is available for use, up to the date of disposal. Depreciation is provided on a straight-line basis using the following rates:

Asset Type Depreciation Rate

Fixtures & Fittings 33 1/3 % per annumFurniture 33 1/3 % per annumOffice Equipment 33 1/3 % per annumMotor Vehicles 33 1/3 % per annum

3.10 Other AssetsAll other assets are valued net of specific provisions, where necessary, so as to reduce the carrying value of such assets to their estimated realisable values.

LIABILITIES AND PROVISIONS3.11 LiabilitiesAll material liabilities as at the Balance Sheet date have been included in the accounts and adequate provision has been made for liabilities which are known to exist but the amounts of which cannot be determined accurately.

3.12 Securities sold under Re- Purchase Agreement

Securities sold under Re- Purchase Agreements to repurchase are recorded separately in the financial statements. These are borrowings collateralized by sale of Government Securities & Corporate Securities held by the Company to the counter party from whom the Company borrowed, subject to a commitment to repurchase them at a predetermined price.

3.13 Employee BenefitsDefined Benefits Plan – GratuityAs required by (SLAS)-16 (Revised 2006) “Employee Benefits”, which the company has provided for gratuity liability based on the gratuity formula method, for the current financial year.

However under the Payment of Gratuity Act No.12 of 1983, the liability to an employee arises only on completion of five years of continued service.

The liability is not externally funded.

Defined Contribution Plan – Employees’ Provident Fund and Employees’ Trust FundA defined contribution plan is a post employment benefit plan under which an entity pays fixed contribution in to separate entity and will have no legal or constructive obligation to pay further amounts.

All employees who are eligible for Employees’ Provident Fund and Employees’ Trust Fund are covered by relevant contributions to the defined contribution plans and are recognized as an expense in the financial statements when incurred.

(a) Employees’ Provident FundThe company and employee contribute 15% and 10% respectively on the salary of each employee to the employees’ approved provident fund.

(b) Employees’ Trust FundThe company contributes 3% of the salary of each employee to the employee’s trust fund.

3.14 Provisions, Contingent Assets and Contingent Liabilities

Provisions are recognised when the Company has a present legal or constructive obligation, as a result of past events, it is probable that an outflow of resources embodying economic benefits

will be required to settle the obligation and a realisable estimate of the amount of such obligation can be made.

Contingent assets if they exist, are disclosed, when inflow of economic benefit is probable.

All contingent liabilities are disclosed, as notes to the financial statements unless the outflow of resources is remote.

3.15 Capital Commitments and Contingencies

All discernible risks are accounted for in determining the amount of all known liabilities. The Company’s share of any contingencies and capital commitments of a subsidiary or associate for which the Company is also liable severally or otherwise are also included with appropriate disclosures. 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 Balance Sheet but are disclosed unless they are remote.

3.16 Events after Balance Sheet DateAll material post balance sheet events have been considered and where appropriate, adjustments to, or disclosures have been made in the Financial Statements.

INCOME STATEMENT3.17 Revenue Recognition(a) Capital Gains / (Losses) on

SecuritiesCapital Gains / (Losses) on Securities are accounted on the date of sale by deducting the carrying value of the securities from the sales proceeds.


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(b) Interest Income on Resale Agreements, Margin Trading Lending and Dealing Securities

Interest income is accounted for on an accrual basis.

(c) Dividend IncomeDividend income is recognized, when the right to receive the dividend is established.

(d) Profit on Sale of Other Investments

Profits earned on the sale of other investments have been accounted for in the income statement on the basis of realised net profits.

(e) Placement Fee IncomePlacement fee income is recognised on the completion of the respective deal.

3.18 Expenses(a) Expenditure RecognitionExpenses are recognised in the income statement on the basis of a direct association between the costs 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 period.

For the purpose of presentation of the income statement, the Directors are of the opinion that the function of expenses method presents fairly the elements of the company’s performance, and hence such presentation method is adopted.

(b) Interest ExpenseInterest expense is recognised on an accrual basis.

(c) Operating ExpenseAll other expenditure incurred in the functioning of the business and in maintaining the capital assets in a state of efficiency has been charged to revenue in arriving at the Company profit for the period.

(d) TaxationTaxation comprises of current and deferred tax.

Current TaxationCurrent tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted on the balance sheet date, and any adjustment to tax payable in respect of previous years.

Provision for taxation is based on the profit for the year adjusted for taxation purposes in accordance with the provision of the Inland Revenue Act No. 10 of 2006 and subsequent amendments thereto.

The company is liable for income tax at the rate of 20%, and its subsidiaries are liable for income tax at the rate of 35% on taxable profit.

Deferred TaxationDeferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The amount of deferred tax provided is based on the expected manner of realization or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted by the reporting date. Deferred tax assets, including those related to temporary tax effects of income tax losses and credits available to be carried forward available against which the asset can be utilized. 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.

3.19 Value Added Tax on Financial Services

The base for the computation of Value Added Tax on Financial Services is the accounting profit before income tax adjusted for the economic depreciation and emoluments of employees computed on prescribed rate.

3.20 Earnings Per Share (EPS)The Group presents Basic and Diluted Earnings per Share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during the period. Diluted EPS is determined by adjusting the profit or loss attributable to the ordinary shareholders and the weighted average number of ordinary shares outstanding for the effects of all dilutive potential ordinary shares, which comprise share options granted to employees.

3.21 Related Party TransactionsFor the purpose of these Financial Statements, parties are considered to be related to the Company if the Company has the ability directly or indirectly, to control the party or exercise significant influence over the party or vice versa. The relevant disclosure notes are provided in the Financial Statements.

3.22 Segment ReportingA segment is a distinguishable component of the Group that is engaged either in providing related products or services (business segment), or in providing products and services within a particular economic environment (geographical segment), which is subject to risks and returns different from those of other business segments in accordance with the Sri Lanka Accounting Standard No. 28 -“Segment Reporting”. However there are no identifiable major segments in the Group.

3.23 Cash Flow StatementThe Cash Flow Statement has been prepared using the “Direct Method” of preparing cash flows in accordance with the Sri Lanka Accounting Standard No. 09 -“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.



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Group CompanyFor the Year ended 31 March 2011 2010 2011 2010 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000

4 IncomeDirect income (Note 5) 1,532,848 2,684,484 2,977 10,871Other income (Note 7) 183,431 43,690 107,969 559,488 1,716,279 2,728,174 110,946 570,359

5 Direct incomeInterest income on dealing securities 1,087,874 1,341,132 643 9,818Interest income on re-sale agreements 82,735 390,598 2,334 1,053Margin trading income 97,782 13,703 - -Capital gain on sale of securities 212,765 920,289 - -Interest rate swap income 18,894 10,214 - -Fee and commission income 32,798 8,548 - - 1,532,848 2,684,484 2,977 10,871

6 Direct expensesInterest expense on re-purchase agreements 688,638 1,075,667 - 25Interest expense on corporate debt securities 239,901 274,530 314 20,457Brokerage cost 14,124 15,690 - -Interest rate swaps expenses - 2,352 - -Other direct expenses 2,884 6,096 - - 945,547 1,374,335 314 20,482

7 Other incomeProfit/ (loss) on sale of property, plant and equipment - (1,143) - -Placement fee 1,499 5,051 - -Profit on sale of shares 180,732 36,593 - 449Dividends 153 197 107,969 559,039Negative goodwill - 618 - -Miscellaneous income 1,047 2,374 - - 183,431 43,690 107,969 559,488

8 Operating expensesOperating expenses among other expenses include the following:Directors’ emoluments 16,653 4,334 95 85Auditors’ remuneration 1,057 820 210 190Staff cost 27,172 22,507 - -VAT on financial services 11,819 71,502 - -Depreciation 6,358 4,535 - 20Amortisation of intangible assets 563 375 - -Employer’s contribution to EPF 4,084 3,370 - -Employer’s contribution to ETF 817 674 - -Retirement benefit cost 2,374 1,761 - -Legal fees 504 1,647 47 49


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9 Taxation The company is liable for income tax at the rate of 20% and its subsidiaries are liable for income tax at the rate of 35% on its

taxable profits except for primary market interest income arising in First Capital Treasuries Limited.

Group CompanyFor the Year ended 31 March 2011 2010 2011 2010 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000

9.1 Income tax expenseCurrent tax expense 18,326 368,454 97 10Reversal of over provision (Note 9.1.A) (412,826) - - -Deferred tax expense (Note 19) 7,206 50,706 - -Taxes on dividends 8,991 62,945 - - (378,303) 482,105 97 10

9.2 Reconciliation of accounting profit to income taxProfit/(loss) before taxation 605,172 1,164,349 106,862 541,848Inter group adjustments 31,325 (5,356) - - 636,497 1,158,993 106,862 541,848Income tax using the corporation tax rate 222,774 405,649 37,402 189,647Tax effect of expenses disallowed for tax 3,335 27,115 - -Tax effect of deductible expenses for tax (373) (1,857) - -Tax effect of other income (net) - 12 - -Tax effect of tax exempt income (207,683) (12,893) (37,789) (195,821)Tax on taxable profits 18,053 418,026 (387) (6,174)Increase/(decrease) in carried forward loss - (55,052) - -SRL charges 273 5,480 - - 18,326 368,454 (387) (6,174)

(Over) / under provision during prior years (412,826) - 97 10Income tax charge / (reversal) for the period (394,500) 368,454 97 10Income tax on profit for the yearWithholding tax on inter-company dividend 8,991 62,945 - -Income tax expenses / (reversal) (including SRL) (385,509) 431,399 97 10Reversal of deferred tax asset 7,206 50,706 - - (378,303) 482,105 97 10

9.1.AFirst Capital Treasuries Limited (subsidiary company) is a primary dealer licensed by the Central Bank of Sri Lanka whose interest income derived in primary market transactions does not form as a part of receipt on trade or business for the purpose of computing statutory income of the company in accordance with the section 32 of Inland Revenue Act No. 10 of 2006.

In a decision made by the Board of Review of Department of Inland Revenue in respect of income tax for the year 2003/04 acknowledged the above position in July 2010. The Board of Directors of First Capital Treasuries Limited, based on advice received from their tax consultants, have made a decision to reverse tax provisions for year 2003/04 - 2009/10 amounting to Rs 412.8 million in the Financial Statements for the year ended 31 March 2011. No tax provisions have been made in the financial year 2010/11. However this judgment does not preclude the Inland Revenue from issuing assessments in the future. Further, details relating to current assessments have been disclosed in Note 31(e) to the Financial Statements (Contingent liabilities).



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10 Earnings per shareEarnings per share has been calculated by dividing the net profit attributable to equity holders of the parent by the weighted average number of ordinary shares in issue during the year. The effect on sub-division of shares (Note 28) has been adjusted retrospectively.

Group CompanyFor the Year ended 31 March 2011 2010 2011 2010

Net profit attributable to equity holders of the parent (Rs. ‘000) 934,806 646,137 106,765 541,838Weighted average number of ordinary shares in issue 101,250,000 101,250,000 101,250,000 101,250,000Earnings per share (Rs.) 9.23 6.38 1.05 5.35

11 Dividend per shareDirectors did not declare dividend for the year ended 31 March 2011.

Group CompanyAs at 31 March 2011 2010 2011 2010 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000

12 Short term investmentsQuoted shares (12.1) - 2,195 - -Quoted debentures 25,089 4,000 - -Investments under re-sale agreements (12.2) 1,091,327 1,422,439 6,701 51,399Dealing securities (12.3) 9,286,955 8,328,182 207 207 10,403,371 9,756,816 6,908 51,606

No. of shares Market value Cost 2011 2010 2011 2010 2011 2010 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000

12.1 Quoted sharesGroupKegalle Plantations PLC - 35,000 - 1,645 - 2,338Merchant Bank of Sri Lanka PLC - 5,000 - 94 - 150Ceylinco Insurance PLC - 2,800 - 456 - 490 - 2,195 - 2,978Provision for fall in value - - - (783) - 2,195 - 2,195

12.2 Investments under re-sale agreementsGovernment securities 665,221 1,242,352 - 8,001Corporate debt securities 426,106 180,087 6,701 43,398 1,091,327 1,422,439 6,701 51,399


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Group Company Market value CostAs at 31 March 2011 2010 2011 2010 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000

12.3 Dealing securitiesGovernment securities (Note 12.3.A & 12.3.B) 8,176,778 7,080,525 - -Fixed deposits and other investments 5,207 5,207 5,207 5,207Commercial papers 1,109,970 1,247,450 - - 9,291,955 8,333,182 5,207 5,207Provision for fall in value (5,000) (5,000) (5,000) (5,000) 9,286,955 8,328,182 207 207

12.3.A - Government securities held as dealing securities.In accordance with the accounting policy of the Group, Government securities as held dealing securities are accounted for at the lower of cost and market value as at the balance sheet date on an aggregate portfolio basis. However, if Government Securities are accounted for at market value, the value of such securities would be as follows.

Group Company 2011 2010 2011 2010 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000

Treasury bills 672,946 1,822,040 - -Treasury bonds 7,598,420 5,444,484 - - 8,271,366 7,266,524 - -

12.3.B - Securities pledged as collateralThe government securities classified as dealing securities, following amounts had been pledged as collateral for re-purchase agreements entered into by the group.


Treasury bills (Face value) 713,061 1,668,334 - -Treasury bonds (Face value) 6,906,714 5,423,728 - - 7,619,775 7,092,062 - -


13 Trade and other receivablesTrade receivables (13.1) 835,196 219,356 - -Interest receivable - 1,346 1,813 1,346Loans (13.2) 3,515 4,419 - -Other receivable 38,679 36,468 92 960Dividend receivable - - 107,880 - 877,390 261,589 109,785 2,306



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13.1 Trade receivablesMargin trading debtors 835,954 219,307 - -Receivable from portfolio management account (758) 49 - - 835,196 219,356 - -

13.2 LoansKoolair Ventures Power (Pvt) Limited 28,000 28,000 - -Provision for doubtful debts (28,000) (28,000) - - - - - -Staff loans 3,515 4,419 - - 3,515 4,419 - -

14 Group balances receivableJayasevana Housing (Pvt) Limited 3,000 3,000 3,000 3,000Provision for group balances receivable (3,000) (3,000) (3,000) (3,000) - - - -

15 Assets held for saleAs at 31 March 2011 2010 No of Directors’ Carrying Directors’ Carrying shares valuation value valuation value Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000

GroupCeyspence (Pvt) Limited 2,861,856 70,370 71,432 70,370 71,432Ceycapital Shipping (Pvt) Limited 2,835,000 - - - -Ceyaki Shipping (Pvt) Limited 3,116,600 9,848 29,928 9,848 29,928 80,218 101,360 80,218 101,360Provision for diminution in value - (21,142) - (21,142) 80,218 80,218 80,218 80,218

The above assets held for sale represent equity investments in shipping businesses made by subsidiary companies. All these investments are in the process of liquidation now and are stated at their realizable values as at the balance sheet date.


16 Venture capital investmentsJayasevana Housing (Pvt) Ltd. 12,550 12,550 12,550 12,550MFB Cards (Pvt) Ltd. 100 100 100 100 12,650 12,650 12,650 12,650Provision for fall in value (Note 16.1) (4,650) (4,650) (4,650) (4,650) 8,000 8,000 8,000 8,000


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The financial statements of above venture capital investments have not been consolidated as at the balance sheet date in accordance with Section 153 (6A) of the Companies Act No. 07 of 2007 since they are not in operation and of no real value to the shareholders of the Company due to the insignificant amount involved. Further the Company has fully provided for the investment in MFB Cards (Pvt) Limited and for irrecoverable amounts of Jayasevana Housing (Pvt) Limited. The Company holds 100% stake in all of the above investments.


16.1 Provision for fall in valueJayasevana Housing (Pvt) Limited 4,550 4,550 4,550 4,550MFB Cards (Pvt) Limited 100 100 100 100 4650 4,650 4650 4,650

17 Investment in associate company - GroupKotmale Holdings PLC Number of shares Value Rs. ‘000As at 31 March 2011 2010 2011 2010

Opening balance 9,400,000 - 203,198 -Investment during the year - 9,400,000 - 206,800Share of post acquisition results - - 9,946 15,198Less: Dividend receipt - - (18,800) (18,800)Disposal of investment (9,400,000) - (194,344) -Balance at the end of the year - 9,400,000 - 203,198Holding percentage N/A 29.94%

The entire stake in Kotmale Holdings PLC was disposed on 3 November 2011. Gain on disposal has been disclosed in Note 7 to the Financial Statements.

18 Investment in subsidiary - CompanyFirst Capital Limited Number of shares Value Rs. ‘000As at 31 March 2011 2010 2011 2010

Opening balance 14,982,654 11,856,250 398,204 219,484Investment during the year - 3,126,404 - 178,720Balance at the end of the year 14,982,654 14,982,654 398,204 398,204Holding percentage 99.88% 99.88%


19 Deferred tax assetBalance at the beginning of the year 56,831 107,537 - -Recognized/(reversal) during the year (Note 9) (7,206) (50,706) - -Balance at the end of the year 49,625 56,831 - -



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Group deferred tax asset is recognised by capitalising the brought forward tax losses if there is an assurance beyond reasonable doubt that future taxable income will be available sufficient to allow the benefit of the loss to be realized. However, the company has not recognised deferred tax asset arising from brought forward tax losses amounting to Rs. 155,566,501 as the company is not in a position to ascertain as to whether the company will be making sufficient taxable profits in the near future taking into consideration the current activity levels of the company.

The corporate income tax rate has been reduced to 28% with effect from the year of assessment 2011/12. Accordingly, the deferred tax asset has been computed on the basis of 28%.

20 Property, plant and equipment - Group Office Lease Office Furniture Fixtures and Motor Total Equipment Equipment Fittings Vehicles Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000

Cost/ ValuationAs at 1 April 2010 24,582 11 4,328 9,432 5,960 44,313Additions 3,258 - 176 956 - 4,390Disposals - - (22) - - (22)As at 31 March 2011 27,840 11 4,482 10,388 5,960 48,681

Accumulated DepreciationAs at 1 April 2010 20,913 11 3,697 6,145 3,477 34,243Charge for the year 2,458 - 329 1,583 1,988 6,358Disposals - - (22) (26) - (48)As at 31 March 2011 23,371 11 4,004 7,702 5,465 40,553

Net Book ValueAs at 31 March 2011 4,469 - 478 2,686 495 8,128As at 31 March 2010 3,669 - 631 3,287 2,483 10,070

21 Intangible assets Group As at 31 March 2011 2010 Rs. ‘000 Rs. ‘000

Gross valueBalance as at 1 April 67,938 13,797Additions during the year 1,869 54,987Disposals - (846)As at 31 March 69,807 67,938Amortisation / impairmentBalance as at 1 April 12,523 12,994Amortisation during the year 563 375Disposals/adjustments - (846)As at 31 March 13,086 12,523Balance as at 31 March (Net) 56,721 55,415


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21 Intangible assets Contd.

Software Goodwill Total Rs. ‘000 Rs. ‘000 Rs. ‘000

Gross valueBalance as at 1 April 2010 13,403 54,535 67,938Additions during the year 1,869 - 1,869Balance as at 31 March 2011 15,272 54,535 69,807

Amortisation / impairmentBalance as at 1 April 2010 12,523 - 12,523Amortisation during the year 563 - 563Balance as at 31 March 2011 13,086 - 13,086

Balance as at 31 March 2011 2,186 54,535 56,721

Balance as at 31 March 2010 880 54,535 55,415

Goodwill on acquisition of subsidiary companies Gross Impairment Carrying value Carrying value Subsidiary goodwill provision 31 March 2011 31 March 2010

First Capital Limited 54,535 - 54,535 54,535

As required by SLAS 41 “Impairment of assets”, goodwill is tested for impairment annually and assessed for any indications of impairment at each reporting date to ensure that the carrying amount does not exceed the recoverable amount. Accordingly, the management of the company conducted an assessment and concluded that there are no indications of impairment of the goodwill as at 31 March 2011.


22 Securities sold under repurchase agreementsAgainst government securities 7,412,600 7,390,734 - -Against corporate debt instruments 1,275,991 1,738,065 - 3,577 8,688,591 9,128,799 - 3,577

23 Short term borrowingsBorrowings on commercial papers 997,342 391,053 - -

24 Trade and other payablesAccrued expenses 43,160 62,173 7,278 12,559Advance against assets held for sale 80,218 80,218 - -Provision for statutory liabilities 1,833 1,833 1,833 1,833Other liabilities 78,570 68,336 1,424 1,424 203,781 212,560 10,535 15,816



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25 Amounts due to related companiesFirst Capital Treasuries Limited - - - 200,000First Capital Limited - - 163,530 - - - 163,530 200,000

26 Tax payablesBalance as at 1 April 453,724 145,257 17,670 17,680Net provision / (reversal) for the year (Note 9.1.A) (394,500) 431,399 98 -WHT and ESC (14,849) - - -Notional tax credit recoverable - (39,049) - -Payment made during the year (28,621) (83,883) (98) (10)Balance as at 31 March 15,754 453,724 17,670 17,670

27 Retirement benefit obligationsBalance as at 1 April 5,637 5,172 - -Provision made during the year 2,375 920 - -Interest charge for the year 564 543 - -Deficit/ (surplus) charge for the year (565) 298 - -Paid during the period (528) (1,296) - -Balance as at 31 March 7,483 5,637 - -

The total amount charged to Income statement in respect of Retirement Benefit is made up as follows;Gratuity charge for the year 2,375 920 - -Interest charge for the year 564 543 - -Deficit/(surplus) charge for the year (565) 298 - - 2,374 1,761 - -

As required by Sri Lanka Accounting Standard 16 (revised 2006) - “Employee Benefits”, the following subsidiaries provided for gratuity liability based on the Gratuity Formula Method.

- First Capital Limited- First Capital Treasuries Limited- First Capital Asset Management Limited- First Capital Markets Limited

The principal assumptions used are as follows:Expected annual average salary increment 10%Discount rate / interest Rate 10%Staff turnover factor (as a %) 5%Retirement age of employees 55 Years


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No. of shares Group CompanyAs at 31 March 2011 2010 2011 2010 2011 2010 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000

28 Stated capitalBalance as at 01 April 33,750,000 33,750,000 227,500 387,480 227,500 387,480Sub division of shares 67,500,000 - - - - -Capital reduction - - - (159,980) - (159,980)Balance as at 31 March 101,250,000 33,750,000 227,500 227,500 227,500 227,500

Sub-division of sharesOn 10 May 2010, the Company made a sub-division of shares without a change to the stated capital of Rs. 227,500,000/- by splitting every one (01) existing voting ordinary share into three (03) voting ordinary shares. The shares so divided rank equal and pari pasu in all respects with the existing shares from which the division arose.


29 Risk reserveBalance as at 1 April 224,287 61,082 - -Transfers made during the year 208,629 163,205 - -Balance as at 31 March 432,916 224,287 - -

A sum equivalent to 25% of the profit after tax of First Capital Treasuries Limited (subsidiary company) has been transferred to the risk reserve in accordance with direction issued by the Central Bank of Sri Lanka Ref. No. 08/24/002/0005/005.

30 Repurchase of sharesFirst Capital Treasuries Limited, a subsidiary company within the group repurchased 10.26Mn of its own shares at a cost of Rs. 718.2Mn during the year in accordance with the provision of Section 64 of the Companies Act No. 07 of 2007. Accordingly the amount paid for minority shareholders is Rs. 39.9 Mn.

31 Contingent liabilitiesCompany(a) The Department of Inland Revenue has raised assessments relating to turnover tax amounting to Rs. 5,549,196, together with

a 50% penalty of Rs. 2,774,627, amounting to a total liability of Rs. 8,323,823. The company has made an appeal against the balance tax assessed on the grounds that such tax has been levied on income outside the scope of chargeability to Turnover Tax. No provision has been made in the accounts in relation to the above.

(b) The company has pledged fixed deposits as guarantee to Hatton National Bank PLC amounting to Rs. 5 Mn. against the credit facilities given by the bank to SECO International Marketing Limited. The company has made a provision for the full amount of the fixed deposit against the guarantee given since the said company is not in operation. This provision is disclosed under Note 12.3 to the Financial Statements.

(c) First Capital Holdings PLC is a venture capital company Gazetted under section 22DDD, of the Inland Revenue Act. In terms of the said Gazette, the profit of the company that relate to the business of venture capital are exempt for a period of ten years. The exemption commenced from the year of assessment 1993/94 being the year the company commenced its business.



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The Department of Inland Revenue has taken the view that interest income earned from a separate business activity which is not approved under section 22DDD is liable for income tax and accordingly an assessment for the period 1993/94 to 1997/98 was issued. The company appealed to the Board of Review. The Board of Review upheld the position taken by Commissioner General of Inland Revenue and increased the deductibility of company expenditure up to 50% as against the 10% approved by Commissioner General of Inland Revenue. Further the company referred this case to Court of Appeal. However due to a judgment given by the Court of Appeal on a similar case, full provision have been made in the financial statements amounting to Rs. 17,473,717/-.

Group(d) As at the balance sheet date there are two cases filed against First Capital Limited and one case by First Capital Limited. In the

opinion of the Directors, based on their assessment and in consultation with the company’s legal counsel, the outcome of these cases will not have a material impact on the reported financial results or the future operations of the company:

Case No. Case filed by Reason

In the District Court of Colombo – 17543/MR

Mr. Y. B. M. Rajendran on 23-Jan-1996 against First Capital Ltd.

Case filed by Mr. Rajendran for unlawful termination of employment contract. Plaintiff is claiming LKR 35.7 Mn. as damages.

Case was dismissed by the District Court – Colombo on 2 February 2007 and the plaintiff appealed to the Court of Appeal. However this too was dismissed by the courts on 07 June 2010. As far as the Company is aware, no further appeal has been filed by the plaintiff.

In the District Court of Colombo – 20685/MR

Lanka Valiant Developers (Pvt) Ltd. against First Capital Ltd.

Case filed by Lanka Valiant Developers (Pvt) Limited. for vacating premises prior to expiration of lease period, wherein plaintiff has claimed Rs. 1,454,336 and the company counter sued for Rs.1,362,960. Judgment was given in favour of the plaintiff. Company appealed against the Judgment and on the 30 April 2010 the Court of Appeal set aside the original judgement made by the District Court. As far as the Company is aware, no further appeal has been filed by the plaintiff.

(e) The Department of Inland Revenue raised an assessment on income tax for the year of assessment 2008/09 relating to First Capital Treasuries Limited on 29 March 2011. The company submitted an appeal against the said assessment within the stipulated time frame in accordance with the Inland Revenue Act. Management of the company is of the view that no liability would arise since the said assessment is outside the scope of chargeability of income tax.

(f) Interest rate SWAP agreements First Capital Limited has entered into an Interest Rate Swap Agreement (IRS) for a notional value of Rs. 500 Mn.


42

32 Capital commitmentsThere were no material capital commitments as at the balance sheet date which require adjustment or disclosure in the Financial Statements.

33 Related party disclosures33.1 Directorships in other companiesThe Directors of First Capital Holdings PLC are also Directors of the following companies with which the Company and its subsidiaries had transactions during the year.

Name of the company Relationship Ms. Manjula Mathews

Mr. Dinesh Schaffter Mr. Nihara E. Rodrigo

Dunamis Capital PLC Ultimate parent Managing Director Director DirectorFirst Capital Limited Subsidiary Director Director -First Capital Treasuries Limited Subsidiary Director Director -First Capital Asset Management Limited Subsidiary Director Director -First Capital Markets Limited Subsidiary Director Director -Kelsey Developments PLC Affiliate Director Managing Director DirectorKelsey Homes (Pvt) Limited Affiliate Director Director -Nextventures Limited Affiliate Director Director -Kelsey Property Developers (Pvt) Limited Affiliate Director Director -The Montessori Workshop (Pvt) Limited Affiliate Director Director -K H L Corporate Services Limited Affiliate Director Director -P V I C Management Company Limited Parent Director Director -

33.2 Related party transactionsThe company carried out transactions in the ordinary course of its business with parties who are defined as related parties in Sri Lanka Accounting Standards 30 “Related Party Disclosures (Revised 2005 )”,the details of which are reported below.

33.2.1 Company

Income / expenses & other

Balance as at 31 March

Name of related company Nature of transaction 2010/11 Rs. ‘000

2009/10 Rs. ‘000

2011 Rs. ‘000

2010 Rs. ‘000

Dunamis Capital PLC Interest expense on current account balanceInterest expense on short term borrowing

--

3,98010,773

--

--

First Capital Treasuries Limited Interest expenses on repurchase agreementsInterest income on resale agreementsShort term borrowing

---

718

-

---

--

200,000

First Capital Markets Limited Interest expenses on repurchase agreementsInterest income on resale agreementsRepurchase agreementsResale agreements

3141,897

--

20238

--

----

--

3,57843,406

First Capital Limited Interest income on resale agreementsResale agreementsShort term borrowingDividend receipt

266--

107,882

---

559,039

-6,701

160,000-

----



Financial Reports

43

33.2.2 GroupFirst Capital Limited

Income /expenses & other

Balance as at31 March

Name of related company Nature of transaction 2010/11Rs. ‘000

2009/10Rs. ‘000

2011Rs. ‘000

2010Rs. ‘000

First Capital Treasuries Limited

Interest expenses on repurchase agreementsInterest income on resale agreementsResale agreementsRepurchase agreementsShort term loanPurchases of government securitiesSales of government securities

6,9509,242

---

4,762,7094,336,792

5,5801,179

---

3,004,2224,114,210

--

444,643433,489

34,600--

--

1,987----

First Capital Asset Management Limited

Interest expenses on repurchase agreementsInterest income on resale agreementsRepurchase agreementsPurchases of government securities

2,2435--

60--

272,161

--

33,032-

--

21,871-

First Capital Markets Limited Interest expenses on repurchase agreementsInterest expenses on commercial paper borrowingsInterest income on resale agreementsResale agreementsRepurchase agreementsBorrowings on commercial papersPurchases of government securities

32,683

13,98350,282

----

8,073

660----

160,598

-

--

529,909779,353

--

-

---

70,636125,281

-


Income /expenses & other

Balance as at31 March

Name of related company Nature of transaction 2010/11Rs. ‘000

2009/10Rs. ‘000

2011Rs. ‘000

2010Rs. ‘000


Interest expenses on repurchase agreementsInterest income on resale agreementsResale agreementsPurchases of government securitiesSales of government securities

947245

-49,552

139,288

4,6425,437

-39,759

289,554

-----

--

13,527--

First Capital Limited Interest expenses on repurchase agreementsInterest income on resale agreementsResale agreementsShort term advance grantedRepurchase agreementsPurchases of government securitiesSales of government securities

6,9509,242

---

4,336,7924,762,709

1,1795,580

---

4,114,2103,004,222

--

433,48934,600

444,643--

----

1,987--

First Capital Markets Limited Interest expenses on repurchase agreementsInterest income on resale agreementsInterest income on short term loanResale agreementsShort term advance grantedRepurchase agreementsSales of government securities

5,9365,665

396---

202,917

3,33910,156

19---

315,490

-----

83,394-

---

96,27850,019

--


44

33.2.2 Group Contd.First Capital Asset Management Limited




2009/10 Rs. ‘000

2011 Rs. ‘000

2010 Rs. ‘000


Interest expenses on repurchase agreementsInterest income on resale agreementsRepurchase agreementsPurchases of government securitiesSales of government securities

245947

-139,288

49,552

5,4374,642

-289,553

39,759

-----

--

13,527--

First Capital Limited Interest expenses on repurchase agreementsInterest income on resale agreementsResale agreementsSales of government securities

52,243

--

-60

-272,160

--

33,032-

--

21,871-

First Capital Markets Limited Interest income on resale agreementsResale agreements

4,700-

8,257-

--

-24,721

First Capital Markets Limited




2009/10 Rs. ‘000

2011 Rs. ‘000

2010 Rs. ‘000


Interest expenses on repurchase agreementsInterest expenses on short term borrowingsInterest income on resale agreementsResale agreementsShort term borrowingRepurchase agreementsPurchases of government securities

5,665396

5,936---

202,917

10,15619

3,339---

315,490

---

83,394---

----

50,01996,278

-

First Capital Limited Interest expenses on repurchase agreementsInterest income on resale agreementsInterest income on commercial paper investmentsResale agreementsInvestment in commercial papersRepurchase agreementsSales of government securities

50,28232,683

13,983----

-8,073

660---

160,598

-

-779,353

-529,909

-

-

-70,636

125,281--


Interest expenses on repurchase agreementsRepurchase agreements

4,700-

8,257-

--

-24,721



Financial Reports

45

33.3 Transactions with affiliated companies33.3.1 Company



Name of affiliated company

Nature of transaction 2010/11 Rs. ‘000

2009/10 Rs. ‘000

2011 Rs. ‘000

2010 Rs. ‘000

K H L Corporate Services Limited

Secretarial fees paid 118 274 - -

33.3.2 GroupK H L Corporate Services Limited



Company Nature of transaction 2010/11 Rs. ‘000

2009/10 Rs. ‘000

2011 Rs. ‘000

2010 Rs. ‘000

First Capital Limited Secretarial fees paid 94 84 - -





First Capital Markets Limited Secretarial fees paid 69 77 - -

Nextventures Limited




2009/10 Rs. ‘000

2011Rs. ‘000

2010 Rs. ‘000


Interest expenses on repurchase agreementsInterest income on resale agreementsResale agreements

3942,663

-

1,88624,867

-

---

--

323,420

First Capital Markets Limited Interest expenses on repurchase agreementsInterest income on resale agreementsInterest income on commercial paper investmentsInvestment in commercial papers

9,0945,277

3,050-

36712,604

16,861-

-

--

-

-74,935

First Capital Limited Interest expenses on repurchase agreementsInterest income on resale agreementsInterest income on commercial paper investmentsResale agreementsRepurchase agreementsInvestment in commercial papersReimbursement of expenses

2,2467,681

368---

34,600

--

-----

--

-10,01036,006

268,236-

--

-----


46

33.3.2 Group (continued)Dunamis Capital PLC




2009/10 Rs. ‘000

2011 Rs. ‘000

2010 Rs. ‘000


Interest income on resale agreementsResale agreementsReimbursement of administrative expenses

4,446-

2,400

39,936-

2,400

---

-246,076

-

First Capital Markets Limited Interest expenses on repurchase agreementsInterest income on resale agreementsInterest income on commercial paper investmentsResale agreementsInvestment in commercial papersRepurchase agreementsReimbursement of administrative expenses

6461,347

51,805---

2,400

1,3671,356

85,480---

2,400

--

-----

--

-64

537,369229,140

-

First Capital Limited Interest expenses on repurchase agreementsInterest income on resale agreementsInterest income on commercial paper investmentsInterest income on short term advanceInvestment in commercial papersResale agreements

243,798

29611,967

--

--

----

--

--

300,45134,092

--

----


Reimbursement of administrative expenses 7,200 7,200 - -

Kelsey Homes Limited




2009/10 Rs. ‘000

2011 Rs. ‘000

2010 Rs. ‘000


Interest expenses on repurchase agreementsInterest income on resale agreementsRepurchase agreements

13866

-

467--

---

--

37,515

First Capital Markets Limited Interest expenses on repurchase agreementsInterest income on resale agreementsRepurchase agreements

1,1961-

---

--

64,804

---

First Capital Limited Interest expenses on repurchase agreementsInterest income on commercial paper investmentsInterest income on resale agreementsInvestment in commercial papers

624

27122

-

-

---

-

--

83,525

-

---



Financial Reports

47

33.3.2 Group (continued)Kelsey Developments PLC




2009/10 Rs. ‘000

2011 Rs. ‘000

2010 Rs. ‘000

First Capital Markets Limited Interest expenses on repurchase agreementsInterest income on commercial paper investmentsInterest income on resale agreements

884

--

118

1,6281,591

-

--

-

--

First Capital Limited Interest expenses on repurchase agreementsInterest income on resale agreements

1,378243

--

--

--

Kelsey Property Developments (Pvt) Ltd




2009/10 Rs. ‘000

2011 Rs. ‘000

2010 Rs. ‘000

First Capital Markets Limited Interest expenses on repurchase agreements 115 - - -

First Capital Limited Interest income on resale agreementsInterest expenses on repurchase agreements

2191,515

--

--

--

The Montessori Workshop (Pvt) Ltd




2009/10 Rs. ‘000

2011 Rs. ‘000

2010 Rs. ‘000

First Capital Limited Interest expenses on repurchase agreementsInterest income on resale agreementsResale agreementsRepurchase agreements

376161

--

----

--

4,0849,279

----

First Capital Markets Limited Interest expenses on repurchase agreementsInterest income on resale agreements

1477

--

--

--

P V I C Management Company Limited




2009/10 Rs. ‘000

2011 Rs. ‘000

2010 Rs. ‘000

First Capital Limited Interest expense on short term loan 11,967 - - -


48

33.4 Disclosures in relation to related party transactions in accordance with the Continuing Listing Requirements of the Colombo Stock Exchange

Date of transaction

Name of the related party Relationship between theentity and related party

AmountRs. ‘000

Rationale for entering intotransaction

2 June 2010 First Capital Treasuries Ltd Subsidiary company

263,200 Sale of total stake of Kotmale Holdings PLC held by the subsidiary to First Capital Limited due to new direction from the Central Bank of Sri Lanka.

9 November 2010 First Capital Treasuries Ltd Subsidiary company

160,000 Settlement of borrowing by the parent company.

9 November 2010 First Capital Ltd Subsidiary company

160,000 Funding requirement - financing the long term investments of the company (parent).

33.5 Transactions with key management personnelAccording to Sri Lanka Accounting Standard 30 ( Revised 2005 ) “Related Party Disclosures,” 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 their immediate family members have been classified as key management personnel of the entity. Compensations paid to key management personnel are disclosed in Note 8 to the financial statements. Other transactions with key management personnel are as follows.

Nature of Transactions Income/Expenses Balance as at 31 March

2010/11 Rs.’000

2009/10 Rs.’000

2011 Rs.’000

2010 Rs.’000

Interest paid on account of repurchase agreements 10,317 15 - -

Interest received on account of resale agreements 855 88 - -

Repurchase agreements - - 103,704 -

Resale agreements - - - 893

34 Events after the Balance Sheet dateThere were no material events after the balance sheet date, which require adjustments to or disclosure in the financial statements.

35 Comparative figuresTo facilitate comparison relevant balances pertaining to the previous year have been reclassified to conform to current year classification and presentation.

36 Directors’ responsibility statementThe Board of Directors of the Company is responsible for the preparation and presentation of these Financial Statements.

Please refer to page 19 for the statement of the Directors’ Responsibility for Financial Reporting.



Annual Report 2010/2011

Investors’ Information

1. Stock Exchange listingThe issued ordinary shares of First Capital Holdings PLC are listed on the Colombo Stock Exchange.

2. Distribution of shareholding

No. of shares held

31 March 2011 31 March 2010

Shareholders Holding Shareholders Holding

Number % Number % Number % Number %

1 - 1,000 4,880 69.37 1,948,046 1.92 4,977 88.17 1,055,279 3.12

1,001 - 10,000 1,744 24.80 6,467,902 6.40 588 10.42 1,861,662 5.52

10,001 - 100,000 375 5.32 11,306,628 11.20 71 1.25 1,759,863 5.22

100,001 - 1,000,000 30 0.43 8,955,636 8.80 7 0.12 3,099,100 9.18

Over 1,000,000 6 0.08 72,571,788 71.68 2 0.04 25,974,096 76.96

Total 7,035 100.00 101,250,000 100.00 5,645 100.00 33,750,000 100.00

3. Analysis of shareholders

Category of shareholders

31 March 2011 31 March 2010

Shareholders Holding Shareholders Holding

Number % Number % Number % Number %

Individuals 6,871 97.67 21,418,002 21.15 5,574 98.74 4,627,283 13.71

Institutions 164 2.33 79,831,998 78.85 71 1.26 29,122,717 86.29

Total 7,035 100.00 101,250,000 100.00 5,645 100.00 33,750,000 100.00

Resident 7,005 99.57 98,655,142 97.44 5,621 99.57 33,001,789 97.78

Non-Resident 30 0.43 2,594,858 2.56 24 0.43 748,211 2.22

Total 7,035 100.00 101,250,000 100.00 5,645 100.00 33,750,000 100.00

4. Public holding 2010/11 2009/10

Number of shares held by the public 35,195,915 8,134,303Percentage held by the public 34.76% 24.10%

5. Share price movements for the year 2010/11 2009/10 Rs. Rs.

Highest 63.50 100.00Lowest 16.50 9.75Period-end 22.10 58.00

6. Information on share trading and market capitalization 2010/11 2009/10

Number of transactions 32,840 14,387Number of shares traded 98,943,800 22,138,000Value of shares traded (Rs.) 2,185,209,410 969,243,775Market capitalisation (Rs.) 2,237,625,000 1,957,500,000

50First Capital Holdings PLCAnnual Report 2010/2011

Investors’ Information Contd.

Top Twenty Shareholders

No. of No. of Shares as at Holding Shares as at Holding Names of shareholders 31 March 2011 (%) 31 March 2010 (%) 1 PVIC Management Company Ltd 63,857,985 63.07 24,658,995 73.062 Dunamis Capital PLC 2,196,100 2.17 - -3 HSBC International Nominees Ltd - SSBT- Deustche Bank AG Singapore A/C 01 2,150,000 2.12 331,800 0.984 Seylan Bank PLC/Janashakthi Limited 1,967,000 1.94 489,000 1.455 Commercial Bank of Ceylon PLC/Janashakthi Ltd 1,250,703 1.24 - -6 Janashakthi Limited Account No. 1 1,150,000 1.14 461,000 1.377 Bank of Ceylon - A/C No.2 1,000,000 0.99 - -8 Janashakthi Insurance PLC (Shareholders) 1,000,000 0.99 88,401 0.269 Janashakthi Ltd A/C No. 2 900,000 0.89 300,000 0.8910 Premium Brands (Pvt) Ltd 703,100 0.69 - -11 First Capital Markets Ltd./ Mr. L.K.N.K. Kulawardena 435,700 0.43 - -12 Mr. A Sithampalam 321,300 0.32 - -13 Mr. K.R.E.M.D.M.B. Jayasundara 305,400 0.30 - -14 Mr. W.K.R. Jayakody 303,600 0.30 - -15 Mr. D. Ganeshamoorthy/Mr.P.P.A.P. Pillai 300,000 0.30 - -16 Mr. U.C. Bandaranayake 300,000 0.30 - -17 Prime Homes International (Pvt) Ltd 289,100 0.29 - -18 Mr. R.S. Tissanayagam 284,900 0.28 - -19 Mr. P.R. Abeyasekara 273,800 0.27 - -20 Mrs. W.S.P.M. Abeyasekara 262,300 0.26 - -



Year ended 31 March 2010/11 2009/10 2008/09 2007/08 2006/07 2005/06* 2004/05* 2003/04* 2002/03* 2001/02* Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000

TRADING RESULTSGross income 1,716,279 2,728,174 2,333,106 1,997,223 126,586 7,606 5,084 4,152 25,931 1,788Profit before tax 605,172 1,164,349 349,263 114,481 22,166 4,441 2,516 840 8,246 (42,572)Taxation 378,303 (482,105) (157,679) (39,475) (7,997) (620) - - - (77)Profit after tax 983,475 682,244 191,584 75,006 14,169 3,821 2,516 840 8,246 (42,649)

BALANCE SHEETASSETSCash and cash equivalents 6,436 6,748 5,673 13,758 1,701 85 4,054 33 261 820Dealing securities 9,286,955 8,328,182 8,458,981 6,088,740 2,071,864 22,000 40,000 5,198 9,704 5,198Resale agreements 1,091,327 1,426,017 2,175,624 5,242,193 4,481,297 - - - - -Trade and Other Receivables 877,390 261,589 68,477 223,097 489,117 - - 59,000 50,000 2,300Investment securities 1,000 379,258 617,234 - - - - - - -Investment in venture capital 8,000 8,000 19,486 30,100 30,100 30,100 - 3,000 11,000 53,510Investment in associates - 203,198 - - - - - - - -Property and equipment 8,128 10,678 7,807 8,178 4,950 29,310 - - - -Other assets 217,337 200,158 198,280 250,842 505,842 - 33,198 5,335 5,229 5,416 11,496,573 10,823,828 11,551,562 11,856,908 7,584,871 81,495 77,252 72,566 76,194 67,244

LIABILITIESBank overdraft 9578 1586 312 16,311 27,003 - - - - -Repurchase agreements 8,695,296 7,360,786 9,501,917 11,235,067 5,711,861 - - - - -Other short term borrowings 990,638 2,159,066 1,143,300 - - - - 427 4,275 75Tax payables 15,754 453,724 145,256 68,665 128,988 - - - - -Retirement benefit obligations 7,483 5,637 5,172 4,668 6,773 - - - - -Other liabilities 203,780 212,560 153,926 122,103 1,530,714 8,677 8,255 8,226 9,156 12,652 9,922,529 10,193,359 10,949,883 11,446,814 7,405,339 8,677 8,255 8,653 13,431 12,727

EQUITYStated capital 227,500 227,500 387,480 387,480 199,980 150,000 150,000 150,000 150,000 150,000Capital reserves 432,916 224,287 61,082 19,896 869 49,979 49,979 49,979 49,979 49,979Retained earnings 855,221 129,044 5,088 (86,130) (175,262) (127,161) (130,982) (136,066) (137,216) (145,462) 1,515,637 580,831 453,650 321,246 25,587 72,818 68,997 63,913 62,763 54,517

Minority interest 58,407 49,638 148,029 88,848 153,945 - - - - -TOTAL EQUITY AND LIABILITIES 11,496,573 10,823,828 11,551,562 11,856,908 7,584,871 81,495 77,252 72,566 76,194 67,244

* 2001/02 - 2005/06 reflect results of the Company. During 2006/07, First Capital Holdings PLC acquired a controlling stake in First Capital Limited and became a group. Therefore, subsequent results above reflect group performance.

Ten Year Summary


Glossary of Financial Terms

l Assets: Economic resources owned by a business.

l Average Weighted Deposit Rate (AWDR): Weighted average interest rate offered for savings accounts by commercial banks.

l Call Money Rate: Inter-bank overnight

lending rate.

l Capital Reserves: The profits of a company that (for various reasons) are not regarded as distributable to shareholders as dividends. These include gains on the revaluation of capital assets and statutory risk reserves.

l Commercial Paper: A short term unsecured promissory note issued in the open market by public companies representing an obligation of the issuing entity.

l Contingent Liabilities: Conditions or situations at the Balance Sheet date, the financial effects of which are to be determined by future events which may or may not occur.

l Debt Securities Market: The over- the-counter (OTC) market in which Debt (fixed income) Securities are traded. This is the wholesale market more or less confined to commercial banks, financial institutions and large corporations.

l Dividend Cover: Post-tax profit divided by gross dividends. This measures the number of times the dividend is covered by distributable profits.

l Dividend Gross: Portion of current and retained earnings, inclusive of tax withheld, distributed to shareholders.

l Earnings per Share: Post tax profit but before extraordinary items divided

by the weighted average number of shares in issue during the year.

l Fixed Income Securities: Securities whose current income is fixed or based on some underlying index. These are also known as debt securities since they represent a fixed obligation of the company unlike equity, which pays dividends only when the company makes profits.

l Forward Rate Agreement: An agreement between two parties who wish to protect themselves against a future movement in interest rates.

l Guarantee: A promise made for a fee by a third party (Guarantor), who is not a party to the contract between two others, that the guarantor will be liable if one of the parties fails to fulfill the contractual obligations.

l Issue Management: Management of the issue of equity and debt instruments.

l Issue Price: Price at which new shares are sold to the public.

l Liabilities: Debts or obligations of a business.

l Margin Trading: A credit facility given to investors who wish to expand their investment portfolio.

l Market Value per Share: The price at which an ordinary share is transacted in the stock market at a given point of time.

l Market Capitalisation: The market value of a company at a given date obtained by multiplying the share price by the number of issued shares.

l Money Broker: Inter-bank money broker licensed by the Central Bank of Sri Lanka.

l Net Assets per Share: Net assets (total assets less total liabilities) divided by the number of shares issued.

l Outright: The purchase or sale of a currency or security for delivery on any date other than spot (not being a swap transaction).

l Overnight: Deposit or swap transaction for settlement on transaction date the next business day after transaction date.

l Portfolio: Income generating assets such as government securities and corporate debt securities etc.

l Post Balance Sheet Events: Significant events that occur between the balance sheet date and the date on which financial statements are authorised for issue.

l Price Earnings Ratio: Market price of a share divided by earnings per share.

l Primary Dealer: A dealer in government securities licensed by the Central Bank of Sri Lanka.

l Prime Lending Rate (PLR): The interest rate a commercial bank will offer to its best customers.

l Repurchase Agreement: An agreement (repo for short) for the simultaneous sale and repurchase of a security on different settlement dates.

l Return on Shareholders’ Funds: Post-tax profit divided by average shareholders’ funds.

l Return on Total Assets: Post-tax profit divided by average total assets.



l Revenue Reserves: Reserves which may be distributed to shareholders as dividends.

l Reverse Repurchase Agreement: An agreement (reverse repo for short) for the simultaneous purchase and resale of a security on different settlement dates.

l Rights Issue: The issue of new shares with the right given to existing shareholders to purchase them in proportion to their shareholdings. This raises new capital for the company, often including a premium.

l Shareholders Funds: Shareholders funds consist of issued and fully paid ordinary share capital plus capital and revenue reserves.

l Swap (currency): The simultaneous purchase and sale of identical amounts of a currency for different value dates.

l Subsidiary: A subsidiary is an enterprise that is controlled by another enterprise (known as the parent company). Control is the power to govern the financial and operating policies of an enterprise so as to obtain benefits from its activities.

l Venture Capital Company: Venture Capital Company is an entity which is specialised in the business of providing equity investment in relation to commencement or expansion of business project.

l Yield Curve: The graphical depiction of the relationship between the yield on Treasury securities and the corresponding period.


Notice of Meeting

Notice is hereby given that the 19th Annual General Meeting of First Capital Holdings PLC will be held on Friday 29 July 2011 at the Ceylon Chamber of Commerce, No. 50,Nawam Mawatha, Colombo 02 at 11.00 a.m. to transact the following business:

1. To receive the Report of the Board of Directors and the Audited Financial Statements of the company for the year ended 31 March 2011 together with the Report of the Auditors thereon.

2. To re-elect Mr. Nihara E Rodrigo who retires by rotation in terms of Article 93 of the Articles of Association of the Company and offers himself for re-election as a Director.

3. To re-appoint Messrs KPMG Ford, Rhodes, Thornton & Company, as Auditors of the Company for the ensuing year and authorise the Directors to determine their remuneration.

By Order of the Board

(Sgd)K H L Corporate Services LimitedSecretaries

At Colombo8 July 2011

Notes :1. A member entitled to attend and vote at the above meeting is entitled to appoint a Proxy to attend and vote on behalf of him / her.

2. A Proxy need not be a member of the Company.

3. A Form of Proxy is enclosed for this purpose.

4. The completed Form of Proxy must be deposited at the Registered Office of the Company, No. 75, Arnold Ratnayake Mawatha, Colombo 10. not less than 48 hours before the time fixed for the Meeting.



Form of Proxy

I / We ……….....................................................................………………………………………………………………………………………

of ………………………………………………………………...................................................................…………………………..………..

being a member/s of the above named Company, hereby appoint

Mr/Mrs/Miss ……………………………………..……………………………………......................................................................………….

(holder of N.I.C. No. ……………………………...............................………..) of ………………...……......................................……………

……………………………………......................................................................................................………………………… whom failing

1. Mrs. Manjula Mathews whom failing2. Mr. Dinesh Schaffter whom failing3. Mr. Nihara E. Rodrigo

as my/our Proxy to represent me/us and vote on my/our behalf at the 19th Annual General Meeting of the Company to be held on 29 July 2011 at. 11.00 a.m. at the Ceylon Chamber of Commerce, No. 50, Nawam Mawatha, Colombo 02 and at every poll which may be taken in consequence thereof.

Please indicate your preference by placing a “X” in the box of your choice against each Resolution

FOR AGAINST1. Receiving of the Report of the Board of Directors and the Audited Financial Statements of the

company for the year ended 31 March 2011 together with the Report of the Auditors thereon.

2. Re-election of Mr. Nihara E Rodrigo, who retires by rotation in terms of Article 93.

3. Re-appointment of Messrs KPMG Ford, Rhodes, Thornton & Company, as Auditors of the company for the ensuing year and authorizing the Directors to determine their remuneration.

Signed on this ………………day of ……………2011

……………………………Signature

……………………………Shareholder’s N.I.C./P.P./Co.Reg.No.


INSTRUCTIONS FOR THE COMPLETION OF THE FORM OF PROXY.

1. Please perfect the Form of Proxy overleaf, after filling in legibly your full name and address, by signing in the space provided and fill in the date of signature and your National Identity Card Number.

2. The completed Form of Proxy should be deposited at the office of the Secretaries, K H L Corporate Services Limited of No. 75, Arnold Ratnayake Mawatha, Colombo 10, 48 hours before the time appointed for the holding of the meeting.

3. If any Attorney has signed the Form of Proxy, the relative Power of Attorney should also accompany the completed Form of Proxy for registration, if such Power of Attorney has not already been registered with the company.

4. If the shareholder is a company or a corporate body, the Proxy should be excluded under its Common Seal in accordance with its Articles of Association or Constitution.

5. If there is any doubt as to how the vote is to be exercised, by reason of the manner in which the Form of Proxy has been completed, no vote will be recorded by the Form of Proxy.

Form of Proxy Contd.

ContentsOverview

Milestones 2Financial Highlights 4

Management Reports

Executive Director’s Review 5Board of Directors 8Group Structure 9Corporate Management Team 10Human Resource Development 11Principal Activities and Products 13

Financial Reports

Annual Report of the Board of Directors 16Statement of Directors’ Responsibility 19Corporate Governance 20Independent Auditors’ Report 21Income Statement 22Balance Sheet 23Statement of Changes in Equity 24Cash Flow Statement 25Notes to the Financial Statements 26

Investors’ Information 49Ten Year Summary 51Glossary of Financial Terms 52Notice of Meeting 54Form of Proxy 55Corporate Information Inner Back Cover

Corporate Information

Name of Company - First Capital Holdings PLC

Name of Subsidiaries - First Capital Limited First Capital Treasuries Limited First Capital Markets Limited First Capital Asset Management Limited

Legal form - Public limited liability company listed on the Colombo Stock Exchange (Incorporated in Sri Lanka on 23 March 1992)

Company registration number - PQ 44

Registered office - No. 75, Arnold Ratnayake Mawatha Colombo 10 Sri Lanka

Board of Directors - Ms. Manjula Mathews Mr. Dinesh Schaffter Mr. Nihara E. Rodrigo

Secretaries - K H L Corporate Services Limited No. 75, Arnold Ratnayake Mawatha Colombo 10 Tel: 0112 639807 / 0112 639898

Registrars - SSP Corporate Services (Pvt) Limited No. 101, Inner Flower Road Colombo 03 Tel: 0112 573894

Lawyers - M/s. D.L. & F De Saram Attorneys - at - Law 47, Alexandra Place Colombo 10.

External Auditors - M/s. KPMG Ford Rhodes Thornton & Company Chartered Accountants 32 A, Sir Mohamad Macan Marker Mawatha P.O.Box 186 Colombo 03

Principal Bankers - Hatton National bank PLC Nations Trust Bank PLC

Produced by Copyline (Pvt) Ltd Printed by Printel (Pvt) Ltd

THE ROAD AHEAD


www.firstcapital.lk

First Cap

ital Hold

ings PLC

- Annual R

eport 2010/2011

Documents

THE ROAD AHEAD - First Capital€¦ · · 2016-06-30THE ROAD AHEAD First Capital ... Annual Report 2010/2011 First Capital Holdings PLC - Annual Report 2010/2011. Contents Overview