2012-13 · 2020-07-20 · 2012-13 an n u al r epor t central finance company plc annual report...

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CENTRAL FINANCE COMPANY PLCwww.cf.lk

NAME OF COMPANYCentral Finance Company PLC

LEGAL FORMA Quoted Public Company with limited liability incorporated in Sri Lanka on 5th December 1957 and registered under the Companies Act No.07 of 2007. Registered under Finance Business Act No.42 of 2011 and Finance Leasing Act No.56 of 2000.

Approved Credit Agency under:* Mortgage Act No.6 of 1949* Trust Receipt Ordinance No.12 of 1947

COMPANY REGISTRATION NUMBERPQ 67

DIRECTORSJ.D. Bandaranayake - ChairmanE.H. Wijenaike - Managing DirectorG.S.N. Peiris - Director (Finance)R.E. Rambukwelle - Director (Marketing and Operations)A.K. Gunaratne - Director (Group Co-ordination)D.P. de Silva - Director (Credit)C.L.K.P. JayasuriyaS.C.S. WickramasingheF. MohideenA.N. Fernando

STOCK EXCHANGE LISTINGThe ordinary shares of the Company are listed on the Colombo Stock Exchange of Sri Lanka.

HEAD/ REGISTERED OFFICE84, Raja Veediya, Kandy.Telephone : 081 - 2227000Facsimile : 081 - 2232047

CITY OFFICE270, Vauxhall Street, Colombo 2.Telephone : 011 - 2300555Facsimile : 011 - 2300441E-mail : [email protected] : www.cf.lk

BANKERSBank of CeylonCiti Bank N.A.Commercial Bank of Ceylon PLCICICI Bank Ltd.Hatton National Bank PLCHongkong & Shanghai Banking Corporation LimitedNDB Bank PLCNations Trust Bank PLCPeople’s BankSampath Bank PLCSeylan Bank PLCStandard Chartered BankHabib Bank Ltd.Deutsche Bank

AUDITORSJMS Associates,Chartered Accountants,2, Castle Lane,Colombo 04.

LEGAL ADVISERF.J. & G. De Saram,Attorneys-at-Law,P.O.Box 212,Colombo.

COMPANY SECRETARYCorporate Services (Pvt) Limited,216, De Saram Place,Colombo10.Telephone : 011 - 4605100Facsimile : 011 - 4718220

ADMINISTRATIONIf you receive more than one copy of the Annual Report at the same address, we will appreciate such information of duplication communicated to the Company Secretaries in order to update the mailing list and minimize wasted expenditure in the future.

Corporate Information

VISIONCentral Finance shall be the first choice for progressive customers in delivering innovative financial solutions.

MISSIONTo be the leader in our industry, conducting business with responsibility, using our expertise in helping customers grow and prosper whilst creating lasting value for our shareholders.

CORPORATE VALUES

Designed and produced by emagewiseDigital plates by Imageline (Pvt) LtdPrinted by Printage (Pvt) Ltd

Central Finance Company PLC - Annual Report 2012-13 1

Financial Highlights 2

Chairman’s Statement 3

Managing Director’s Report 5

Board of Directors 10

Corporate Management Team 12

Management Discussion and Analysis 13

Financial Review 16

Branch Network 18

Integrated Risk Management 21

Corporate Governance 27

Corporate Social Responsibility 42

Financial Reports

Annual Report of the Board of Directors 48

Directors’ Responsibility for Financial Reporting 53

Remuneration Committee Report 54

Intergrated Risk Management Committee Report 55

Audit Committee Report 56

Directors’ Statement on Internal Control 58

Independent Assurance Report 59

Independent Auditor’s Report 60

Consolidated Income Statement 61

Consolidated Statement of Comprehensive Income 62

Consolidated Statement of Financial Position 63

Statement of Changes in Equity 64

Cash Flow Statement 66

Accounting Policies 67

Notes to the Financial Statements 80

Directors’ Interests in Contracts with the Company 132

Group Companies 133

Group Value Added Statement 137

Share Information 138

Decade at a Glance 140

Income Statement in US Dollars 142

Balance Sheet in US Dollars 143

Employees of the Year 144

Glossary of Financial Terms 147

Notice of Meeting 149

Form of Proxy 151

Investor Feedback Form 153

Corporate Information IBC

Central Finance Company PLC - Annual Report 2012-132

Financial Highlights

Non-financial Highlights

Employees

11/12: 1,439 10/11: 1,3471,450

Branches

11/12: 64 10/11: 5375

Group Company

2012/13 2011/12 2012/13 2011/12

Rs.Mn. Rs.Mn. Rs.Mn. Rs.Mn.

Financial performance

Income 11,319 9,148 10,757 8,625

Profit before income tax 4,620 4,292 3,825 3,627

Provision for taxation 1,335 1,232 1,051 1,019

Profit after income tax 3,285 3,060 2,775 2,609

Net profit attributable to ordinary shareholders 3,217 2,965 2,775 2,609

Gross dividends - - 304.16 262.21

Financial position

Total assets 56,557 49,798 53,474 47,315

Gross loans and advances to customers 44,318 38,154 44,552 38,537

Deposits 26,985 22,795 27,266 22,953

Shareholders’ funds 16,890 13,908 14,559 12,052

Information per ordinary share

Earnings Rs. 30.67 28.27 - -

Dividends Rs. 2.90 2.50 2.90 2.50

Market value Rs. - - 180.00 171.30

Net assets Rs. 161.04 132.60 138.81 114.91

Ratios

Dividend cover (times) - - 9.12 9.96

Dividend pay out (%) - - 10.96 10.05

Liquid assets to deposits (%) - - 11.85 14.25

Shareholders’ funds to deposits 62.59 61.01 53.39 52.51

Core capital ratio % (Tier 1) - - 26.71 22.43

Total risk weighted capital ratio % (Tier 1 & 11) - - 26.89 22.62

TOTAL ASSETSRs.Mn

10/11 11/12 12/13

36,752

47,315

53,474

+13%

TOTAL DEPOSITSRs.Mn

10/11 11/12 12/13

20,09522,953

+19%

27,266

SHAREHOLDERS’ FUNDSRs.Mn

10/11 11/12 12/13

9,756

12,052

14,559+21%

Customers

11/12: 80,285 10/11: 67,495115,642


On behalf of the Board of Directors it gives

me great pleasure in presenting to you,

the Annual Report and Audited Financial

Statements for the year ended 31st March

2013.

GLOBAL ECONOMYThe global macroeconomic environment

continued to be challenging in 2012.

Whilst the US fiscal cliff did not materialise,

growth remained slow. The weaker Euro

zone was further affected by the sovereign

debt crisis, fiscal tightening, widespread

austerity measures and uncertainty

around the common currency, Euro.

Unemployment levels remained high in

the US and most parts of the peripheral

Eurozone. However, the fundamentals

for growth remained strong in emerging

markets, with Asia gearing to be the

new economic power with key drivers of

development, such as industrialisation

and infrastructure spending being given

prominence. This global economic outlook

in the short term will impact on the speed

of economic progress of Sri Lanka resulting

from the sub optimal demand for exports,

tourism and Foreign Direct Investments

from the major trading partners.

SRI LANKAN MACRO ECONOMY IN 2012 The Sri Lankan economy remained

resilient, growing at 6.4%, after the

consistent 8% growth registered in the

preceding years of 2011 and 2010. This

year too, tourism, foreign remittances and

infrastructure development contributed

significantly to GDP growth. However,

a sharp increase in credit growth

prompted policy measures to maintain

macroeconomic stability through increased

import tariffs and excise duties on selected

capital goods, together with an 18%

ceiling on credit expansion imposed on the

banking sector. These measures resulted

in moderating credit off take which also

affected the sale and demand for vehicles.

However, the liberalisation of exchange

control regulations coupled with the growth

potential of specific sectors resulted in

attracting capital inflows particularly into

the financial and tourism sectors. The flow

of inward remittances from the migrant

Sri Lankan workforce continued to show

impressive growth as the most important

source of foreign currency earnings of the

Country.

On the domestic economic front,

prolonged drought conditions and the flash

floods that followed the heavy rains in the

latter part of the financial year hindered

loan servicing, resulting in an increase

in non-performing loans compared to

the previous year. The increase in non-

performing loans and resulting impairments

were witnessed across the industry. The

strategy of selectively growing the portfolio

as adopted by the Company in the year

under review, reaped dividends. The

profit for the year was higher than most

of the comparable peers. The portfolio

delinquency of the Company is one of

the lowest in the sector with gross non

performing advances recording 2.49% as

at the year end.

A significant change in corporate reporting

during the year under review was the

convergence with International Financial

Reporting Standards (IFRSs). Conversion to

IFRSs results in presenting the Company’s

financial statements on the same basis as

overseas counterparts making comparisons

easier and facilitating access to international

capital markets when the need arises.

COMPANY AND GROUP PERFORMANCE IN 2012/13Profit reported under the new accounting

regime surpassed the Rs.3.2 Billion mark

Chairman’s Statement

The Sri Lankan economy remained resilient, growing at 6.4%, after the consistent 8% growth registered in the preceding years of 2011 and 2010. This year too, tourism, foreign remittances and infrastructure development contributed significantly to GDP growth.


for the Group and Rs.2.7 Billion for the

Company. Progress in managing costs

and efficiencies in keeping with the lower

economic growth was encouraging with

operational costs increasing by only 8.4%.

Loan growth of 15.1% was lower than

that of last year but commendable given

the slow level of economic activities. Total

shareholders’ funds increased to Rs.14.6

Billion compared to last year’s Rs.12

Billion placing CF with one of the strongest

balance sheets amongst competitors. The

Tier I Capital adequacy ratio at 26.71% was

comfortably above the statutory minimum.

At the Group level too, performance was

commendable. The largest contribution

come from the financial services sector

companies, with Nations Trust Bank PLC

and CF Insurance Brokers (Pvt) Ltd.,

contributing Rs.403.5 Million and Rs.84.7

Million respectively to the bottom line. Our

manufacturing arms, Central Industries

PLC and Tea Smallholder Factories PLC

too, contributed to the profits substantially

at Rs.48.1 Million and Rs.25.1 Million

respectively, which was higher than the

contributions in 2011/12. The hydro

power generation companies reported

lower profits owing to unfavorable weather

conditions. The Managing Director’s report

covers the financial performance and

progress of the Group during the year

under review, in greater detail.

In keeping with the distribution policy of

the Company, the Board declared two

interim dividends, in December 2012 &

April 2013 and now recommends a final

dividend of Rs.1.20 per share, aggregating

to Rs.304.2 Million, an increase in dividend

pay out of Rs.41.9 Million or 16% over last

year.

Overall 2012/13 was another year of

good performance for CF, mainly a result

of prudent policies and consistent strategy,

led by a management team possessing

wide market knowledge.

FUTURE OUTLOOKDeceleration of demand driven inflation

has provided space for further easing of

monetary policy. Therefore, the policy

stance in 2013 is expected to trigger

affordable financing and stimulate

credit expansion. We at CF believe,

with stability returning to global markets

in the medium term with continued

investment in infrastructure and capital

inflows the Country’s economy would

regain momentum. The economic outlook

therefore is promising with a more

accommodative policy stance to support

growth. Alongside growing markets,

we will continue to focus on customer

service, new marketing programs, and

business initiatives, while maintaining our

profitability.

APPRECIATIONS AND BOARD CHANGESMr. Tissa Bandaranayake stepped down

from the Board in January 2013, in

keeping with the Corporate Governance

Direction No. 3 of 2008. On behalf of

the Board, I would like to express our

thanks to Mr. Bandaranayake for his

invaluable contribution, not only at Board

deliberations but also for his perspectives

on finance and risk as the chair of the

Audit Committee and the Integrated Risk

Management Committee. I would also

like to welcome Mr. A.N. Fernando, as an

Independent Non-Executive Director, who

joined us in January 2013. He brings with

him a wealth of experience in finance,

audit and risk management.

May I conclude by expressing my gratitude

to the Governor of the Central Bank of Sri

Lanka and the officials at the Department

of Supervision of Non-bank Financial

Institutions for their continued support and

guidance, my fellow Directors on the Board

for their wise counsel and guidance, the

Managing Director, the Management and

staff at all levels for their dedication and

loyalty. I would like express my sincere

appreciation to our shareholders, clients

and all our stakeholders for their unstinted

support and confidence in CF.

J.D. BandaranayakeChairman

Colombo

18th June 2013

Chairman’s Statement (contd.)


I have much pleasure in presenting an

overview of operations of the Company

and the Group for the year ended 31st

March 2013.

BackgroundAfter achieving impressive growth in the

last two years, the Sri Lankan economy saw

a moderation in 2012, as a result of policy

tightening to address high credit growth,

current account imbalances and weaker

demand from advanced economies.

Deceleration was somewhat sharper than

expected in the 3rd quarter of the year with

a prolonged drought affecting agriculture in

particular. Industrial and transport sectors

also recorded slower growth for the year.

The automotive sector, which had

successive years of unrestrained growth,

saw a reversal, stemming from a range of

calibrated policy initiatives to moderate

credit expansion. The higher interest rates,

revision of import tariffs, and credit ceilings,

cumulatively impacted businesses that

drive retail loan growth. These included the

vital distribution and transport segments.

In absolute terms, vehicle imports reduced

from Rs.973 Billion to Rs.625 Billion year

on year, while the percentage of other

consumer goods imported to the country

(which includes the FMCG segment) also

contracted from 10.3% to 8.8% during

2012.

Inevitably, while these policy actions had

a significant influence on the Company’s

performance, the results for the year ended

31st March 2013, reflect the resilience of

earnings in cyclically challenging times.

Performance The Company is required to prepare

its consolidated financial statements in

accordance with the Sri Lanka Financial

Reporting Standards (SLFRS) from the

financial year 2012 onwards. Accordingly,

the performance highlights of the Company

are presented in accordance with the new

standards for the financial year ended 31st

March 2013, compared against 2012,

which have been restated under the same

basis.

Managing Director’s Report

The automotive sector, which had successive years of unrestrained growth, saw a reversal, stemming from a range of calibrated policy initiatives to moderate credit expansion. The higher interest rates, revision of import tariffs, and credit ceilings, cumulatively impacted businesses that drive retail loan growth.

Year Ended

31.03.2013 (Rs.000)

Year Ended

31.03.2012 (Rs.000)

Income 10,757,442 8,624,671

Profit before Tax 3,825,203 3,627,297

Taxation 1,050,564 1,018,640

Profit after tax 2,774,639 2,608,657

Total Comprehensive Income 2,784,934 2,530,769

Shareholders’ Funds 14,559,000 12,052,007

Earnings per share (Group) (Rs.) 30.67 28.27


The SLFRS giving rise to the most

significant change on transition

from SLAS to SLFRS was LKAS 39,

(Financial Instruments–Recognition and

Measurement) which resulted in certain

financial assets being reflected at fair

values.

On the business side, the Company

increased total revenues to Rs.10.8 Billion

from the preceding year’s Rs.8.6 Billion,

with assets under management increasing

to Rs.45.94 Billion as against Rs.40.01

Billion in the previous year (an increase

of 14.82%). Operating profit before VAT

on financial services and income tax, at

Rs.4.04 Billion grew at a slower pace,

impacted mainly by the increase in interest

expenses of Rs.1.41 Billion over the

previous year.

Managing interest rate spreads was

challenging under conditions of intense

competition. Low cost liquidity and strong

cash flows were key factors in controlling

interest margins, and the Company’s Net

Interest Income (NII) at Rs.5.69 Billion

recorded an increase of 17% over the

previous year. Many market participants

attempted to address the drop in credit

off take by cutting loan rates and terms,

to increase volume, while resorting to

borrowing at higher rates, which ultimately

affected industry margins.

Operating Expenses were effectively

controlled at Rs.2.41 Billion, (Rs.2.23

Billion in 2012), representing 5.2% of

assets under management as against 5.5%

last year.

Capital ratios at the end of the FY were

the highest for any year end. Our total

risk weighted capital ratio improved from

22.62% to 26.89% during the year.

The very important Core Capital (Tier 1)

ratio likewise improved, from 22.43% to

26.71% during the year, thus comfortably

exceeding CBSL requirements. Liquid

assets were maintained at a satisfactory

level during the year.

Shareholders’ funds, stood at Rs.14.55

Billion, compared to Rs.12.05 Billion in

the previous year (an increase of 20%),

representing a capital funds to deposits

ratio of 53%.

At Group level, net income was Rs.7.24

Billion, up from Rs.6.48 Billion in 2012, on

pre-tax profits of Rs.4.61 Billion (Rs.4.29

Billion in the prior year), while Earnings Per

Share increased by 8.5%.

Credit Ratings Fitch Rating Lanka (FRL) re-affirmed

the ‘A+(lka)’ rating during the financial

year. Fitch has also affirmed CF’s senior

unsecured debt at ‘A+(lka)’, subordinated

debt at ‘A(lka)’ and commercial paper at

‘F1(lka)’.

The relatively strong financial profile of

the Company, diversity of its funding

sources and accessibility to capital markets,

sustaining good asset quality, conservative

management of interest rate mismatches

and profitability were among the factors

taken into consideration in assigning these

ratings.

DividendThe Directors recommend a final dividend

of Rs.1.20 per share, making a total

dividend of Rs.2.90 per share for the

financial year 2012/2013. The distribution

together with 10% WHT absorbs

Rs.304.16. Million (an increase of 16%

over last year).

Business

AdvancesThe automotive sector saw a sharp drop

in sales due to depressed demand for

cars, commercial vehicles, and medium

and heavy transport vehicles related to the

construction industry. Overall, total new

registrations decreased by 24%, with the

sharpest contractions seen in the private

car (24%), Three wheeler (29%) and

Motor cycle (23%) segments.

An upward trend in delinquencies was

also apparent in segments related to

construction and agriculture. Under these

conditions, the Company realigned its

business, with tighter credit filtering, lower

loan to value ratios and focus on segments

at the lower end of the risk spectrum.

Total disbursements were therefore,

lower by 8% at Rs.25.2 Billion over

the previous period (Rs.27.2 Billion)

in keeping with these market realities.

The major contributions flowing from

the light and small commercial vehicle

segments and to a lesser degree from dual

purpose commercial vehicles. With fleet

replacements completed to a large extent,

much of the business was dependent on

financing pre-owned vehicles, reflecting a

change in the asset profile and lower loan

to value ratios.

During the year, the Micro Finance loans

unit expanded its reach, to establish 18

outlets across the country. The Micro

Finance loans unit plays a significant role

in providing a variety of services needed to

promote financial inclusion in undeserved

areas. Established in 2009, the unit has

progressed satisfactorily with a portfolio

growth of Rs.117 Million over the previous

year.

Asset QualityThe provisioning methodology adopted

for the current year is significantly different

than the CBSL prudential norms adopted

in previous years. The transition from the

“time based” provision (based on the

directions issued by the Central Bank

Managing Director’s Report (contd.)


of Sri Lanka) to “present value of future

cash flows for individually significant

loans” and “net flow rate” methodology

which takes account of incurred loss

patterns for individually not significant

loans under different risk categories was

challenging. In line with its conservative

approach, the Company exceeded the

minimum requirements recommended

by the committee appointed for the

implementation of SLFRS in Finance and

Leasing Companies. The transitional impact

from SLAS to SLFRS is explained further in

Note No.60 of the financial statements on

pages 114 to 127.

With the loss of momentum in agriculture,

manufacturing, services and transport

sectors, it was apparent that these sectors

would experience pressure in debt

servicing. Therefore, the strategy was to

watch asset quality closely and further

tighten portfolio monitoring. Similarly,

companies and contractors with linkages

to construction and infrastructure sectors

experienced stress in repayment, especially

in the third quarter of the financial year

resulting in impairments against such

advances. The Company managed to

contain total loan impairments to Rs.60.20

Million during the year. However the

weak demand for commercial vehicles

and the resulting decline in prices of such

vehicles inflicted significant losses on resale

amounting to Rs.115.19 Million.

Overall asset quality across the loan

portfolio remains better than market,

with gross non-performing loans to total

advances on the core business (inclusive

of operating leases) at 2.40% (1.65% as

at 31.03.2012). Industry wide gross non-

performing loan ratio in 2012 for licensed

finance companies was 5% compared to

5.1% recorded in 2011.

As macro conditions remain uncertain the

emphasis will be on using our resources

more efficiently throughout our collections

and recovery operations and adopting

a customer centric approach in default

management.

Resource Mobilisation

a) DepositsCore customer deposits comprising fixed

deposits and savings grew by 18.8%

over the last year. Term Deposit and

Savings base stood at Rs.26.46 Billion and

Rs.801.6 Million respectively with a gross

cash mobilisation of Rs.13.8 Billion.

Although depositor preference continued

for shorter tenures, the Company

maintained a stable deposit mix, with

79.9% of the deposit base in tenures of

one year and over.

CF savings continue to show steady

progress, although intense rate competition

during the year saw some attrition. The

focus during the year was to build a

sustainable savings base with a distinct

advantage on cost of funds, given the ticket

size of a savings account.

b) Term FundingMarket volatility in pricing of term funding

was evident in most part of the year

2012/13. The Company prudently

planned the funding requirements of

the year and was able to source Rs.520

Million in new debentures in line with its

strategy of converting short term maturities

to longer tenures to further strengthen

its balance sheet. It also sourced several

other credit lines in the form of commercial

paper and term loans. With these initiatives

the Company maintained a prudent asset/

liability match and successfully reduced the

dependency on volatile short term funding

by increasing core deposits.

Core customer deposits comprising fixed deposits and savings grew by 18.8% over the last year. Term Deposit and Savings base stood at Rs.26.46 Billion and Rs.801.6 Million respectively with a gross cash mobilisation of Rs.13.8 Billion.

Although depositor preference continued for shorter tenures, the Company maintained a stable deposit mix, with 79.9% of the deposit base in tenures of one year and over.


The Company will continue to leverage its

strong credit rating and the changes in tax

regulations, through long term quoted debt

instruments in the financial year 2013/14.

The lower interest rate environment in

the early part of 2013/14, is particularly

favourable for pursuing this strategy to

reduce interest costs and diversify the

Company’s liability profile.

Performance of Group Companies

SUBSIDIARIES

Central Industries PLC (CIL)CIL recorded a revenue of Rs.1.7 Billion

compared to Rs.1.6 Billion in the previous

year. The Company achieved a steady

growth in the first half of the year, but

increased lending rates and the credit

ceiling imposed on commercial banks

affected the construction industry in the

second half of the financial year. Revenue

from the Company’s electrical products

recorded a 26% growth over the previous

year, as the Company introduced an

improved range of electrical switches and

sockets used in domestic applications,

while strengthening the distribution

channels for these products.

During the year, the Company set up its

second manufacturing plant at Yakkala,

which was commissioned at the end of

the financial year. Capital expenditure and

interest rates which were comparatively

higher than the previous year resulted in

an increase in finance expenses during

the year. The Company recorded a

consolidated profit before tax of Rs.127.57

Million compared to Rs.149.35 Million

in the previous year. Profit after tax was

Rs.96.3 Million compared to Rs.105.5

Million in the previous year.

The Board of Directors has recommended

a first and final dividend of Rs.3.00 per

share for the year ended 31st March 2013.

Mark Marine Services (Pvt) Ltd.(MMSL)Dry weather conditions that prevailed

during most part of the year resulted in a

5% drop in the number of Kwh generated

during 2012/13 when compared with

previous year. Decline in power generation

along with the 7% reduction in the tariff

resulted in a decline in revenue by 10%

over the previous year. This along with

the reduction in net interest income by

38% contributed significantly towards the

decline in profit before tax by 20% over

the preceding year. The profit after tax was

further impacted due to the revision of tax

rates from 10% to 28%. Consequently, the

Company ended the year with a profit after

tax of Rs.35 Million (compared to Rs.75

Million in the previous year).

During the financial year ended 31st

March, 2013 the Company paid a dividend

of Rs.8.75 per share.

CF Insurance Brokers (Pvt) Ltd., (CFIB)The results relate to the financial year

ended 31st December 2012 as the

Company is required by regulation to

follow a calendar year. The portfolio is

predominantly Motor Insurance business

which recorded a gross premium turnover

of Rs.1.83 Billion as compared with

Rs.1.35 Billion the previous year, an

increase of 35%. Commission income

increased by 30% from Rs.156.6 Million in

2011 to Rs.203.2 Million in 2012.

The Company’s operating profit before

tax increased by Rs.48.96 Million from

Rs.60.7 Million in 2011 to Rs.99.93

Million. As a result, CFIB was able to settle

loans obtained from the parent company

amounting to Rs.116 Million. Hence,

finance costs decreased by 30% from

Rs.24.8 Million in 2011 to Rs.17.3 Million

in 2012. Business promotion expenses

decreased by 12% during the year and

administration costs were maintained at

similar levels due to stringent cost controls.

Profit after tax was Rs.88.16 Million as

compared to Rs.48.07 Million in the

previous year, an increase of 83.42%.

Earnings per share increased from Rs.3.88

in 2011 to Rs.7.12 during the year under

review. A dividend of Rs.0.70 Cents per

share has been declared.

Dehigama Hotels Company Ltd. (DHCL)The Company owns the Dehigama

Building located at 84, Kings Street Kandy,

constituting 35,850 square feet of office

space, where the Registered Office of

Central Finance is located. The revenue

consists of rental income derived from

Central Finance, which increased to

Rs.26.94 Million in the year under review

from Rs.26.77 Million in the previous

financial year. Profit before tax increased

to Rs.22.49 Million from Rs.21.85 Million.

Profit after tax declined by 74% to Rs.7.41

Million compared to Rs.28.32 Million as a

result of increase in corporate tax rate from

10% to 28%. The Income tax charge for

the year under review was Rs.15.08 Million

compared to a reversal of tax expenses

amounting to Rs.6.45 Million in 2011/12.

A deferred tax charge of Rs.9.02 Million (as

against a reversal of deferred tax charge of

Rs.8.5 Million in the previous financial year)

arising out of change in the tax rates caused

the substantial increase in the income tax

expenses.

The Directors have recommended a

dividend of Rs.17.00 per share, amounting

to a total payout of Rs.14.07 Million for the

year ended 31st March 2013.

Kandy Private Hospitals Ltd. (KPHL)Turnover of the Company recorded a

marginal growth of 6% during the year

under review to Rs.84.70 Million from

Managing Director’s Report (contd.)


Rs.79.86 Million in 2011/12. However,

profit before taxation reflects a decline of

12.8% due to the increase in finance and

maintenance expenses as well as reduced

margins due to competition. During the

year, refurbishments and renovations

were effected to patient rooms, and the

entrance/lobby area, while a new High

Dependency Unit was also established.

The resulting capital expenses aggregated

to Rs.13 Million. Profit before tax declined

to Rs.13.16 Million from Rs.15.08 Million

reported in the previous year. Profit after

taxation also declined to Rs.9.93 Million

compared to Rs.15.10 Million reported in

the previous year, substantially as a result

of the increase in corporate tax rate from

10% to 28%. A dividend of Rs.0.57 Cents

per share has been recommended by the

Board of Directors for the year ended 31st

March 2013.

Hedges Court Residencies (Pvt) Ltd. (HCRL)The Company was established to construct

a high rise apartment complex in Hedges

Court off Dean’s Road, Colombo 10 and

was affected by the downturn in the

property markets. As reported previously,

the sale of all 88 apartments were

completed during the last quarter of the

2011/12 and the execution of the deeds

of transfer concluded during the year under

review.

ASSOCIATES

Tea Smallholder Factories PLC (TSFL)The Company operates a network of

8 factories, with an annual capacity of

processing 7.6 Million Kilograms of green

leaf, with a smallholder base of 24,300 leaf

suppliers.

During the period under review, the

Company produced 5.7 Million Kilograms

of made tea, an increase from 5.4 Million

Kilograms produced in the previous year.

The low grown average in the financial

year under review increased by Rs.25.84

per Kilogram compared with the previous

season. The global shortfall in black tea

production coupled with the depreciation

of the Rupee against the US Dollar in the

calendar year 2012 contributed to the

buoyancy in the tea prices. The revenue

for the year under review was Rs.2.43

Billion, an increase of 681 Million over the

previous year. Pre-tax profit of the Company

was Rs.92.32 Million as against Rs.7.51

Million recorded in the previous year. The

overall performance has improved with

the increase in production, whilst the price

premium was well managed.

The Company declared a dividend of

Rs.1.00 per share for the year ended 31st

March 2013.

Nations Trust Bank PLC (NTB)The NTB group closed the year with a

post- tax profit of Rs.1.95 Billion surpassing

the comparative period of last year by

21%.Pre-tax profit grew by 18% to

Rs.2.76 Billion compared to Rs.2.33 Billion

recorded in the corresponding period of

the last financial year. Interest income

grew by Rs.5.32 Billion to Rs.15.11 Billion

from Rs.9.79 Billion recorded in the last

year. Deposit base of the bank recorded a

significant growth of 27% over last year to

reach Rs.86.19 Billion at year end. Loans

and advances grew by 20% over the last

year to Rs.73.42 Billion. Total assets of the

Group improved to Rs.122.44Billion from

Rs.102.07 Billion recorded in the previous

year. Loan Impairments for the current

year was Rs.430.9Million compared to a

reversal of Rs.241.4 Million for the previous

year. Impaired loans to total loan ratio

stood at 2.5% in 2012 as against 2.4% in

the previous year. During the year under

review 09 new branches were opened,

with the Island wide network expanding to

57 branches by the year end.

The Bank paid a dividend of Rs.2.10 per

share for the year ended 31st December

2012.

AcknowledgementsOn behalf of the Board of Directors, I

would like to thank the Governor and

Deputy Governor of the Central Bank of

Sri Lanka for the co-operation and support

extended to us. I also wish to record our

appreciation to the Director and Additional

Director who together with their officers

in the Department of Supervision of

Non-Bank Financial Institutions offered us

guidance and support towards the smooth

functioning of the Company.

I wish to express my appreciation for the

leadership and guidance provided by my

colleagues on the Board of Directors. Their

wide ranging knowledge and perspectives

at Board deliberations have been

stimulating, inspiring and challenging.

The commitment, dedication and hard

work of our staff at all levels led by our

corporate management team are sincerely

acknowledged. They have demonstrated

their willingness to undertake a variety of

challenges, from building market share, and

reducing expenses to expanding operations

in a difficult year.

In conclusion, I wish to place on record

my thanks and appreciation to our

shareholders and depositors for their

continued trust and confidence in CF. I also

wish to thank our many customers, new

and old, who gave us the opportunity to

serve their diverse financial needs.

E. WijenaikeManaging Director

18th June 2013


Jayampathi Divale BandaranayakeChairman/Non-executive Director

Jayampathi Bandaranayake, a Graduate in

Law, a Fellow of the Institute of Personnel

Management, Sri Lanka (FIPM) and of

the Institute of Chartered Secretaries of

Sri Lanka and a Fellow of the Institute of

Certified Chartered Professional Managers

(CPM) was appointed as Chairman

of Central Finance Company PLC on

01st January 2012. He serves on the

Board of Finlays Colombo PLC and is

the immediate past Chairman of Ceylon

Tobacco Company PLC. He has served

as a Chairman of the Ceylon Chamber of

Commerce and the Employers’ Federation

of Ceylon and also functioned as the

Chairman/Director General of the Board of

Investment (BOI) of Sri Lanka.

Eranjith Harendra Wijenaike Executive Director

Eranjith Wijenaike is the Managing Director

of Central Finance Company PLC and has

been a Member of the Board since 01st

April 1983. He is a Director of several

companies within and outside the Group

including Tea Smallholder Factories PLC,

Trans Asia Hotels PLC, Equity One PLC

and Central Industries PLC. He served as

a founder Director of Nations Trust Bank

PLC for a period of 12 years and retired

in December 2011. He has over 30 years

of Management experience and holds

a Bachelor’s Degree in Commerce and

a Postgraduate Diploma in Finance and

Management. He is a Member of the

Chartered Institute of Management (UK).

Gerard Shamil Niranjan Peiris Executive Director

Shamil Peiris is the Director (Finance) of

Central Finance Company PLC and has

been a Member of the Board since 01st

April 1983. He serves on the Boards of

many Companies within and outside the

Group. He possesses over 35 years of

Post-qualification experience. He is a Fellow

of the Institute of Chartered Accountants of

Sri Lanka, Institute of Credit Management

& Society of Certified Management

Accountants – Sri Lanka, Chartered Institute

of Management Accountants, British

Institute of Management and Association

of Corporate Treasurers – UK. He is also a

Chartered Global Management Accountant

Ravindra Erle RambukwelleExecutive Director

Ravi Rambukwelle is the Director

(Marketing and Operations) of Central

Finance Company PLC and has been a

Member of the Board since 20th February

2002. He possesses over 34 years of

Management experience, both locally

and internationally. He holds a Bachelor’s

Degree in Economics and Political Science

from the University of Peradeniya, a

Diploma in Marketing from the Chartered

Institute of Marketing UK and a Diploma

in Commerce from the Institute of

Commerce UK. He serves as a Director in

several Group Companies including Tea

Smallholder Factories PLC and Central

Industries PLC.

Arjuna Kapila GunaratneExecutive Director

Arjuna Gunaratne, Director (Group

Coordination) of the Company, has been a

Member of the Board since 20th February

2002. He oversees the functions of

Strategic Planning and Risk Management

of the Company. He is a Fellow of the

Institute of Chartered Accountants of

Sri Lanka and the Chartered Institute of

Management Accountants of UK. He is

also a Chartered Global Management

Accountant. He was appointed as the

Chairman of Nations Trust Bank PLC on

01st November 2012 and also serves on

the Board of Central Industries PLC.

Dhammika Prasanna de SilvaExecutive Director

Prasanna de Silva was appointed to the

Board on 01st July 2011 and functions

as Director Credit of the Company. He

served as the Chairman of the Leasing

Association of Sri Lanka from 2007 –

2009. At present, he is an Advisor to the

Association. He also serves as a Member

of the Telecommunication Regulatory

Commission of Sri Lanka and a Director

of Nations Trust Bank PLC. Mr. de Silva

is an Associate Member of the Chartered

Institute of Management Accountants (UK)

and has also completed all examinations

of the Chartered Financial Analyst (CFA)

program.

Board of Directors


Chandima Lalith Kumar Perera Jayasuriya Non-executive Director

Kumar Jayasuriya, Executive Chairman and

Managing Director of Finlays Colombo

PLC was appointed to the Board with

effect from 01st July 2011. A Fellow

Member of the Chartered Institute of

Management Accountants, UK (FCMA), a

Chartered Global Management Accountant

(CGMA), and a Fellow Member of the

Association of Certified Accountants, UK

(FCCA). He is a past Chairman of the

Employers’ Federation of Ceylon and

serves as the Chairman of the Mercantile

Services Provident Society, a Director of

the Employees Trust Fund Board and

a Committee Member of the Ceylon

Chamber of Commerce.

Sunil Chandra Sillapana WickramasingheIndependent Non-executive Director

Sunil Wickramasinghe, the Chairman of

Milco (Pvt) Limited was appointed to the

Board on 01st July 2011. He possesses

30 years of experience at Nestlé, holding

various positions in the fields of Technical,

Sales, Marketing and General Management

in Sri Lanka and abroad. He served as

an Executive Director at Nestlé Sri Lanka,

prior to leaving for Australia in 2005 to

take up appointment as Sales Director for

Nestlé Pacific Islands and later on General

Manager – Nestlé Papua New Guinea. He

has wide exposure to sales and marketing

especially in emerging markets such as

India, Sri Lanka, Maldives and Malaysia.

Faiz MohideenIndependent Non-executive Director

Faiz Mohideen was appointed to the

Board on 01st January 2012. He was the

former Deputy Secretary to the Treasury

and Director General, External Resources

Department, Ministry of Finance and

Planning. He served on the Boards of

the Bank of Ceylon and Securities and

Exchange Commission of Sri Lanka. He

currently serves on the Boards of Carsons

Cumberbatch PLC, Dipped Products

PLC and Kelani Vally Plantations PLC. He

holds an M.Sc. in Econometrics from the

London School of Economics and a B.Sc.

in Mathematics from the University of

London.

Anthony Nirmal FernandoIndependent Non-executive Director

Nirmal Fernando was appointed to the

Board on 03rd January 2013. He was the

Senior Partner of KPMG Sri Lanka from

2008 to 2012 and served as a Council

Member of the Employers’ Federation of

Ceylon. He currently serves on the Board of

Watawala Plantations PLC. Nirmal Fernando

holds an MBA from IMD Business School,

Switzerland and is a Fellow of the Institute

of Chartered Accountants of Sri Lanka.


1. U B Elangasinha FCA

General Manager – Finance

2. I M J B Illangakoon AICM (SL)

General Manager – Branches

3. H S Fernando (Mrs.)

MBA (University of Colombo), FCMA (UK), CGMA, ACCA

General Manager – Internal Audit

4. M B C Fernando BA (Econ), MA (International Relations)

(University of Colombo)

General Manager – Human Resources and

Development

5. B A C K Jayawardena General Manager – Recoveries

6. C K Hettiarachchi MBA (University of Wales), ACMA (UK), CGMA

Deputy General Manager – Credit & Product

Development

7. A F Goonetillake Dip. in Marketing (UK), MCIM (UK), Dip. in

IDPM (UK)

Senior Assistant General Manager –

Marketing Services

8. S Ekanayake Senior Assistant General Manager – Fleet

Management

9. S Tennekoon Senior Assistant General Manager – Sales

10. A P B Rajanayake Senior Assistant General Manager – Deposits

11. G A R De Zoysa

MBA - University of Sri Jayewardenepura, BSc (Hons) University of Manchester Metropolitan (UK), Dip. in Computer System Design – NIBM

Senior Assistant General Manager – IT

12. G A Bandaranayake Senior Assistant General Manager – Credit

13. C S Hettiarachchi

MBA (University of Sri Jayewardenepura), LLB (University of Colombo), Attorney-at-Law

Senior Assistant General Manager – Legal &

Recoveries

14. H K Amarasinghe MCIA (UK), MIBK (UK), MAAT (UK), ASCA (UK),

MBIM

Assistant General Manager – Audit

15. C A Goonawardene BSc (University of Peradeniya), AICM (SL) BMS

(Open University of Sri Lanka)

Senior Regional Manager – Region 1

16. H G Wijeratne Senior Regional Manager – Region 4

17. D M Warnakulasuriya Assistant General Manager – Recoveries

18. M A M Farook BSc (Hons) University of London Guildhall (UK),

Dip. in Computer System Design NIBM

Assistant General Manager – IT

19. K Kandeepan ACA, ACMA (UK), CGMA

Assistant General Manager – Finance

Corporate Management Team


OverviewThe Global economy remained fragile during 2012, with growth continuing to be sluggish in advanced economies. Growth of major emerging economies also decelerated due to external and domestic challenges. Global growth declined to 3.2% compared 3.9% recorded in 2011. Developing Asia dominated by China and India grew at a lower rate of 7.8% and 4.5% respectively as compared to 9.3% and 7.9% in 2011.

Amidst this global back drop, the Sri Lankan economy grew at a moderate rate of 6.4% in 2012 as compared to over 8% recorded in the past two years, as a result of a resurgence of economic activities, helped by low interest rates and stable exchange rates. However, the sharp increase in credit growth resulted in widening trade and current account deficits, threatening the country’s macroeconomic stability and prompted the Government to introduce a range of policy measures to address such imbalances and related vulnerabilities.

Therefore, in early 2012 Government introduced a series of contractionary monetary policy measures which included credit ceilings, exchange rate adjustments, which were quickly felt in the economy resulting in the deceleration of private credit growth. The improvement in monetary aggregates and healthy single digit inflation prompted Central Bank to relax the policy stance during the latter part of the year.

Per capita GDP reached USD 2,923. Industry sector growth was prominent at 10.3%, while the contribution from the agriculture sector improved to 5.8% compared to 1.4% in 2011, despite the poor weather conditions that prevailed during the year affecting output. The Services sector remained to be the dominant employer as in the past with a provision of 42.9% of employment, but growing at a lower rate of 4.6% compared to 8.6% in 2011.

The external sector strengthened during the year despite the significant challenges brought about by the decline of exports to US and Euro regions and the reduction in commodity prices with the depressed demand observed in those regions. The performance of the external sector was possible due to the prudent policy package implemented by the Central Bank. The cumulative results of these policies together with the increased contribution from tourism, worker remittances and positive changes in the trade account enabled the Country to record a surplus in the balance of payments during the year. The effectiveness of a policy initiative to discourage the importation of non-essential commodities was very evident in the import performance with a 5.4% decline in total expenditure, while non-fuel imports recorded a 8.6% drop.

The Country’s investments were, mainly directed towards non-residential infrastructure project such as ports, energy generation and expressways critically important for rebuilding the Nation and establishing a strong road network between economic growth centers. The positive correlation that exists between economic growth and investment expenditure on infrastructure development coupled with human capital development as a complementary factor of production was quite evident during 2012. This expansion of productive capacity of the economy paves the path to maintain a sustainable rate of growth in the medium term. Investment by both public and private sectors as a percentage of GDP increased during the year to 30.6% as compared to 30.0% in 2011. On the other hand national savings increased from 22% in 2011 to 24% confirming the increase in investment is supported by domestic sources as well, which is an improvement compared to last year.

In an overall sense, the year 2012 gave mixed signals on the path the economy is destined. Private sector had to grapple with numerous challenges, while presented

with ample opportunities to grow. As a result, success or despair was primarily dependent upon an organisation’s capability of strategic interpretation and proactive management through this multi-faceted economy.

Non-Bank Financial Industry (NBFI)With the enactment of the Finance Business Act, No. 42 of 2011, Registered Finance Companies (RFCs) have been termed as Licensed Finance Companies (LFCs) and categorised under Non-Bank Financial Institutions (NBFIs) alongside Specialised Leasing companies (SLCs). During the year 2012 the main indicators of financial stability, profitability and growth of LFCs have recorded healthy levels. The sector recorded a 22% growth, notwithstanding the Policy measures taken during the year targeting the curtailment of expansion of importation expenditure mainly by increase of import duties on motor vehicles.

The reduced volumes of three-wheeler and Motorcycle imports affected the portfolio expansion in these sub sectors. Although the CBSL continued with the program to restore the few distressed Non-Bank Financial Institutions in a diligent manner, the continued erosion of capital and liquidity shortages of those distressed companies affected the overall indicators, masking the better performing and stable companies in the industry, which otherwise should have recorded even stronger levels than reported in 2012. The rapid expansion of LFC branches in the Northern and Eastern provinces, underscored their role in delivering financial inclusiveness to support economic growth in those regions.

Capital and liquidity The capital adequacy ratio of the LFC sector increased to 16% in 2012 as compared to 14% in 2011, and the core capital ratio stood at 15%, which is above the minimum threshold of 5% of risk weighted assets. Capital funds to deposit ratio reached 28% at the end of 2012,

Management Discussion and Analysis


further strengthening the capital adequacy of the industry. LFCs were required to maintain a minimum core capital of Rs.300 Million from January 2013. With this clear direction, the industry was required to infuse capital through retained profits, rights issues and strategic investments. Further due to the increase in earnings, LFCs managed to maintain a surplus of liquid assets over and above of the minimum requirements.

Asset quality and growth NBFI sector recorded an asset growth of 22% during 2012 compared to 26% growth recorded in 2011. The business portfolio growth remained at 21% compared to 46% growth recorded last year. Lease Finance and Hire Purchase facilities accounted for 72% of the growth of Assets and investment portfolios grew by 14% during the year. NPA ratio to the total loans outstanding declined from 5.1% in 2011 to 5% in 2012 mainly due to the expansion of portfolio and the net NPA recorded at 1.6%, where 55.6% NPAs were covered by provisions.

Deposit Growth Deposits accounted for 43% of total liabilities of NBFI. A 37% of deposit growth was observed in LFCs, of which 98% accounted for time deposits, which is an indication of renewal of confidence in the LFC sector. Continued efforts by the Central Bank to raise public awareness on unauthorised conduct of Finance Business through seminars, workshops and publications using mass media contributed to the rebuilding of confidence in the minds of the public on LFCs. It is noteworthy to mention the service of Central Bank by extending this programme to investigations and litigation process targeting unauthorised Finance Businesses to bring about discipline, which is a prerequisite to a stable financial sector.

Profitability A healthy level of profitability was maintained in the NBFI sector, although it was lower than the 2011 results. Return

on assets and Return on Equity declined to 4% and 19% as compared to 6% and 34% in 2011 due to increase of expenditures and decline of income. The sector was mainly affected by the shocks created by changes in duty structure imposed on motor vehicles, and it invariably affected the profitability margins.

Operating and Financial Performance of the CompanyProfit before tax improved from Rs.3,627 Million in the previous year to Rs.3,825 Million in the year under review and profit after tax also reflected an increase from Rs.2,609 Million to Rs.2,775 Million. Other Operating income decreased from Rs.438 Million to Rs.333 Million in the year under review. Operating income consists of operating leases and contract hire business. Intensified marketing efforts successfully grew the operating lease volumes. However, as the portfolio consists exclusively of corporate clients, there was a certain degree of margin compression which resulted in a lower contribution from this business line. The net interest income of Rs.5,696 Million reflects an increase of 17% compared to Rs.4,853 Million in the previous financial year. Other income was Rs.628 Million, a decrease of 2.87% compared to Rs.647 Million in the previous year. Operating expenses at Rs.2,414 Million reflects an increase of 8.42% over Rs.2,226 Million due to increase in employee retirement benefit expenses and other overheads. The Financial Value Added Tax, calculated on the basis of 12% of pre-tax profit attributable to financial services, adjusted for value added items such as staff emoluments, amounted to Rs.218 Million which was an increase of 26% compared to Rs.173 Million charged last year. The impairment charges on financial assets and other credit losses was Rs.200.2 Million compared to Rs.88.5 Million reversal of impairment in the previous financial year. The rigorous credit evaluation process enabled the company to contain asset quality with gross non-performing loans on core business inclusive of operating

leases (NPL) to total advances recorded at 2.40%, which is well below the Industry wide NPL ratio in 2012 for licensed finance companies of 5%. Interest bearing liabilities accounted for 65% of the total liabilities and shareholders’ funds, a marginal decline compared to 66% in the previous year. Deposits from customers grew from Rs.22,953 Million to Rs.27,266 Million in the current year, an increase of 18.8%.

DividendsThe Company continues with the tradition of making three dividend payments. The First interim and Second Interim dividends of Rs.0.85 per share have already been paid and the Board of Directors have recommended a final dividend of Rs.1.20 per share for approval of the shareholders at the Annual General Meeting, making a total dividend of Rs.2.90 per share, amounting to Rs.304.16 Million, and an increase of 16% over the dividend paid in the previous year.

Information Technology (IT)Last financial year the Information Technology Department focused on enhancements to the core systems to meet demands dictated by greater customer expectations. The key enhancements were to deploy new products and services for credit and deposit systems to provide a faster customer service. The Customer Relationship Management system was further refined and expanded.

Another key project was the successful relocation of our call center. The in-house call center improves customer contact and reduces operational cost while integrating the different business lines of the company.

The Disaster Recovery Site was successfully tested with complete fail over of the core applications without any interruption to the operations. During the period regular switch-overs were carried out in terms of the Business Continuity Policy of the Company.

Management Discussion and Analysis (contd.)


Business OutlookWith the completion of three years of sustained growth, the country is poised to embark on an ambitious development program to lay the superstructure for long term growth. This is supported by the long term vision of the Government, which has given the business community the much anticipated confidence and direction for new investment. The GDP growth is predicted to be at a healthy rate around 7.3% in 2013 with an anticipation of reaching 8% in the medium term. This is a positive sign of continuance on the present political and economic strategies, but with a slight downward revision from the impressive GDP growth of 8.2% recorded in 2011, a move which is more realistic in the current domestic and global context. It is reiterated that real economic growth momentum is depicted by not only the annual GDP growth rate but the average growth rate sustainable for a medium to long term, ideally for the next 10 years as well.

The Government’s multifaceted long term development vision aims to position Sri Lanka as “The Wonder of Asia”. Public-Private sector participation in this endeavor will provide a sustainable growth foundation, where the collaboration of the private sector will be an integral part of this economic resurgence. The wide ranging development taking place in the areas of transportation, ports, power and energy along with the opening of new unexplored business territories provide tremendous opportunities for the business community.

Achievement of these policies are principally dependent on commensurate rates of investment sustained over the medium term. The investment expenditure the country is currently accounting is at 30.6% as a percentage of GDP, with 23.7% of it attributed to private investment. It is cited that the fast growing economies such as China, India and Vietnam account for over 30% of investments as a percentage of GDP which is supported by a national savings rate over

30%. Therefore, while it is important to see an improvement in quantity and efficiency of private and government investments, these efforts need to be complemented with structural measures, such as market reforms, improvements to governance and the ease of doing business environment, alongside measures to boost private savings.

The transportation sector demonstrates noticeable improvement, predominantly in the construction of highways, rural road networks, bridges and rehabilitation of railways and existing roads specifically focused in North and East. This improvement in transport infrastructure will attract investments in multi modal transportation to facilitate the fast and efficient carriage of goods passengers across the country in a greater volume, and will pave the way for accelerated economic activities within the country.

Our organisation is built on the pillars of five decades of business success and market knowledge. To harness business opportunities, we have developed a strategic branch network staffed with well-trained and motivated personnel, who are capable of providing efficient customer service focused on specific needs. We will increase our presence in the rural micro sector with the expansion of our micro branch network in the unexplored areas of the country, equipped with innovative product lines which will provide a one stop facility for financial services. The tourism industry is one of the fastest growing sectors and private investment in the tourist transport, refurbishment of hotels and in the supply chain for the tourism industry, presents opportunities for growth. We continue to provide our services for high end corporate clients and plan to extend facilities to the second tier customer base as well, especially in the automotive sectors, while maintaining high credit quality. New product lines specifically designed to cater, for differentiated niche markets were implemented during the year, which achieved successful

market penetration. The strengthening of distribution and marketing channels have created new business opportunities. During the past period the organisation was able to create a number of strategic alliances with our business partners and more cross selling opportunities were exploited. Concentration on our core strengths for revenue creation while managing costs, consolidation and strategic partnerships for business expansion will continue to be our focus. We, as a leading financial provider will strategically extend our innovative product lines further, thereby bringing prosperity to our loyal customers.


Overview of the Industry

Non bank financial services industry saw

four new market entrants in the year 2012,

totaling industry participants to 47. The

asset growth of the industry at 22% in

2012 was lower than the 26% recorded in

the preceding year.

However, growth in accommodations

to Rs.472 Billion was at 21% in 2012,

owing to subdued credit demand that

prevailed in the market, compared to the

exceptional 46% growth witnessed in

2011. Increased import duty on vehicles

and the liberalisation of exchange rates in

2012 were the main factors resulting in this

low growth. The growth in deposits, which

mainly comprised of time deposits, was

commendable at 37% to Rs.254 Billion

in 2012 compared to the 27% growth

recorded in 2011. The trust demonstrated

by the public by way of increased deposit

base growth brought stability to the

industry. The marginal improvement in

the non performing advances ratio at 5%

reflects the improved risk management

initiatives taken by the industry.

Company Performance

Income

Despite the slowdown in economic growth

resulting in reduced credit demand and

volatile market conditions, the company

consolidated its position and grew its

income by 24.7% YoY. The growth in

Interest income slowed down to 29.9% in

2012/13 mainly due to the lower volume

growth in interest earning assets.

The increase in Interest cost of 52.6% in

2012/13 was mainly due to our deposits

being repriced at a faster rate than our

interest earning assets as well as increased

pricing in our rate sensitive bank borrowings.

Nevertheless, the Company maintained a net

interest margin of 13.7%, amid challenges

and difficulties brought on by increased

interest costs and slow credit growth, which

is well above the industry average of 6.8%.

Operating Expenses

Initiatives to improve efficiency and to

manage cost included a dedicated committee

looking at avenues for cost management,

showed good results in 2012/13. Increase

in operating expenses, excluding personnel

costs, is marginal at 9.4%. Increase in the

salary bill at 7.4% is mainly due to the

addition in headcount required for the

expansion of branch network. Taxation

expenses remained flat with the effective tax

rate marginally increasing to 19.58% from

last year’s 19.19%.

Impairment Charges and Asset Quality

Impairment charges computed on the

new incurred loss method as per the new

Sri Lanka Financial Reporting Standards

applicable from this year, stood at Rs.200.2

Million as opposed to the impairment

reversal of Rs.88.5 Million recorded in the

preceding year. The repayment capacity

of borrowers was severely hindered by

the inclement weather conditions which

prevailed during a major part of the year.

Despite this, the gross NPA ratio was

contained at 2.49% due to the prudent

policy of selective lending and increased

credit risk management initiatives taken

during the year under review.

Cost to Income

Improvement in cost to income ratio was

a strategic priority during the year for us

at CF. This ratio improved to 36.26%

compared to last year’s 37.49%. The major

contributor was from the top line, whilst

the cost structure was streamlined and

the results of these are yet to materialise.

Certain back office functions were also

centralised, enabling customer touch points

to focus more on business. The Company

will continue to prioritise and engage in

improving the cost to income ratio in the

coming years as well.

Lease, Loans and Advances

Despite 2012/13 being a challenging year

the YoY Increase in interest earning advances

was commendable at 15.1%. The total

advances, net of impairment provisions stood

at Rs.44.5 Billion as against the recomputed

last year’s amount of Rs.38.5 Billion.

Funding

Public Deposits which represent 78.3% of

our funding base, excluding equity, grew by

18.8% YoY amid strong competition from

banking and non-banking deposit taking

institutions. A mild shift to longer tenures

Financial Review

IncomeRs.Mn

10/11 11/12 12/13

7,6478,625

10,757+25%

OPERATING EXPENSESRs.Mn

10/11 11/12 12/13

2,207 2,2262,414

+8.4%

11.62% 2.41%0.03%1.38%4.12%2.18%

78.27%

Short Term Bank LoanBank OverdraftsCommercial PaperLong Term Bank LoansNon Bank LoansDebenturesDeposits

FUNDING MIX 2013

Figures relating to the Income Statement 2010/11 is based on SLAS. Other figures referred are based on SLFRS


from shorter tenures was also seen closer

to the year end with the expectation of

interest rates moderating in 2013/14.

Responding to market conditions, which

continued from the latter part of 2011/12,

the Company continued to source new

short term wholesale funding from banking

and non bank sources. With the market

interest rates moderating, the company will

shift its strategy to more stable long term

funding in 2013/14.

Liquidity

With the credit ceiling of 18% placed on

banks, liquidity remained tight for most

corporates including LFCs. The prudent

management of liquidity and new funding

helped the Company to maintain healthy

liquidity levels along with undrawn funding

lines above Rs.2.5 Billion throughout the

year. Liquid assets to deposit ratio as at the

year-end was at 11.85%.

Return on Assets and Equity

The key investor ratios of Return on Assets

(RoA) and Return on Equity (RoE) declined

owing to increased interest costs, which

impacted net interest margins and the

increase in impairment charges due to the

inclement weather conditions prevailed

during the year under review. RoA was at

5.5% this year, a decline of 11% compared

to last year’s 6.21% computed as per

the new Sri Lanka Financial Reporting

Standards. RoE dipped 13% from the last

year’s ratio of 23.92% and remained at

20.85% as at the year end.

Shareholders’ Funds and Market Capitalisation

Shareholders’ funds soared to Rs.14.6

Billion partly due to the gain from change

in Accounting Standards giving impact to

the equity in the financial year 2010/11.

The bullish sentiment which prevailed at

the Colombo Stock Exchange at the year-

end helped the share price to increase to

Rs.180 helping CF to remain as one of

the largest capitalised companies in the

Colombo bourse.

Earnings & Dividend per Share

Earnings per Share (EPS) increased by

8.5% in line with the growth in bottom

line. Dividend per Share increased by

16% to Rs.2.90 in line with the consistant

dividend policy of the Company.

Capital Adequacy

Our Capital Adequacy Ratio (CAR) is one

of the highest amongst the industry peers.

CAR further strengthened during the year.

Tier I Capital adequacy ratio improving from

22.43% to 26.71% and Total Capital to

Risk Weighted Assets ratio also improved

to 26.89% from 22.62% mainly due to

internal generation of funds, which are well

above the statutory minimum requirements

of 5% and 10% set by the Regulator.

Future Outlook

The Macroeconomic policy shift in 2013/14

was conducive for growth and much

needed credit expansion. The low interest

rate regime prevailing in early 2013/14 is

also expected to stimulate credit growth.

CF will closely monitor the macroeconomic

developments and align its strategies

to capitalise on market opportunities.

The steady network expansion given us

immense potential to deliver credit to

the rural and semi-urban markets in a

sustainable manner. On the funding front

the Company will seize the opportunity

to diversify its funding base by capitalising

on the low interest rate regime expected

to prevail during 2013/14. The Company

will also carefully look for limited foreign

funding in order to benefit from the low

cost international capital markets.

ROA (%)

10/11 11/12 12/13

4.59

6.215.51

-11.3%

LIQUID ASSETS(%)

10/11 11/12 12/13

12.2514.25

11.85

-16.84%

EPS Rs.

10/11 11/12 12/13

17.42

28.2730.67

+6.4%

ROE (%)

10/11 11/12 12/13

18.24

23.9220.85

DPS Rs.

2.04

2.502.90

+16%

10/11 11/12 12/13

Figures relating to the Income Statement 2010/11 is based on SLAS. Other figures referred are based on SLFRS


Branch Network

KANDY - Head Office

No.84, Raja Vidiya, Kandy, Sri Lanka.Tel : 94-81-2227000Fax : 94-81-2232047

COLOMBO - City Office

No.270, Vauxhall Street,Colombo 02, Sri Lanka.Tel : 94-11-2300555Fax : 94-11-2300441, 94-11-2541212

KATUGASTOTA - Showroom

No.254, Katugastota Road, Kandy.Tel : 94-81-2234309, 94-81-2234234-5Fax : 94-81-2228468

CENTRALPROVINCE

NORTHERN PROVINCE

UVA PROVINCE

SABARAGAMUWA PROVINCE

SOUTHERN PROVINCE

NORTH WESTERNPROVINCE

WESTERNPROVINCE

EASTERNPROVINCE

Ja�na

Mannar

MahoHiripitiya

Vavuniya

Tambuttegama

Anuradhapura

Kekirawa

Dambulla

Kantale

Trincomalee

Puttalam

Nikaweratiya

Nochchiyagama

Galewela Bakamuna

Hingurakgoda

Polonnaruwa

Batticaloa

MelsiripuraChilaw

Alawwa

KuliyapitiyaKurunegala

GiriullaWennappuwa

Negombo

Matale

Dehiattakandiya

Aralaganwila

Ampara

Pottuvil

Tissamaharama

Hambanthota

Embilipitiya

BalangodaRatnapura

Matara

Galle

Ambalangoda Elpitiya

Matugama

MonaragalaWellawaya

Badulla

Bandarawela

Welimada

Nuwara Eliya

Hatton

Mawanella

Mahiyanganaya

Nawalapitiya

GampolaRikillagaskada

Kandy

Katugastota

Horana

Kalutara

Wattala

Kalmunai

Kilinochchi

Minuwangoda

Panadura

Avissawella

WarakapolaKegalle

Nittambuwa

GampahaJa-ela

ColomboKiribathgoda

RatmalanaMaharagamaNugegoda

Piliyandala

Malabe HanwellaHomagama

NORTH CENTRALPROVINCE

State of the art Anuradhapura branch


WESTERN PROVINCE - 19AVISSAWELLANo.1/79, Rathnapura Road, Avissawella.Tel : 036-2232750, 036-2233650, 036-2232950

GAMPAHANo.129, Ja-ela Road, Gampaha. Tel : 033-2227621, 033-2234132, 033-4670442, 033-2225289

HANWELLANo.131/1/B, Pahala Hanwella, Hanwella.Tel : 036-2253945, 036-2253966, 036-4925821

HOMAGAMANo.119/1/1, Katuwana Road, Homagama.Tel : 011-2892334

HORANANo.163, Panadura Road, Horana.Tel : 034-2265065, 034-2265066, 034-4944128

JA-ELANo.171, Negombo Road, Ja-ela.Tel : 011-2229180, 011-2229181, 011-4335408

KALUTARANo.46, Sri Sarananda Mawatha, Kalutara.Tel : 034-2226041, 034-4940068, 034-4940067

KIRIBATHGODANo. 541, New Hunupitiya Road, Dalugama,Kelaniya.Tel : 011-4967530, 011-4888301, 011-4821442, 011-4821441

MAHARAGAMANo.132, High level Road, Maharagama.Tel : 011-4319961, 011-2845855

MALABENo.418, Athurugiriya, Malabe.Tel : 011-4413916, 011-2760893

MATUGAMANo.17/1, Pasqual Street, Matugama.Tel : 034-2248790

MINUWANGODANo.152/A, Galloluwa Junction, Minuwangoda.Tel : 011-2294525, 011-4384228

NEGOMBONo.367, Main Street, Negombo.Tel : 031-2222579, 031-4871200, 031-2233456, 031-2235111

NITTAMBUWANo.43, Kandy Road, Nittambuwa.Tel : 033-2296615, 033-4927106

NUGEGODANo.312, High Level Road, Colombo 06.Tel : 011-2815800, 011-2815801, 011-2815803, 011-2815804

PANADURANo. 292, Galle Road, Panadura.Tel : 038-4281010, 038-2241533

PILIYANDALANo.329/4, Colombo Road, Piliyandala.Tel : 011-2609000

RATMALANANo.259/1/1,Galle Road, Ratmalana.Tel : 011-2715617

WATTALANo.628, Negambo Road, Mabola, Wattala.Tel : 0114-345520, 011-2949890, 011-4345521

EASTERN PROVINCE - 7

AMPARANo.09, 5th Avenue, Ampara.Tel : 063-4890117, 063-4976000, 063-4922678

BATTICALOANo.48, Station Road, Batticaloa.Tel : 065-2227823, 065-2227824

DEHIATTAKANDIYANo.18E, New Town Complex, Dehiattakandiya.Tel : 027-2250189, 027-2250067, 027-4923577

KALMUNAINo.263, Batticaloa Road, Kalmunai.Tel : 067-2226132, 067-2226133

KANTALENo.63/2, Trincomalee Road, Kantale.Tel : 026-2234574, 026-2234447, 026-4924295

POTTUVIL No.230, Arugambay Road, Pottuvil.Tel : 063-2248080, 063-2248084

TRINCOMALEENo.272, 4th Mile Post, Kandy Road,Trincomalee.Tel : 026-2242422, 026-2242423

SOUTHERN PROVINCE - 6

AMBALANGODANo.21B, Wickramasooriya Road, Ambalangoda.Tel : 091-2255802, 091-2255799, 091-4977333

ELPITIYANo.109, Ambalangoda Road, Igala, Elpitiya.Tel : 091-4943533, 091-4943534

GALLENo.151A, Matara Road, Galle.Tel : 091-2223315, 091-4385676, 091-4381184

HAMBANTOTANo.1/3, New Tangalle Road, Hambantota.Tel : 047-2222651/047-2222652, 047-4929743

MATARANo.78, Kumaratunga Mawatha, Matara.Tel : 041-2227314, 041-2222914

TISSAMAHARAMANo.173, Hambanthota Road,Kachcheriyagama, Tissamaharama.Tel : 047-2239145, 047-2239593, 047-4932444

NORTHERN PROVINCE - 4

JAFFNANo.364, Main Street, Jaffna.Tel : 021-2221608, 021-2221942

KILINOCHCHINo.KN/23/475, A9 Road, Kilinochchi.Tel : 021-2280133, 021-2280134, 021-4923870

MANNAR No.45, Thalvupadu Road, Mannar.Tel : 023-4920727, 023-4920728

VAVUNIYANo.166, Station Road, Vavuniya.Tel : 024-2225813, 024-2225814, 024-2227192


NORTH WESTERN PROVINCE - 10

CHILAWNo.54, Kurunegala Road, Chilaw.Tel : 032-2220636, 032-2221660, 032-4925592

GIRIULLANo.119, Negombo Road, Giriulla.Tel : 037-2289512, 037-2289513

HIRIPITIYANo.51, Wariyapola Road, Hiripitiya, Nikadalupotha.Tel : 037-4945128, 037-4945129

KULIYAPITIYANo.107, Kurunegala Road, Kuliyapitiya.Tel : 037-2284553, 037-2283725

KURUNEGALANo.38, Mihindu Mawatha, Kurunegala.Tel : 037-2232313, 037-2222200, 037-2228020

MAHONo.163, Moonamalegama, Maho.Tel : 037-4944951, 037-4944952

MELSIRIPURANo.227, Dambulla Road, Melsiripura.Tel : 037-2250014, 037-4935066, 037-4935300

NIKAWERATIYANo.200, Puttalam Road, Nikaweratiya.Tel : 037-2260871, 037-2260872, 037-4935067, 037-4940152

PUTTALAMNo.628, Colombo Road, Puttalam.Tel : 032-4976004, 032-4976003, 032-2269328

WENNAPPUWANo.349, Colombo Road, Wennappuwa.Tel : 031-2245260, 031-4929846, 031-4976001, 031-2255261

NORTH CENTRAL PROVINCE - 8

ANURADHAPURANo.62, Maithreepala Senanayake Mw, Anuradhapura.Tel : 025-2223560, 025-4930501, 025-4976000, 025-4928402

ARALAGANWILANo.14/36, Kolongas Junction, Aralaganwila.Tel : 027-4924815, 027-4924816

BAKAMUNANo.11, Elehera Road, Bakamuna.Tel : 066-2256000, 066-2556001, 066-4929030

HINGURAKGODANo.20, Airport Road, Hingurakgoda.Tel : 027-2247214, 027-2245224, 027-4923574, 027-4976001

KEKIRAWANo.33, Yakalla Road, Kekirawa.Tel: 025-4976002, 025-4928868

NOCHCHIYAGAMANo.25C, Puttalam Road, Nochchiyagama.Tel : 025-4929053, 025-4929054

POLONNARUWANo.13, Hospital Junction, Polonnaruwa.Tel : 027-4599210, 027-2225176, 027-4976002, 027-4599210

TAMBUTTEGAMANo.29, Kurunegala Road, Tambuttegama.Tel : 025-2275151, 025-2276978, 025-4976001, 025-4930460

CENTRAL PROVINCE - 8

DAMBULLANo.21, Kurunegala Road, Dambulla.Tel : 066-2283021, 066-4925374, 066-2284093

GALEWELANo.334/B, Dambulla Road, Galewela.Tel : 066-4929890, 066-4929891

GAMPOLANo.6B, Nidahas Mawatha, Gampola.Tel : 081-4945114, 081-4945115

HATTONNo.66, Dunbar Road, Hatton.Tel : 051-2222760, 051-4924250

MATALENo.622, Trincomalee Street, Matale.Tel : 066-2231225, 066-2223005, 066-4927739

NAWALAPITIYANo.125, Ambagamuwa Road, Nawalapitiya.Tel : 054-4922792, 054-4976001

NUWARAELIYANo.169, Badulla Road, Nuwaraeliya.Tel : 052-2235422, 052-2235433, 052-2235951

RIKILLAGASKADANo.21, Rathmetiya Road, Rikillagaskada.Tel : 081-4945112, 081-4945113

SABARAGAMUWA PROVINCE - 7

ALAWWANo.27, Colombo Road, Wariyagoda, Alawwa.Tel : 037-4940886, 037-4940887

BALANGODANo.149E, Barnes Ratwatta Road, Balangoda.Tel : 045-4928326, 045-4928327, 045-2289232

EMBILIPITIYARasika Building, Pallegama, Embilipitiya.Tel : 047-2261923, 047-4379332

KEGALLENo.450A, 4th & 5th Floor, Kandy Road,Mepitiya, Kegalle.Tel : 035-2221083, 035-2232956, 035-4927502

MAWANELLANo.292, Kandy Road, Mawanella.Tel : 035-4930047, 035-4930048

RATNAPURANo.143, Colombo Road, Moragahayata, Rathnapura.Tel : 045-2231409,045-2222028, 045-4360447

WARAKAPOLANo.236, Kandy Road, Warakapola.Tel : 035-2267010, 035-2268941, 035-4976001

UVA PROVINCE - 6

BADULLANo.04,Udayarajah Mawatha, Badulla.Tel : 055-2230541, 055-2229701, 055-4499643, 055-2224666

BANDARAWELANo.03, Thanthiriya, Badulla Road, Bandarawela.Tel : 057-2233241, 057-2233240, 057-4929004

MAHIYANGANANo.112, Giradurukotte Road, Mahiyangana.Tel : 055-2258335, 055-2258100, 055-4927631

MONERAGALANo.150A, Wellawaya Road, Moneragala.Tel : 055-2277374, 055-2277346, 055-4927689

WELIMADANo.8/1/A, Wattegedara, Divithotawela, Welimada.Tel : 057-4926923, 057-4926922

WELLAWAYANo.208, Monaragala Road, Wellawaya.Tel : 055-4929301, 055-4929302

Branch Network (contd.)


The objective of risk management, shared across the organisation,

is to support our strategies to build a sustainable, profitable

business in the long-term interests of our stakeholders. We

are committed to achieving the highest standards of corporate

governance in every aspect of the business, including risk

management. In discharging the governance responsibility, the

Board of Central Finance is conscious of the need to manage risk

within the preset parameters, which ensures that risk oversight is a

critical focus for our Board. The overall adequacy and effectiveness

of the risk management framework is managed through the

Integrated Risk Management Committee (IRMC), the Board Audit

Committee (BAC), which comprises solely of Non-executive

Directors and the Assets and Liabilities Management Committee

(ALCO) which comprises of the Executive Directors and senior

level staff members in charge of key related functions. Acting

within authority delegated by the Board, these Committees review

specific risk areas and receive regular reports on internal controls,

risk management, portfolio trends, policies, limits and standards.

We focus on setting clear risk parameters and embedding a

strong culture of risk management and control designed to ensure

the proactive identification of risks which in turn will enable the

Company to be resilient and respond effectively to any unforeseen

shocks. We continue to build on the company’s culture of risk

management discipline. The management of operational risk,

in particular, continues to be enhanced across all areas of the

company. We are introducing increased rigour in the process

for anticipating a wide variety of operational risks and in our

assessment of risks and control effectiveness.

Our risk management framework is designed for the continuous

monitoring of the risk environment and an integrated evaluation of

risks and their interactions. A formal governance structure, with a

clear, well understood framework of risk ownership, standards and

policies is in place.

The management of risk lies at the heart of CF’s business. Our

balance sheet is dominated by credit to customers through our

lending operations. Beyond credit risk, we are also exposed to

a range of other risk types such as liquidity, market risk which

includes interest rate risk, operational, strategic and other risks

which are inherent to our business strategy, product range and

geographical coverage.

Risk Management FrameworkWe have a robust risk management framework, which assigns

accountability and responsibility for the management and control

of risk. Our risk management framework which is set out in the

diagram below, encompasses structures that are strategically linked

with performance management enabling us to focus on the areas

that drive our risk strategy.

Integrated Risk Management

Committee Board Audit Committee Integrated Risk Management Committee Assets and Liabilities

Committee

Role The Audit Committee reviews the

accounting policies and practices,

controls and procedures established

by management for compliance with

regulatory and financial reporting

requirements. It operates under

delegated authority from the Board.

The Integrated Risk Management Committee

operates primarily as an oversight committee

monitoring risk types, concentrating particularly

on Credit, Market, Operational, Strategic and

reputational risks and related issues.

The Assets and Liabilities

Management Committee

(ALCO) is responsible for

identifying, managing and

controlling balance sheet risks

in executing the business

strategy of CF.

Membership Solely comprised of Non-executive

Directors and majority of them are

Independent. Details of the members

are given in the Audit Committee

Report on pages 56 to 57.

Comprised of Non-executive and Executive

Directors and senior level staff, who are in charge

of related functions. The committee is chaired by

an Independent Non-executive Director. Details

of the members are given in the Integrated Risk

Management Committee Report on page 55.

Comprised of Executive

Directors and senior level

staff who are in charge of

Finance, Branch Network

Management, Recoveries and

Treasury.

Board of Directors

RISK OWNERSHIP

Business line operations

Managing Director

Board of Management

Business Units

(Marketing, Credit, Vehicle Hire, Fleet

Management Services, Deposits, Treasury)

RISK ASSURANCE

Audit & Assurance

Board Audit Committee

Internal Audit Division

Independent External Auditor

(Reporting directly to the shareholders)

RISK CONTROL

Risk Management

Integrated Risk Management Committee

Assets and Liability Committee

Risk Management Division

1st l

ine

of D

efen

ce

2nd

Line

of D

efen

ce

3rd

Line

of D

efen

ce


Credit riskCredit risk is the potential for loss due to the failure of counterparty to

meet its obligations to settle the Company in accordance with agreed

terms. Credit risk is managed through a framework that sets out

policies and procedures covering the measurement and management

of credit risk. A well defined delegated approval hierarchy supported

by high ethical standards, well established policies & procedures

provide a robust framework for the organisation and management

of credit risk. There is a clear segregation of duties between major

transaction originators in the business units and approvers in the

credit function. All credit exposure limits are approved within a

delegated credit approval authority framework. Risk indicators are also

set by the credit division and monitored through the IRMC, the Board

of Management (BoM) and ALCO on a monthly basis.

Credit policiesCompany-wide credit policies and procedures are considered and

approved by the BoM, with inputs from Credit and Recoveries

Departments. The BoM also oversees the delegation of credit

approval and loan impairment assessment processes through the

regular review of operations. These policies are adequate to reflect

the different risk environments and portfolio characteristics of Central

Finance.

Credit approvalMajor credit exposures to individual counterparties, Groups of

counterparties and product categories are reviewed and approved

by the designated officers under the delegated approving limits

set by the BoM, with the oversight by the Board. The credit

approving limits in place are structured based on the need of

delegation required to manage the network of branches, without

compromising the risk appetite of the Company.

Credit concentrationCredit concentration risk is managed within limits set by

counterparty or groups of connected counterparties, asset type,

industry sectors etc. Credit concentrations are monitored by IRMC

and ALCO in each of the product type categories and such limits

as material to the Company are reviewed and approved by the

IRMC and the ALCO. Diversification is an important aspect of our

management of risk to ensure that we are not overly dependent

upon a particular region or asset type and our portfolio is spread

with low exposure to high risk asset classes and segments thus

minimising concentration risk. The IRMC also reviews the top 20

lending exposures at its’ quarterly meetings. Performance of large

lending exposures too is reviewed periodically.

Integrated Risk Management (contd.)

4.23%95.77%

Top 20Rest of the Portfolio

Top 20 Concentration

2012/13

5.14%94.86%

Top 20Rest of the Portfolio

Top 20 Concentration

2011/12

Amount as at

31.03.2013

%

Top 20 1,882,744,736.34 4.23%

Rest of the Portfolio 42,669,389,122.89 95.77%

Total portfolio 44,552,133,859.23 100%

Amount as at

31.03.2012

%

Top 20 1,980,523,859.24 5.14%Rest of the Portfolio 36,556,462,308.06 94.86%Total portfolio 38,536,986,167.30 100%

15%42%

5%

7%

11%

5% 7% 6%2%

CentralEasternNorth CentralNorth WesternNorthernSabaragamuwaSouthernUvaWestern

Province-wise analysis

2012/13

2012/13 % 2011/12 %

Agriculture 1,988,678,761.64 4 2,125,506,784.78 6

Construction 1,815,693,606.23 4 2,191,375,913.43 6

Industry 1,112,937,949.95 2 826,397,016.38 2

Services 7,760,027,180.29 17 8,955,267,560.91 23

Tourism 241,535,968.02 1 220,436,236.74 1

Trading 2,584,164,536.25 6 2,138,994,804.09 6

Transport 27,923,432,123.62 63 20,914,906,425.43 54

Others 1,125,663,733.22 3 1,164,101,425.56 3

Total Portfolio 44,552,133,859.23 100 38,536,986,167.30 100


Credit monitoring and measurementWe regularly monitor credit exposures, portfolio performance, and external trends which may impact risk management outcomes. Internal management reports are presented to various committees, containing information on key environmental and economic trends. Portfolio delinquency and loan impairments as well as portfolio quality are constantly monitored by the Recoveries Department. The principal objective of credit risk measurement is to produce the most accurate possible quantitative assessment of credit risk to which CF is exposed, from the level of individual facilities up to the total portfolio. Integral to this is the use of a model. The model used comprises of three elements;

- Probability of default (PD) – the likelihood of a borrower not being able to honour his obligations.

- Exposure at default (EAD) – the exposure to a borrower who is unable to honour his obligations, at the point of default.

- Loss given default (LGD) – the loss associated with a delinquent loan or defaulted borrower.

The methodology adopted was used at each reporting date. An increase in overall impairment was noted in line with the portfolio growth. The impairment based on the incurred loss model computed for individually significantly loans and individually not significant loans for identified risk categories is given in Note No. 34 to the financial statements on page 95.

The total interest income on impaired financial assets accrued for the year 2012/13 amounts to Rs.9,879,450. The carrying amount of loans that would be otherwise be past due or impaired whose terms have been renegotiated amounts to 34,540,651(2011/12 - Rs.35,897,098). The company categorised the individually significant loans into two broad categories and the following factors were considered in determining the impairment of those assets.

- Loan servicing history of the borrower

- Financial standing of the borrower

- Borrowers compliance to Legal and Regulatory matters

- Other general economic conditions affecting the borrowers

repayment ability

% NPA Ratio (Gross)NPA Ratio (Net)

0.0

0.5

1.0

1.5

2.0

2.5

3.0

Apr-1

2

May

-12

Jun-

12

Jul-1

2

Aug-

12

Sep-

12

Oct

-12

Nov

-12

Dec

-12

Jan-

13

Feb-

13

Mar

-13

Monthly NPA Ratio

3%4%4%2%

63%

6%

1%

17% AgricultureConstructionIndustryServicesTourismTradingTransportOthers

Sector wise Loan Portfolio

2012/13

3% 6%6%

2%

54%6%

1%

23%

AgricultureConstructionIndustryServicesTourismTradingTransportOthers

Sector wise Loan Portfolio

2011/12

15%44%

5%

7%

11%

5% 6%5%

2%

CentralEasternNorth CentralNorth WesternNorthernSabaragamuwaSouthernUvaWestern

Province-wise analysis

2011/12

Geographic Concentration of advances

Province 2012-13 % 2011-12 %

Central 6,560,507,564.16 14.73 5,921,716,765.41 15.37

Eastern 2,275,486,150.66 5.11 1,991,570,819.24 5.17

North Central 3,214,089,117.94 7.21 2,639,697,973.18 6.85

North Western 4,879,419,091.62 10.95 4,041,834,894.61 10.49

Northern 859,479,547.13 1.93 614,820,095.86 1.60

Sabaragamuwa 2,604,906,499.76 5.85 2,081,227,996.99 5.40

Southern 3,028,183,481.38 6.80 2,371,423,866.18 6.15

Uva 2,449,928,848.00 5.50 1,905,028,654.35 4.94

Western 18,680,133,558.58 41.93 16,969,665,101.49 44.03

Total 44,552,133,859.23 100.00 38,536,986,167.30 100.00



Collaterals Most of our lending activities are fully secured by tangible assets

with majority being motor vehicles and equipment. Hence, the

Company has a fall back in the event of default.

Credit portfolio

Maximum exposure to credit riskThe table below presents the company’s maximum exposure to

credit risk for its recognised and contingent financial instruments

as at 31st March 2013, before taking into account any collateral

held or other credit risk mitigation. For recognised instruments, the

maximum exposure to credit risk is the carrying amount reported

on the Statement of Financial Position. For contingent instruments,

the maximum exposure to credit risk generally represents the

contractual notional amounts.

Credit quality analysisThe table above sets out an analysis of the lease and loan portfolio

between those that are neither past due nor impaired, those that

are past due but not individually impaired and those that are

individually impaired.

Market riskWe at Central Finance recognise market risk as the risk arising

from changes in interest rates, foreign currency, equity prices and

risk related factors such as market volatilities. The objective of

our market risk management is to obtain the best balance of risk

and return whilst meeting customers’ requirements. The primary

categories of market risk for CF are:

• Interestraterisk:arisingfromchangesinyieldcurvesandcredit

spreads.

• Equitypricerisk:arisingfromchangesinthepricesofequities

and equity indices.

Market risks arising from interest rate volatility is managed with

direction from the IRMC and ALCO which continuously monitor

the cost of funds of the Company and initiate necessary action to

ensure that required margins are maintained by the Company. The

carrying value of all financial assets and liabilities are in Sri Lankan

Rupees and the Company did not have any foreign currency

denominated assets and liabilities as at 31st March 2013 and

2012.

Organisation and structureThe Board approves the appetite for market risks. The Director-

Finance is responsible for the funding operations, under delegated

authority from the Board, which sets a framework of limits within

the context of the approved market risk appetite. The Company

has a strong control environment facilitated by a well structured

oraganisation which has enabled it to strengthen segregation of

duties in respect of critical functions.

Interest rate derivativesThe Company’s principle interest rate related contracts are interest

rate SWAPs. An interest rate SWAP is an agreement between

Portfolio grading 31.03.2013Neither past due nor individually impaired loans and leases 17,435,621,139 Past due but not individually impaired loans

- Up to 30 days past due- 31-60 days past due- 61-90 days past due- 91-120 days past due- Over 150 days- Individually impaired loans

12,188,588,5858,816,100,435

3,470,926,178 1,285,830,203 1,461,205,340 374,377,213

Individual impairment provisions (334,798,682)Collective impairment provision (145,716,552)Total loans and advances & leases 44,552,133,859Of which held at fair value through profit or loss: Nil

Financial Assets/(Liabilities)Carried at FVtPL

Amount (Rs. Mn)

Likelihood of change in fair value or future cash flows due to change in market interest rate

Financial AssetsAvailable for sale investments in

government securities 242,304 No

Financial LiabilitiesDerivative financial instruments 23,096 Yes

Recognised exposure – Collateral wise

Collateral Type As at 31st March 2013 (Rs. Mn)

Cash backed 624,063 Equipment 982,387 Equity 232,728 Others 265,549 Properties 160,096 Vehicles 42,287,311 Clean (Trade & Other receivables) 254,568Total On Balance Sheet exposure 44,806,702

Contingent & commitments related exposure – Collateral wise

Collateral Type Instrument As at 31st March 2013 (Rs. Mn)

Clean Interest rate SWAP 16,558Clean Letter of Credit 14,888Cash backed Guarantees 14,685Equipment Commitments 105,854Total off Balance Sheet exposure 151,985


two parties to exchange fixed and floating rates of interest by

means of periodic payments based upon a notional principal

amount at interest rates specified in the contract. Interest rate

SWAPs are mechanisms used to manage the interest rate

volatility due to maturity mismatches, typically associated with

finance business. SWAPs are valued using valuation techniques

with market observable inputs. The applied valuation technique

includes estimating forward interest rates. The forward interest

rate computation was made based on the observable market rate

of interest on Government securities. The valuation technique

considered was used for the whole instruments. A change in one

or more of those assumptions will not materially change the fair

value of the Interest rate SWAPS.

Equity Price RiskCentral Finance is exposed to market movements in equity

price fluctuations through the quoted available for sale securities

portfolios. The IRMC and ALCO consciously review the relevant

exposure limits. A comprehensive evaluation process is also carried

out prior to investment decisions. Regular monitoring of price

levels is done through the Investment function within the Finance

Department to mitigate adverse movements in the stock market.

The policy related to AFS equity securities is given under accounting

policies on page 71.

Operational riskOperational risk is the risk of direct or indirect loss due to an event

or action resulting from the failure of internal processes, people and

systems or from external events. We seek to minimise exposure

to operational risk, subject to cost trade-offs. Operational risk

exposures are managed through a consistent set of management

processes that drive risk identification, assessment, control and

monitoring. The Board appointed Board Audit and Integrated Risk

Management Committees oversee the management of operational

risks across the network and at the center, with the support of the

independent internal audit department which is separate from the

business functions. In addition, the BAC also receives and reviews

the management letter of the external auditor. This formal structure

of governance provides the Board with confidence that operational

risks are being proactively identified and effectively managed.

All business units are responsible for setting and maintaining

standards for operational risk management. Possible losses to

Company assets due to unforeseen events have been covered with

comprehensive insurance policies.

Liquidity riskLiquidity risk is the risk that we either would not have sufficient

financial resources available to meet our obligations as they fall

due, or can only access these financial resources at excessive

cost. Liquidity risk is heavily influenced by the maturity profile and

mix of the Company’s funding base, as well as the quality and

liquidity value of its liquidity assets portfolio. Our balance sheet

and liquidity have remained strong and we surpass the regulatory

liquidity thresholds comfortably. It is our policy to maintain

adequate liquidity at all times and be in a position to meet all

obligations as they fall due. Diversification of the Company’s

funding base is central to our balance sheet management strategy.

Customer deposits provide large pools of stable funding to support

the majority of lending. We access market funding by way of

debt issuances on an unsecured and secured basis. We have a

substantial portfolio of liquid assets that can be realised if liquidity

stress occurs. We also have a contingency funding plan by way of

undrawn approved bank lines. Contractual maturity analysis of the

remaining financial liabilities is given in Note 61 to the financial

statements on pages 128 and 129.

We manage liquidity risk taking both short and medium-term

requirement into consideration. In the short-term, our focus is on

ensuring that the cash flow demands can be met through asset

maturities, customer deposits and bank funding where required.

In the medium-term, the focus is on ensuring a structurally

sound balance sheet. ALCO is the responsible monitoring body

that oversees our liquidity management policies. The Treasury

Department receives direction from ALCO and is responsible for

managing liquidity limits. Liquidity risk is a standing agenda item

at our monthly ALCO meetings. We also have a strong Advances-

to-deposits ratio, which is testament to our liquidity management

capabilities. The pricing of deposit maturities are done in a way to

curb the maturity mismatches between our lending and borrowing

portfolios.

Index ASPICFSPI

0

1000

2000

3000

4000

5000

6000

7000

8000

Apr-1

2

May

-12

Jun-

12

Jul-1

2

Aug-

12

Sep-

12

Oct

-12

Nov

-12

Dec

-12

Jan-

13

Feb-

13

Mar

-13

CFSPI vs ASPI


Liquidity asset ratio (LAR)This is the ratio of liquid assets to total deposits. The significant

level of holdings of liquid assets in the balance sheet reflects the

application of our liquidity policies and practices.

Strategic riskThe Company continuously follows developments taking place in

the business environment and formulates its strategies to optimise

the opportunities available whilst attempting to manage risks

associated with such strategies. Business strategies are adopted

after evaluating the overall risks associated with such strategies. A

comprehensive three year strategic plan is being developed with

quantitative targets. Risks in achieving such targets have also been

mapped and will be monitored continuously.

Capital Our approach to capital management is driven by our strategic and

organisational requirements, taking into account the regulatory,

economic and commercial environment in which we operate. We

aim to maintain a strong capital base to support the risks inherent

in our business. For regulatory purposes, our capital base is

divided into two main categories, namely Core (Tier 1) Capital and

Supplementary (Tier 2) Capital. The composition of capital under

the current regulatory requirement for 31st March 2013 is provided

in the table below.

The figures reported here may differ from the figures reported in

the financial statements as the above are based on the prudential

regulatory requirements. It is the regulatory Statement of Financial

Position, and not the financial accounting Statement of Financial

Position, which forms the basis for the calculation of regulatory

capital requirements.

Reputational Risk Reputational risk is the potential for damage to the Company,

resulting in loss of earnings or adverse impact on market

capitalisation as a result of stakeholders taking a negative view

of the Company or its actions. Reputational risk could arise from

the failure of the Company to effectively mitigate the risks in its

businesses including credit, liquidity, market, regulatory, legal or

other operational risks. Damage to the Company’s reputation could

cause existing clients to reduce or cease to do business with the

Company and prospective clients to be reluctant to do business

with the Company. All employees are responsible for day -to -day

identification and management of reputational risk. Reputational

risk may also arise from a failure to comply with environmental

and social standards. Our primary social impacts arise through

our relationship with our clients and customers and the financing

decisions we take. We have mechanisms in our origination and

credit processes to identify and assess social risks. We have also

left out certain business lines to avoid social risks. A comprehensive

list of legal and regulatory compliance is tabled at monthly board

meetings. Compliance to rules and regulations by the subsidiary

companies are called on a monthly basis and tabled to manage

reputational risk, which could arise from the activities of other

Group companies.


%

0

2

4

6

8

10

12

14

16

Apr

-12

May

-12

Jun-

12

Jul-1

2

Aug

-12

Sep-

12

Oct

-12

Nov

-12

Dec

-12

Jan-

13

Feb-

13

Mar

-13

Liquidity assets ratioConstituents of Capital

Amount Rs. 000

Tier I : Core Capital 10,841,400

Issued and Paid-up Ordinary Shares/Common Stock 568,400

Share Premium 20

Statutory Reserve Fund 939,000

Published Retained Profits/(Accumulated Losses) 9,839

General and Other Reserves 11,404,781

Tier 2 : Supplementary Capital 482,415

Eligible Revaluation Reserves 482,415

Eligible Tier 2 Capital 482,415

Total Capital 13,404,455

Deductions 394,631

Investments in capital of other banks/financial associates 394,631

CAPITAL BASE 13,009,824

Core Capital Ratio (Minimum 5%) 26.71%

Total Risk Weighted Capital Ratio (Minimum 10%) 26.89%


Corporate GovernanceAt CF, we are committed to the highest standards of Corporate Governance. We believe that a strong and transparent Corporate Governance

framework is directly linked to the long-term success of the Company, creating trust and engagement between the Company and its

stakeholders. Our culture and values are deeply embedded within the organisation. Our culture stimulates transparency and accountability.

Corporate Governance is the system by which the Company is directed and managed and which influences the manner in which the objectives

of the Company are formulated, communicated and achieved. Corporate Governance policies and practices of the Company have been

designed to ensure focus on its responsibilities to its stakeholders and on creating long term shareholder value. We continuously review and

find ways to improve our Board’s effectiveness in this regard.

We recognise that our strategy to be a leading financial service provider relies on a foundation of good Corporate Governance and we

endeavour to be at the forefront of this sector in the coming years.

In this year’s report, we outline the way in which our Corporate Governance framework operates, including the role and responsibilities of

the Board and three of its Committees. Key highlights, level of adoption and conformity with the rules and best practices embraced by your

Company are disclosed in this report.

CORPORATE GOVERNANCE FRAMEWORKThe diagram below demonstrates our approach to Corporate Governance. It depicts the interactive nature of the elements we view as being

fundamental in embracing the spirit of best practice Corporate Governance principles.

As in the previous years, this year too we report our Governance practices and initiatives in three sections.

SECTION ONE covers the level of adoption of the Code of Best Practice on Corporate Governance issued jointly by the Securities and

Exchange Commission of Sri Lanka and the Institute of Chartered Accountants of Sri Lanka.

SECTION TWO covers the level of compliance with Direction No. 03 of 2008 of Finance Business Act No. 42 of 2011 and subsequent

amendments thereto on Corporate Governance for Licensed Finance Companies issued by the Central Bank of Sri Lanka.

SECTION THREE covers the level of conformity with the Continuing Listing Rules - Section 7.10 on Corporate Governance for Listed

Companies issued by the Colombo Stock Exchange.

THE BOARD OF DIRECTORS

BOARD APPOINTED COMMITTEES

OTHER MANAGEMENT COMMITTEES

AUDIT COMMITTEE

Oversight and review of financial, audit and internal

control issues

Oversight and review of prudential risks including

credit, market, operational and liquidity

Oversight and review of remuneration and incentive

framework and Human Resource Policies

REMUNERATION COMMITTEEINTEGRATED RISK MANAGEMENT COMMITTEE


SECTION ONECODE OF BEST PRACTICE ON CORPORATE GOVERNANCE ISSUED BY THE SECURITIES AND EXCHANGE COMMISSION OF SRI

LANKA & THE INSTITUTE OF CHARTERED ACCOUNTANTS OF SRI LANKA.

The disclosures below reflect the level of adoption of the above voluntary Code which comprises of six fundamental principles. These are

namely Directors, Director’s Remuneration, Relations with Shareholders, Accountability and Audit, Institutional Shareholders and

Other Investors.

Corporate Governance (contd.)

Corporate GovernancePrinciples

ICASL & SEC CodeReference/

Adoption statusExtent of Adoption by CF

DIRECTORS

A.1 The Board

Meetings A 1.1Adopted

During the year the Board met 12 times, at approximately monthly intervals. Details of the meetings and the individual attendance are given on page 41.

Boardresponsibilities

A 1.2Adopted

The Board of Directors is responsible for strengthening the safety and soundness of Central Finance, safeguarding the depositors, prudent management of risks, ensuring good Governance and compliance with rules and regulations. The Non-Executive Directors bring an external perspective, constructively challenge and help develop proposals on strategy, scrutinise the performance of management in meeting agreed goals and objectives and monitor the risk profile and the reporting of performance. The Non-executive Directors bring experience from a number of industries and business sectors, including the leadership of large multinational enterprises.

Access toindependentprofessionaladvice

A 1.3Adopted

The procedure for Directors to seek independent professional advice, in furtherance of their duties, at the Company’s expense, is in place as and when it is necessary.

CompanySecretary

A1.4Adopted

The Company Secretary’s service is available for the Directors as and when required. The Company Secretary is responsible for supporting and advising the Chairman and the Board on all Corporate Governance matters, Board procedures and compliance with applicable laws and regulations.

Independent judgment

A 1.5Adopted

Directors bring independent judgment and scrutiny in the decisions taken by the Board on issues of strategy, performance, resources and business conduct.

Dedication ofadequatetime and effortby Directors

A 1.6Adopted

All Directors dedicate adequate time for the fulfillment of their duties as Directors of the Company. In addition to attending Board meetings, they attend Sub-Committee Meetings as well.

Training fornew Directors

A 1.7Adopted

All new Directors have undergone necessary training, both in the general aspects of directorship and matters specific to the financial services industry, including the CBSL Symposium for Directors of Finance Companies.

A.2 Chairman & Chief Executive Officer (MD)

Division ofresponsibilitiesof Chairman &CEO (MD)

A 2.1Adopted

The roles of the Chairman and CEO (MD) are separated to ensure that no individual has unfettered powers of decision making.

A.3. Chairman’s Role

Role of the Chairman

A 3.1Adopted

The Chairman’s role is to lead and manage the Board, ensuring that it discharges its’ legal and regulatory responsibilities effectively and completely. He is responsible for Chairing board meetings efficiently and setting the tone for the board, including the establishment of a common purpose. The Chairman’s role includes but is not limited to;- approving the Agenda prepared by the Company Secretary and conducting Board Meetings;- obtaining appropriate information to present to the Board and ensuring that the Directors are

informed adequately; - encouraging contributions by all Board members and seeking consensus when making decisions; - Instituting the process for appraising Board members individually and the Board as a whole;- ensuring regular meetings, the minutes of which are accurately recorded and where appropriate

include the individual and collective views of the Directors;- maintaining effective communication with shareholders and convey their views to the Board.





A.4 Financial Acumen

Availability of sufficientfinancial acumen and knowledge

A 4Adopted

The Board includes three Fellow Members of the Institute of Chartered Accountants of Sri Lanka and two of them are also Fellow Members of the Chartered Institute of Management Accountants of UK. In addition the Board also includes two Members whom are Members of the Chartered Institute of Management Accountants of UK and one of them is also a Fellow Member of the Association of Chartered Certified Accountants. These Members of the Board have the ability to offer guidance on matters of finance to the Board.

A.5 Board Balance

Presenceof a strongindependentelement onthe Board

A 5.1Adopted

The Board includes a strong presence of both executive and non-executive Directors and no individual or small group can dominate its decision making. Half the Board Members are non-executives. The roles of the Chairman and CEO (MD) are not vested in one person.

IndependentDirectors

A 5.2Adopted

A 5.3Adopted

More than half of the Non-executive Directors are Independent as defined by this Code

Signeddeclaration ofIndependenceby the Non-executiveDirectors

A 5.4Adopted

Non-executive Directors have made written submissions as to their Independence.

Determinationof Independenceof the Directors by the Board

A 5.5Adopted

The Board has determined that the submission of declaration by the Non-executive Directors, as to their independence is a fair representation and will continue to evaluate this annually. The names of the Independent Non-executive Directors are given on page 41.

SeniorIndependentDirector

A 5.6Not Applicable

The requirement to appoint a Senior Independent Director does not arise as the roles of Chairman and CEO (MD) are separate.

Confidentialdiscussionwith the SeniorIndependentDirector

A 5.7Not Applicable

Please refer the above comment.

Meeting ofNon-executiveDirectors

A 5.8Adopted

The Chairman meets with the Non-executive Directors without the presence of the Executive Directors as and when it is necessary.

Recording ofconcerns inBoard minutes

A 5.9Not Applicable

Circumstances did not arise for the Board to record in minutes any concerns, as all issues were resolved though consensus at Board Meetings.

A.6 Supply of Information

Informationto the Boardby the Management

A 6.1Adopted

The Management provides timely and appropriate information to the Board by way of Board Papers and Proposals. The Board seeks additional information as and when necessary. The Chairman ensures that all Directors are briefed on issues arising at Board Meetings.

Adequate time for Board Meetings

A 6.2Adopted

The Board Papers are sent to the Directors at least seven days before the respective Board Meetings, giving adequate time for Directors to study the related papers and prepare for a meaningful discussion at Board Meetings.






A.7 Appointment to the Board

Nomination Committee

A 7.1Not adopted

The Board as a whole decides on the selection of new Directors. The Board believes that this process is more meaningful and transparent for this purpose.

Assessmentof Boardcomposition & Succession planning for Key Management personnel

A 7.2Adopted

The Board carries out continuous reviews of the composition, which includes identifying, evaluating and recommending candidates for the Board. During 2012/13, the Board focused heavily on its future composition with an emphasis both on Executive and Non-executive succession planning. Non Board Key Management personnel are also covered with adequate succession planning.

Disclosure ofdetails of newDirectors toshareholders

A 7.3Adopted

Details of new Directors are disclosed to the shareholders on their appointment by way of public announcements as well as in the Annual Report. Notice on appointment of new Directors is given to the Colombo Stock Exchange.

A.8 Re- election

Appointmentof Non- executiveDirectors

A 8.1Adopted

The Company’s Articles of Association provides that at every Annual General Meeting of the Company, one-third of the Non-executive Directors shall retire from office. Period of service of Non-executive Directors shall not exceed nine years. Directors retire from the Board prior to reaching the age of 70 years.

Election ofDirectorsby theshareholders

A 8.2Adopted

Please refer comments above.

A.9 Appraisal of Board Performance

Appraisalof BoardPerformance

A 9.1Adopted

The performance of the Board is evaluated by the Chairman. The Sub-committees carry out an assessment process annually to ensure they function effectively and efficiently with the objective of facilitating continuous improvement. Formal evaluation of the individual performance of each Director is undertaken annually by the Chairman using the findings of the performance evaluation process undertaken by the Board Members.

Annual selfevaluation ofthe Board andits Committees

A 9.2Adopted

Refer comments above.

Method ofBoard andSub-committeeperformanceappraisal

A 9.3Adopted

Refer comments given for Section A 9.1

A.10 Disclosure of Information in respect of Directors

Details inrespect ofDirectors

A 10.1Adopted

Details of the Directors are given on pages 10 and 11.

A.11 Appraisal of the CEO

Financial targets for CEO (MD)

A 11.1Adopted

At the commencement of the year, performance targets for CEO (MD) are set by the full Board which is in line with the Strategic Direction of the Company.

Evaluation of the Performanceof the CEO (MD)

A 11.2Adopted

There is an ongoing process to evaluate the performance of CEO (MD) against the financial and non financial targets set as described above.





B. DIRECTORS’ REMUNERATION

B.1 Remuneration Procedures

Remuneration Committee

B1.1Adopted

The Remuneration Committee is responsible for assisting the Board with regard to the remuneration policy for the Executive Directors and such other members of the executive management. The Committee determines and agrees with the Board, the broad policy framework for the remuneration of the Executive Directors. The Managing Director participate at meetings by invitation in deciding the remuneration of the other Executive Directors and senior level staff members in order to recruit, retain and motivate the Corporate Management Team.

Composition of the Remuneration Committee

B1.2Adopted

B1.3Adopted

Please refer the Remuneration Committee Report given on page 54 for details.

Remunerationof the Non-executiveDirectors

B1.4Adopted

The Board as a whole decides on the remuneration of the Non-executive Directors. The Non-executive Directors receive a fee for serving on the Board and its Sub-Committees.

Consultation ofthe Chairmanand access toprofessionaladvice

B1.5Adopted

Chairman of the Board is also the Chairman of the Remuneration Committee. External professional advice is obtained where necessary in determining the remuneration of the Directors and senior level staff members.

B.2 Level and makeup of the Remuneration

Level andmakeup of theremunerationof ExecutiveDirectors

B 2.1Adopted

The remuneration framework of the Executive Directors is designed to create and enhance value for all stakeholders and to ensure that there is strong alignment between the short term and long term interest of the Company and the Executive Directors.

Comparison ofremunerationwith othercompanies

B 2.2Adopted

The Remuneration Committee in deciding the remuneration of the Directors takes into consideration the level of remuneration paid by other comparable companies.

Comparison ofRemunerationwith othercompanies inthe Group

B 2.3Not Adopted

The size and scale of Central Finance is not comparable with Subsidiary Companies.

Performancerelatedpayment toExecutiveDirectors

B 2.4Adopted

Please refer item B 2.1 above.

Executive share options

B 2.5Not Applicable

There are no share option plans for Executives.

Designingthe ExecutiveDirectorsremuneration

B 2.6Adopted

The Remuneration Committee considered the Schedule D to this code in deciding the remuneration of the Executive Directors.

Early termination of Directors

B 2.7Adopted

Executive Directors are employees of the Company and their terms of reference are governed by the contract of employment. The Remuneration Committee has considered the compensation commitments given in the contracts of employment of Executive Directors, if any.






Early termination not included in the initial contract

B 2.8Adopted

Refer comments above.

Remunerationof the Non-executiveDirectors

B 2.9Adopted

Non-executive Directors receive fees in line with market practices.

B.3 Disclosure of Remuneration

Disclosure ofremuneration

B 3.1Adopted

The Remuneration Committee’s Report setting out the policy of the Committee is given on page 54. The remuneration paid to the Board of Directors is disclosed in aggregate in Note No.15 to the financial statements on page 81.

C. RELATIONS WITH SHAREHOLDERS

C.1 Constructive use of the Annual General Meeting and Conduct of General Meetings

Use of proxyvotes

C 1.1Adopted

The Company has a mechanism to record all proxy votes and proxy votes lodged on each resolution.

Separateresolution forall separateissues

C 1.2Adopted

The Company proposes a separate resolution for each item of business, giving shareholders the opportunity to vote on each such issue.

Availability of the Chairmen

C 1.3Adopted

The Chairmen of the Board, Audit Committee, Remuneration Committee and Integrated Risk Management Committee are present at the AGM to answer any questions of shareholders.

Adequate notice of the AGM

C 1.4Adopted

Notice of the meeting is given as per the requirements of the Companies Act No. 7 of 2007. The Annual Report including financial statements and the Notice of the Meeting is sent to shareholders at least 15 working days prior to the date of the AGM.

Procedureof votingat GeneralMeetings

C 1.5Adopted

Notice of the Annual General Meetings and business to be transacted at General Meetings are circulated to the shareholders along with the Annual Report.

C.2 Major transactions

Major transactions

C 2.1Adopted

During the year there were no major transactions as defined in the Companies Act No. 7 of 2007.

D. ACCOUNTABILITY AND AUDIT

D.1 Financial Reporting

Statutory and Regulatory reporting

D 1.1Adopted

In the preparation of quarterly and annual financial statements, Central Finance has strictly complied with the requirements of the Companies Act No. 07 of 2007, the Finance Business Act No. 42 of 2011, and are prepared and presented in conformity with Sri Lanka Accounting Standards and comply with the reporting requirements prescribed by the Regulatory Authorities such as the Central Bank of Sri Lanka and Colombo Stock Exchange.

Directors’ report inthe Annual Report

D 1.2Adopted

The Directors’ report is given on pages 48 to 52 of the Annual Report.

Statementof Directors’responsibilityfor financialstatements

D 1.3Adopted

The Statement of Directors’ responsibility for financial statements is given on page 53 of the Annual Report.

Auditor’s report given on page 60 states their reporting responsibility.





Management Discussion and Analysis

D 1.4Adopted

The Management Discussion and Analysis is given on pages 13 to 15.

Declaration bythe Board thatthe businessas a goingconcern

D 1.5Adopted

Declaration given in the Directors’ report on pages 48 to 52 of the Annual Report.

Summoningan EGM tonotify seriousloss of capital

D 1.6Not Applicable

Should the situation arise, an EGM will be called for and shareholders will be notified.

D.2 Internal Control

Annual evaluation of the internal control system

D 2.1Adopted

The Board is responsible for establishing a sound framework of internal controls and monitoring its’ effectiveness on a continuous basis. The Directors Statement on internal controls is given on page 58. The Auditor’s report on same is given on page 59.

Need for internal audit function

D 2.2Adopted

The Internal Audit function is carried out by the Internal Audit Department of the Company.

D.3 Audit Committee

Composition, terms &conditionsof the AuditCommittee

D 3.1Adopted

The Audit Committee comprises of three Non-executive Directors, two of whom are Independent. The said Committee met four times during the year. The General Manager - Internal Audit functions as the Secretary to the Audit Committee. Chairman, Managing Director, Director (Finance), Director (Group Co-ordination), GM (Finance) and the External Auditor attend meetings by invitation.

Duties of the Audit Committee

D 3.2Adopted

The duties of the Audit Committee are given in the Audit Committee Report given on pages 56 and 57.

Terms of reference of the Audit Committee

D 3.3Adopted

The Audit Committee functions within its’ terms of reference.

Disclosures of the Audit Committee

D 3.4Adopted

The names of the Members of the Audit Committee are given on pages 56 and 57.

D.4 Code of business conduct & ethics

Code of business conduct and ethics

D 4.1Adopted

Central Finance has developed a Code of Business Conduct for all Staff Members, which addresses conflict of interest, corporate opportunities, confidentiality of information, fair dealing, protection and proper use of the Company’s assets and compliance with laws and regulations.

Affirmation of the code of conduct & ethics

D 4.2Adopted

The Chairman, by this section, confirms that he is not aware of any material violations of the Code of conduct.

D.5 Corporate Governance Disclosures

CorporateGovernanceReport

D 5.1Adopted

This report satisfies the requirement.






E. INSTITUTIONAL INVESTORS

E.1 Shareholder voting

Institutional shareholders

E 1.1Adopted

The Annual General Meeting is used to have an effective dialogue with the shareholders on matters which are relevant and of concern to the general membership.

E.2 Evaluation of Governance Disclosures

Evaluation ofthe CorporateGovernanceinitiatives

E 2Adopted

Institutional investors are encouraged to give due weightage to all relevant factors in the Board structure and composition.

F. OTHER INVESTORS

F.1 Investing/Divesting decision

Other Investors F 1Adopted

Individual shareholders are encouraged to carry out adequate analysis or seek independent advice on investing or divesting decisions.

F.2 Shareholder Voting

Individual shareholders voting

F 2Adopted

Individual shareholders are encouraged to participate at General Meetings and exercise their voting rights.


SECTION TWOFINANCE COMPANIES DIRECTION NO 03 OF 2008 (AND SUBSEQUENT AMENDMENTS THERETO) ON CORPORATE GOVERNANCE

FOR LICENSED FINANCE COMPANIES IN SRI LANKA

The Central Bank of Sri Lanka issued the Direction on Corporate Governance (Finance Companies Direction No.03 of 2008 and subsequent

amendments thereto), to be complied with from January 01, 2009 in order to improve and sustain the Corporate Governance processes

and practices of the Licensed Finance Companies.

The above Direction comprises of nine fundamental principles, namely The responsibilities of the Board, Meetings of the Board,

Composition of the Board, Criteria to assess the fitness and propriety of Directors, Management functions delegated by the Board,

The Chairman and the Chief Executive Officer, Board appointed Committees, Related party transactions and Disclosures.

The structures in place and the conformance to the requirement are tabulated below under the said nine fundamental principles.


CBSL Rule/Compliance

statusLevel of Compliance

2. The responsibilities of the Board of Directors

Strengthening the safety and soundness of the Finance Company

2 (1)Compliant

a) The Board has set and oversees the vision, mission, strategic objectives and corporate values of the Company and these are regularly communicated to all levels of the Company.

b) A strategic plan covering the next three years has been prepared and is being updated. Risk parameters have been set up with regular reviews in place through Board of Management (BoM), Assets and Liabilities Committee (ALCO) and Integrated Risk Management Committee (IRMC).

c) A monthly review of risks is effected through ALCO, Board of Management and periodically through the above committees for the Parent and Subsidiary Companies as well.

d) The Board is responsible for effective communication with all stakeholders including shareholders. The Annual General Meeting is used to have an effective dialogue with the shareholders on matters which are relevant and of concern to the general membership.

e) Continuous and ongoing reviews are effected on the adequacy and integrity of the Internal Control and Management Information Systems. Periodic External Reviews are commissioned on specific areas by Specialists.

f) Identification and designation of Key Management Personnel is in place and periodically reviewed by the Board and BoM.

g) The Board comprises of five Executive Directors who have specific areas of responsibility. In addition, Non-Executive Directors have specific areas of responsibility through the various Sub Committees of the Board. Similarly, Key Management Personnel have specific areas of responsibility assigned to them through their employment contracts and exigencies of evolving business needs.

h) The Board of Management at its detailed monthly review ensures that there is appropriate oversight of the Company’s affairs by Key Management Personnel.

i) The Board ensures that governance practices are periodically assessed. A transparent procedure is in place for selection, nomination and election of Directors and Key Management Personnel. Conflicts of interest are rigidly managed through a balanced Board of Directors. Wherever improvements are necessary, they are made.

j) A documented Succession Plan is in place for all Key Management positions and training programmes are being continuously reviewed and formulated to ensure that there is adequate succession capacity at all levels.

k) The Board meets with Key Management Personnel in reviewing policies, monitoring progress in line with Corporate Objectives and ensuring lines of communication. In addition, KMPs make presentation to the Board as a whole or to individual Directors on matters of interests.

l) Regular updating/training is facilitated through various seminars and programmes for the Directors and other Key Management Personnel.

m) The Audit Committee reviews in detail the matter of hiring of External Auditor.






Chairman & CEO (MD)

2 (2)Compliant

The roles of the Chairman and the CEO (MD) are separate.

Independent Advice

2 (3)Compliant

Please refer section A 1.3 of the SEC & ICASL Code table on page 28 for details.

Directors Voting’s in matters of interests

2 (4)Compliant

Procedure is in place to avoid conflicts of interest and Directors abstain from voting when matters in which a Director or his relatives or any concern in which he/she has substantial interest is discussed.

Formal Schedule of Matters to the Board

2 (5)Compliant

The Board has a formal schedule of matters specifically reserved for it.

Situation of Insolvency

2 (6)Compliant

This situation has not arisen.

Corporate Governance Report

2 (7)Compliant

This report addresses the requirement.

Self-assessment by Directors

2 (8)Compliant

Each Director performs a self-assessment based on the predefined criteria set by the Board.

3. Meetings of the Board

No. of Meetings

3(1)Compliant

Please refer section A 1.1 of the ICASL & SEC code table on page 28 for details.

Inclusion of proposals by all Directors in the agenda

3 (2)Compliant

Proposals from all Directors on promotion of business and management of risk and other areas relevant to the progress of Central Finance are included in the agenda for regular meetings as and when they arise.

Notice of meetings

3 (3)Compliant

Directors are given adequate time and at least 7 days of notice for Board Meetings and a reasonable time period for other meetings to study the relevant papers and proposals for meaningful discussions.

Non-attendance of Directors

3 (4)Compliant

This situation has not arisen.

Board Secretary

3 (5)Compliant

The Board has appointed the Board Secretary to handle the secretarial services and to carry out other functions required by Statutes.

Agenda for Board Meetings

3 (6)Compliant

The Board Secretary prepares the Agenda, which has been delegated by the Chairman.

Access to the Board Secretary

3 (7)Compliant

Service of the Board Secretary is available for all Directors in discharging their duties to the Company.

Minutes of the Meetings

3 (8)Compliant

Directors have full access to the Minutes of the Board Meetings.

Details of Minutes

3 (9)Compliant

Minutes of the Board Meetings are maintained in sufficient detail by the Board Secretary.

4. Composition of the Board

Number of Directors

4(1)Compliant

The Board comprised of ten Directors during the year.

Period of service of a Director

4 (2)Compliant

Non-executive Directors serving on the Board have not served on the Board for more than nine years.





Appointment of an employee as a Director

4 (3)Compliant

This situation has not arisen during the year

Independent Non-executive Director

4 (4)Compliant

The number of Independent Non-executive Directors of the Board is in excess of one fourth of the total number of Directors.

Alternative Director

4 (5)Compliant

This situation of appointing an Alternative Director to an Independent Non-Executive Director has not arisen during the year.

Credibility, skills& experience of Non –executive Directors

4 (6)Compliant

Biographic details of the Directors are given on pages 10 and 11.

Meetings of Boardwithout Non- executive Directors

4 (7)Not Applicable

This situation has not arisen during the year

Details of Directors

4 (8)Compliant

Please refer pages 10 and 11 for the biographic details of the Directors and the categories.

Appointment of new Directors

4 (9)Compliant

The Board has a formal and transparent procedure in place when appointing Directors to the Board.

Appointment to fill a casual vacancy

4 (10)Compliant

A Director who was appointed during the year to fill a casual vacancy will be standing for election by shareholders at the forthcoming Annual General Meeting.

Resignation/removal of a Director

4 (11)Compliant

Notifications of resignation of Directors of the Company were given to the shareholders by way of the Annual Report, Quarterly Financial Statements and Newspaper announcement and to the Director – DSNBFI of the CBSL. During the year, A Non-executive Director resigned in accordance with the Corporate Governance Direction No. 3 of 2008.

5. Criteria to assess the fitness and propriety of directors

Directors over 70 Years of age

5 (1)compliant

Directors serving on the Board have not reached the age of 70.

Holding of office in more than 20 entities

5 (2) compliant

As at 31.03.2013 none of the Directors hold Directorship in more than 20 entities nor serve as Directors in more than 10 specified business entities.

6. Management function delegated by the Board

Delegation of work to the management

6 (3) Compliant

The Board of Central Finance annually evaluates the delegated authority process to ensure that the delegation of work does not materially affect the ability of the Board as a whole in discharging its functions.

Evaluation of the delegated process

6 (4)Compliant

Please refer comments above.






7. The Chairman and Chief Executive Officer

Division ofResponsibilitiesof the Chairman & CEO (MD)

7 (1) Compliant

The roles of Chairman and Chief Executive Officer/Managing Director are separate.

Chairman Preferably be an Independent Director and if not appoint a Senior Director

7 (2) Compliant

The Chairman is not considered as independent as per the definition set out in the Direction on Corporate Governance. The Board has appointed Mr. F. Mohideen, an Independent Non-executive Director, as the Senior Director, as required by this Rule, with suitable terms to provide a sounding board for the Chairman and to serve as an intermediary for the Non-executive Directors, when necessary.

Relationship between Chairman and CEO (MD) & other Directors

7 (3) Compliant

There are no material relationships between the Chairman and CEO (MD) and other Members of the Board which would impair their respective roles.

Role of the Chairman

7(5)to 7(11)

Compliant

Detailed information of the role of the Non-executive Chairman is given on the SEC & ICASL Code table section A 3.1 on page 28.

8. Board appointed committees

Board appointed Sub-Committees

8 (1)Compliant

There are three Board appointed Sub-committees namely Audit Committee, Remuneration Committee and Integrated Risk Management Committee.

Audit Committee

8 (2) Compliant

Please refer the Audit Committee Report given on pages 56 and 57 for details.


8 (3) Compliant

Please refer the Integrated Risk Management Committee Report given on page 55 for details. The discussions and conclusions reached at such meetings are circulated to the Board of Directors at the very next monthly Board Meeting. The Board is kept informed of any specific issue considered high priority and of magnitude within seven days from the date of the IRMC meetings.

9. Related Party Transactions

Avoidingconflict ofinterest inrelated partytransactionsand favourabletreatment

9 (2) to9 (4)

Compliant

The Board has taken necessary steps to avoid any conflicts of interests that may arise, in transacting with related parties as per the definition of this Direction. The Board also ensures that no related party benefits from favourable treatment.





10. Disclosures

Financial reporting,Statutory and Regulatory reporting

10 (1)Compliant

The financial statements for the year ended 31st March 2013 and the bi-annual financial statements are in conformity with all rules and regulatory requirements and have been published in all three languages in the newspapers.

Minimum disclosure in the Annual Report

10 (2)Compliant

a) A statement to the effect that the annual audited financial statements have been prepared in line with applicable accounting standards and regulatory requirements has been given in the Directors Responsibility Statement for Financial Reporting on page 53.

b) Directors’ Statement on Internal Controls is given on page 58.

c) Auditor’s report on the Directors’ Statement on Internal Controls is given on page 59.

d) Details of the Directors are given on pages 10 and 11. Directors’ remuneration is disclosed on page 81. Deposits made by the Directors is given on Note No. 43 of the financial statements on page 106.

e) Fees and Remuneration paid to the Directors in total is given on Note No. 15 of the financial statements on page 81.

f) The net accommodation outstanding from the related parties is given below as a percentage of capital funds.

Related Party Category Amount (Rs. Mn.) As a % of Capital Funds

Subsidiaries 457.12 3.4 Associates 75.76 0.56 Key Management Personnel 2.42 0.02

g) Transactions with Key Management Personnel such as remuneration paid, accommodation granted, deposits made are given in Note No. 58 of the financial statements on page 112 and 113. Investment made by the KMPs in the Company amounts to 24,211,673 ordinary shares.

h) There were no instances of non-compliance with prudential requirements, regulations and laws. There was no material non-compliance with internal controls.

i) There were no supervisory concerns on lapses in risk management, non-compliance with the Act and rules and directions that have been pointed out by the Director SNBFI and requested by the Monetary Board to be disclosed to the public.

j) The external auditor has issued an assurance report in this regard.


SECTION THREECONTINUING LISTING RULES SECTION 7.10 ON CORPORATE GOVERNANCE OF THE COLOMBO STOCK EXCHANGE

The Continuing Listing Rule Section 7.10 of the Colombo Stock Exchange (CSE) mandates companies listed on the Colombo Stock

Exchange to publish a Table in the annual report commencing from 01 April 2007, confirming that as at the date of the annual report they

comply with the Corporate Governance rules. The rule addresses the following areas; Non-executive Directors, Independent Directors,

Disclosures relating to Directors, Remuneration Committee and Audit Committee.


CSE RuleReference

Compliant status

Level of Compliance

Non-executiveDirectors

7.10.1 (a) Compliant Half the Board Members are Non-executives, which is more than the requirement of the rule.

7.10.2 (a) Compliant More than one third of the Non-executive Directors are independent.7.10.2 (b) Compliant All Non-executive Directors have submitted their independence declaration as per the

requirements.

Disclosures relating to Directors

7.10.3 (a) Compliant Declarations of Independence by the Directors were assessed by the full Board. The Directors who are independent are disclosed on page 41.

7.10.3 (b) Compliant Circumstances did not arise for the Board to decide a Director as Independent beyond the criteria set by this rule.

7.10.3 (c) Compliant Please refer pages 10 and 11 for a brief biography of each Director.

7.10.3 (d) Compliant Information relating to new appointments to the Board are disclosed to the Colombo Stock Exchange, when appointments are made.


7.10.5 (a)Composition

Compliant The Remuneration Committee solely comprises of Non-executive Directors and a majority of the Members are independent.

7.10.5 (b)Function

Compliant Please refer the Remuneration Committee report on page 54 for details of the functions of the Committee

7.10.5 (c) Disclosure in the annual

report

Compliant The report of the Remuneration Committee is given on page 54 and the remuneration paid to Directors is given in Note No.15 to the financial statements on page 81.

Audit Committee

7.10.6 (a)Composition

Compliant The Audit Committee comprises of three Non-executive Directors, two of whom are independent.

7.10.6 (b)Function

Compliant Functions of the Audit Committee are given in detail in the Audit Committee Report on pages 56 and 57.

7.10.6 (c) Disclosure in the annual

report

Compliant The names of the Directors comprising the Audit Committee and the basis of determination of independence of the Auditor are given in the Audit Committee report on pages 56 and 57.



MEETINGSThe number of meetings of the Board, Board appointed Sub-Committees and individual attendance by Members are given below.

Names Directorship Status BoardAudit

Committee



Number of meetings held 12 7 4 1

J. D. Bandaranayake Non-executive Chairman 12/12 - 4/4 1/1*

E. H. Wijenaike Managing Director 12/12 - 4/4 -

G. S. N. Peiris Director (Finance) 12/12 - 4/4 -

R. E. Rambukwelle Director (Marketing and Operations) 12/12 - 4/4 -

A. K. Gunaratne Director (Group Co-ordination) 12/12 - 4/4 -

D. P. de. Silva Director (Credit) 12/12 - 4/4 -

T. K. Bandaranayake 1 Independent Non-executive Director 9/9 5/5* 3/3* -

C. L. K. P. Jayasuriya Non-executive Director 12/12 6/7 - -

S. Wickramasinghe Independent Non-executive Director 9/12 - - 1/1

F. Mohideen Independent Non-executive Director

(Senior Director) 11/12 7/7 3/4 -

A. N. Fernando 2 Independent Non-executive Director 3/3 2/2* 1/1* 1/1

Key1 Resigned from the Board on 2nd January 2013 as per the requirements of the Corporate Governance Direction of CBSL.2 Appointed to the Board on 3rd January 2013.

* Chairman of the committee


Corporate Social ResponsibilitySTRATEGY & SUSTAINABILITYCentral Finance has been committed to developing a thoughtful

and comprehensive approach to sustainability by placing corporate

social responsibility at the heart of the business.

Our focus today has evolved to include key areas such as the

environment, community development, staff welfare, education

and health.

Building customer livelihoodsOur Micro Finance Loan Scheme plays a vital role in developing

grass root level businesses.

The Company entered the Micro Finance sector in 2009 by

launching the “CF Navodya” Micro Finance scheme. Initial

focus was on three village units in Dambulla, Keppetipola and

Sooriyawewa and as at date there are 18 Micro Finance units

covering the Central, Sabaragamuwa, Wayamba, Northern, North

Central and Eastern Provinces.

The target segment comprises of individuals or groups, who are

engaged in agriculture, small scale trading, animal husbandry,

fishing, and a multitude of cottage industries. The dairy sector is

one of special focus for CF which includes related byproducts such

as bio-gas.

To date over 3000 loans to the value of approximately Rs.250Mn

have been granted and some of these clients have progressed to

subsequent larger value loans.

What our customers have to say;

“Central Finance Company gave me a loan of Rs.100,000/- which I

used to buy a cow and repair the cattle shed. My income has gone

up since and I hope to obtain a bigger loan and expand my dairy

business in the future”

Mr. Robert Perera, Dairy Farmer, Dehiattakandiya

“I started my joss stick business in 2006 but due to lack of capital

I sold my products in readymade cartons bought from Pettah. With

a loan from CF, I have established my own brand name “Uvindu”

through specially printed cartons which enabled me to capture a

larger share of the market, and I now provide employment to four

people. I thank Central Finance for giving me a helping hand to

develop my business.”

Mr. Christy Roshan, Joss stick manufacturer, Hambantota

Social Responsibility The Company has always regarded its Social Responsibilities not as

an extraneous onus, but as an integral expression of its core values.

Support for the Green InitiativeThe Company contributes towards the “Green Initiative” by

reducing wastage, recycling and adopting environmentally friendly

policies. This has enabled CF to be a responsible corporate citizen

and also reduce cost.

Waste papers being dispatched for recycling


A team of young volunteers who drive the Green campaign

focusing on social and environmental sustainability has brought in

commendable results during the year. Their efforts have resulted

in, recycling of 36 tons of waste paper materials which in turn has

contributed towards the saving of the following resources otherwise

needed to produce new paper

Contributing towards a worthy cause During the year under review, the company has committed Rs.

4 Million to the Lt. General Denzil Kobbekaduwa Trust for the

construction of housing for servicemen injured during the war.

Five locations, Bandagiriya (Hambantota), Mihintale, Horana,

Dehiattakandiya and Mahiyangana have been selected as the

construction sites and with the participation of the branch staff in

the selected areas the houses will be completed and handed over

by end of 2013.

A donation was made to the Lady Ridgeway Hospital, Borella in

order to purchase furniture for the hospital lobby which will benefit

the large number of patients frequenting this Hospital.

A helping hand was extended in several instances where natural

disasters affected the lives of communities in the areas of Rattota,

Kuduoya, Kotagala, Dickoya and Watawela coordinated by the

CF Branch Network. Aid was provided in the form of financial

assistance, school stationery and linen to affected families.

Rewarding LoyaltyWe believe that maintaining a sustainable relationship with our

customers is foremost in everything we do.

The CF Loyalty Card recognizes and rewards loyal customers

by facilitating a range of discounts at over 500 establishments

throughout the Country.

The CF e-alert service introduced during the year under review

provides customers with new product updates through Short

Message Service. In future customers will also have the option

of receiving savings and deposit statements via e-alerts, which

has the added advantage of reducing paper wastage and thereby

contributing positively towards conservation of our environment.

Employee Benefits

Training and DevelopmentThe continuous analysis of training needs is an important part

of the Human Resource Management Process of the Company.

Analysis of training is conducted at three levels with a view to

identifying the gaps between the current processes and the desired

level of training.

The Company endeavors to inculcate the concept of continuous

learning, with the aim of enhancing the technical and inter-personal

skills of employees. Particularly this is of importance in the current

environment where there is rapid and constant upgrading of

knowledge.

Training ProgrammesTraining requirements of existing employees are assessed regularly,

learning outcome is closely monitored and programmes are

continuously re-designed where necessary.

Individual Level

Operational Level

Organisational Level

Training need analysis

1,124,109 liters of water606 fully grown trees

Saving of:

62,628 liters of fuel 143 KW of electricity

Assistance to flood affected victims in Kotagala


Corporate Social Responsibility (contd.)

During the year under review the Company provided local training

covering a wide variety of disciplines for 745 staff members.

Additionally, overseas training was provided for 6 employees.

Key training programmes -

- 10 day Management Skills Development Programme for Branch

Executives

- Residential workshop for Branch Managers focusing on

Management, Team Building and Strategic Business Planning

- Training program on ‘Current challenges in Debt Recovery and

Legal Aspects’ for the island-wide Recovery Team

- Global Strategy Program conducted by INSEAD for Managers

- Overseas training on New Marketing Strategies and Developing

Conceptual Skills for Product Managers

- Product specific workshops organized by the Centre for Banking

Studies, CBSL for employees of various capacities

The Company also provides financial assistance to employees who

wish to gain professional qualifications to enhance their career

opportunities.

Staff WelfareWelfare of employees and their families has always been of great

importance to the Company. Reward and Recognition programmes

are continued to encourage and foster effective employee

engagement.

Recognition of employees completing 25 years of service in 2012

Scholarships to children of staff who excelled in the Year 5 Scholarship

Exam

CF Employee Benefit FoundationThe Employee Benefit Foundation was established in 2011 with a

view to offer funding benefits to employees and their families.

The initial benefits have been expanded to include:

- Educational support for employee, spouse and children

- Subsidising of housing loan interest

Management development workshop

Out-bound training programe in action


- Financial assistance for hospitalisation, surgical procedures and

prolonged serious illness of the employee and family members

- Disaster Relief Grant in the event of damages caused to the

employee’s dwellings due to natural disasters

- Sports Grant for Employees or family members travelling

overseas to represent the country for sporting events

- Wedding Grant for employees or their children

The Company also continues to operate the Welfare Grocery

Sales outlet at Kandy and Colombo centres for the benefit and

convenience of employees.

Constructive Communication and InteractionCF Katha – a newsletter that goes to the hands of every employee

has earned a name for its creativeness and quality. The novelty of

illustrations and the objectivity of the articles have a great appeal to

its readers.

It shares news, knowledge, achievements and experience of the

CF family. It has become an open forum to exhibit employee talent

and creative ideas. CF Katha has stepped in to its 4th successful

year.

Employee Achievements

Sports Activities and Competitions The Company’s cricket team contested in the Mercantile Cricket

Tournament E-Division and reached the quarterfinal beating

other top teams. Mr Amila Gayan (Captain) of CF-Cricket team

was adjudicated the Player of The Tournament for his all-round

performance.

Amila receiving award for Player of the tournament- 2012 in

Mercantile E-Division Cricket Tournament.

The CF team comprising Mr Chaminda Hettiarachchi, Mr Chaminda

Jayawardene, Mr Chintana Goonetilleke, and Dr Mahinda Perera

secured first place in the Corporate Quiz, ‘The Battle of the

Corporate Gladiators’ organized by the Nations Trust Bank in

September 2012.

The quiz championship which was held for the sixth time featured,

over 50 teams from top corporates in Sri Lanka. The questions

required the participants to have knowledge of a wide variety of

themes such as sports, current affairs, entertainment and financial

markets

The winning CF team


Corporate Social Responsibility (contd.)

Employee Capacity Evaluation

Enhancing Performance of EmployeesThe Human Resource Development strategy of CF has evolved

over the years to give value and affluence to both employees

and the Company. The Company recognizes as its responsibility

to facilitate that all levels of staff acquire the desired level of

competency and knowledge through education, training and

development on an on-going basis.

A Balance Scorecard (BSC) and Strategy Mapping System are used

as measurement tools in employee assessment. This approach

aligns the Company’s business activities and personal objectives of

the employees to the vision and strategy of the organization.

Analysis of Staff

Service Analysis 2012/13

Below 1 year - 17%1-2 year - 21%3-5 year - 20%6-10 year - 21%11-15 year - 7%16-20 year - 4%21-25 year - 4%26-30 year - 5%31-35 year - 0%

Age Analysis 2012/13

18-25 Years - 20%26-30 Years - 25%31-35 Years - 18%36-40 Years - 11%41-45 Years - 9%46-50 Years - 7%51-55 Years - 5%56-60 Years - 3%over 61 Years - 2%

Gender Analysis 2012/13

Male - 71%Female - 29%

Financial ReportsAnnual Report of the Board of Directors 48

Directors’ Responsibility for Financial Reporting 53

Remuneration Committee Report 54

Intergrated Risk Management Committee Report 55

Audit Committee Report 56

Directors’ Statement on Internal Control 58

Independent Assurance Report 59

Independent Auditor’s Report 60

Consolidated Income Statement 61

Consolidated Statement of Comprehensive Income 62

Consolidated Statement of Financial Position 63

Statement of Changes in Equity 64

Cash Flow Statement 66

Accounting Policies 67

Notes to the Financial Statements 80

Financial Calendar 2012/13

Second Interim Dividend 2011/12 – paid 23rd April 2012

First Quarter Results 2012/13 13th August 2012

Final Dividend 2011/12 – paid 31st July 2012

Second Quarter Results 2012/13 14th November 2012

First Interim Dividend 2012/13 – paid 18th December 2012

Third Quarter Results 2012/13 14th February 2013

Second Interim Dividend 2012/13 – paid 18th April 2013

Fourth Quarter Results 2012/13 28th May 2013

Annual Report 2012/13 27th June 2013

55th Annual General Meeting 19th July 2013

Final Dividend 2012/13 proposed and to be paid 31st July 2013


Annual Report of the Board of DirectorsThe Directors have pleasure in presenting

to the members their report together with

the audited financial statements of Central

Finance Company PLC, and the audited

consolidated financial statements of the

Group for the year ended March 31, 2013.

Central Finance Company PLC is a public

limited liability company incorporated in Sri

Lanka on 05th December 1957, quoted

on the Colombo Stock Exchange in 1969,

registered as a finance company under

the Finance Business Act No. 42 of 2011,

registered under the Finance Leasing Act

No. 56 of 2000, and the Companies Act

No. 07 of 2007.

The Board of Directors approved the

financial statements on 18th June 2012.

Principal activities and review of operations

Company The principal activities of the Company

during the year continued to be leasing,

hire purchase financing, vehicle hire,

deposit mobilisation, vehicle trading and

provision of other financial services.

SubsidiariesName of company Principal business activities

Central Industries PLC Manufacture and distribution of PVC pipes and fittings, water tanks

and electrical switches

Central Mineral Industries (Pvt) Ltd. Manufacture of mineral products

Central Construction and Development (Pvt) Ltd. Investment company

Expanded Plastic Products Ltd. Investment company

Central Homes (Pvt) Ltd. Property development and sale of real estate

Mark Marine Services (Pvt) Ltd. Hydro power generation

Central Developments Ltd. Investment company

CF Insurance Brokers (Pvt) Ltd. Insurance broking

Central Transport and Travels Ltd. Hiring of vehicles

Hedges Court Residencies (Pvt) Ltd. Construction and sale of apartments

Dehigama Hotels Company Ltd. Renting of commercial property

CF Growth Fund Ltd. Investment company

Kandy Private Hospitals Ltd. Provision of healthcare services

AssociatesName of company Principal business activities

Nations Trust Bank PLC Licensed commercial bank

Tea Smallholder Factories PLC Manufacture and sale of black tea

Capital Suisse Asia Ltd. Investment company

There were no significant changes in

the nature of the principal activities of

the Company and the Group during the

financial year under review.

Financial StatementsThe financial statements of the Group and

the Company are given on pages 61 to

131 of the Annual Report.

Auditor’s ReportThe auditor’s report on the financial

statements is given on page 60 of the

Annual Report.

Significant Accounting Policies and changes during the yearThe consolidated financial statements

up to and including the year ended 31st

March 2012 were prepared in accordance

with Sri Lanka Accounting Standards

(SLASs) which were effective up to 31st

March 2012.The Institute of Chartered

Accountants of Sri Lanka has issued a new

volume of Sri Lanka Accounting Standards

which became effective from financial

periods beginning on or after 01st January

2012. These new standards comprise

of accounting standards prefixed both

SLFRS (corresponding to IFRS) and LKAS

(corresponding to IAS). Accordingly, the

financial statements for the year ended

31st March 2013 are the first financial

statements prepared and presented

in compliance with Sri Lanka Financial

Reporting Standards (SLFRS/LKAS) which

became effective from 01st January

2012. The significant accounting policies

adopted in the preparation of the financial

statements are given on pages 67 to 79

of the Annual Report. The company has

consistently applied the accounting policies

used in the preparation of its opening


SLFRS statement of financial position as at

01st April 2011 and throughout all periods

presented, as if these policies had always

been in effect.

Interests RegisterThe interests register is maintained by

the Company, as per the Companies Act

No. 07 of 2007. All Directors have made

declarations as provided for in Section

192 (2) of the Companies Act No. 07 of

2007. The related entries were made in

the Interests Register during the year under

review.

Directors’ Interests in SharesDirectors of the Company and its

subsidiaries who have relevant interest in

the shares of the respective companies

have disclosed their shareholdings and any

acquisitions/disposals to their respective

Boards in compliance with Section 200 of

the Companies Act. The shareholdings of

the Directors and their spouses who own

shares of the Company at the beginning

and at the end of the year were as follows:

31st March 31st March

2013 2012

E.H. Wijenaike 16,164,123 16,164,123

G.S.N. Peiris 1,828,168 1,828,168

R.E. Rambukwelle 984,906 984,906

A.K. Gunaratne 835,274 835,274

D.P. de Silva 103,850 103,850

Spouses

A.J. Wijenaike 3,271,357 3,271,357

I.R. Peiris 445,330 445,330

Employee share ownership schemeGiven the restrictions relating to a listed

entity on providing funds directly or

indirectly for the purchase of shares,

the scheme under which employees

were provided funding for the purchase

of shares in the Company has been

discontinued. Accordingly, no allotments

of shares or funding have been made

during this period and will not be made

henceforth.

Given below are the Directors’

shareholdings in Group companies as at

31st March 2013.

Central Industries PLC

E.H. Wijenaike 18,006 (31.03.2012 - 9,003)

G.S.N. Peiris 03 (31.03.2012 - 03)

Nations Trust Bank PLC

E.H. Wijenaike 10,598 (31.03.2012 - 10,598)

A.K. Gunaratne 19,432 (31.03.2012 - 19,432)

Tea Smallholder Factories PLC

E.H.Wijenaike 10,000 (31.03.2012 –Nil)

R.E. Rambukwelle 4,600 (31.03.2012 - 4,600)

Kandy Private Hospitals Ltd.

E.H. Wijenaike 6,000 (31.03.2012 - Nil)

Related Party Transactions The Directors have disclosed such

transactions in terms of Sri Lanka

Accounting Standard 24, Related Party

Disclosures and such transactions are given

in Note 58 to the financial statements

forming part of the Annual Report of the

Board of Directors.

Directors’ interests in transactions Directors of the Company have made the

general disclosures provided for in Section

192(2) of the Companies Act No. 07 of

2007. Particulars of those transactions are

set out on page 132 of the Annual Report.

Insurance and IndemnityThe Company has obtained a Directors

and Officers Liability Insurance Policy from

Union Assurance PLC up to a limit of

Rs.350 Million for the period covering 28th

February 2013 to 27th February 2014.

Directors’ Remuneration Directors’ remuneration in respect of the

Group and the Company for the financial

year ended March 31, 2013 is given in

Note 15 to the financial statements.

Corporate DonationsDuring the year, the Company made

donations amounting to Rs.3.06 Million

(2011/12 - Rs.2.89 Million) in terms of

the resolution passed at the last Annual

General Meeting. Donations made to

Government approved charities from

the above amounted Rs.2.15 Million

(2011/12 - Rs.1.66 Million). Total

donations of the Group during the year

amounted to Rs.3.57 Million (2011/12 -

Rs.3.06 Million) of which Rs.2.16 Million

(2011/12 - Rs.1.68 Million) had been

made to Government approved charities.

Internal controlsThe Board has instituted an effective and

comprehensive system of Internal Controls

covering financial operations, compliance,

control and risk management required to

carry on the business of the Company in

an orderly manner, safeguard its assets and

secure as far as possible the accuracy and

reliability of the records.

Director’s statement of internal controlThe Board of Directors has issued a report

on the internal control mechanism of the

Company as per the Section 10 of the

Direction No. 03 of 2008 on Corporate

Governance. The Board has confirmed

that the financial reporting system has

been designed to provide a reasonable

assurance regarding the reliability of

financial reporting, and that the preparation

of financial statements has been done

in accordance with relevant accounting

principles and regulatory requirements.

The above report is given on page 58 of

the Annual Report. The Board has also

obtained an assurance report from the

external auditor on Director’s Statement of

Internal Control which is given on page 59

of the Annual Report.


Annual Report of the Board of Directors (contd.)

Corporate governanceThe Directors place great emphasis on

instituting and maintaining effective

corporate governance practices and

principles in respect of the management

and operations of the Company. Accordingly,

systems and structures have been

introduced and improved from time to time

to enhance risk management measures and

to improve accountability and transparency.

The corporate governance report is given on

pages 27 to 41 of the Annual Report.

Board Sub-committeesThe Board of Directors of the Company has

formed the following sub committees;

Audit CommitteeA.N. Fernando (Chairman) – Independent

Non-executive Director (appointed w.e.f.

03.01.2013)

C.L.K.P. Jayasuriya – Non-executive Director

F. Mohideen – Independent Non-executive

Director

T.K. Bandaranayake – Independent

Non-executive Director (resigned w.e.f.

02.01.2013)

The report of the Audit Committee is given

on pages 56 and 57 of the Annual Report.

Remuneration CommitteeJ.D. Bandaranayake (Chairman) – Non-

executive Director

S.C.S. Wickramasinghe – Independent Non-

executive Director

F. Mohideen – Independent Non-

executive Director

The report of the Remuneration Committee

is given on page 54 of the Annual Report.

Integrated Risk Management CommitteeComposition of the CommitteeA.N. Fernando – Chairman-Independent

Non-executive Director (appointed w.e.f.

03.01.2013)

F. Mohideen – Independent Non-executive

Director

J.D. Bandaranayake – Non-executive

Director

T.K. Bandaranayake – Independent

Non-executive Director (resigned w.e.f.

02.01.2013)

E.H. Wijenaike Managing Director

G.S.N. Peiris Executive Director

A.K. Gunaratne Executive Director

R.E. Rambukwelle Executive Director

D.P. de Silva Executive Director

The report of the Integrated Risk

Management Committee is given on page

55 of the Annual Report.

Review of BusinessA review of the Company and Group

operations during the year, with comments

on the financial results and future

developments is contained in the Managing

Director’s report on pages 5 to 9 and the

Management Discussion and analysis on

pages 13 to 15 of the annual report, which

form an integral part of the Directors’ report.

IncomeIncome of the Group excluding associates

during the year was Rs.11,318.77 Million

(2011/12 - Rs.9,148.16 Million), an

analysis of which is given in Note 10 to the

financial statements.

Results and AppropriationsTotal comprehensive income of the

Company was Rs.2,784.93 Million

(2011/12 - Rs.2,530.76 Million) whilst

the Group Comprehensive income

attributable to equity holders of the parent

was Rs.3,260.82 Million (2011/12 -

Rs.2,885.62 Million).

A detailed description of the results and appropriations are given below:2012/13 2011/12Rs. ‘000 Rs. ‘000

Group profit for the year before income tax after payment of all expenses, provision for depreciation, VAT on financial services and loan losses 4,619,814 4,291,518Provision for taxation (1,335,096) (1,231,724)Group profit after taxation 3,284,717 3,059,794Other comprehensive income (net of income tax)Net gains and losses on re-measurement of available for sale financial assets 13,708 (73,103)Actuarial gains/(losses) on defined benefit plans (4,313) (6,106)Share of other comprehensive income of associates 34,375 -Total comprehensive income for the year 3,328,487 2,980,585Non- controlling interest 67,658 94,957Attributable to equity holders of the Company 3,260,829 2,885,628Other comprehensive income net of tax relating to :Available for sale reserve (13,708) 73,103Capital reserves (34,375) -

3,212,746 2,958,731Unappropriated profit brought forward from previous year 2,015,688 1,401,442Transfer from revaluation reserve/deferred tax 5,253 8,825Balance available for appropriations 5,233,687 4,368,998AppropriationsTransfer to reserve fund (139,000) (118,000)Transfer to general reserve (2,600,000) (1,776,000)Transfer to investment fund account (255,365) (223,492)Dividends distributed during the year (277,941) (235,818)Unappropriated profit to be carried forward 1,961,381 2,015,688


Dividends The Directors recommend the payment of a final dividend of Rs.1.20 per share for the year ended 31st March 2013 (2011/12 - Rs.1.10 per share). This dividend together with the two interim dividends of Rs.0.85 each per share paid on 18th December 2012 and 23rd April 2013 respectively amount to a total dividend of Rs.304.16 Million for the year (2011/12- Rs.262.21 Million).The first interim dividend represented a redistribution of dividends received by the Company and therefore was not subject to the 10% withholding tax. A major portion of the second interim dividend was paid out of dividends received and the balance out of taxable profit. Component of dividends paid out of profits was liable to 10% withholding tax.

The final dividend proposed will be paid entirely out of taxable profit and therefore will be liable to the 10% withholding tax. The Directors have confirmed that the Company satisfies the solvency test requirement under Section 56 of the Companies Act No.07 of 2007 for both interim dividends paid in December 2012 and April 2013 and the final dividend proposed. Solvency certificates were obtained from the auditor in respect of interim dividends paid and the final dividend of Rs.1.20 per share proposed to be paid on 31st July 2013.

With effect from 15th May 2013, Finance Companies require prior approval of the Central Bank of Sri Lanka for payment of dividends. Directors confirm that approval has been obtained from the Central Bank of Sri Lanka prior to recommending the final divided of Rs.1.20 per share.

Property, Plant and EquipmentThe total capital expenditure on property, plant and equipment, intangible assets and capital work-in progress of the Company and the Group amounted to Rs.1,015.06 Million and Rs.1,109.16 Million respectively. (2011/12-Company Rs.893.52 Million and Rs.1,004.05 Million Group) details of which are given in Notes 39 and 40 to the financial statements.

Capital expenditure approved and contracted for as at year end is included in Note 55 to the financial statements.

Market Value of Freehold Properties The value of freehold properties owned by the Group as at 31st March 2013 is included in the accounts at Rs.2,300.51 Million (31st March 2012 - Rs.2,090.71 Million) based on valuations undertaken by a panel of Chartered Valuers/Licensed Surveyors in March 2007 and March 2009 and cost of subsequent improvements. The Directors are of the opinion that this value is not in excess of the current market value. The details are provided in Note 40 to the financial statements.

ReservesThe total Group reserves as at 31st March 2013 amounted to Rs.16,321.83 Million (31st March 2012 - Rs.13,339.39 Million) details of which are given in Notes 49 to 53 to the financial statements.

Stated CapitalThe stated capital of the Company consisting of 104,883,333 ordinary shares amounts to Rs.568.42 Million.

ShareholdingsAs at 31st March 2013 there were 2,795 registered shareholders and the distribution of shareholding is indicated on page 138.

Share InformationInformation relating to earnings, dividends, net assets and market value per share is given in financial highlights on page 2.Information pertaining to trading in the Company’s shares is given on page 139 of the Annual Report.

Major Shareholders The twenty largest shareholders of the Company as at 31st March 2013 together with an analysis of the shareholdings are given on page 139.

Directorate

List of Directors The Board of Central Finance Company PLC consists of ten Directors as at end of the financial year with wide financial and commercial knowledge and experience. The qualifications and experience of the directors are given on pages 10 and 11 of the Annual Report.

The following were the Directors of the Company as at the end of the financial year:

J.D. Bandaranayake (Non- executive Chairman)E.H. Wijenaike (Managing Director)G.S.N. Peiris (Executive Director)R.E. Rambukwelle (Executive Director)A.K. Gunaratne (Executive Director)D.P. de Silva (Executive Director)C.L.K.P. Jayasuriya (Non- executive Director)S.C.S. Wickramasinghe (Independent Non- executive Director)F. Mohideen (Independent Non- executive Director)A.N. Fernando (Independent Non- executive Director)

Resignations/New appointments of Directors T.K. Bandaranayake, Independent Non-executive Director resigned with effect from 02nd January 2013 in accordance with the requirements of the Finance Business Act Direction No.03 of 2008 on Corporate Governance.

A.N. Fernando as an Independent Non-executive Director was appointed to the Board with effect from 03.01.2013.

Recommendations for Re-electionA.N. Fernando retires in terms of article 111 of the Articles of Association and being eligible for re-election has offered himself for re-election at the forthcoming Annual General Meeting. In accordance with Article 105 of the Articles of Association, J.D. Bandaranayake retires by rotation and is eligible for re-election at the forthcoming Annual General Meeting.


Annual Report of the Board of Directors (contd.)

In terms of the Finance Business Act No. 42 of 2011, the Company has obtained the approval of the Monetary Board of the Central Bank of Sri Lanka for the above mentioned directors nominated for re-appointment.

Directors’ Responsibility for Financial ReportingThe Directors are responsible for the preparation of financial statements of the Company to reflect a true and fair view of the state of its affairs. The Directors are of the view that these financial statements have been prepared in conformity with the requirements of the Sri Lanka Accounting Standards, Companies Act No. 07 of 2007, Finance Business Act No. 42 of 2011, Inland Revenue Act No.10 of 2006 and amendments thereto and the Listing Rules of the Colombo Stock Exchange.

The detailed report is given on page 53 of the Annual Report.

EnvironmentThe Company has not engaged in any activities detrimental to the environment. The Company has used its best efforts to comply with the environmental laws and regulations.

Human ResourcesThe employment policies of the Company are based on recruiting the best available people, training them to enhance their skills and offering equal career opportunities regardless of gender, race or religion.

Compliance with Laws and RegulationsThe Company has not engaged in any activities contravening laws and regulations. All officers responsible for ensuring compliance with the provisions of various laws and regulations confirm their compliance to the Board on a monthly basis.

Statutory PaymentsThe 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 in full and on time.

Events after the Reporting PeriodThere have not been any material events that occurred subsequent to the date of the statement of financial position that require adjustments to the financial statements, other than those disclosed in Note 57 to the financial statements.

Going ConcernThe Board of Directors is satisfied that the Company has adequate resources to continue its operations in the foreseeable future. Accordingly, the financial statements are prepared based on the going concern concept.

AuditorThe Audit Committee of the Company has recommended the re-appointment of SJMS Associates, Chartered Accountants as auditor of the Company and a resolution relating to their re-appointment and authorising the Directors to fix their remuneration as recommended by the Audit Committee will be proposed at the Annual General Meeting.

The Audit Committee reviews the appointment of the auditor, their effectiveness, independence and relationship with the Group.

The auditor, SJMS Associates, was paid Rs.1.77 Million (2011/12 Rs.1.68 Million) as audit fees. In addition, they were paid Rs.0.25 Million (2011/12- Rs.0.14 Million) for permitted non-audit related services.

Audits of the Group companies are handled by SJMS Associates, Ernst & Young and KPMG Ford, Rhodes Thornton & Co. They were paid Rs.1.39 Million (2011/12 - Rs.1.56 Million) and Rs.0.48 Million (2011/12 - Rs.0.31 Million)respectively for audit and permitted non audit related services.

The auditors have confirmed that they do not have any relationships with or interests in the Company or subsidiaries other than those disclosed above.

Annual General MeetingThe Fifty Fifth Annual General Meeting of the Company will be held at Earls‘ Regency Hotel, Kundasale, Kandy on 19th July 2013. The notice of meeting relating to the Fifty Fifth Annual General Meeting is given on page 149.

For and on behalf of the Board


G.S.N. Peiris Director

Corporate Services (Pvt) Ltd. Secretaries

18th June 2013


The Directors of the Company are

responsible for the preparation and

presentation of the financial statements

to the shareholders in accordance with

the relevant provisions of the Companies

Act No.07 of 2007, Finance Business

Act No.42 of 2011 and other statutes

which are applicable in the preparation

of financial statements. The financial

statements comprise of the Statement of

Financial Position as at 31.03.2013, the

Statement of Comprehensive Income,

Statement of Changes in Equity, Statement

of Cash Flows, for the year then ended and

Notes thereto.

The Directors confirm that the financial

statements of the Company and the Group

give a true and fair view of:

• thestateofaffairsoftheCompanyas

at 31st March 2013 and

• theprofitorlossofthecompanyand

its subsidiaries for the financial year

then ended.

The financial statements of the Company

and its Subsidiaries for the year ended 31st

March 2013 incorporated in this report

have been prepared in accordance with

the Companies Act No.07 of 2007, Finance

Business Act No.42 of 2011, new Sri

Lanka Accounting Standards (SLFRS) which

came into effect from 01st January 2012,

the Listing Rules of the Colombo Stock

Exchange.

The Directors consider that, in preparing

the financial statements exhibited on pages

48 to 131, they have adopted appropriate

accounting policies on a consistent basis,

supported by reasonable and prudent

judgements and estimates.

The Directors are responsible for ensuring

that the Company keeps sufficient

accounting records, which disclose the

financial position of the Company with

reasonable accuracy and enable them to

ensure that the financial statements have

been prepared and presented as aforesaid.

They are also responsible for taking

measures to safeguard the assets of the

Company and to prevent and detect frauds

and other irregularities. In this regard, the

Directors have instituted an effective and

comprehensive system of internal controls

comprising of internal checks, internal audit

and financial and other controls required

to carry on the Company’s business in

an orderly manner and to safeguard its

assets and ensure as far as practicable the

accuracy and reliability of the records.

The Directors’ are of the view that the

Company and its Subsidiaries have

adequate resources to continue operations

in the foreseeable future and have applied

the going concern basis in the preparation

of these financial statements.

To the best of the knowledge and belief

of the Directors, the Company’s auditor

SJMS Associates has carried out reviews

and sample checks on the effectiveness

of the system of internal controls as they

consider appropriate and necessary in

providing their opinion on the financial

statements. SJMS Associates has examined

the financial statements made available

together with all other financial records,

minutes of shareholders’ and Directors’

meetings and related information and have

expressed their opinion which appears on

page 60 of the annual report.

The Directors have provided the Auditor

with every opportunity to carry out any

reviews and tests that they consider

appropriate and necessary for the

performance of their responsibilities.

Further, as required by Section 56(2) of

the Companies Act No.07 of 2007, the

Board of Directors has confirmed that

the Company, based on the information

available, satisfies the solvency test

immediately after the distribution of

the final dividend, in accordance with

Section 57 of the Companies Act No.07

of 2007, and has obtained a certificate

from the auditor, prior to recommending

a final dividend of Rs.1.20 per share for

this year which is to be approved by

the shareholders at the Annual General

Meeting to be held on 19th July 2013.

Directors confirm that, they have obtained

the prior approval of the Central Bank of

Sri Lanka prior to recommending the final

divided of Rs.1.20 per share.

The Directors confirm to the best of

their knowledge that all taxes, levies and

financial obligations of the Group have

been either paid or adequately provided for

in the financial statements.

The Directors are of the view that they

have discharged their responsibilities as set

out in this statement

By Order of the Board

Corporate Services LimitedSecretaries

Colombo

18th June 2013

Directors’ Responsibility for Financial Reporting


The role of the Remuneration Committee is

to assist and advice the Board of Directors

to fulfill its responsibilities to members

of the company in determining policies

and practices relating to compensation

and benefits. The committee specifically

considers the remuneration of the chief

executive officer, executive directors and

such other members of the executive

management as it is designated to

consider. The Remuneration Committee,

appointed by the Board of Directors

comprises of three Non-executive Directors,

of whom, two are Independent.

Composition

J.D. Bandaranayake (Chairman)/(NED)

S.C.S. Wickramasinghe (IND/NED)

F. Mohideen (IND/NED)

PolicyThe policies are formulated to ensure that

members of the executive management

of the company are provided with

appropriate compensation to encourage

enhanced performance and are, in a

fair and responsible manner, rewarded

for their individual contributions to the

success of the company. The Policy aims

to attract, motivate and retain talent with

the appropriate professional, managerial

and operational expertise necessary to

achieve the objectives of the Company.

The Company remuneration framework

for the Executive Directors and the

Senior Management Team is designed

to ensure alignment between short and

long term interests of the Company and

thereby create and enhance value for all

stakeholders of the Company.

Scope

The Committee reviews all significant and

strategic policies and initiatives relating

to Human Resources. The Committee

deliberates and recommends to the Board

of Directors annual increments, bonuses

and incentives of Executive Directors

and Senior Management Team based on

individual and corporate performance. The

committee also reviews salary structures

and terms and conditions of service to

ensure compatibility with the market. The

Managing Director who is responsible for

the overall management of the Company

attends meetings by invitation and

participates in the deliberations except

when his own interest, performance and

compensation are discussed.

Fees

All Non-executive Directors receive a fee

for attendance at Board meetings and

serving on sub-committees.

Committee Meetings

A formal meeting of the committee was

held in March 2013. The decisions of the

committee based on the policy and scope

outlined were ratified by the Board of

Directors.



Colombo,

18th June 2013

Remuneration Committee Report


The Integrated Risk Management Committee (IRMC) as at the end

of the financial year comprised of the following members:

A. N. Fernando – Chairman/Independent Non-executive Director

(appointed w.e.f. 03.01.2013)

T. K. Bandaranayake - Chairman/Independent Non-executive

Director (resigned w.e.f. 02.01.2013)

F. Mohideen - Independent Non-executive Director

J.D. Bandaranayake - Non-executive Director

Management Representatives:

E. H. Wijenaike - Managing Director

G.S.N. Peiris - Director (Finance)

R. E. Rambukwella -Director (Marketing and Operations)

A.K. Gunaratne - Director (Group Co-ordination)

D.P. de Silva - Director (Credit)

U. B. Elangasinha - General Manager (Finance)

J. Illangakoon - General Manager (Branches)

B.A.C.K. Jayawardena - General Manager (Recoveries)

K. Kandeepan - Assistant General Manager (Finance)

Brief profiles of the Directors representing the Committee are given

on pages 10 to 11 of the Annual Report.

Terms of Reference

The Terms of Reference set out by the Board of Directors, include

the following;

• toensurethattheCompanyhasacomprehensiverisk

management framework, appropriate compliance policies and

systems in place.

• toassessallrisktypes,includingbutnotlimitedtocredit,

market, liquidity, operational and strategic risks of the

Company through appropriate risk indicators and management

information.

• toensuredecisionsaretakeninaccordancewithestablished

delegated authorities and corrective action is taken to mitigate

risks taken beyond the tolerance set by the Committee, on the

basis of Company’s policies and regulatory and supervisory

requirements.

• tomonitorandassesstheeffectivenessoftheCompany’s

risk management system and the robustness of the risk

management function.

• toperiodicallyassessperformanceagainstinternallydefined

risk appetite.

The primary responsibility of the Committee is to assist the Board

of Directors in understanding and exercising regular risk oversight

on risk management measures adopted by the Management in

operating the Company’s business. The Committee determines the

adequacy and effectiveness of measures taken by the Management

in order to ensure that the overall risk of the Company conforms to

parameters approved by the Board.

Meetings

The Committee meets on a quarterly basis and the attendance of

the Directors at the meetings is given on page 41 of the Annual

Report.

The discussions and conclusions reached at the meeting are

recorded in minutes and circulated to the Board of Directors for

information and advice.

A. N. FernandoChairman


Colombo

18th June 2013

Integrated Risk Management Committee Report


Committee Composition

The Audit Committee is comprised of three Non-Executive

Directors of the Company. The Committee was chaired by T.K.

Bandaranayake until 02nd January 2013 and on his retirement

by A.N. Fernando, a Senior Fellow Member of the Institute of

Chartered Accountants, Sri Lanka.

The members of the Board appointed Audit Committee are:

A. N. Fernando Chairman (IND/NED) - Appointed in January 2013

C.L.K.P. Jayasuriya (Non-IND/NED)

F. Mohideen (IND/NED)

(IND-Independent Director, NED-Non-Executive Director)

Brief Profiles of the members are given on pages 10 to 11 of the

Annual Report.

A.N. Fernando was appointed as the Chairman of the Audit

Committee in January 2013, on the retirement of T.K.

Bandaranayake who functioned as the Chairman of the Audit

Committee untill 02nd January 2013.

The General Manager-Internal Audit functions as its Secretary.

Meetings

The Audit Committee met seven times during the year. The

attendance of the members at Audit Committee Meetings is as

follows:Member Status No. of Meetings

T.K. Bandaranayake IND/NED 5

(Resigned)

A.N. Fernando IND/NED 2

C.L.K.P. Jayasuriya NED 6

F. Mohideen IND/NED 7

The Chairman, Managing Director, Director (Finance), Director

(Group Co-ordination), GM (Finance) and External Auditor

participate at meetings by invitation. Proceedings of the Audit

Committee meetings are reported regularly to the Board of

Directors.

Role of the Audit Committee:

The Audit Committee assists the Board of Directors in fulfilling

effectively its responsibilities relating to financial and other related

affairs of the Company. The Committee has been empowered to:

• Examineinternallyanymatterrelatingtothefinancialaffairsof

the Company

• Monitorandfollow-uptheInternalandExternalAudit

programmes and plans, review the Internal Audit and External

Audit reports

• Analyseandreviewrisksandexaminetheadequacy,

efficiency and effectiveness of the Internal Control System and

procedures in place to avoid or mitigate such risks.

• ReviewAccountingPolicies,emergingaccountingissuesand

disclosures according to LKAS/SLFRS.

• ReviewinformationrequirementofCompaniesActNo.7of

2007 and other Financial reporting requirements and SEC and

CBSL regulations.

• ReviewandapproveAnnualFinancialStatementsandInterim

Financial Statements, prior to submission to the Board.

• Developandimplementapolicyontheengagementofan

external auditor to provide non-audit services that are permitted

under the relevant statutes, regulations, requirements and

guidelines.

Financial Reporting

The Committee assists the Board of Directors to discharge

their responsibility for the preparation of Financial Statements

that portray a true and fair view of the affairs of the Company

in accordance with the Company’s accounting records and in

conformity with Sri Lanka Financial Reporting Standards, the

Companies Act No.7 of 2007 and Central Bank Directions.

The Committee reviewed the Company’s interim and annual

financial statements and recommended their issue to shareholders.

The Audit Committee which reviewed the operations and

monitored the effectiveness of internal controls and procedures is

of the view that adequate controls and procedures are in place to

provide reasonable assurance to the Board that the assets of the

Company are safeguarded and the financial position is monitored

according to information made available.

External Audit

The Committee assists the Board of Directors in engaging External

Auditor for non-audit services in compliance with statutes.

The Audit Committee is also empowered to recommend the

appointment of the External Auditor in compliance with the

relevant statutes, the service period, Audit fee and any resignation

or dismissal of the auditor. The committee is satisfied that there

is no conflict of interests between the Company and the Auditor,

other than for the payment of the auditor’s fees. The Committee

is thus satisfied that there is no cause to compromise on the

independence and objectivity of the Auditor. The committee

reviewed the effectiveness of the audit processes in accordance

Audit Committee Report


with applicable standards and best practices. The Audit Committee

ensures that the engagement of an audit partner shall not exceed

five years and that the audit partner is not re-engaged for the audit

before the expiry of 3 years from the date of the completion of

the previous term as per section 8 (2) c) of the Direction No.3 of

2008 issued under the Finance Business Act no 42 of 2011.

The annual financial statements 2012/13 were reviewed with the

External Auditor. and their Engagement and Management Letter

and Management’s responses thereto were also reviewed. The

Directors’ Statement on Internal Control and the Independent

Assurance Report by the external auditor was reviewed by the Audit

Committee.

The Committee met with the External Auditor before the

commencement of the Final Audit of 2012/2013 to discuss the

nature and Scope of the Audit.

The Committee also met with the External Auditor at four meetings

to discuss issues, problems and reservations arising from the audit

and any other matters.

Internal AuditDuring the year, the Audit Committee reviewed the adequacy of

the scope, functions and resources of the internal audit division,

the results of the internal audit process and their evaluation of

the company’s internal control system. The Audit Committee also

reviewed and approved the adequacy of coverage of the internal

audit programme.

The Audit Committee, with the concurrence of the Board enlisted

the services of a leading firm of Chartered Accountants to

supplement the internal audit division in carrying out branch audits.

A.N. FernandoChairman-Audit Committee

Colombo

18th June 2013


Responsibility

The Board of Directors (‘Board’) is

responsible for the adequacy and

effectiveness of Central Finance Company

PLC’s(“the company”) System of Internal

Controls. Such a system is designed

to manage the company’s key areas

of risk within an acceptable risk profile

in achieving the policies and business

objectives of the company, rather than

eliminating the risk of failure. Accordingly,

the System of Internal Controls can only

provide reasonable but not absolute

assurance against material misstatement of

management and financial information and

records or against financial losses or fraud.

The Board has established an ongoing

process for identifying, evaluating and

managing the significant risks faced by

the company and this process includes

enhancing the System of Internal Controls as

and when there are changes to the business

environment or regulatory guidelines. The

process is regularly reviewed by the Board.

The management assists the Board in the

implementation of the Board’s policies and

procedures on risk and control by identifying

and assessing the risks faced by the

company and in the design, operation and

monitoring of suitable Internal Controls to

mitigate and control these risks. The Board

is of the view that the System of Internal

Controls in place is sound and adequate

to provide reasonable assurance regarding

the reliability of financial reporting, and that

the Preparation of Financial Statements

for external purposes is in accordance

with relevant accounting principles and

regulatory requirements.

Key Features of the Process Adopted in Reviewing the Design and Effectiveness of the Internal Control System

The key processes that have been

established in reviewing the adequacy and

integrity of the System of Internal Controls

with respect to financial reporting include

the following:

• Sub-committeesareestablishedtoassist

the Board in ensuring the effectiveness

of the company’s daily operations in

accordance with the corporate objectives,

strategies and the annual budget as well

as the policies and business directions

that have been approved by the Board.

• TheInternalAuditDivisionofthe

company checks for compliance

with policies and procedures and the

effectiveness of the Internal Control

System on an ongoing basis using

samples and rotational procedures and

highlight significant findings in respect

of any non-compliance. Audits are

carried out on all units and branches,

the frequency of which is determined

by the level of risk assessed, to provide

an independent and objective report.

The annual audit plan is reviewed and

approved by the Audit Committee.

Findings of the Internal Audit Division are

submitted to the Audit Committee for

review at their periodic meetings.

• TheAuditCommitteeofthecompany

reviews Internal Control issues

identified by the Internal Audit Division,

regulatory authorities and management,

and evaluates the adequacy and

effectiveness of the Internal Control

System. They also review the Internal

Audit function with particular emphasis

on the quality of audits performed.

The minutes of the Audit Committee

meetings are tabled for the information

of the Board on a periodic basis.

• InassessingtheInternalControlSystem,

identified officers of the company

collated all procedures and controls

that are connected with significant

accounts and disclosures in the Financial

Statements. The Internal Audit Division

checks for suitability of design and

effectiveness of these procedures and

controls on an ongoing basis during their

Audit Process.

Confirmation

Based on the above processes, the Board

confirms that the financial reporting system

of the company has been designed to

provide reasonable assurance regarding

the reliability of financial reporting and

the preparation of Financial Statements

for external purposes has been done in

accordance with Sri Lanka Accounting

Standards and regulatory requirements of

the Central Bank of Sri Lanka.

Review of the Statement by External Auditor

The External Auditor has reviewed the

above Directors’ Statement on Internal

Control included in the Annual Report of

the company for the year ended 31 March

2013 and reported to the Board that

nothing has come to their attention that

causes them to believe that the statement

is inconsistent with their understanding of

the process adopted by the Board in the

review of the design and effectiveness

of the Internal Control System of the

company.

For and on behalf of the Board


A.N. FernandoChairman - Audit Committee

E. WijenaikeManaging Director/Chief Executive Officer

Colombo,

18th June 2013

Directors’ Statement on Internal Control


To the Board of Directors of Central Finance Company PLC

Introduction

We were engaged by the Board of Directors of Central Finance Company PLC (“Company”) to provide assurance on the Directors’ Statement on Internal Control (“Statement”) included in the annual report for the year ended 31 March 2013.

Management’s responsibility for the Statement on Internal

Control

Management is responsible for the sufficiency and reliability of internal controls in place at the company as specified in the Finance Companies (Corporate Governance) Direction, No. 3 of 2008 (“direction”) and to prepare and present the statement as required by paragraph 10 (2) (b) in accordance with the direction.

Our responsibilities and compliance with SLSAE 3050

Our responsibility is to issue a report to the Board on the Statement based on the work performed. We conducted our engagement based on the Sri Lanka Standard on Assurance Engagements 3050 – Assurance Report for Banks on Directors’ Statement on Internal Control (SLSAE 3050), issued by the Institute of Chartered Accountants of Sri Lanka.

Summary of work performed

Our engagement has been conducted to assess whether the Statement is both supported by the documentation prepared by or for directors and appropriately reflects the process the directors have adopted in reviewing the system of internal control for the Company.

To achieve this objective appropriate evidence has been obtained by performing the following procedures:

a) Enquire the directors to obtain an understanding of the process defined by the Board of Directors for their review of the design and effectiveness of internal control and compared their understanding to the Statement made by the directors in the annual report.

b) Reviewed the documentation prepared by the directors to support their Statement.

c) Related the Statement made by the directors to our knowledge of the Company obtained during the audit of the financial statements.

d) Reviewed the minutes of the meetings of the Board of Directors and of relevant Board Committees.

e) Attended meetings of the audit committee at which the annual report, including the Statement on Internal Control is considered and approved for submission to the Board of Directors.

f) Considered whether the Director’s Statement on Internal Control covers the year under review and that adequate processes are in place to identify any significant matters arising.

g) Obtained written representations from directors on matters material to the Statement on Internal Control where other sufficient appropriate audit evidence cannot reasonably be expected to exist.

SLSAE 3050 does not require us to consider whether the Statement covers all risks and controls, or to form an opinion on the effectiveness of the Company’s risk and control procedures. It also does not require us to consider whether the processes described to deal with material internal control aspects of any significant problems disclosed in the annual report will, in fact, remedy the problems.

Our conclusion

Based on the procedures performed, nothing has come to our attention that causes us to believe that the Statement included in the annual report is inconsistent with our understanding of the process the Board of Directors have adopted in the review of the design and effectiveness of internal control system over financial reporting of the Company.

SJMS Associates

Chartered Accountants

Colombo18th June 2013

Independent Assurance Report


TO THE SHAREHOLDERS OF CENTRAL FINANCE COMPANY PLC

Report on the Financial Statements

We have audited the accompanying financial statements of Central

Finance Company PLC (“the Company”) and the consolidated

financial statements of the Company and its subsidiaries (“the

Group”), which comprise the statement of financial position

as at 31st March 2013, the income statement, statement of

comprehensive income, statement of changes in equity and

cash flow statement for the year then ended, and a summary of

significant accounting policies and other explanatory notes.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation

of these financial statements in accordance with Sri Lanka

Accounting Standards. This responsibility includes: designing,

implementing and maintaining internal control relevant to the

preparation and fair presentation of financial statements that are free

from material misstatement, whether due to fraud or error; selecting

and applying appropriate accounting policies; and making accounting

estimates that are reasonable in the circumstances.

Scope of Audit and Basis of Opinion

Our responsibility is to express an opinion on these financial

statements based on our audit. We conducted our audit in

accordance with Sri Lanka Auditing Standards. Those standards

require that we plan and perform the audit to obtain reasonable

assurance whether the financial statements are free from material

misstatement.

An audit includes examining, on a test basis, evidence supporting

the amounts and disclosures in the financial statements. An

audit also includes assessing the accounting principles used and

significant estimates made by management, as well as evaluating

the overall financial statement presentation.

We have obtained all the information and explanations which

to the best of our knowledge and belief were necessary for the

purposes of our audit. We therefore believe that our audit provides

a reasonable basis for our opinion.

Opinion

In our opinion, so far as appears from our examination, the

Company maintained proper accounting records for the year ended

31st March 2013 and the financial statements give a true and fair

view of the Company’s state of affairs as at 31st March 2013 and

its financial performance and cash flows for the year then ended in

accordance with Sri Lanka Accounting Standards.

In our opinion, the consolidated financial statements give a true

and fair view of the state of affairs as at 31st March 2013 and the

financial performance 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 Requirements

In our opinion, these financial statements also comply with the

requirements of Section 151 (2) and 153(2) to 153(7) of the

Companies Act No. 07 of 2007 and present the information

required by the Finance Business Act No. 42 of 2011.

SJMS ASSOCIATES

Chartered AccountantsColombo.18th June 2013

Independent Auditor’s Report


Consolidated Income Statement Group CompanyFor the year ended 31st March 2013 2012 2013 2012 Notes Rs.’000 Rs.’000 Rs.’000 Rs.’000

Income 10 11,318,774 9,148,164 10,757,442 8,624,671

Interest income 11 9,755,419 7,492,975 9,796,140 7,539,898 Less: Interest expenses 12 4,069,042 2,663,303 4,100,082 2,686,370

Net interest income 5,686,377 4,829,672 5,696,058 4,853,528 Other operating income 13 1,022,377 1,074,360 333,137 438,039 Other income 14 540,978 580,829 628,165 646,734

7,249,732 6,484,861 6,657,360 5,938,301

Less: Operating expenses 15 Personnel expenses 1,123,324 1,020,526 922,824 838,300 Premises, equipment and establishment expenses 1,170,945 1,092,863 1,054,147 994,999 Employee retirement benefit expenses 16 123,532 101,858 109,168 88,639 Other expenses 408,584 387,642 327,681 304,489

2,826,385 2,602,889 2,413,820 2,226,427

Profit before impairment on loans, advances and other assets 4,423,347 3,881,972 4,243,540 3,711,874 Less : Impairment charges/(reversals) on financial assets and other credit losses 17 201,441 (87,520) 200,160 (88,519)

4,221,906 3,969,492 4,043,380 3,800,393Share of profit of associates 18 616,084 495,122 - -

Profit before VAT on financial services and income tax 4,837,990 4,464,614 4,043,380 3,800,393 Less: VAT on financial services 218,177 173,096 218,177 173,096

Profit before income tax 19 4,619,813 4,291,518 3,825,203 3,627,297 Less: Income tax expense 20 1,335,096 1,231,724 1,050,564 1,018,640

Profit after income tax 3,284,717 3,059,794 2,774,639 2,608,657

Attributable to equity holders of the parent 3,217,059 2,964,837 2,774,639 2,608,657 Attributable to non-controlling interest 67,658 94,957 - -

Net profit for the year 3,284,717 3,059,794 2,774,639 2,608,657

Basic and diluted earnings per share - Rs. 21 30.67 28.27 Dividend per share - Rs. 22 Paid 1.70 1.40 Proposed 1.20 1.10

The accounting policies and notes from pages 67 to 131 form an integral part of these financial statements.


Consolidated Statement of Comprehensive Income Group CompanyFor the year ended 31st March 2013 2012 2013 2012 Notes Rs.’000 Rs.’000 Rs.’000 Rs.’000

Profit for the year 3,284,717 3,059,794 2,774,639 2,608,657

Net gains and losses on remeasurement of available for sale financial assetsSri Lanka government securities 10,361 (12,569) 10,361 (12,569)Equity securities-quoted 3,347 (60,534) 3,347 (60,534)

13,708 (73,103) 13,708 (73,103)Actuarial gains/(losses) on defined benefit plans (4,313) (6,106) (3,413) (4,785)

Add/(less):share of other comprehensive income of associates 34,375 - - -

Other comprehensive income/(loss) for the year,net of tax 43,770 (79,209) 10,295 (77,888)

Total comprehensive income for the year 3,328,487 2,980,585 2,784,934 2,530,769

Attributable to equity holders of the parent 3,260,829 2,885,628 2,784,934 2,530,769

Attributable to non-controlling interest 67,658 94,957 - -

Total comprehensive income for the year 3,328,487 2,980,585 2,784,934 2,530,769

The accounting policies and notes from pages 67 to 131 form an integral part of these financial statements.


Consolidated Statement of Financial Position Group CompanyAs at 31.03.2013 31.03.2012 01.04.2011 31.03.2013 31.03.2012 01.04.2011 Notes Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000

ASSETSCash in hand and at banks 24 689,006 356,483 345,681 597,787 307,421 273,197 Financial assets held for trading 25 33,101 24,659 32,173 33,000 24,560 32,000 Tax receivables 6,237 37,688 2,851 - - - Available for sale investments in government securities 26 242,304 165,365 - 242,304 165,365 - Deposits with banks 27 717,168 1,551,842 95,728 712,931 1,551,842 95,728 Available for sale securities 28 195,404 192,049 252,583 189,074 185,719 246,253 Held to maturity investments in government securities 29 1,920,143 1,411,862 1,964,425 1,920,143 1,411,862 1,964,425 Trade and other receivables 30 749,957 1,143,082 1,431,412 254,566 712,036 1,059,619 Inventories and other stocks 31 1,157,779 872,984 714,299 903,742 609,281 479,347 Loans and advances 32 1,935,269 1,673,597 1,650,357 2,169,264 2,057,030 2,443,788 Net investment in leases and hire purchase 33 42,382,870 36,479,958 25,920,139 42,382,870 36,479,958 25,920,139 Investments in real estate 35 68,079 92,438 594,204 68,079 72,364 107,811 Investments in associates 36 2,364,929 2,011,360 1,795,601 523,458 523,458 523,458 Investments in subsidiaries 37 - - - 306,456 312,987 312,987 Deferred tax asset 38 10,705 128 8,929 - - - Intangible assets 39 36,973 38,316 46,491 35,375 36,109 43,991 Property, plant and equipment 40 4,047,417 3,745,802 4,084,303 3,134,479 2,865,332 3,249,252

Total assets 56,557,341 49,797,613 38,939,176 53,473,528 47,315,324 36,751,995

LIABILITIESBank overdrafts 855,962 1,711,728 505,932 840,177 1,687,625 502,367 Tax payables 258,306 140,370 353,653 237,166 139,092 305,797 Commercial paper 10,892 400,496 - 10,892 400,496 - Trade and other payables 41 1,621,588 1,769,585 1,656,177 1,332,534 1,557,854 1,408,765 Amounts due to subsidiaries - - - 112,078 224,296 185,210 Derivative financial instruments 42 23,096 66,580 236,033 23,096 66,580 236,033 Deposits 43 26,984,757 22,795,351 19,887,906 27,265,911 22,953,112 20,095,020 Bank loans 44 4,579,999 4,083,776 990,593 4,526,799 4,035,176 905,593 Non bank loans 45 1,433,880 1,952,535 1,343,401 1,433,880 1,952,535 1,343,401 Debentures 46 757,516 251,977 405,173 757,516 251,977 405,173 Retirement benefit obligations 47 571,184 480,040 403,982 488,104 409,734 345,411 Deferred tax liability 38 1,939,075 1,623,280 1,328,729 1,886,375 1,584,840 1,263,147

Total liabilities 39,036,255 35,275,718 27,111,579 38,914,528 35,263,317 26,995,917

SHAREHOLDERS’ FUNDSStated capital 48 568,420 568,420 203,020 568,420 568,420 203,020 Capital reserves 49 1,337,282 1,308,607 1,312,973 968,758 972,611 979,072 Reserve fund 50 939,000 800,000 682,000 939,000 800,000 682,000 Available for sale reserve 51 12,887 (821) 72,282 12,887 (821) 72,282 Investment fund 52 478,857 223,492 - 478,857 223,492 - Revenue reserves 53 13,553,801 11,008,108 8,983,262 11,591,078 9,488,305 7,819,704

Funds attributable to equity holders of the parent 16,890,247 13,907,806 11,253,537 14,559,000 12,052,007 9,756,078 Non-controlling interest 630,839 614,089 574,060 - - -

17,521,086 14,521,895 11,827,597 14,559,000 12,052,007 9,756,078

Total liabilities, shareholders’ funds and non-controlling interest 56,557,341 49,797,613 38,939,176 53,473,528 47,315,324 36,751,995

Net assets per share - Rs. 161.04 132.60 107.30 138.81 114.91 93.02

The accounting policies and notes from pages 67 to 131 form an integral part of these financial statements.I certify that the financial statements comply with the requirements of the Companies Act No.07 of 2007.

U.B. Elangasinha Chief Financial OfficerThe Board of Directors is responsible for the preparation and presentation of these financial statements.Approved and signed for and on behalf of the Board.

E.H. Wijenaike G.S.N. Peiris Managing Director Director (Finance)

18th June 2013Colombo


Statement of Changes in Equity

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.


Cash Flow Statement Group CompanyFor the year ended 31st March 2013 2012 2013 2012 Rs.’000 Rs.’000 Rs.’000 Rs.’000

Cash flows from operating activities Interest receipts 8,468,866 6,509,975 8,513,660 6,557,318 Interest payments (2,121,000) (1,346,992) (2,133,420) (1,364,530)Recoveries on loans previously written off 63,811 60,255 63,811 60,255 Receipts from other operating activities 4,323,886 4,862,558 287,524 380,628 Cash payments to employees and suppliers (5,880,507) (5,870,712) (2,275,156) (2,081,791)Operating profit before changes in operating assets 4,855,056 4,215,084 4,456,419 3,551,880 (Increase)/decrease in operating assets: (Investments)/divestments in government securities and bank deposits maturing after 90 days (579,402) (341,929) (575,402) (341,929)Funds advanced to customers (26,108,365) (28,004,432) (26,187,511) (28,048,678)Capital component of recoveries from customers 19,883,894 18,605,995 20,110,577 19,026,128 Others 893,964 782,926 828,969 736,657 Increase/(decrease) in operating liabilities: Deposits 3,058,194 2,111,860 3,180,332 2,118,851 Net cash from operating activities before income tax 2,003,341 (2,630,496) 1,813,384 (2,957,091)Income tax paid (648,922) (957,599) (613,164) (840,379)Net cash inflow/(outflow) from operating activities 1,354,419 (3,588,095) 1,200,220 (3,797,470) Cash flows from investing activities Dividends received from subsidiaries and associates 108,049 118,174 109,326 119,370 Dividends received from other companies 17,029 16,521 11,935 13,919 Purchase of property, plant and equipment (1,046,052) (849,715) (970,966) (747,139)Proceeds from disposal of property, plant and equipment 180,508 321,610 166,845 319,967 Net cash outflow from investing activities (740,466) (393,410) (682,860) (293,883) Cash flows from financing activities Borrowings 8,387,518 7,534,426 8,382,918 7,485,826 Repayment of borrowings (8,364,229) (3,780,415) (8,364,229) (3,634,589)Investment in shares (464) - - - Dividends paid to equity holders of the parent (274,942) (232,918) (274,942) (232,918)Dividends paid to non-controlling interest (50,254) (56,582) - - Net cash inflow/(outflow) from financing activities (302,371) 3,464,511 (256,253) 3,618,319 Net increase/(decrease) in cash and cash equivalents 311,582 (516,994) 261,107 (473,034)Cash and cash equivalents at the beginning of the period 654,755 1,171,749 629,796 1,102,830 Cash and cash equivalents at the end of the period 966,337 654,755 890,903 629,796 Analysis of cash and cash equivalents Cash in hand and at banks 689,006 356,483 597,787 307,421 Investments in government securities maturing within 90 days 422,000 1,020,000 422,000 1,020,000 Deposits with banks maturing within 90 days 711,293 990,000 711,293 990,000 Bank overdrafts (855,962) (1,711,728) (840,177) (1,687,625)Cash and cash equivalents at the end of the period 966,337 654,755 890,903 629,796

The accounting policies and notes from pages 67 to 131 form an integral part of these financial statements. Figures in brackets indicate outflows.


1 General information

1.1 Reporting entityCentral Finance Company PLC is a public limited liability company incorporated on 5th December 1957 and domiciled in Sri Lanka. Its registered office and principal place of business is at 84, Raja Veediya, Kandy. Ordinary shares of the Company are listed on the Colombo Stock Exchange.

The staff strength of the Company as at 31st March 2013 was 1,450(1,439 as at 31st March 2012)

1.2 Consolidated financial statementsThe consolidated financial statements of Central Finance Company PLC as at and for the year ended 31st March 2013 comprise those of the Company (parent Company) and its subsidiaries (together referred to as the “Group”) and of the Group’s interest in associates. The consolidated financial statements of all companies in the Group other than CF Insurance Brokers (Pvt) Ltd, Nations Trust Bank PLC, and Capital Suisse Asia Ltd. are prepared for a common financial year, which ends on 31st March. The three companies referred to above have a common financial year ending 31st December.

1.3 Parent enterpriseCentral Finance Company PLC does not have an identifiable parent of its own.

1.4 Principal activities and nature of operations

1.5 CompanyThe principal activities of the Company are leasing, hire purchase financing, vehicle hire, deposit mobilisation, vehicle trading, and provision of other financial services.

1.5.1 SubsidiariesName of the company Principal business activities

Central Industries PLC Manufacture and distribution of PVC pipes and fittings, water tanks and electrical switches

Central Mineral Industries (Pvt) Ltd. Manufacture of mineral products

Central Construction and Development (Pvt) Ltd. Investment Company

Expanded Plastic Products Ltd. Investment Company

Central Homes (Pvt) Ltd. Property development and sale of real estate

Mark Marine Services (Pvt) Ltd. Hydro power generation

Central Developments Ltd. Investment Company

CF Insurance Brokers (Pvt) Ltd. Insurance broking

Central Transport and Travels Ltd. Hiring of vehicles

Hedges Court Residencies. Construction and sale of (Pvt) Ltd apartments

Dehigama Hotels Company Ltd. Renting of commercial property

CF Growth Fund Ltd. Investment Company

Kandy Private Hospitals Ltd. Provision of healthcare services

1.5.2 AssociatesName of the company Principal business activities

Nations Trust Bank PLC Licensed commercial bank

Tea Smallholder Factories PLC Manufacture and sale of black tea.

Capital Suisse Asia Ltd. Investment company

There were no significant changes in the nature of the principal activities of the Company and the Group during the financial year under review.

2. Basis of Preparation

2.1 Statement of complianceThe Consolidated Financial Statement of the Group (Statement of Financial Position, Statement of Comprehensive income, Statement of Changes in Equity, Cash Flow Statement together with Accounting Policies and Notes) as at 31st March 2013 and the year then ended are prepared in accordance with Sri Lanka Accounting Standards (LKASs and SLFRSs) as issued by the Institute of Chartered Accountants of Sri Lanka and in compliance with the requirements of the Companies Act No.07 of 2007,the Finance Business Act No.42 of 2011 and provide appropriate disclosures as required by the Listing Rules of the Colombo Stock Exchange.

The consolidated financial statements up to and including the year ended 31st March 2012 were prepared in accordance with Sri Lanka Accounting Standards (SLASs) which were effective up to 31st March 2012.The Institute of Chartered Accountants of Sri Lanka has issued a new volume of Sri Lanka Accounting Standards which became effective from financial periods beginning on or after 01st January 2012.These new standards comprise of accounting standards prefixed both SLFRS (corresponding to IFRS) and LKAS (corresponding to IAS).Accordingly, the financial statements for the year ended 31st March 2013 are the first financial statements prepared and presented in compliance with Sri Lanka Financial Reporting Standards (SLFRS/LKAS) which became effective from 01st January 2012.

The consolidated financial statements(statements of financial position, statements of other comprehensive income, statements of changes in equity, cash flow statements and notes comprising a summary of significant accounting policies and the other explanatory notes) have been prepared in accordance with Sri Lanka Financial Reporting Standards (SLFRSs) issued by the Institute of Chartered Accountants of Sri Lanka, and the guidelines

Accounting Policies


issued by the Committee set up for the implementation of SLFRS in Finance and Leasing Companies in accordance with the requirements of the Companies Act No. 7 of 2007 and the Finance Business Act No. 42 of 2011 and provide appropriate disclosures as required under the listing rules of the Colombo Stock Exchange. The company has consistently applied the accounting policies used in the preparation of its opening SLFRS statement of financial position as at 01st April 2011and throughout all periods presented, as if these policies had always been in effect.

In preparing financial statements in accordance with SLFRS, required adjustments have been made for the previously reported financial periods and the effect of the transition from SLASs to SLFRSs has been presented in the reconciliation statements and accompanying notes in respect of items, which have a material impact on, previously reported items. Note 60 discloses the impact of the transition to SLFRS on the reported financial position, financial performance, and cash flows, including the nature and effect of significant changes in accounting policies from those used in the consolidated financial statements for the year ended 31st March 2012 prepared under SLAS.

2.2 Approval of the consolidated financial statements by the Board of DirectorsThe consolidated financial statements for the year ended 31st March 2013 were authorised for issue on 18th June 2013.

2.3 Basis of measurementThe consolidated financial statements have been prepared on the historical cost convention except in respect of the following, which are treated as shown;

• Landandbuildingsaremeasuredatcostatthetimeofacquisition and subsequently at revalued amounts being fair values at the date of revaluation

• Quotedinvestmentsclassifiedunderavailableforsalesecurities and held for trading are recognised at their fair values

• Retirementbenefitobligationsarerecognisedatpresentvalue of the defined benefit obligation less the net total of the plan assets plus unrecognised actuarial gains less unrecognised past service cost and unrecognised actuarial losses as explained in the note 47 to the consolidated financial statements.

• Derivativefinancialinstruments(fairvaluehedges)arerecognised at their fair value

2.4 Functional and presentation currencyThe consolidated financial statements are presented in Sri Lankan Rupees, which is the Group’s functional and presentation currency. All financial information presented in Sri Lankan Rupees has been given to the nearest thousand, unless otherwise stated as permitted by the LKAS 01 – Presentation of Financial Statements. The information presented in US Dollars on the pages 142 and

143 does not form a part of the Financial Statement and is solely for the information of stakeholders.

2.5 Presentation of financial statements The assets and liabilities of the Company in the Statement of Financial Position are grouped by the nature and listed in an order that reflects their relative liquidity and maturity pattern. No adjustments have been made for inflationary factors affecting the financial statements. An analysis on recovery or settlement within 12 months after the reporting date is presented in Note 61 on pages 128 and 129.

2.6 Comparative informationThe accounting policies have been consistently applied by the Company and the Group with those of the previous financial year in accordance with LKAS 01- Presentation of Financial Statements, except those which had to be changed as a result of application of the new SLFRS. Further, comparative information is reclassified wherever necessary to comply with the current year presentation.

2.7 Materiality and aggregationIn accordance with LKAS 01 on Presentation of Financial Statements, each material class of similar items is presented separately in the Financial Statements. Items of dissimilar nature of function are presented separately, if they are material.

Financial assets and financial liabilities are offset and the net amount reported in the statement of financial position, only when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis, or to realise the assets and settle the liability simultaneously. Income and expenses are not offset in the income statement unless required or permitted by any accounting standard or interpretation, and as specifically disclosed in the accounting policies.

3 Significant accounting judgments, estimates, and assumptionsThe preparation of consolidated financial statements in conformity with Sri Lanka Financial Reporting Standards (SLFRS) requires the Management to make judgments, estimates, and assumptions that influence the application of accounting policies and the reported amounts of assets, liabilities, income, and expenses. Judgments and estimates are based on historical experience and other factors, including expectations that are believed to be reasonable under the circumstances and assumptions based on such knowledge and expectation of future events. Hence, actual experience and results may differ from these judgments and estimates. The estimates used to prepare the financial statements in accordance with SLFRS effective from 01st January 2012 are consistent with that prevailed at 01st April 2011, the date on transition to SLFRS/LKAS and as at 31st March 2012,since there is no objective evidence to believe that those estimates were errorneous.

The estimates and underlying assumptions are reviewed on an on-going basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised if the revision affects only that period or in the period of the revision and future periods

Accounting Policies


as well, if the revision affects both current and future periods. Information about significant areas of estimation and uncertainty that have the most significant effect on the amounts recognised in the consolidated financial statements is described in Notes 3.1 to 3.7

Revisions to accounting estimates are dealt in accordance with Sri Lanka Accounting Standard No.08 Accounting Policies, Changes in Accounting Estimates and Errors.

3.1 Going concernIn preparing the consolidated financial statements, the Directors have made an assessment of the ability of the constituents of the Group to continue as going concern in the foreseeable future, and they do not foresee a need for liquidation or cessation of trading, taking into account all available information about the future.

3.2 Deferred tax assetsDeferred tax assets are recognised for all deductible temporary differences, unused tax losses and tax credits to the extent it is probable that taxable profits will be available against which these losses/credits can be utilised. Significant management judgments are required to determine the amount of deferred tax assets that can be recognised, based on the likely timing and level of future taxable profits together with future tax planning strategies.

3.3. Impairment losses on leases, hire purchase, loans and advancesThe Company assesses at each reporting date or more frequently to determine whether there is any objective evidence whether an impairment loss should be recorded in the income statement. Impairment losses are assessed individually for financial assets that are individually significant and collectively for assets that are not individually significant. Management judgment is required in the estimation of the amount and timing of future cash flows when determining impairment losses. Estimation methodologies are based on assumptions concerning a number of factors though actual results may differ, resulting in future changes to the impairment losses so made.

Loans and advances that have been assessed individually and found to be not impaired and all individually insignificant loans and advances are then assessed collectively, in groups of assets with similar risk characteristics, to determine whether provision should be made due to incurred loss events for which there is objective evidence, but the effects of which are not yet evident. The collective assessment takes in to account data from the loan portfolio, and judgments on the effect of concentrations of risks and economic data.

3.4. Impairment losses on available for sale securitiesThe Company reviews its debt securities classified as available for sale securities at each reporting date to assess whether they are impaired. This requires similar judgment as applied on the individual assessment of loans and advances.

The Company and the Group also record impairment charges on available for sale equity investments when there is a significant or prolonged decline in the fair value below their cost The Company evaluates, historical share price movements, duration and extent to which the fair value of an investment has fallen against its cost in determining the impairment losses to be charged.

3.5 Impairment losses on property, plant and equipment and intangible assetsThe Group assesses at each reporting date whether there is an indication of objective evidence of impairment of assets. If any such indication exists, the Company makes an estimate of the asset’s recoverable amount. This requires the estimation of the value in use of such individual assets or the cash generating units. Estimating value in use requires the Management to make an estimate of the expected future cash flows from the asset or the cash generating unit which requires management judgment on expected future cash flows, discount rates to be used in determining the value in use.

3.6 Defined benefit plansThe cost of defined benefit plans, viz: gratuity obligations are determined using actuarial valuations. The actuarial valuation involves making assumptions about discount rates, expected rates of return on assets, future salary increases and mortality rates. Due to the complexity of the valuation, the underlying assumptions and their long-term nature of defined benefit obligation is highly sensitive to changes in these assumptions. All assumptions are reviewed at each reporting date.

In determining the appropriate discount rate, the management considers the interest rates of Sri Lanka Government Bonds with extrapolated maturities corresponding to the expected duration of the defined benefit obligation. The mortality rate is based on publicly available mortality tables. Future salary increases and pension increases are based on expected future inflation rates and expected future salary increase rate of the Company.

3.7 Derivative financial instrumentsWhere the fair value of the interest rate swap arrangements recorded on the statement of financial position cannot be derived from active markets, they are determined using a variety of valuation techniques that include the use of mathematical models. The inputs to these models are derived from observable market data where possible, but where observable market data are not available, judgment is required to establish fair values.

4 Basis of consolidation4.1 SubsidiariesSubsidiaries included in the consolidated financial statements are those companies in which the Group directly or indirectly has an interest of over 50% of the voting rights and/or has the power to govern the financial and operating policies of the companies to obtain benefits from their activities. Central Industries PLC, with an equity control of 49.98% has been consolidated as a subsidiary Company based on the power to govern the financial and operating policies of that Company. The financial statements of


Accounting Policies

subsidiaries are included in the consolidated financial statements from the date on which the control commences until the control ceases. The profit or loss and net assets of a subsidiary attributable to equity interests that are not owned by the parent, directly or indirectly, through subsidiaries are disclosed separately as “Non- controlling Interest”.

Profit or loss and each component of other comprehensive income are attributed to the owners of the parent and to the non –controlling interests. Total comprehensive income is attributed to the owners of the parent and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance.

The consolidated financial statements are prepared to a common financial year ending 31st March. All subsidiaries in the group other than CF Insurance Brokers (Pvt) Ltd., have a common financial year ending 31st March. The financial year end for CF Insurance Brokers (Pvt) Ltd., is 31st December; and hence, adjustments were made based on unaudited financial statements drawn up to 31st March for the effect of significant transactions or events for purposes of consolidation.

4.2 AssociatesAssociates are those enterprises in which the Group has significant influence, but no control over financial and operating policies. Investments in associates are accounted for using the equity method and are initially recognised at cost except when the investment is classified as held for sale, in which case it is accounted for in accordance with SLFRS 5- Non-current Assets Held for Sale and Discontinued Operations. The consolidated financial statements include the Group’s share of gains and losses accounted under the equity method from the date that significant influence commences until the date that significant influence ceases. When the Group’s share of losses exceeds its investment in an equity accounted investee, the carrying amount of that interest is derecognised and the recognition of further losses is discontinued except to the extent that the Group has an obligation or has made payments on behalf of the investee. The audited consolidated financial statements of Nations Trust Bank PLC and Capital Suisse Asia Ltd. are drawn up to 31st December; and hence, adjustments were made based on unaudited financial statements drawn up to 31st March for purposes of consolidation.

4.3 Transactions eliminated on consolidationIntra-group transactions and balances, income, expenses and any unrealised gains arising from intra-group transactions 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 eliminated only to the extent that there is no evidence of impairment.

5 Assets, liabilities and bases of their valuation5.1 Financial instruments - Initial recognition and measurement

5.1.1 Date of recognitionAll financial assets and liabilities except “Regular way trades” are initially recognised on the trade date, the date that the company becomes a party to the contractual provisions of the instrument. Regular way trades means purchases or sales of financial assets that require delivery of assets within the time frame generally established by regulation or convention in the market place. Those trades are initially recognised on the settlement date.

5.1.2 Initial measurement of financial instrumentsAll financial instruments are initially measured at fair value plus transaction costs, except in the case of financial assets and financial liabilities recorded at fair value through profit or loss. Transaction cost in relation to financial assets and financial liabilities at fair value through profit or loss are dealt with through the Statement of Comprehensive Income.

5.1.3 ‘Day 1’ profit or lossWhen the transaction price differs from the fair value of other observable current market transactions in the same instrument, or based on a valuation techniques whose variables include only data from observable markets, the difference between transaction price and fair value (a day1 profit or loss)is immediately recognised in interest income and personnel expenses. Day 1 loss arising on loans granted to employees at concessionary rates under uniformly applicable schemes is deferred and amortised using Effective Interest Rate (EIR) over the remaining service period of the employees or tenure of the loan whichever is shorter.

5.1.4 Classification and subsequent measurement of financial assetsOn initial recognition, financial assets are classified into held to maturity investments, financial assets at fair value through profit or loss, loans and receivables and available for sale financial assets. The financial assets include cash and deposits with banks, net investments in leases and hire purchases, investments in government securities, loans and advances trade and other receivables, quoted and unquoted investments and derivative financial instruments.

The subsequent measurement of financial assets depends on their classification.

5.1.4.1 Held to maturity investmentsNon-derivative financial assets with fixed or determinable payments and fixed maturity are classified as held to maturity when the company has the positive intention and ability to hold such investments to maturity. Held to maturity instruments are initially measured at fair value plus directly related transaction costs and subsequently measured at amortised cost using effective interest method less any impairment losses.

Amortised cost is calculated by taking into account any discount or premium on acquisition and fees that are an integral part of the


EIR. The amortisation is included in ‘Interest income’ in the income statement. The losses arising from impairment of such investments are recognised in the income statement in impairment gain/(loss) on financial investment.

If the Company and the Group were to sell or reclassify more than an insignificant amount of held to maturity investments before maturity (other than in certain specific circumstances), the entire category would be tainted and would have to be reclassified as available-for-sale. Furthermore, the Company would be prohibited from classifying any financial asset as held to maturity during the following two years.

Company recognises investments in Treasury Bills, Treasury Bonds, and Repurchase Agreements, which are classified as, held to maturity financial assets.

5.1.4.2 Financial assets at fair value through profit or lossA financial asset is classified as fair value through profit or loss if it is held for trading or is designated at fair value through profit of loss.

Financial assets held for trading

Financial assets are classified as held for trading if they are acquired for the purpose of selling or repurchasing in the near term. Financial assets held for trading are recorded in the statement of financial position at fair value. Changes in fair value are recognised in ‘Net trading income’. Dividend income or expense is recorded in ‘Net trading income’ according to the terms of the contract, or when the right to the payment has been established.

Quoted shares that have been acquired principally for the purpose of selling in the near term are classified under held for trading investments.

5.1.4.3 Loans and receivablesNon-derivative financial assets with fixed or determinable payments that are not quoted in an active market are classified as loans and receivables. Loans and receivables are initially recognised at fair value plus directly related transaction costs and subsequently measured at amortised cost using effective interest rate method (EIR) less any impairment losses. Amortised cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral part of the EIR.

Loans and advances and trade and other receivables are included under loans and receivables.

5.1.4.4 Available for sale financial instrumentsAvailable-for-sale investments are non-derivative investments that were designated as available-for-sale or are not classified as another category of financial assets. Equity investments classified as available for sale are those, which are neither classified as held for trading nor designated at fair value through profit or loss. Debt securities in this category are intended to be held for an indefinite period and may be sold in response to needs for liquidity or in response to changes in the market conditions.

According to this classification equity investments in quoted and unquoted shares that are not subsidiaries, equity accounted investees (associates or joint ventures) or that have been acquired principally for the purpose of selling in the near term and debt securities(investments in treasury bills and treasury bonds) are classified under available for sale financial investments.

5.1.4.4.1 Quoted securitiesQuoted shares designated as available for sale financial assets are measured at fair value and gain or loss on account of subsequent measurement is recognised directly in equity statement through other comprehensive income (OCI) in the available for sale reserve. When the asset is disposed of, gains and losses previously recognised in equity (through OCI) are taken back to the comprehensive income statement.

5.1.4.4.2 Unquoted securitiesInvestments in equity instruments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured are accounted for at cost less any impairment losses.

5.1.4.4.3 Debt securitiesDebt securities designated as available for sale financial investments are subsequently measured at fair value. Unrealised gains and losses are recognised directly in equity statement through other comprehensive income (OCI) in the available for sale reserve. When the investment is disposed of, the cumulative gain or loss previously recognised in equity is recognised in the income statement in other income. Interest earned on debt securities classified under available for sale investments is reported as interest income using EIR.

5.2 Classification and subsequent measurement of financial liabilities On initial recognition, financial liabilities are classified into financial assets at fair value through profit or loss (held for trading or designated at fair value through profit or loss) and financial liabilities at amortised cost.

All financial liabilities are recognised initially on the trade date at fair value and in the case of loans and borrowings plus directly attributable transaction costs. The financial liabilities of the company include deposits from customers, trade and other payables, bank overdrafts, bank and non- bank borrowings, commercial paper and debentures

The subsequent measurement of financial liabilities depends on their classification.

5.2.1 Financial liabilities at fair value through profit or lossFinancial liabilities at fair value through profit or loss include liabilities classified as held for trading and derivative liabilities that are not designated as effective hedging instruments and financial liabilities designated upon initial recognition at fair value through profit or loss.


Accounting Policies

Gains and losses due to changes in fair value are recognised in the income statement.

5.2.2 Financial liabilities at amortised costFinancial liabilities not classified as fair value through profit or loss are classified as amortised cost instruments. These financial liabilities include bank and non-bank loans, deposits from customers, commercial paper and debentures issued by the Company.

5.3 Derivative financial instrumentsThe company uses interest rate swap arrangements to mitigate its interest rate risks. These derivative financial instruments are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently remeasured at fair value. Derivatives are carried in the statement of financial position as an asset or liability depending on the fair value of the instrument at the reporting date. Changes in the fair value of the derivative assets/liabilities are recorded in the statement of income

5.4 Reclassification of financial instrumentsAs per Sri Lanka Accounting Standard (LKAS 39) on Financial Instruments ;Recognition and Measurement the Company is permitted to reclassify financial instruments out of the held for trading category and into the available for sale, loans and receivables or held to maturity categories.

Reclassifications are recorded at fair value at the date of reclassification, which becomes the new amortised cost.

For a financial asset with a fixed maturity reclassified out of the ’available for sale’ category, any previous gain or loss on that asset that has been recognised in equity is amortised to profit or loss over the remaining life of the investment using the EIR. Any difference between the new amortised cost and the expected cash flows is also amortised over the remaining life of the asset using the EIR. In the case of a financial asset that does not have a fixed maturity, the gain or loss is recognised in the profit or loss when such financial asset is sold or disposed of. If the asset is subsequently determined to be impaired, then the amount recorded in equity is recycled to the income statement.

The Company may reclassify a non–derivative trading asset out of the ‘held for trading’ category and into the ‘loans and receivables’ category if it meets the definition of loans and receivables and if the Company has the intention and ability to hold the financial asset for the foreseeable future or until maturity. If a financial asset is reclassified, and if the Company subsequently increases its estimates of future cash receipts as a result of increased recoverability of those cash receipts, the effect of that increase is recognised as an adjustment to the EIR from the date of the change in estimate.

Reclassification is at the election of management, and is determined on an instrument by instrument basis. The Company does not reclassify any financial instrument into the fair value through profit or loss category after initial recognition. Further the Company does not reclassify any financial instrument out of the

fair value through profit or loss category if upon initial recognition it was designated as at fair value through profit or loss.

5.5 Derecognition of financial assets and financial liabilities5.5.1 Financial assetsA financial asset (or, where applicable a part of a financial asset or part of a group of similar financial assets) is derecognised when:

• Therightstoreceivecashflowsfromtheassethaveexpiredor,

• TheCompanyhastransferreditsrightstoreceivecashflowsfrom the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a ‘pass–through’ arrangement; and either:

• TheCompanyhastransferredsubstantiallyalltherisksandrewards of the asset or

• TheCompanyhasneithertransferrednorretainedsubstantiallyall the risks and rewards of the asset, but has transferred control of the asset

On derecognition of a financial asset, the difference between the carrying amount of the asset(or the carrying amount allocated to the portion of the asset transferred) and consideration received (including any new asset obtained less any new liability assumed)and any cumulative gain or loss that had been recognised in Other Comprehensive Income is recognised in income statement.

When the Company has transferred its rights to receive cash flows from an asset or has entered into a pass–through arrangement, and has neither transferred nor retained substantially all of the risks and rewards of the asset nor transferred control of the asset, the asset is recognised to the extent of the Company’s continuing involvement in the asset. In that case, the Company also recognises an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Company has retained.

Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Company could be required to repay.

5.5.2 Financial liabilitiesA financial liability is derecognised when the obligation under the liability is discharged or cancelled or expires.

Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a de-recognition of the original liability and the recognition of a new liability. The difference between the carrying value of the original financial liability and the consideration paid is recognised in profit or loss.


5.6 Offsetting financial instrumentsFinancial assets and financial liabilities are offset and the net amount is reported in the consolidated statement of financial position if, and only if, there is a currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis, or to realise the asset and settle the labiality simultaneously.

Fair value hedges are presented on the statement of financial position on the net basis. Income and expenses are presented on a net basis only when permitted under LKASs/SLFRSs, or for gains and losses arising from a group of similar transactions such as in the Group’s trading activity.

5.7 Impairment of financial assetsThe company assesses at each reporting date, whether there is any objective evidence that a financial asset or a group of financial assets classified as held to maturity, available for sale or loans and receivables is impaired. A financial asset or a group of financial assets is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events that have occurred after the initial recognition of the asset (an ‘incurred loss event’) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated.

Evidence of impairment may include: indications that the borrower or a group of borrowers is experiencing significant financial difficulty; the probability that they will enter bankruptcy or other financial reorganisation; default or delinquency in interest or principal payments; and where observable data indicates that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults.

5.7.1 Financial assets carried at amortised costFor financial assets carried at amortised cost (such as loans and advances to customers as well as held to maturity investments), the Company first assesses individually whether objective evidence of impairment exists for financial assets that are individually significant, or collectively for financial assets that are not individually significant. If the Company determines that no objective evidence of impairment exists for an individually assessed financial asset, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is, or continues to be, recognised are not included in a collective assessment of impairment.

If there is objective evidence that an impairment loss has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future expected credit losses that have not yet been incurred). The carrying amount of the asset is reduced with an allowance account and the amount of the loss is recognised in the income statement. Interest income

continues to be accrued on the reduced carrying amount and is accrued using the rate of interest used to discount the future cash flows for measuring the impairment loss.

The interest income is recorded as part of ‘Interest income’. Loans together with the associated allowance are written off when there is no realistic prospect of future recovery and all collateral has been realised or has been transferred to the Company. If, in a subsequent year, the amount of the estimated impairment loss increases or decreases because of an event occurring after the impairment was recognised, the previously recognised impairment loss is increased or reduced by adjusting the allowance account. If a future write–off is later recovered, the recovery is credited to the ’Credit loss expense’.

The present value of the estimated future cash flows is discounted at the financial asset’s original EIR. The calculation of the present value of the estimated future cash flows of a collateralised financial asset reflects the cash flows that may result from foreclosure less costs for obtaining and selling the collateral, whether or not foreclosure is probable.

For the purpose of a collective evaluation of impairment, financial assets are grouped on the basis of the Company’s internal credit grading system that considers credit risk characteristics such as asset type and other relevant factors.

Future cash flows on a group of financial assets that are collectively evaluated for impairment are estimated on the basis of historical loss experience for assets with credit risk characteristics similar to those in the group. Historical loss experience is adjusted on the basis of current observable data to reflect the effects of current conditions on which the historical loss experience is based and to remove the effects of conditions in the historical period that do not exist currently. The methodology and assumptions used for estimating future cash flows are reviewed regularly to reduce any differences between loss estimates and actual loss experience.

5.7.2 Available for sale financial investmentsThe company assesses at each reporting date whether there is objective evidence that an investment in available for sale securities is impaired. The amount of impairment on unquoted securities is measured as the difference between the carrying amount of the investment and the present value of estimated future cash flows from the investment and the fair value of quoted securities are determined by reference to quoted market prices.

Where there is evidence of impairment, the cumulative loss measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that investment previously recognised in the statement of comprehensive income – is removed from equity and recognised in the income statement. Impairment losses on equity investments are not reversed through the income statement; increases in the fair value after impairment are recognised in other comprehensive income.

In the case of debt instruments classified as available for sale, the company assesses individually whether there is objective evidence


Accounting Policies

of impairment. However, the amount recorded for impairment is the cumulative loss measured as the difference between the amortised cost and the current fair value less any impairment loss on that investment previously recognised in the statement of comprehensive income. If in a subsequent period the fair value of a debt instrument increases and the increase can be objectively related to a credit event occurring after the impairment loss was recognised in the statement of comprehensive income, the impairment loss is reversed through the statement of comprehensive income.

5.7.3 Cash and cash equivalentsCash and cash equivalents comprise cash, bank balances, Treasury Bills, and deposits placed with banks, maturing within three months. Bank overdrafts that are repayable on demand are also included as a component of cash and cash equivalents for the purpose of the cash flow statement.

5.7.4 Lease and hire purchase receivables5.7.4.1 LeasesAssets leased to customers, which transfer substantially all the risks and rewards incidental to the ownership other than the legal title are accounted for as finance leases in accordance with Sri Lanka Accounting Standard 17 - Leases, and are reflected in the statement of financial position after deduction of initial rentals received, unearned interest income, and allowances for impairment losses.

5.7.4.2.Hire purchaseAssets hired to customers under hire purchase agreements, which transfer all the risks and rewards incidental to ownership as well as the legal title at the end of such contractual period, are classified as hire purchase receivables. Such assets are accounted for in a similar manner as those of finance leases.

5.8 Non financial assets5.8.1 Investments in subsidiaries and associatesInvestments in subsidiaries and associates are accounted for at cost less accumulated impairment losses in the financial statements of the Company. In the consolidated financial statements, investments in associate companies are accounted under equity method reduced by accumulated impairment losses, if any and the carrying amount is adjusted for post-acquisition changes in the Group’s share of net assets of the associates.

Provision for impairment is made, where the decline in value is other than temporary, and such impairment is made for investments individually.

5.9 Inventories and other stocksInventories are valued at the lower of cost and net realisable value. The cost of raw materials is determined at purchase price including all expenses incurred in sourcing. The cost of work-in-progress is the value of raw material transferred to production. The cost of finished goods includes raw material cost and all direct and indirect expenses incurred in production. Vehicles, spare parts and other stocks are valued at cost and net realisable value whichever

is lower. Net realisable value is the estimated selling price less estimated cost of completion and the estimated cost necessary to make the sale. Inventories are regularly assessed for impairment and provisions are made accordingly.

5.10 Investments in real estateInvestments in real estate are valued at cost and net realisable value whichever is lower. Net realisable value is the estimated selling price less estimated cost of completion and the estimated cost necessary to make the sale.

5.11 Intangible assetsAn intangible asset is recognised if it is probable that future economic benefits that are attributable to the asset will flow to the enterprise and the cost of the asset can be measured reliably in accordance with Sri Lanka Accounting Standard 38 - Intangible Assets. Accordingly, these assets are stated in the statement of financial position at cost less accumulated amortisation and impairment losses if any. Subsequent expenditure on acquisition and improvement of intangible assets is capitalised only when it increases the standard of performance of these assets, and future economic benefits embodied in these assets will flow to the Company. Intangible assets with finite lives are amortised over their useful lives, and are assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method for an intangible asset with a finite useful life are reviewed at the end of the financial year. Computer software, which is not an integral part of hardware, is stated at cost less accumulated amortisation and any accumulated impairment loss. Amortisation is charged over a period of five years on a straight-line basis.

5.12 Property, plant and equipment5.12.1 Basis of recognitionProperty, plant, & equipment are recognised if it is probable that future economic benefits associated with the asset will flow to the Group and cost of the asset can be reliably measured.

5.12.2 Basis of measurementAn item of property, plant, and equipment that qualifies for recognition as an asset is initially measured at its cost. Cost includes expenditure directly attributable to acquisition of the asset and subsequent costs excluding the costs of day- to –day servicing. The costs of self-constructed assets includes the cost of materials, direct labour,any other costs directly attributable to bringing the asset to a working condition for its intended use and the costs of dismantling and removing the items and restoring the site on which they are located and capitalised borrowing costs.

5.12.3 Cost modelThe Group applies the cost model to all property, plant, and equipment except freehold land and freehold buildings and records at cost of purchase together with any incidental expenses thereon less accumulated depreciation and any accumulated impairment losses.


5.12.4 Revaluation modelThe Group applies the revaluation model for the entire class of freehold land and freehold buildings for measurement after initial recognition. Such properties are carried at revalued amounts, being their fair value at the date of revaluation, less any subsequent accumulated depreciation on buildings and any accumulated impairment losses charged subsequent to the date of revaluation.

When an asset is revalued, any increase in the carrying value is recognised in other comprehensive income and accumulated in equity under revaluation reserve, except to the extent that it reverses a revaluation decrease of the same asset previously recognised in the income statement, in which case the increase is recognised in the income statement. Decrease in the carrying value is recognised in the income statement and any decrease that offsets a previous surplus on the same asset shall be recognised in the other comprehensive income to the extent of any credit balance existing in the revaluation surplus in respect of that asset and any excess is recognised as an expense in the income statement. The difference in depreciation based on the revalued carrying amount and cost is transferred from revaluation reserve to retained earnings through equity statement. The carrying amount of an item of property, plant and equipment is derecognised on disposal or when no further economic benefits are expected from its use or disposal and the revaluation surplus included in equity in respect of the derecognised item is transferred directly to retained earnings.

When group companies occupy a significant portion of the investment property of a subsidiary, such investment properties are treated as property, plant and equipment in the consolidated financial statements and accounted for as per Sri Lanka Accounting Standard 16 Property, Plant and Equipment.

5.12.5 Subsequent costSubsequent expenditure incurred for the purpose of acquiring, extending, or improving assets of a permanent nature by means of which to carry on the business or to increase the earning capacity of the business is treated as capital expenditure and such expenses are recognised in the carrying amount of an asset. The costs associated with day-to-day servicing of property and equipment are recognised in the income statement as incurred.

5.12.6 DerecognitionThe carrying amount of an item of property, plant and equipment is derecognised on disposal or when no further economic benefits are expected from its use. Any gain or loss arising on derecognition of the asset is recognised in the income statement in the year in which the asset is derecognised.

5.12.7 DepreciationProvision for depreciation is calculated using straight-line method on the cost or other amount substituted for cost of all property, plant, and equipment other than freehold land in order to allocate depreciable amounts over the estimated useful life of such assets.

The estimated useful lives of assets are as follows:

Years

Freehold buildings 40Furniture & office equipment 10Motor vehicles and lifts 05Plant, machinery & other equipment 08Air conditioners & computer servers 08Generators 15Computers 05Other assets 10

Depreciation of an asset begins when it is available for use and ceases at the earlier of the date that the asset is classified as held for sale and the date that the asset is derecognised.

5.12.8 Operating lease assetsOperating lease assets are classified under property, plant, and equipment at cost less accumulated depreciation and impairment losses, if any. Cost of the asset net of residual value is depreciated over the estimated useful life. Residual value is the estimated net amount that the Company would currently obtain from disposal of the asset at the end of its estimated useful life

5.13 Impairment of non- financial assetsThe Group assesses at each reporting date whether there is an indication of objective evidence of impairment of assets. If any such indication exists, the Company makes an estimate of the asset’s recoverable amount. An asset’s recoverable amount is the higher of an asset’s or cash generating unit’s fair value less costs to sell and its value in use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. Where the carrying amount of an asset exceeds its recoverable amount, the asset is considered impaired and is reduced to its recoverable amount. Impairment losses of operations are recognised in the income statement in those expense categories consistent with the function of the impaired asset, except for property previously revalued, where the revaluation was taken to equity. In this case, the impairment is recognised against the revaluation reserve to the extent that it reverses a previous revaluation surplus. An assessment is made at each reporting date as to whether there is any indication that previously recognised impairment losses may no longer exist or may have decreased. Previously recognised impairment losses, other than in respect of goodwill, are reversed only if there has been an increase in the recoverable amount of such asset. Such increased carrying amount of an asset attributable to reversal of an impairment loss is recognised only up to the carrying amount that would have been determined had no impairment loss been recognised for the asset in prior years.

Impairment losses relating to goodwill are not reversed in future periods.


Accounting Policies

5.14 Liabilities and provisions5.14.1 Deposits from customersDeposits include term deposits and certificates of deposit accepted under various tenures ranging from one month to five years and savings deposits. They are accounted for at amortised cost using the effective interest rate method.

5.14.2 Income taxIncome tax for the year comprises current tax and deferred tax. Income tax is recognised in the statement of income except to the extent that it relates to items directly recognised in equity or other comprehensive income.

The liability for current taxation has been computed on the basis of the profit for the year as adjusted for taxation purposes in accordance with the provisions of the Inland Revenue Act No.10 of 2006 and amendments thereto as well as relevant Board of Investment (BOI) regulations in respect of subsidiary Hedges Court Residencies (Pvt) Limited.

5.14.3 Deferred taxDeferred tax is recognised using the 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. Deferred tax is measured at the tax rates that are expected to apply for the temporary differences when they reverse, based on the tax laws that have been enacted or substantively enacted as at the reporting date. A deferred tax asset is recognised for all deductible temporary differences, carry forward unused tax credits and unused tax losses, only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised. Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to set off current tax assets against current tax liabilities and when the deferred taxes relate to the same taxable entity and the same taxation authority. Deferred tax arising on items recognised in other comprehensive income and equity is dealt with through the other comprehensive income and equity statement respectively.

5.14.4 Employee Benefits5.14.4.1 Defined benefit plansA defined benefit plan is a post-employment benefit plan other than a defined contribution plan. The estimation of this liability, determined by an independent, qualified actuary necessarily involves long-term assumptions, which have been disclosed in Note 47. The defined benefit obligation is calculated annually using the projected unit credit method. The services of a qualified actuary is obtained once in every 3 years to determine the valuation of the defined benefit obligation for the Company as well as those subsidiary companies within the Group that adopted the actuarial valuation method in computing the provision required in accordance with Sri Lanka Accounting Standard 19 - Employee

Benefits. This standard also provides actuarial techniques, which approximates the actuarial valuation, which has been adopted by the other companies within the Group that have not adopted the actuarial valuation method. The projected unit credit method projects the current data using the actuarial assumptions and calculates projected benefits at the participants’ assumed retirement date. The key assumptions used in determining the defined benefit obligations are given in Note 47.

The defined benefit obligation recognised in the balance sheet represents the present value of the defined benefit obligation as adjusted for unrecognised actuarial gains and losses and unrecognised past service cost, and as reduced by the fair value of plan assets. Any asset resulting from this calculation is limited to unrecognised actuarial losses and past service cost, plus the present value of available refunds and reductions in future contributions to the plan. Actuarial gains and losses that exceed 10% of the greater of the present value of the defined benefit obligation and the fair value of plan assets at the end of the prior year are amortised over the expected average remaining working lives of the participating employees. Past service, cost is recognised immediately to the extent that the benefits are already vested, and otherwise is amortised on a straight-line basis over the average period until the benefits become vested. The gratuity liability of the parent Company is externally funded by a gratuity fund established in 1987, with the investments of the fund being mainly in fixed deposits with approved banks. Gratuity liabilities of the other companies in the Group are not funded externally. Provision is made for defined benefit plan liability for all employees from the first year of service in conformity with LKAS 19 (6) - Employee Benefits. This liability of the parent Company is computed on the following basis:

Length of service (years) No of months’ salary for each completed year

Up to 15 1/215 up to 30 130 up to 35 1 ½ 35 up to 40 2Over 40 2 ½

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. Liabilities for the other companies in the Group are computed on the basis of half a month’s salary for each year of completed service.

5.14.4.2 Defined contribution plansA defined contribution plan is a post-employment benefit plan under which an entity pays fixed contributions into a separate entity and will have no legal or constructive obligation to pay further amounts. Obligations for contributions to the Employees’ Provident Fund and Employees’ Trust Fund covering all employees are recognised as an expense in the income statement as incurred.


5.15 ProvisionsIn accordance with Sri Lanka Accounting Standard 37- Provisions, Contingent Liabilities and Contingent Assets, recognition of a provision in the statement of financial position is made when the Company has a present legal or constructive obligation as a result of past events and it is probable that an outflow of economic benefits will be required to settle the obligation.

5.16 Investment fund accountAs introduced through the budget proposals - 2011, every person or partnership that carries on the business of banking or financial services is required to establish and operate an Investment Fund Account. Licensed Finance Companies are required to transfer funds to the Investment Fund Account and build a permanent fund as and when taxes are paid after 01st January 2011 in the following manner:

8% of the profits calculated for the payment of Value Added Tax (VAT) on financial services on dates specified in the VAT Act for payment of VAT.

5% of the profit before tax calculated for income tax purposes on dates specified in Section 113 of the Inland Revenue Act for the self-assessment payments of tax.

Funds in the Investment Fund Account are to be utilised through investment in long-term Government Securities or lending in specified sectors at prescribed rates.

An Investment Fund Account has been created by the Company in compliance with the above and details of amounts reserved and invested are given in Note 52.

5.17 Commitments and contingenciesThe Company’s share of any contingencies and capital commitments of a Subsidiary, Associate or Joint Venture 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 Statement of Financial Position but are disclosed unless they are remote.

Capital commitments and contingent liabilities as at the date of the statement of financial position are disclosed in the respective notes to the consolidated financial statements. Contingent assets are disclosed, where an inflow of economic benefit is probable.

5.18 Foreign currency transactionsTransactions in foreign currencies are translated to Sri Lankan Rupees at the exchange rates that prevailed at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies as at the balance sheet date are translated to Sri Lankan

Rupees using the closing rates that prevailed at the balance sheet date. Foreign exchange differences arising on translation are recognised in the statement of other comprehensive income.

5.19 Earnings per shareThe Group presents basic and diluted earnings per share (EPS) 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 ordinary shareholders and the weighted average number of ordinary shares outstanding for the effects of all dilutive potential ordinary shares.

5.20 Segmental reportingA segment is a distinguishable component of the Group that is engaged in providing an individual product or service (Business segment) or in providing services within a particular economic environment (Geographical segment) which is subject to risks and rewards that are different from those of other segments. In accordance with Sri Lanka Financial Reporting Standard 8 Operating Segments, segmental information is presented for identifiable operative units of the group, classified into eight segments according to the nature of products or services rendered. These business segments comprise of leasing, hire purchase and advances, Vehicle hire, medical services, Power generation, Manufacturing, Insurance broking, Investments in shares and units and Real estate. Performance and operating results of the above business segments are regularly reviewed by the management to make decisions on resource allocation. Segment results, assets, and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis.

5.21 Events after the reporting periodAll material events after the statement of financial position date have been considered and where appropriate adjustments to/or disclosures in the respective notes to the consolidated financial statements have been made.

5.22 Related party transactionsDisclosures are made In respect of the transactions in which one party has the ability to control or exercise significant influence over the financial and operating policies of the other, irrespective of whether a price is charged.The Directors have also disclosed transactions if any, that could be classified as related party transactions in terms of LKAS 24 “Related Party Disclosures” which is adopted in the preparation of the Financial Statements. Those transactions disclosed by the Directors are given in Note 58 to the Financial Statements forming part of the Annual Report of the Board of Directors.

6 Recognition of income and expensesRevenue is recognised to the extent that it is probable that the economic benefits will flow to the Company and the revenue and associated costs incurred or to be incurred can be reliably


Accounting Policies

measured. Revenue is measured at the fair value of the consideration received or receivable net of trade discounts and sales taxes. The following specific criteria are used for the purpose of recognition of revenue.

6.1 Interest and similar income and expenseFor all financial instruments measured at amortised cost, interest bearing financial assets classified as available for sale and financial instruments designated at fair value through profit or loss, interest income or expense is recorded using the Effective Interest Rate. EIR is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or a shorter period, where appropriate, to the net carrying amount of the financial asset or financial liability. The calculation takes into account all contractual terms of the financial instrument (for example, prepayment options) and includes any fees or incremental costs that are directly attributable to the instrument and are an integral part of the EIR, but not future credit losses. Interest expenses of the group other than the parent company are recognised under other expenses.

The carrying amount of the financial asset or financial liability is adjusted if the Company revises its estimates of payments or receipts. The adjusted carrying amount is calculated based on the original EIR and the change in carrying amount is recorded as ’Interest and similar income’ for financial assets and ’Interest and similar expense’ for financial liabilities.

Once the recorded value of a financial asset or a group of similar financial assets has been reduced due to an impairment loss, interest income continues to be recognised using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss.

6.2 Fees and commission income and expense Fees and commission income and expense that are integral to the effective interest rate on a financial asset or liability are included in the measurement of the effective interest rate.

Fees and commission income are recognised as the related services are performed.

Other fees and commission expense relate mainly to transaction and service fees, which are expensed as the services are received.

Fee and commission expenses are recognised on an accrual basis.

6.3 Income from leases6.3.1 Finance leasesIn accordance with Sri Lanka Accounting Standard (LKAS-17) on Leases, recognition of finance income on leases is accounted based on a pattern reflecting a constant periodic rate of return on capital outstanding. The excess of aggregate lease rentals receivable over the cost of the leased asset constitutes the total unearned interest income at the commencement of the contract. The unearned interest income is taken into revenue on an accrual

basis over the term of the lease commencing from the month in which the first rental is due, in proportion to the reducing capital outstanding balance. Lease receivables are regularly reviewed for impairment and, if impaired, income allocation is revised and the reduction in respect of amounts accrued is recognised immediately.

6.3.2 Operating leasesLease income from operating leases is recognised on a straight line basis over the lease term.

6.4 Hire purchaseRecognition of interest income from hire purchase facilities is similar to that of leases; where interest income is recognised based on a pattern reflecting a constant periodic rate of return on the capital outstanding. Interest income is taken into revenue on an accrual basis over the term of the contract commencing from the month in which the first rental is due, in proportion to the capital outstanding. Hire purchase receivables are regularly reviewed for impairment and, if impaired, income allocation is revised and the reduction in respect of amounts accrued, is recognised immediately.

6.5 Interest income on loans and advancesInterest receivable on loans and advances is determined using the effective interest rate method and recognised on accrual basis. Loans and advances are regularly reviewed for impairment and, if impaired, income allocation is revised and the reduction in respect of amounts accrued, is recognised immediately.

6.6 Overdue interestOverdue interest on lease, hire purchase, loans, and other advances is recognised on a cash basis.

6.7 Interest income on investments in government securitiesInterest receivable is computed using effective interest rate method and taken to the income statement on an accrual basis, based on a pattern reflecting a constant periodic rate of return. Interest on government securities is grossed up with the notional tax credit available under the Inland Revenue Act No. 10 of 2006 and amendments thereto as disclosed in Note No.11.

6.8 Interest income on deposits with banksInterest receivable is computed using effective interest rate method and taken to the income statement on an accrual basis.

6.9 Dividend incomeDividend income is recognised in the income statement on the date that the Group’s right to receive payment is established.

6.10 Income on housing projects and real estate incomeIncome on housing projects and real estate income is recognised on an accrual basis.


6.11 Interest income on rent-purchase facilities for real estateRental income on rent-purchase facilities provided on sale of real estate is recognised on an accrual basis.

6.12 Profit or loss on sale of securitiesProfit or loss arising from the sale of marketable securities (classified into FVTPL category is accounted for in the income statement on the date of the transaction.

6.13 Profit/loss from sale of property, plant, and equipmentProfit/loss from sale of property, plant, and equipment is recognised in the period in which the sale occurs.

7 significant accounting policies specific to the business of the subsidiaries7.1 Sale of ServicesRevenue from energy supplied is recognised, upon delivery of Energy to Ceylon Electricity Board and delivery of electrical energy is completed when electrical energy meeting the specifications as set out in the Power Purchase Agreement is received at the metering point.

7.2 Sale of apartmentsRevenue is recognised on percentage completion basis. For this purpose, the property is deemed to be sold once 75% of sale proceeds have been collected.

7.3 Insurance brokingThe commission income of the company is recognised on an accrual basis and matched with related costs and expenses.

7.4 Recovery of bad debtsBad debts recovered are recognised as and when the debts are recovered.

7.5 Expenditure recognitionExpenses are recognised in the income statement on the basis of a direct association between the cost incurred and the earnings of specific items of income. All expenses incurred in the running of the business and in maintaining property, plant and equipment in a state of efficiency are charged to the income statement while interest and other expenses payable are recognised on an accrual basis in accordance with Sri Lanka Accounting Standard (LKAS 23) “Borrowing Costs”.

7.6 Borrowing costsBorrowing costs are recognised as an expense in the period in which they are incurred, except to the extent that they are directly attributable to the acquisition, construction, or production of a qualifying asset, in which case they are capitalised as part of the cost of that asset. in accordance with Sri Lanka Accounting Standard (LKAS 23) “Borrowing Costs”.

8 Statement of cash flowThe statement of cash flow has been prepared using the direct method in accordance with Sri Lanka Accounting Standard 7 - Statement of cash flows. 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. The cash and cash equivalent include cash in hand, balances with banks, placements with banks, money at call and short notice.

9 New Accounting Standards issued but not yet effective as at balance sheet dateCertain new standards, amendments, and interpretations to existing standards have been published by the Institute of Chartered Accountants of Sri Lanka, but are not yet effective up to the date of authorisation of these financial statements are given below. Possible impact on the financial statements of the application of the above new standards have not yet been assessed, and the company intends to adopt these standards, interpretations and amendments to existing standards that are expected to be relevant to the group’s financial statements when they become effective.

Sri Lanka Financial Reporting Standards (SLFRS 9) – Financial instruments: classification and measurement

Sri Lanka Financial Reporting Standards (SLFRS10) – Consolidated financial statements

Sri Lanka Financial Reporting Standards (SLFRS11) –Joint arrangements

Sri Lanka Financial Reporting Standards (SLFRS12) – Disclosure of interests in other entities

Sri Lanka Financial Reporting Standards (SLFRS13) – Fair value measurement


Notes to the Financial Statements Group Company 2012/13 2011/12 2012/13 2011/12 Rs.’000 Rs.’000 Rs.’000 Rs.’000

10 Income Interest income (Note 11) 9,755,419 7,492,975 9,796,140 7,539,898 Other operating income (Note 13) 1,022,377 1,074,360 333,137 438,039 Other income (Note 14) 540,978 580,829 628,165 646,734 11,318,774 9,148,164 10,757,442 8,624,671

11 Interest income Leases 5,049,322 3,759,476 5,049,322 3,759,476 Hire purchase 3,472,401 2,781,689 3,472,401 2,781,689 Held to maturity investments in government securities and

deposits with banks 302,124 183,723 302,124 183,723 Fair value changes in derivative financial instruments - 65,368 - 65,368 Interest on facilities granted under Investment Fund Account (IFA) 15,049 794 15,049 794 Interest on government securities under IFA scheme 21,224 6,841 21,224 6,841 Loans, advances and others 895,299 695,084 936,020 742,007 9,755,419 7,492,975 9,796,140 7,539,898

Of which from financial instruments held at: Amortised cost 9,755,419 7,427,607 9,796,140 7,474,530 Held at fair value through profit or loss - 65,368 - 65,368 9,755,419 7,492,975 9,796,140 7,539,898

Notional credit for withholding tax on government securities on secondary market transactions

The Inland Revenue Act No.10 of 2006, provides that a company which derives interest income from secondary market transactions in government securities would be entitled to a notional tax credit (being one ninth of the net interest income), provided such interest income forms part of the statutory income of the company for that year of assessment.

Accordingly, interest income from secondary market transactions in government securities for the year has been grossed up in the financial statements with the value of such notional credit which amounts to Rs.22.08 Million (2011/12 - Rs.13.32 Million) for the company and the Group.

Group Company 2012/13 2011/12 2012/13 2011/12 Rs.’000 Rs.’000 Rs.’000 Rs.’000

12 Interest expenses Deposits 3,010,368 2,165,955 3,041,408 2,189,022 Bank loans and overdrafts 863,554 400,313 863,554 400,313 Non- bank loans 48,683 56,406 48,683 56,406 Interest on other debt securities 146,437 40,629 146,437 40,629 4,069,042 2,663,303 4,100,082 2,686,370


Group Company 2012/13 2011/12 2012/13 2011/12 Rs.’000 Rs.’000 Rs.’000 Rs.’000

13 Other operating income Vehicle hiring income 333,103 437,612 333,137 438,039 Manufacturing and trading income 349,002 327,648 - - Insurance broking 200,571 159,098 - - Medical services 51,926 52,312 - - Power generation 87,775 97,690 - - 1,022,377 1,074,360 333,137 438,039

14 Other income Commissions 1,360 2,589 1,360 2,589 Service charges 138,482 132,698 138,482 132,698 Profit on sale of vehicles 47,710 54,864 46,160 51,324 Recovery of bad debts 80,414 79,145 79,059 77,297 Profit on sale of property, plant and equipment 83,317 116,846 74,805 114,968 Dividend income from available for sale securities 17,043 17,499 11,964 13,920 Dividend income from subsidiaries - - 55,515 57,937 Dividend income from associates - - 53,790 62,800 Profit on real estate operations 7,028 65,806 4,780 21,973 Profit on maintenance of vehicles 45,902 27,729 45,902 27,729 Fair value changes of held for trading investments 8,442 - 8,440 - Others 111,280 83,653 107,908 83,499 540,978 580,829 628,165 646,734

15 Operating expenses Operating expenses include the following: Directors’ emoluments 122,205 114,074 98,970 92,078 Legal expenses 7,711 7,917 7,711 7,420 Depreciation 364,063 365,523 306,821 308,377 Amortisation of intangible assets 13,901 13,116 13,277 12,520 Auditor’s remuneration - Audit 3,168 3,239 1,775 1,678 Non-audit 733 447 250 143 Donations 3,570 3,067 3,065 2,894 Employees’ Provident Fund contributions 101,577 90,463 82,816 73,511 Employees’ Trust Fund contributions 23,989 21,331 19,338 17,159 Fair value changes of FVTPL investments - 7,514 - 7,440

16 Employee retirement benefit expenses Current service cost 49,017 43,193 42,293 38,103 Interest cost 87,706 70,762 79,820 63,151 Gratuity charge for the year 1,274 1,030 - - Expected return on assets (12,945) (12,615) (12,945) (12,615) (Gain)/loss arising from changes in the assumption in the previous years (1,521) (512) - - 123,532 101,858 109,168 88,639

All relevant companies in the Group have either obtained actuarial valuations or used acturial techniques to determine the present value of retirement benefit obligations and current service cost as required by LKAS-19-Retirement Benefits.


17 Impairment charges/(reversals) on financial assets and other credit losses Group Company 2012/13 2011/12 2012/13 2011/12 Rs.’000 Rs.’000 Rs.’000 Rs.’000

Charge/(reversal) to the income statement on individual impairment (Note 34) 9,309 (100,179) 9,309 (100,179)

Charge/(reversal) to the income statement on collective impairment (Note 34) 50,900 (28,705) 50,900 (28,705)

60,209 (128,884) 60,209 (128,884) Charge/(write back) to the income statement on other credit losses (808) 324 (808) 324 Bad debts written off 25,684 - 25,684 - Trade and other receivables 1,160 1,190 (121) 191 Repossessed vehicles 115,196 39,850 115,196 39,850 Total impairment charges/(reversals) and other credit losses 201,441 (87,520) 200,160 (88,519)

18 Share of profit of associates Nations Trust Bank PLC 574,949 477,797 Tea Smallholder Factories PLC 27,052 2,200 Capital Suisse Asia Ltd. 14,082 15,125 616,084 495,122

19 Group profit/(loss) before income tax Central Finance Company PLC 3,825,203 3,627,297 Central Industries PLC 127,057 149,352 Central Developments Ltd. 8,314 3,324 Dehigama Hotels Company Ltd. 22,495 21,852 Central Transport & Travels Ltd. 8,399 2,575 Central Construction & Development (Pvt) Ltd. (20) 360 Central Homes (Pvt) Ltd. 3,003 1,113 CF Growth Fund Ltd. 12,812 16,486 Expanded Plastic Products Ltd. 932 846 Central Mineral Industries (Pvt) Ltd. 3,027 1,341 Kandy Private Hospitals Ltd. 13,160 15,090 Mark Marine Services (Pvt) Ltd. 56,446 70,281 Hedges Court Residencies (Pvt) Ltd. (2,841) (7,141) CF Insurance Brokers (Pvt) Ltd. 98,452 53,231 4,176,439 3,956,007 Inter-group adjustments (172,710) (159,611) Share of profit of associates 616,084 495,122

4,619,813 4,291,518

20 Income tax expense The provision for the year is made up as follows: Current tax charge 832,356 754,315 749,029 695,969 Under provision of current tax relating to previous years 1,928 - - - Deemed dividend tax - 11 - - 10% Withholding tax on inter-company dividends 18,765 20,743 - - Increase in deferred tax liabilities (Note 38) 315,169 300,664 301,535 322,671 Increase/(decrease) in deferred tax assets (Note 38) (10,577) 8,801 - - Current/deferred tax share of associates 177,455 147,190 - - 1,335,096 1,231,724 1,050,564 1,018,640

20.1 Income tax on profit of the Company has been computed at the rate of 28% (2011/12- 28%) on the taxable income. Group companies other than Kandy Private Hospitals Ltd and Hedges Court Residencies (Pvt) Ltd. have computed taxation at 28% for 2012/13 financial year as per the provisions of Inland Revenue (Amendment) Act No.22 of 2011. (2011/12 Central Industries PLC at 28% and all other subsidiaries at 10%). Operating income of Kandy Private Hospitals Ltd. is taxed at 12% during 2012/13 financial year while other income is liable at 28%. Hedges Court Residencies (Pvt) Ltd. is entitled to a five year tax holiday ending 31st March 2013 on operating income under BOI regulations. Other income of Hedges Court Residencies (Pvt) Ltd. is liable to income tax at 28% for 2012/13 (2011/12-28%).

Notes to the Financial Statements


20.2 A reconciliation between tax expense and the product of accounting profit multiplied by the statutory tax rate is as follows: Group Company

2012/13 2011/12 2012/13 2011/12 Rs.’000 Rs.’000 Rs.’000 Rs.’000

Profit before tax 4,619,813 4,291,518 3,825,203 3,627,297 Losses before tax 2,861 7,141 - - Share of results of associates (616,084) (495,122) - - Other consolidation adjustments 172,710 159,611 - - Accounting profit chargeable for income tax 4,179,300 3,963,148 3,825,203 3,627,297 Tax effect on chargeable profits at 28% and

12% (2011/12-28% and 10%) 1,167,788 1,079,044 1,071,057 1,015,643 Tax effect on allowable credits (2,298,611) (1,967,459) (2,261,664) (1,954,432) Tax effect on exempt profits (62,826) (83,484) (51,715) (68,028) Tax effect on non-deductible expenses 2,018,073 1,718,852 1,991,351 1,702,786 Tax effect on adjustments 599 7,565 - - Tax effect on losses claimed 7,333 (203) - - Charged to income statement 832,356 754,315 749,029 695,969 Under provision for previous years 1,928 - - - Deemed dividend tax - 11 - - Increase in deferred tax liabilities (Note 38) 315,169 300,664 301,535 322,671 Increase/(decrease) in deferred tax assets (Note 38) (10,577) 8,801 - - 10% WHT on inter company dividends 18,765 20,743 - - Current/deferred tax share of associates 177,455 147,190 - -

1,335,096 1,231,724 1,050,564 1,018,640

Effective tax rate (Excluding deferred taxation) 19.92 19.03 19.58 19.19

21 Earnings per share The calculation of basic and diluted earnings per share is based on the net profit for the year attributable to ordinary shareholders and

the weighted average number of ordinary shares outstanding during the year.

Group 2012/13 2011/12

Profit attributable to equity holders of the parent (Rs.000) 3,217,059 2,964,837 Number of shares used as denominator (‘000) 104,883 104,883

Basic and diluted Earnings per Share (Rs.) 30.67 28.27 22 Dividends Group 2012/13 2011/12 Paid: First interim Rs.0.85 (2011/12: Rs.0.70) 89,151 73,418 Second interim Rs.0.85 (2011/12: Rs.0.70) 89,151 73,418 Proposed: Final Rs.1.20 (2011/12: Rs.1.10) 125,859 115,371 304,161 262,207 Dividend per share (Rs.) - Paid and proposed 2.90 2.50


23 Measurement of financial instruments23.1 Group - 31.03.2013 Fair value Held to Loans and Available Others Total through maturity receivables for sale (AFS) profit or loss Rs.‘000 Rs.‘000 Rs.‘000 Rs.‘000 Rs.‘000 Rs.‘000 Assets Cash in hand and at banks - - 689,006 - - 689,006 Held to maturity investments in

government securities - 1,920,143 - - - 1,920,143 Available for sale investments in

government securities - - - 242,304 - 242,304 Deposits with banks - - 717,168 - - 717,168 Financial assets held for trading 33,101 - - - - 33,101 Trade and other receivables - - 749,957 - - 749,957 Available for sale securities - - - 195,404 - 195,404 Net investment in leases & hire purchase - - 42,382,870 - - 42,382,870 Loans and advances - - 1,935,269 - - 1,935,269 Total financial assets 33,101 1,920,143 46,474,270 437,708 - 48,865,222 Inventories and other stocks - - - - 1,157,779 1,157,779 Investments in real estate - - - - 68,079 68,079 Investments in associates - - - - 2,364,929 2,364,929 Deferred tax asset - - - - 10,705 10,705 Intangible assets - - - - 36,973 36,973 Tax receivables - - - - 6,237 6,237 Property, plant and equipment - - - - 4,047,417 4,047,417 Total non-financial assets - - - - 7,692,119 7,692,119 Total assets 33,101 1,920,143 46,474,270 437,708 7,692,119 56,557,341

Fair value through Amortised Others Total profit or loss cost Rs.‘000 Rs.‘000 Rs.‘000 Rs.‘000 Liabilities Bank overdrafts - 855,962 - 855,962 Commercial paper - 10,892 - 10,892 Trade and other payables - 1,621,588 - 1,621,588 Derivative financial instruments 23,096 - - 23,096 Deposits - 26,984,757 - 26,984,757 Bank loans - 4,579,999 - 4,579,999 Non bank loans - 1,433,880 - 1,433,880 Debentures - 757,516 - 757,516 Total financial liabilities 23,096 36,244,594 - 36,267,690

Tax payable - - 258,306 258,306 Retirement benefit obligations - - 571,184 571,184 Deferred tax liability - - 1,939,075 1,939,075 Total non-financial liabilities - - 2,768,565 2,768,565 Total liabilities 23,096 36,244,594 2,768,565 39,036,255



23 Measurement of financial instruments (contd)23.2 Group - 31.03.2012 Fair value Held to Loans and Available Others Total through maturity receivables for sale (AFS) profit or loss Rs.‘000 Rs.‘000 Rs.‘000 Rs.‘000 Rs.‘000 Rs.‘000 Assets Cash in hand and at banks - - 356,483 - - 356,483 Held to Maturity investments in


government securities - - - 165,365 - 165,365 Deposits with banks - - 1,551,842 - - 1,551,842 Financial assets held for trading 24,659 - - - - 24,659 Trade and other receivables - - 1,143,082 - - 1,143,082 Available for sale securities - - - 192,049 - 192,049 Net investment in leases & hire purchase - - 36,479,958 - - 36,479,958 Loans and advances - - 1,673,597 - - 1,673,597 Total financial assets 24,659 1,411,862 41,204,962 357,414 - 42,998,897 Inventories and other stocks - - - - 872,984 872,984 Investments in real estate - - - - 92,438 92,438 Investments in associates - - - - 2,011,360 2,011,360 Deferred tax asset - - - - 128 128 Intangible assets - - - - 38,316 38,316 Tax receivables - - - - 37,688 37,688 Property, plant and equipment - - - - 3,745,802 3,745,802 Total non-financial assets - - - - 6,798,716 6,798,716 Total assets 24,659 1,411,862 41,204,962 357,414 6,798,716 49,797,613

Fair value through Amortised Others Total profit or loss cost Rs.‘000 Rs.‘000 Rs.‘000 Rs.‘000 Liabilities Bank overdrafts - 1,711,728 - 1,711,728 Commercial paper - 400,496 - 400,496 Trade and other payables - 1,769,585 - 1,769,585 Derivative financial instruments 66,580 - - 66,580 Deposits - 22,795,351 - 22,795,351 Bank loans - 4,083,776 - 4,083,776 Non bank loans - 1,952,535 - 1,952,535 Debentures - 251,977 - 251,977 Total financial liabilities 66,580 32,965,448 - 33,032,028

Tax payable - - 140,370 140,370 Retirement benefit obligations - - 480,040 480,040 Deferred tax liability - - 1,623,280 1,623,280 Total non-financial liabilities - - 2,243,690 2,243,690 Total liabilities 66,580 32,965,448 2,243,690 35,275,718


23 Measurement of financial instruments (contd)23.3 Company - 31.03.2013 Fair value Held to Loans and Available Others Total through maturity receivables for sale (AFS) profit or loss Rs.‘000 Rs.‘000 Rs.‘000 Rs.‘000 Rs.‘000 Rs.‘000 Assets Cash in hand and at banks - - 597,787 - - 597,787 Held to maturity investments in


government securities - - - 242,304 - 242,304 Deposits with banks - - 712,931 - - 712,931 Financial assets held for trading 33,000 - - - - 33,000 Trade and other receivables - - 254,566 - - 254,566 Available for sale securities - - - 189,074 - 189,074 Net investment in leases & hire purchase - - 42,382,870 - - 42,382,870 Loans and advances - - 2,169,264 - - 2,169,264 Total financial assets 33,000 1,920,143 46,117,418 431,378 - 48,501,939 Inventories and other stocks - - - - 903,742 903,742 Investments in real estate - - - - 68,079 68,079 Investments in associates - - - - 523,458 523,458 Investments in subsidiaries - - - - 306,456 306,456 Intangible assets - - - - 35,375 35,375 Property, plant and equipment - - - - 3,134,479 3,134,479 Total non-financial assets - - - - 4,971,589 4,971,589 Total assets 33,000 1,920,143 46,117,418 431,378 4,971,589 53,473,528

Fair value through Amortised Others Total profit or loss cost Rs.‘000 Rs.‘000 Rs.‘000 Rs.‘000 Liabilities Bank overdrafts - 840,177 - 840,177 Commercial paper - 10,892 - 10,892 Trade and other payables - 1,332,534 - 1,332,534 Derivative financial instruments 23,096 - - 23,096 Deposits - 27,265,911 - 27,265,911 Bank loans - 4,526,799 - 4,526,799 Non bank loans - 1,433,880 - 1,433,880 Debentures - 757,516 - 757,516 Total financial liabilities 23,096 36,167,709 - 36,190,805

Tax payable - - 237,166 237,166 Amounts due to subsidiaries - - 112,078 112,078 Retirement benefit obligations - - 488,104 488,104 Deferred tax liability - - 1,886,375 1,886,375 Total non-financial liabilities - - 2,723,723 2,723,723 Total liabilities 23,096 36,167,709 2,723,723 38,914,528



23 Measurement of financial instruments (contd)23.4 Company - 31.03.2012 Fair value Held to Loans and Available Others Total through maturity receivables for sale (AFS) profit or loss Rs.‘000 Rs.‘000 Rs.‘000 Rs.‘000 Rs.‘000 Rs.‘000 Assets Cash in hand and at banks - - 307,421 - - 307,421 Held to maturity investments in


government securities - - - 165,365 - 165,365 Deposits with banks - - 1,551,842 - - 1,551,842 Financial assets held for trading 24,560 - - - - 24,560 Trade and other receivables - - 712,036 - - 712,036 Available for sale securities - - - 185,719 - 185,719 Net investment in leases & hire purchase - - 36,479,958 - - 36,479,958 Loans and advances - - 2,057,030 - - 2,057,030 Total financial assets 24,560 1,411,862 41,108,287 351,084 - 42,895,793 Inventories and other stocks - - - - 609,281 609,281 Investments in real estate - - - - 72,364 72,364 Investments in associates - - - - 523,458 523,458 Investments in subsidiaries - - - - 312,987 312,987 Intangible assets - - - - 36,109 36,109 Property, plant and equipment - - - - 2,865,332 2,865,332 Total non-financial assets - - - - 4,419,531 4,419,531 Total assets 24,560 1,411,862 41,108,287 351,084 4,419,531 47,315,324

Fair value through Amortised Others Total profit or loss cost Rs.‘000 Rs.‘000 Rs.‘000 Rs.‘000 Liabilities Bank overdrafts - 1,687,625 - 1,687,625 Commercial paper - 400,496 - 400,496 Trade and other payables - 1,557,854 - 1,557,854 Derivative financial instruments 66,580 - - 66,580 Deposits - 22,953,112 - 22,953,112 Bank loans - 4,035,176 - 4,035,176 Non bank loans - 1,952,535 - 1,952,535 Debentures - 251,977 - 251,977 Total financial liabilities 66,580 32,838,775 - 32,905,355

Tax payable - - 139,092 139,092 Amounts due to subsidiaries - - 224,296 224,296 Retirement benefit obligations - - 409,734 409,734 Deferred tax liability - - 1,584,840 1,584,840

Total non-financial liabilities - - 2,357,962 2,357,962 Total liabilities 66,580 32,838,775 2,357,962 35,263,317



24 Cash in hand and at banks Group Company 31.03.2013 31.03.2012 01.04.2011 31.03.2013 31.03.2012 01.04.2011 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000

Cash floats 6,486 5,944 1,408 6,400 5,908 1,322 Cash in hand 467,163 257,679 170,030 465,249 256,020 169,559 Cash at bank 215,357 92,860 174,243 126,138 45,493 102,316 689,006 356,483 345,681 597,787 307,421 273,197

25 Financial assets held for trading-investments in quoted securities Group Company No. of Cost Market No. of Cost Market No. of Cost Market No. of Cost Market No. of Cost Market No. of Cost Market Shares Value Shares Value Shares Value Shares Value Shares Value Shares Value 31.03.2013 31.03.2013 31.03.2012 31.03.2012 01.04.2011 01.04.2011 31.03.2013 31.03.2013 31.03.2012 31.03.2012 01.04.2011 01.04.2011 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000

Banks, Finance & Insurance National Development Bank PLC 200,000 26,000 33,000 200,000 26,000 24,560 100,000 26,000 32,000 200,000 26,000 33,000 200,000 26,000 24,560 100,000 26,000 32,000 26,000 33,000 26,000 24,560 26,000 32,000 26,000 33,000 26,000 24,560 26,000 32,000

Diversified holdings Hemas Holdings PLC 3,750 30 101 3,750 30 99 3,750 30 173 - - - - - -

Net carrying amount 33,101 24,659 32,173 33,000 24,560 32,000

26 Available for sale investments - government securities Group Company 31.03.2013 31.03.2012 01.04.2011 31.03.2013 31.03.2012 01.04.2011 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000

Investments in Treasury Bills under IFA scheme 63,747 83,775 - 63,747 83,775 - Investments in Treasury Bonds under IFA scheme 180,765 94,159 - 180,765 94,159 - 244,512 177,934 - 244,512 177,934 - Appreciation/(depreciation) in market value Balance at the beginning of the year (12,569) - - (12,569) - - Appreciation/(depreciation) for the Year 10,361 (12,569) - 10,361 (12,569) - Balance at the end of the year (2,208) (12,569) - (2,208) (12,569) - Total 242,304 165,365 - 242,304 165,365 -

Receivable within one year 63,747 83,775 - 63,747 83,775 - Receivable after one year 178,557 81,590 - 178,557 81,590 - Total 242,304 165,365 - 242,304 165,365 -

27 Deposits with banks Deposits with banks at amortised cost 695,875 1,551,842 95,728 691,638 1,551,842 95,728 Saving deposits 21,293 - - 21,293 - - 717,168 1,551,842 95,728 712,931 1,551,842 95,728

The above investments have maturity within one year.


24 Cash in hand and at banks Group Company 31.03.2013 31.03.2012 01.04.2011 31.03.2013 31.03.2012 01.04.2011 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000

Cash floats 6,486 5,944 1,408 6,400 5,908 1,322 Cash in hand 467,163 257,679 170,030 465,249 256,020 169,559 Cash at bank 215,357 92,860 174,243 126,138 45,493 102,316 689,006 356,483 345,681 597,787 307,421 273,197

25 Financial assets held for trading-investments in quoted securities Group Company No. of Cost Market No. of Cost Market No. of Cost Market No. of Cost Market No. of Cost Market No. of Cost Market Shares Value Shares Value Shares Value Shares Value Shares Value Shares Value 31.03.2013 31.03.2013 31.03.2012 31.03.2012 01.04.2011 01.04.2011 31.03.2013 31.03.2013 31.03.2012 31.03.2012 01.04.2011 01.04.2011 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000

Banks, Finance & Insurance National Development Bank PLC 200,000 26,000 33,000 200,000 26,000 24,560 100,000 26,000 32,000 200,000 26,000 33,000 200,000 26,000 24,560 100,000 26,000 32,000 26,000 33,000 26,000 24,560 26,000 32,000 26,000 33,000 26,000 24,560 26,000 32,000

Diversified holdings Hemas Holdings PLC 3,750 30 101 3,750 30 99 3,750 30 173 - - - - - -

Net carrying amount 33,101 24,659 32,173 33,000 24,560 32,000

26 Available for sale investments - government securities Group Company 31.03.2013 31.03.2012 01.04.2011 31.03.2013 31.03.2012 01.04.2011 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000

Investments in Treasury Bills under IFA scheme 63,747 83,775 - 63,747 83,775 - Investments in Treasury Bonds under IFA scheme 180,765 94,159 - 180,765 94,159 - 244,512 177,934 - 244,512 177,934 - Appreciation/(depreciation) in market value Balance at the beginning of the year (12,569) - - (12,569) - - Appreciation/(depreciation) for the Year 10,361 (12,569) - 10,361 (12,569) - Balance at the end of the year (2,208) (12,569) - (2,208) (12,569) - Total 242,304 165,365 - 242,304 165,365 -

Receivable within one year 63,747 83,775 - 63,747 83,775 - Receivable after one year 178,557 81,590 - 178,557 81,590 - Total 242,304 165,365 - 242,304 165,365 -

27 Deposits with banks Deposits with banks at amortised cost 695,875 1,551,842 95,728 691,638 1,551,842 95,728 Saving deposits 21,293 - - 21,293 - - 717,168 1,551,842 95,728 712,931 1,551,842 95,728


28 Available for sale securities Group Company 31.03.2013 31.03.2012 01.04.2011 31.03.2013 31.03.2012 01.04.2011 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000

Quoted securities (Note 28.a) 176,686 173,331 233,865 176,686 173,331 233,865 Unquoted securities (Note 28.b) 18,718 18,718 18,718 12,388 12,388 12,388 Net carrying value of investment securities 195,404 192,049 252,583 189,074 185,719 246,253



28.a Quoted securities Group Company No. of Cost Market No. of Cost Market No. of Cost Market No. of Cost Market No. of Cost Market No. of Cost Market Shares Value Shares Value Shares Value Shares Value Shares Value Shares Value 31.03.2013 31.03.2013 31.03.2012 31.03.2012 01.04.2011 01.04.2011 31.03.2013 31.03.2013 31.03.2012 31.03.2012 01.04.2011 01.04.2011 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000

Banks, Finance & Insurance Commercial Bank of Ceylon PLC 4,093 8 463 4,021 - 402 - - - 4,093 8 463 4,021 - 402 - - - 8 463 - 402 - - 8 463 - 402 - -

Construction & Engineering Samuel Sons & Co. PLC 143,697 1,198 - 143,697 1,198 - 143,697 1,198 - - - - - - - - - -

Closed End Funds Namal Acuity Value Fund 2,744,900 161,583 176,223 2,744,900 161,583 172,929 2,744,900 161,583 233,865 2,744,900 161,583 176,223 2,744,900 161,583 172,929 2,744,900 161,583 233,865

162,789 176,686 162,781 173,331 162,781 233,865 161,591 176,686 161,583 173,331 161,583 233,865

(Diminution)/appreciation in value of quoted securities

Balance at the beginning of the year 10,550 71,084 (1,198) 11,748 72,282 - Appreciation for the year 3,347 (60,534) 72,282 3,347 (60,534) 72,282 Balance at the end of the year 13,897 10,550 71,084 15,095 11,748 72,282 Net carrying amount of

quoted investment securities 176,686 173,331 233,865 176,686 173,331 233,865

28.b Unquoted securities Group Company No. of Cost Directors’ No. of Cost Directors’ No. of Cost Directors’ No. of Cost Directors’ No. of Cost Directors’ No. of Cost Directors’ Shares Valuation Shares Valuation Shares Valuation Shares Valuation Shares Valuation Shares Valuation 31.03.2013 31.03.2013 31.03.2012 31.03.2012 01.04.2011 01.04.2011 31.03.2013 31.03.2013 31.03.2012 31.03.2012 01.04.2011 01.04.2011 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000

Credit Information Bureau of Sri Lanka. (Rs.100/-) 4,727 473 473 4,727 473 473 4,727 473 473 4,727 473 473 4,727 473 473 4,727 473 473

Fitch Ratings Lanka Ltd. 62,500 625 625 62,500 625 625 62,500 625 625 62,500 625 625 62,500 625 625 62,500 625 625 Finance Houses

Consortium (Pvt) Ltd. 20,000 200 200 20,000 200 200 20,000 200 200 20,000 200 200 20,000 200 200 20,000 200 200 Rajawella Holdings (Pvt) Ltd. 54,600 546 - 54,600 546 - 54,600 546 - - - - - - - - - - Telshan Network (Pvt) Ltd. 972,000 9,720 - 972,000 9,720 - 972,000 9,720 - 972,000 9,720 - 972,000 9,720 - 972,000 9,720 - Zyrex Power Co Ltd. 1,796,323 16,920 16,920 1,796,323 16,920 16,920 1,796,323 16,920 16,920 1,058,992 10,590 10,590 1,058,992 10,590 10,590 1,058,992 10,590 10,590 Sinhaputhra Finance PLC

(Preference Shares) 20,000 500 500 20,000 500 500 20,000 500 500 20,000 500 500 20,000 500 500 20,000 500 500 28,984 18,718 28,984 18,718 28,984 18,718 22,108 12,388 22,108 12,388 22,108 12,388

Provision for impairment (10,266) (10,266) (10,266) (9,720) (9,720) (9,720) Net carrying amount 18,718 18,718 18,718 12,388 12,388 12,388

Fair value of the above unquoted investments cannot be reliably measured as such investments are not being traded in a stock market.



29 Held to maturity Investments-government securities Group Company 31.03.2013 31.03.2012 01.04.2011 31.03.2013 31.03.2012 01.04.2011 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000

Held to maturity investments at amortised cost 1,920,143 1,411,862 1,964,425 1,920,143 1,411,862 1,964,425 1,920,143 1,411,862 1,964,425 1,920,143 1,411,862 1,964,425


30 Trade & other receivables Group Company 31.03.2013 31.03.2012 01.04.2011 31.03.2013 31.03.2012 01.04.2011 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000

Trade & other receivables 813,400 1,207,528 1,496,493 281,949 739,539 1,086,931 Provision for impairment (63,443) (64,446) (65,081) (27,383) (27,503) (27,312) 749,957 1,143,082 1,431,412 254,566 712,036 1,059,619

31 Inventories and other stocks Group Company 31.03.2013 31.03.2012 01.04.2011 31.03.2013 31.03.2012 01.04.2011 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000

Vehicles 957,503 671,159 523,082 957,613 672,819 528,282 Raw materials 131,780 133,104 122,466 - - - Work- in- progress 8,752 10,417 10,404 - - - Finished goods 91,141 93,531 83,384 - - - Machinery spare parts & vehicle spare parts 44,370 40,861 39,210 19,410 20,116 21,940 Other inventories 9,568 5,992 4,435 4,694 929 930 Goods-in-transit 3,335 12,618 14,275 - - - 1,246,449 967,682 797,256 981,717 693,864 551,152 Specific Provision for stock obsolescence (88,670) (94,698) (82,957) (77,975) (84,583) (71,805) Net carrying amount 1,157,779 872,984 714,299 903,742 609,281 479,347

Inventories recognised as an expense during the year amounted to Rs.79.49 Million for the Company and Rs.1,272.19 Million for the Group.(Rs.85.76 Million for Company and Rs.1,069.92 Million for the Group in 2011/12).

Write-down of inventories recognised as an expenses during 2012/13 financial year amounted to Rs.0.58 Million for the Company and the Group (2011/12 - Rs.16.49 Million for the Company and the Group).

No inventories have been pledged as security for banking facilities in 2012/13 and 2011/12 financial years.

Inventories carried at net realisable value as at 31st March 2013 amounted to Rs.3.74 Million for the Group and Rs.0.88 Million for the Company (as at 31.03.2012 Rs.15.36 Million for the Group and Rs.12.85 for the Company).


Group Company 31.03.2013 31.03.2012 01.04.2011 31.03.2013 31.03.2012 01.04.2011 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000

32 Loans and advances Micro finance 152,721 35,709 10,599 152,721 35,709 10,599 Term loans 1,129,442 844,014 836,578 1,547,647 1,420,854 1,806,544 Temporary refunds against fixed deposits 612,928 576,643 572,427 624,031 576,643 588,521 Housing and land receivables 19,063 19,489 19,511 19,063 19,489 19,511 Loans to employees (Note 32.1) 81,390 72,406 65,673 70,181 63,103 57,148 Securitisation loans (Note 32.2) - 180,546 310,952 - 180,546 310,952 1,995,544 1,728,807 1,815,740 2,413,643 2,296,344 2,793,275 Provision for individual impairment (38,242) (34,848) (140,674) (222,346) (218,952) (324,778) Provision for collective impairment (5,573) (3,094) (7,765) (5,573) (3,094) (7,765) provision for other credit losses (16,460) (17,268) (16,944) (16,460) (17,268) (16,944) 1,935,269 1,673,597 1,650,357 2,169,264 2,057,030 2,443,788

Receivable within one year 1,324,678 1,297,932 1,436,166 1,324,678 1,338,932 1,881,424 Receivable after one year 670,866 430,875 379,574 1,088,965 957,412 911,851 1,995,544 1,728,807 1,815,740 2,413,643 2,296,344 2,793,275

32.1 Loans to employees Movement of loans to employees is given below: At the beginning of the year 79,651 65,673 64,078 70,348 57,148 54,978 Loans granted during the year 80,080 75,011 62,251 70,971 67,243 56,032 Loans recovered during the year (69,514) (61,033) (60,656) (62,311) (54,043) (53,862) 90,217 79,651 65,673 79,008 70,348 57,148 Pre-paid compensation (8,827) (7,245) - (8,827) (7,245) - At the end of the year 81,390 72,406 65,673 70,181 63,103 57,148

Receivable within one year 43,566 39,010 32,825 38,970 35,119 28,628 Receivable after one year 46,651 40,641 32,848 40,038 35,229 28,520 90,217 79,651 65,673 79,008 70,348 57,148

32.2 Securitisation loans At the beginning of the year 180,546 310,952 402,813 180,546 310,952 402,813 Effect of transitional provisions 1,305 2,326 (2,462) 1,305 2,326 (2,462) Repayments during the year (181,851) (132,732) (89,399) (181,851) (132,732) (89,399) - 180,546 310,952 - 180,546 310,952

Receivable within one year - 180,546 160,552 - 180,546 160,552 Receivable after one year - - 150,400 - - 150,400 - 180,546 310,952 - 180,546 310,952




33 Net investment in leases & hire-purchase

Lease receivables (Note 33.a) 24,704,559 21,144,185 15,048,801 24,704,559 21,144,185 15,048,801 Hire-Purchase receivables (Note 33.b) 17,914,447 15,517,574 11,071,527 17,914,447 15,517,574 11,071,527 Provision for individual impairment (95,992) (90,078) (84,432) (95,992) (90,078) (84,432) Provision for collective impairment (140,144) (91,723) (115,757) (140,144) (91,723) (115,757) 42,382,870 36,479,958 25,920,139 42,382,870 36,479,958 25,920,139

33.a Lease receivables Gross rental receivables 37,244,377 31,617,116 22,341,522 37,244,377 31,617,116 22,341,522 Less-unearned interest income 9,652,720 7,513,761 5,269,388 9,652,720 7,513,761 5,269,388 27,591,657 24,103,355 17,072,134 27,591,657 24,103,355 17,072,134 Debtors 1,486,109 948,578 803,837 1,486,109 948,578 803,837 Pre-paid rentals (4,373,207) (3,907,748) (2,827,170) (4,373,207) (3,907,748) (2,827,170) 24,704,559 21,144,185 15,048,801 24,704,559 21,144,185 15,048,801

33.b Hire-purchases receivables Gross rental receivable 25,506,822 21,098,704 14,614,439 25,506,822 21,098,704 14,614,439 Less-unearned interest income 7,219,039 5,568,827 4,093,667 7,219,039 5,568,827 4,093,667 18,287,783 15,529,877 10,520,772 18,287,783 15,529,877 10,520,772 Debtors 930,743 618,415 560,918 930,743 618,415 560,918 Pre-paid rentals (1,304,079) (630,718) (10,163) (1,304,079) (630,718) (10,163) 17,914,447 15,517,574 11,071,527 17,914,447 15,517,574 11,071,527


Rentals receivable on lease and hire purchase assets Not later than one year Gross rentral receivables 22,966,068 18,399,650 14,014,756 22,966,068 18,399,650 14,014,756 Unearned interest income (7,900,757) (6,340,151) (4,611,637) (7,900,757) (6,340,151) (4,611,637) Pre-paid rentals (289,446) (548,853) (428,727) (289,446) (548,853) (428,727) 14,775,865 11,510,646 8,974,392 14,775,865 11,510,646 8,974,392

Later than one year and not later than five years Gross investment in leases 41,212,436 35,501,990 24,368,935 41,212,436 35,501,990 24,368,935 Unearned interest income (8,969,593) (7,147,763) (5,097,849) (8,969,593) (7,147,763) (5,097,849) Pre-paid rentals (4,415,340) (3,985,356) (2,408,052) (4,415,340) (3,985,356) (2,408,052) 27,827,503 24,368,871 16,863,034 27,827,503 24,368,871 16,863,034

Later than five years Gross investment in leases 989,547 788,192 283,919 989,547 788,192 283,919 Unearned interest income (1,409) (1,694) (463) (1,409) (1,694) (463) Pre-paid rentals (972,500) (4,256) (554) (972,500) (4,256) (554) 15,638 782,242 282,902 15,638 782,242 282,902


Company 31.03.2013 31.03.2012 Rs.’000 Rs.’000

34 Movement in allowance for individual and collective impairment Movement in provision for individual impairment Balance at the beginning of the year 309,030 409,210 Charge/ (reversal) to the income statement 9,309 (100,179) Balance at the end of the year 318,339 309,030

Movement in provision for collective impairment Balance at the beginning of the year 94,817 123,522 Charge/ (reversal) to the income statement 50,900 (28,705) Balance at the end of the year 145,717 94,817 Total impairment 464,056 403,847 Group Company 31.03.2013 31.03.2012 01.04.2011 31.03.2013 31.03.2012 01.04.2011 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000

35 Investments in real estate (a) Investments in land Balance at the beginning of the year 66,399 65,579 63,545 66,399 65,579 63,545 Additions/transfers during the year 1,439 1,079 2,091 1,439 1,079 2,091 Disposals/transfers during the year (5,701) (259) (57) (5,701) (259) (57) Balance at the end of the year 62,137 66,399 65,579 62,137 66,399 65,579

(b) Investment in housing projects Balance at the beginning of the year 27,113 529,699 925,959 7,039 43,306 148,784 Additions during the year - 12 3,760 - 12 3,760 Disposals/transfers during the year (20,097) (502,598) (400,020) (23) (36,279) (109,238) 7,016 27,113 529,699 7,016 7,039 43,306 Provision for impairment (1,074) (1,074) (1,074) (1,074) (1,074) (1,074) Balance at the end of the year 5,942 26,039 528,625 5,942 5,965 42,232 68,079 92,438 594,204 68,079 72,364 107,811

No borrowing costs were capitalised during the above financial years.



36 Company/Group investment in associates Investor Investee Holding No. of shares Cost Market Value/Directors’ Valuation 31.03.2013 31.03.2012 01.04.2011 31.03.2013 31.03.2012 01.04.2011 31.03.2013 31.03.2012 01.04.2011 31.03.2013 31.03.2012 01.04.2011 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000

Quoted investments Central Finance Company PLC Tea Smallholder Factories PLC 22.85% 22.85% 22.85% 6,854,814 6,854,814 3,427,407 99,337 99,337 99,337 308,466 335,885 610,763 Nations Trust Bank PLC 8.98% 8.98% 8.98% 20,715,400 20,715,400 20,715,400 394,631 394,631 394,631 1,263,639 1,178,706 1,580,585

Unquoted investments Central Finance Company PLC Capital Suisse Asia Ltd. 16.29% 16.29% 16.29% 2,949,000 2,949,000 2,949,000 29,490 29,490 29,490 29,490 29,490 29,490 Company investment in associates 523,458 523,458 523,458 1,601,595 1,544,081 2,220,838

Quoted investments CF Growth Fund Ltd. Tea Smallholder Factories PLC 6.45% 6.45% 6.45% 1,933,678 1,933,678 966,839 30,361 30,361 30,361 87,015 94,750 172,290 Nations Trust Bank PLC 6.42% 6.42% 6.42% 14,813,273 14,813,273 14,813,273 347,615 347,615 347,615 903,609 843,023 1,130,252 Unquoted investments Capital Suisse Asia Ltd. 8.29% 8.29% 8.29% 1,500,000 1,500,000 1,500,000 15,000 15,000 15,000 15,000 21,600 20,235 Quoted investments CF Insurance Brokers (Pvt) Ltd. Nations Trust Bank PLC 4.60% 4.60% 4.60% 10,592,857 10,592,857 10,592,857 268,807 268,807 268,807 646,164 602,733 808,234 Group investment in associates 1,185,241 1,185,241 1,185,241 3,253,383 3,106,187 4,351,849

Group share of associate companies’ retained assets Tea Smallholder Factories PLC 135,273 84,579 106,906 Nations Trust Bank PLC 1,011,532 704,915 468,368 Capital Suisse Asia Ltd. 32,883 36,625 35,086 Group investment in associates (equity basis) 2,364,929 2,011,360 1,795,601

Group 31.03.2013 31.03.2012 01.04.2011 Rs.’000 Rs.’000 Rs.’000

Summarised financial information of associates Assets and liabilities Total assets 128,894,626 112,383,089 91,486,880 Total liabilities 117,542,948 102,945,909 83,001,089 Net assets 11,351,678 9,437,180 8,485,791

For the year ended 31st March 2013 2012 2011 Rs.’000 Rs.’000 Rs.’000

Total revenue 21,141,219 14,964,513 14,778,426 Profit before tax 3,024,365 2,352,933 2,506,278 Profit after tax 2,143,932 1,664,889 1,482,009



37 Group/company investment in subsidiaries Holding No. of Shares Cost Market Value/Directors’ Valuation

Group Company Company Company

31.03.2013 31.03.2012 01.04.2011 31.03.2013 31.03.2012 01.04.2011 31.03.2013 31.03.2012 01.04.2011 31.03.2013 31.03.2012 01.04.2011 31.03.2013 31.03.2012 01.04.2011 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000

Quoted investments Central Industries PLC 49.98% 49.98% 49.98% 44.06% 44.06% 44.06% 4,354,500 4,354,500 4,354,500 42,905 42,905 42,905 272,156 304,815 418,467

Unquoted investments Central Developments Ltd. 99.99% 99.99% 99.99% 39.79% 39.79% 39.79% 5,289,972 5,289,972 5,289,972 52,900 52,900 52,900 52,900 52,900 52,900 Dehigama Hotels Company Ltd. 79.69% 79.69% 79.69% 79.69% 79.69% 79.69% 659,854 659,854 659,854 7,443 7,443 7,443 7,443 7,443 7,443 Expanded Plastic Products Ltd. 99.99% 99.99% 99.99% 40.00% 40.00% 40.00% 2,559,967 2,559,967 2,559,967 25,600 25,600 25,600 19,368 19,368 19,368 Central Mineral Industries (Pvt) Ltd. 99.99% 99.99% 99.99% 39.99% 39.99% 39.99% 139,979 139,979 139,979 1,400 1,400 1,400 1,400 1,400 1,400 Central Transport & Travels Ltd. 99.99% 99.99% 99.99% 39.64% 39.64% 39.64% 1,169,000 1,169,000 1,169,000 11,690 11,690 11,690 11,690 11,690 11,690 Central Construction & Development (Pvt) Ltd. 99.90% 99.90% 99.90% 0.10% 0.10% 0.10% 5 5 5 - - - - - - CF Growth Fund Ltd. 99.99% 99.99% 99.99% 39.87% 39.87% 39.87% 6,500,000 6,500,000 6,500,000 65,000 65,000 65,000 65,000 65,000 65,000 Kandy Private Hospitals Ltd. 66.58% 66.35% 66.35% 37.00% 37.00% 37.00% 203,700 203,700 203,700 2,363 2,363 2,363 2,363 2,363 2,363 CF Insurance Brokers (Pvt) Ltd. 99.99% 99.99% 99.99% 40.00% 40.00% 40.00% 4,949,997 4,949,997 4,949,997 49,500 49,500 49,500 49,500 49,500 49,500 Central Homes (Pvt) Ltd. 99.99% 99.99% 99.99% 38.48% 38.48% 38.48% 1,315,000 1,315,000 1,315,000 13,151 13,151 13,151 5,261 5,261 5,261 Mark Marine Services (Pvt) Ltd. 58.12% 58.12% 58.12% 40.00% 40.00% 40.00% 3,424,477 3,424,477 3,424,477 55,158 55,158 55,158 48,626 55,157 55,157 Hedges Court Residencies (Pvt) Ltd. 99.99% 99.99% 99.99% 40.00% 40.00% 40.00% 2,000,000 2,000,000 2,000,000 20,000 20,000 20,000 - - - 347,110 347,110 347,110 535,707 574,897 688,549

Provision for impairment in investments in subsidiaries

Balance at the beginning of the year (34,123) (34,123) (50,906) Provision for impairment (6,531) - - Reversal of provision for impairment - - 16,783 Balance at the end of the year (40,654) (34,123) (34,123) Net investment in subsidiary companies 306,456 312,987 312,987



38 Deferred tax assets and liabilities Group Company 31.03.2013 31.03.2012 01.04.2011 31.03.2013 31.03.2012 01.04.2011 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000

Deferred tax liability At the beginning of the year 1,623,280 1,328,729 1,414,571 1,584,840 1,263,147 1,326,518 Transfer from/(to) income statement (Note 20.2) 315,169 300,664 (76,579) 301,535 322,671 (57,834) Deferred tax effect on gratuity transitional

provision due to change in corporate tax rate - - 2,642 - - 2,642 Deferred tax attributable to revaluation

surplus on de-recognition of building - (978) - - (978) - Deferred tax attributable to revaluation surplus

due to change in corporate tax rate 626 (5,135) (11,905) - - (8,179) At the end of the year 1,939,075 1,623,280 1,328,729 1,886,375 1,584,840 1,263,147

Deferred tax assets At the beginning of the year 128 8,929 2,309 - - - Less:transfer (from)/to income statement (10,577) 8,801 (6,215) - - - Transfer to equity statement - 405 - At the end of the year 10,705 128 8,929 - - -

38.1 Group Statement of financial position Income statement Equity 31.03.2012 31.03.2012 01.04.2011 2013 2012 31.03.2013 31.03.2012 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000

Deferred tax assets, liabilities and income tax relates to the followings:

Deferred tax liability Capital allowances for tax purposes 1,946,758 1,626,564 1,421,601 (319,568) (211,076) (626) 6,113 Effect due to change in basis of

impairment provisions with the adoption of SLFRS/LKAS 176,873 176,873 126,066 - (50,807)

2,123,631 1,803,437 1,547,667 (319,568) (261,883) Deferred tax assets Defined benefit plans (168,109) (151,055) (142,646) 17,054 8,409 - - Derivative financial instruments (16,447) (29,102) (76,292) (12,655) (47,190) (184,556) (180,157) (218,938) 4,399 (38,781) Deferred tax income/(expense) (315,169) (300,664) (626) 6,113 Net deferred tax liability 1,939,075 1,623,280 1,328,729


38.2 Company Statement of financial position Income Statement Equity 31.03.2013 31.03.2012 01.04.2011 2013 2012 31.03.2013 31.03.2012 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000

Deferred tax assets, liabilities and income tax relates to the followings:

Deferred tax liability Capital allowances for tax purposes 1,884,248 1,579,529 1,346,772 (304,719) (233,735) 978 Effect due to change in basis of

impairment provisions with the adoption of SLFRS/LKAS 176,873 176,873 126,066 - (50,807) - -

2,061,121 1,756,402 1,472,838 (304,719) (284,542)

Deferred tax assets Defined benefit plans (158,298) (142,460) (133,399) 15,838 9,061 - - Derivative financial instruments (16,448) (29,102) (76,292) (12,654) (47,190) (174,746) (171,562) (209,691) 3,184 (38,129) Deferred tax income/(expense) (301,535) (322,671) - 978 Net deferred tax liability 1,886,375 1,584,840 1,263,147

39 Intangible assets Group Company 31.03.2013 31.03.2012 01.04.2011 31.03.2013 31.03.2012 01.04.2011 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000

Computer software at cost At the beginning of the year 121,436 116,495 98,415 118,244 113,606 97,717 Additions 12,559 4,941 18,080 12,543 4,638 15,889 At the end of the year 133,995 121,436 116,495 130,787 118,244 113,606

Amortisation At the beginning of the year (83,121) (70,004) (49,423) (82,135) (69,615)(49,213) Charge for the year (13,901) (13,116) (20,581) (13,277) (12,520)(20,402) At the end of the year (97,022) (83,120) (70,004) (95,412) (82,135)(69,615)

Carrying amount At the beginning of the year 38,316 46,491 48,992 36,109 43,991 48,504 At the end of the year 36,973 38,316 46,491 35,375 36,109 43,991



40 Property, plant and equipment Group

Land and Furniture Motor Plant, Total Total Total Buildings and office vehicles & machinery 31.03.2013 31.03.2012 01.04.2011 equipment lifts and other equipment Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000

Cost/valuation At the beginning of the year 2,213,320 202,814 1,831,631 1,055,947 5,303,712 5,307,957 6,396,481 Additions/transfers 228,715 45,937 595,523 186,773 1,056,948 970,167 202,070 Disposals/transfers (850) (5,174) (632,538) (22,442) (661,004) (974,412) (845,630) At the end of the year 2,441,185 243,577 1,794,616 1,220,278 5,699,656 5,303,712 5,752,921

Accumulated depreciation At the beginning of the year 122,614 86,320 693,052 685,860 1,587,845 1,491,889 1,767,549 Charge/transfers during the year 18,062 29,074 269,092 90,110 406,338 550,140 337,759 Impairment for the year - - - 396 396 - 430 On disposals/transfers - (9,114) (295,859) (6,189) (311,162) (454,184) (429,231) At end of the year 140,676 106,280 666,285 770,177 1,683,417 1,587,845 1,676,507 Net book value 2,300,509 137,297 1,128,331 450,101 4,016,239 3,715,867 4,076,414

Capital work-in-progress 31,178 29,935 7,889 Carrying amount at the end of the year 4,047,417 3,745,802 4,084,303

Company

Land and Furniture Motor Plant, Total Total Total Buildings and office vehicles & machinery 31.03.2013 31.03.2012 01.04.2011 equipment lifts and other equipment Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000

Cost/valuation At the beginning of the year 1,517,311 165,902 1,784,657 441,998 3,909,868 4,009,410 5,124,446 Additions/transfers 196,189 44,841 588,319 143,309 972,658 866,244 160,366 Disposals/transfers - (4,893) (619,127) (20,836) (644,856) (965,786) (830,439) At the end of the year 1,713,500 205,850 1,753,849 564,471 4,237,670 3,909,868 4,454,373

Accumulated Depreciation At the beginning of the year 77,136 69,942 658,957 266,142 1,072,177 1,025,512 1,336,767 Charge/transfers during the year 9,788 27,303 264,309 49,173 350,573 492,994 291,585 On disposals/transfers - (8,908) (284,403) (4,863) (298,174) (446,328) (418,223) At the end of the year 86,924 88,337 638,863 310,452 1,124,576 1,072,178 1,210,129 Net book value 1,626,576 117,513 1,114,986 254,019 3,113,094 2,837,690 3,244,244

Capital work-in-progress 21,385 27,642 5,008 Carrying amount at the end of the year 3,134,479 2,865,332 3,249,252


Information on the freehold land and buildings of the company and the group as at 31.03.2013

Location Extent Cost or Cost or Total value Accumulated Net book (Perches) revaluation revaluation depreciation value

of land of buildings Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000

Central Finance Company PLC City office No.270, Vauxhall Street, Colombo 02. 117.32 204,612 129,497 334,109 35,078 299,031 No.244, Vauxhall Street, Colombo 02. 13.21 20,760 25,182 45,942 7,726 38,216 Branches No.62, Maithripala Senanayake Mw,

Anuradhapura. 40.20 24,306 39,037 63,343 163 63,180 No.367, Main Street, Negombo. 29.00 24,239 5,724 29,963 1,720 28,243 No.38, Mihindu Mawatha, Kurunegala. 54.63 34,700 3,563 38,263 1,050 37,213 04, Udaya Raja Mawatha, Badulla. 26.90 16,692 4,004 20,696 1,296 19,400 No.78, Kumarathunga Mawatha, Matara. 125.25 83,769 5,303 89,072 1,619 87,453 23, Kurunegala Road, Dambulla 21.00 1,777 5,024 6,801 835 5,966 No.143, Colombo Road, Moragahayata,

Ratnapura 46.00 18,281 6,169 24,450 1,390 23,060 No.312, Highlevel Road, Nugegoda. 15.70 27,075 20,860 47,935 4,619 43,316 215 Maradana Road Colombo 10 39.37 135,947 21,206 157,153 1,446 155,707 Showrooms No.254,254/1, Katugastota Road, Kandy. 85.93 69,000 37,426 106,426 6,567 99,859 268, Vauxhall Street, Colombo 02. 21.67 31,619 163 31,782 8 31,774 Vehicle Yards No.249, Katugastota Road, Kandy. 165.38 114,239 3,795 118,034 1,593 116,441 313, Koholwila Road, Kelaniya. 348.50 17,636 7,313 24,949 2,169 22,780 Batalahenawatte Road, Gonawala, Kelaniya. 189.05 7,946 208 8,154 25 8,129 258/3, Katugastota Road, Kandy. 45.93 22,750 - 22,750 - 22,750 210, Siri Dhamma Mawatha, Colombo 10. 121.45 158,120 19,736 177,856 3,090 174,766 No.313, Madawala Road, Katugastota. 167.43 30,100 900 31,000 139 30,861 Kirindiwela Road, Pugoda. 1,600.00 15,834 2,209 18,043 165 17,878 Other properties Pahathgama Cross Road, Hanwella 180.00 3,811 295 4,106 249 3,857 Sarasavigama Road, Hindagala. 1,283.83 9,958 - 9,958 - 9,958 Hekiththa Road, Wattala 375.00 36,135 - 36,135 - 36,135 Bungalows No.8, Sukhastan Gardens, Ward Place,

Colombo 7. 38.14 66,642 17,309 83,951 5,889 78,062 No.25, Sri Rahula Road, Nuwaraeliya. 194.00 67,908 12,268 80,176 2,063 78,113 Indibedda, Moratuwa 251.10 37,562 35,541 73,103 8,025 65,078

Car Parks Yatinuwara Veediya, Kandy. 14.00 14,000 - 14,000 - 14,000 No.267 &269, Vauxhall Street, Colombo 02. 10.26 15,350 - 15,350 - 15,350

Total for the Company 1,310,768 402,732 1,713,500 86,924 1,626,576 Group companies Dehigama Hotels Company Ltd. 84, Raja Vidiya, Kandy. 85.00 125,000 99,025 224,025 27,517 196,508 Kandy Private Hospitals Ltd. 255/8, Katugastota Road, Kandy. 127.25 89,000 45,483 134,483 12,182 122,301 Central Mineral Industries (Pvt) Ltd. Diganatenna Estate, Gonawala, Rajawella,

Digana 1,916.25 30,774 2,859 33,633 429 33,204 Central Industries PLC Factory 195/4, Kerawalapitiya Road,

Hendala, Wattala. 522.10 130,525 67,683 198,208 8,856 189,352 Udathuththiripitiya, Yakkala 1,440.00 31,076 24,750 55,826 - 55,826 Head office 312, Nawala Road, Rajagiriya. 18.00 36,000 45,512 81,512 4,770 76,742 Total for the Group 1,753,143 688,044 2,441,187 140,678 2,300,509



Revaluations The freehold land and buildings of the Company and the Group, except for the freehold land and buildings of subsidiary Central

Industries PLC were revalued as at March 2007 by an independent qualified Valuer/Licensed Surveyor, resulting in the carrying amounts being written up by Rs.607.7 Million and Rs.669.28 Million respectively.

The freehold land and buildings of Central Industries PLC were revalued by an independent valuer/ Valuer of Real Estate, as at 31st March 2009, resulting in the carrying amounts being written up by Rs.166.9 Million.

The details of the above revaluations are given below.:

Location/Address Valuation Net Book Revalued Revaluation Method Value before Amount Surplus/

Revaluation (deficit) Rs.’000 Rs.’000 Rs.’000 Central Finance Company PLC Office No.270,Vauxhall Street, Land Comparison 162,814 204,612 41,798 Colombo -2. Building Contractor’s 79,193 95,387 16,194 No.244,Vauxhall Street, Land Comparison 14,070 20,760 6,690 Colombo -2. Building Contractor’s 13,984 21,240 7,256 Branches No.62,Maithripala Senanayake Mw, Land Comparison 8,124 24,306 16,182 Anuradhapura. Building Contractor’s 1,866 4,444 2,578 No.367, Main Street, Land Comparison 8,650 24,239 15,589 Negombo Building Contractor’s 3,278 4,761 1,483 No.38, Mihindu Mw, Land Comparison 10,554 34,700 24,146 Kurunegala Building Contractor’s 2,015 3,050 1,035 04,Udaya Raja Mw, Land Comparison 10,187 16,692 6,505 Badulla Building Contractor’s 3,275 3,308 33 No.78, Kumarathunga Mw, Land Comparison 13,383 83,769 70,386 Matara Building Contractor’s 3,951 4,481 530 No.143, Colombo Road Land Comparison 2,300 18,281 15,981 Moragahayata, Ratnapura Building Contractor’s 3,141 5,719 2,578 No.312, Highlevel Road, Land Comparison 19,625 27,075 7,450 Nugegoda Building Contractor’s 10,985 12,925 1,940 Showrooms No.254,254/1, Katugastota Road, Land Comparison 31,845 69,000 37,155 Kandy Building Contractor’s 36,374 36,500 126 Vehicle Yards No.249, Katugastota Road, Land Comparison 85,398 114,239 28,841 Kandy. Building Contractor’s 3,568 2,761 (807) 313, Koholwila Road, Land Comparison 9,905 17,636 7,731 Kelaniya. Building Contractor’s 6,900 4,364 (2,233) Batalahenawatte Road, Gonawala, Land Comparison 6,248 7,946 1,698 Kelaniya Building Contractor’s 27 54 27 210, Siri Dhamma Mawatha Land Comparison 41,577 158,492 116,915 Colombo 10 Building Contractor’s 4,214 17,659 13,445 No.313, Madawala Road, Land Comparison 20,646 30,100 9,454 Katugastota Building Contractor’s - 900 900 No.258/3, Katugastota Road, Kandy Land Comparison 11,512 22,750 11,238 Bungalows No.8,Sukhastan Gardens, Land Comparison 37,552 66,642 29,090 Ward Place, Colombo 7. Building Contractor’s 13,354 13,358 4 No.25, Sri Rahula Road Land Comparison 9,700 67,908 58,208 Nuwara Eliya Building Contractor’s 1,049 12,091 11,042 Indibedda, Moratuwa Land Comparison 10,541 37,562 27,021 Building Contractor’s 17,000 27,438 10,438 Car Parks Yatinuwara Veediya, Land Comparison 10,071 14,000 3,929 Kandy Building Contractor’s 235 - No.267 & 269, Vauxhall Street, Colombo 02 Land Comparison 10,270 15,350 5,080 Sub total Land 534,972 1,076,059 541,087 Building 204,409 270,440 66,569 Central Finance Company PLC 739,381 1,346,499 607,656


Location/Address Valuation Net Book Revalued Revaluation Method Value before Amount Surplus/

Revaluation (deficit) Rs.’000 Rs.’000 Rs.’000 Kandy Private Hospitals Ltd. 255/8,Katugastota Road,Kandy. Land Comparison 56,114 89,000 32,886 Building Contractor’s 17,414 40,000 22,586 Central Mineral Industries (Pvt) Ltd. Diganatenna Estate,Gonawala, Land Comparison 24,954 30,673 5,719 Rajawella, Digana Building Contractor’s 2,512 2,950 438

Central Industries PLC Factory Kerawalapitiya Land Contractor’s 8,177 130,525 122,348 Building Contractor’s 41,038 56,814 15,776

Head office-Nawala Land Contractor’s 12,546 36,000 23,454 Building Contractor’s 40,171 45,512 5,341

Total for the Group Land 636,763 1,362,257 725,494 Building 305,544 415,716 110,710 942,307 1,777,973 836,204

Where properties have fallen in value, the decreases have been charged against revaluation reserve to the extent that it was credited previously and any decrease beyond such value was charged to revenue during the year of such revaluations.

The carrying value of freehold land and buildings of the group, if carried at cost less accumulated depreciation and impairment, would amount to Rs.1,080.94 Million as at 31st March 2013. (31st March 2012 Rs.760.60 Million).

The cost of fully depreciated assets of the Group and Company amounted to Rs.648.88 Million and Rs.520.28 Million respectively (Group Rs.631.72 Million and Company Rs.504.92 Million as at 31st March 2012).

The carrying value of land and buildings pledged as security for banking facilities obtained amounts to Rs.854.66 Million and Rs.324.27 Million for the Group and Company respectively. (Group- Rs.756.68 Million and Company Rs.637.68 Million as at 31.03.2012)

Movement of capital- work- in progress Group Company 31.03.2013 31.03.2012 01.04.2011 31.03.2013 31.03.2012 01.04.2011 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000

Balance at the beginning of the year 29,935 7,889 4,117 27,642 5,008 3,500 Additions during the year 39,656 28,946 8,122 29,863 22,634 1,508 Transfer to property, plant and equipment (38,413) (6,900) (4,350) (36,120) - - Balance at the end of the year 31,178 29,935 7,889 21,385 27,642 5,008

41 Trade and other payables Group Company 31.03.2013 31.03.2012 01.04.2011 31.03.2013 31.03.2012 01.04.2011 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000

Accrued interest on deposits 48,457 18,997 8,516 49,168 22,328 20,215 Creditors 1,173,392 1,265,140 783,135 947,624 1,118,352 651,563 Advances on real estate projects 3,974 3,864 96,065 3,974 3,864 22,325 Accrued expenses 70,838 77,159 56,557 19,503 18,330 13,303 Others 324,927 404,425 711,904 312,265 394,980 701,359 1,621,588 1,769,585 1,656,177 1,332,534 1,557,854 1,408,765



42 Derivative financial instruments The table below explains the notional principal amounts and the positive and negative fair values of the Company’s and Group’s

derivative financial instruments. Notional principal amounts are the amounts of principal underlying the contract at the reporting dates.

Group & Company Group & Company Group & Company 2013 2012 2011 Notional Assets Liabilities Notional Assets Liabilities Notional Assets Liabilities principal principal principal amounts amounts amounts

Interest rate derivative contracts:

Swaps 1,200,000 16,558 39,654 1,200,000 16,901 83,481 1,000,000 - 236,033

43 Deposits Group Company 31.03.2013 31.03.2012 01.04.2011 31.03.2013 31.03.2012 01.04.2011 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000

Term deposits 26,190,102 21,937,504 19,097,577 26,462,428 22,093,516 19,304,562 Certificates of deposit 1,800 3,723 8,264 1,800 3,723 8,264 Savings deposits 792,855 854,124 782,065 801,683 855,873 782,194 26,984,757 22,795,351 19,887,906 27,265,911 22,953,112 20,095,020

Payable within one year 21,723,317 18,145,372 15,007,166 21,995,643 18,301,384 15,214,151 Payable after one year 5,261,440 4,649,979 4,880,740 5,270,268 4,651,728 4,880,869

The above includes a sum of Rs.177,495,358 (Rs.100,624,758/- and Rs.186,813,837/- as at 31.03.2012 and 01.04.2011 respectively) deposited with the Company by the Directors.

44 Bank loans Borrower Lending Institution Nature of Facility Security 31.03.2013 31.03.2012 01.04.2011 Rs.000 Rs.000 Rs.000

Central Finance National Development Revolving short Agreement to mortgage Company PLC Bank PLC term loan over lease receivables 1,257,471 - 700,568

Hatton National Bank PLC Revolving short term loan Power of attorney and mortgage bond over lease agreements and hypothecation of hire purchase contracts 929,594 951,766 100,633

Term loan Power of attorney and mortgage bond over lease agreements and hypothecation of hire purchase contracts 254,902 174,917 -

Habib Bank Ltd. Term loan Mortgage over lease receivables 225,384 20,858 104,392 Commercial Bank of Revolving short term loan Primary mortgage over land

Ceylon PLC and buildings 654,262 1,002,675 - HSBC Revolving short term loan Mortgage over lease receivables - 803,827 - Sampath Bank PLC Revolving short term loan Assignment of lease agreements 500,976 300,536 - Standard Chartered Bank Revolving short term loan Power of Attorney over

lease receivables 704,210 705,541 - Bank of Ceylon Revolving short term loan Assignment of quoted

company shares - 75,056 - 4,526,799 4,035,176 905,593 Hedges Court Hatton National Bank PLC Term loan Corporate guarantee from

Residencies (Pvt) Central Finance Company PLC Limited - - 85,000

Central Hatton National Bank PLC Short term loan 28,400 45,900 - Industries PLC Nations Trust Bank PLC Short term loan Unsecured 24,800 2,700 -

53,200 48,600 85,000 4,579,999 4,083,776 990,593


44 Bank loans (contd) Group Company 31.03.2013 31.03.2012 01.04.2011 31.03.2013 31.03.2012 01.04.2011 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000

Payable within one year 4,270,466 3,901,843 969,759 4,217,266 3,901,843 884,759 Payable after one year 309,533 181,933 20,834 309,533 133,333 20,834 4,579,999 4,083,776 990,593 4,526,799 4,035,176 905,593

45 Non-bank Loans Borrower Lending Institution Nature of Facility Security 31.03.2013 31.03.2012 01.04.2011 Rs.000 Rs.000 Rs.000

Central Finance FMO Netherlands Term Loan Mortgage over Lease and Company PLC Hire purchase receivables 190,401 380,212 569,227

Central Bank of Sri Lanka Refinance loans Unsecured - - 449 Consortium of lenders Securitisation facility Trust deed, mortgage over

lease receivables - - 23,725 Consortium of lenders Securitisation facility Trust deed, mortgage over

lease receivables 1,243,479 1,572,323 750,000 1,433,880 1,952,535 1,343,401

Group/Company 31.03.2013 31.03.2012 01.04.2011 Rs.’000 Rs.’000 Rs.’000

Payable within one year 760,995 604,414 215,712 Payable after one year 672,885 1,348,121 1,127,689 1,433,880 1,952,535 1,343,401

46 Debentures Group Company 31.03.2013 31.03.2012 01.04.2011 31.03.2013 31.03.2012 01.04.2011 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000

At the beginning of the year 251,977 405,173 150,000 251,977 405,173 150,000 SLFRS transitional adjustments - (3,196) 5,173 (3,196) 5,173 Issued during the year 505,539 - 250,000 505,539 - 250,000 Redeemed during the year - (150,000) - (150,000) - At the end of the year 757,516 251,977 405,173 757,516 251,977 405,173

The Company issued 5 unlisted, rated, unsecured, redeemable debentures of Rs.50,000,000/- each during the financial year 2010/2011. In 2012/2013, a further issue of Rs.1,000 par valued Rated, unsecured, unlisted, redeemable, senior debentures to the value of Rs.520,000,000 was made. The debentures amounting to Rs.150,000,000/- issued in 2007/08 were redeemed during the year 2011/12.

There were no breaches or defaults in loans payable.



47 Retirement benefit obligations Group Company 31.03.2013 31.03.2012 01.04.2011 31.03.2013 31.03.2012 01.04.2011 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000

Present value of defined benefit obligation 824,049 766,645 698,382 729,164 683,340 622,007 Fair value of plan asset (163,814) (174,812) (145,583) (163,814) (174,812) (145,583) Unfunded status 660,235 591,833 552,799 565,350 508,528 476,424 Unrecognised net actuarial loss (89,051) (111,793) (148,817) (77,247) (98,794) (131,013) Net retirement benefit obligation 571,184 480,040 403,982 488,104 409,734 345,411

Movement of the retirement benefit obligation Present value of defined benefit obligation

at the beginning of the year 766,645 698,382 531,345 683,340 622,007 475,301 Gratuity charge for the year 1,274 1,030 1,613 - - - Interest cost 87,706 70,762 67,105 79,820 63,151 60,588 Amortisation of actuarial loss 4,313 6,106 - 3,413 4,785 - Current service cost 49,017 43,193 33,212 42,293 38,103 29,597 Payments made during the year (64,122) (13,818) (24,353) (61,450) (10,834) (20,125) (Gain)/loss arising from changes

in the assumption in the previous years (1,521) (512) 334 - - - Actuarial gain/(loss) (19,263) (38,498) 89,126 (18,251) (33,872) 76,646 Present value of defined benefit obligation

at the end of the year 824,049 766,645 698,382 729,164 683,340 622,007

Movement of the plan assets Fair value of the plan assets

at the beginning of the year 174,812 145,583 130,017 174,812 145,583 130,017 Contributions paid in to the plan 34,211 29,101 24,598 34,211 29,101 24,598 Benefits paid by the plan (61,451) (10,833) (20,125) (61,451) (10,833) (20,125) Expected return on plan assets 12,945 12,615 10,796 12,945 12,615 10,796 Actuarial gain/ (loss) 3,297 (1,654) 297 3,297 (1,654) 297 Fair value of the plan assets

at the end of the year 163,814 174,812 145,583 163,814 174,812 145,583

Retirement benefit liability of Central Finance Company PLC is partly funded externally through a gratuity fund established in 1987.

Retirement benefit obligations of Central Finance Company PLC, Central Industries PLC and CF Insurance Brokers (Pvt) Ltd have been determined as per the actuarial valuations carried out by Consulting Actuary, Mr. Piyal S Goonetilleke, Fellow of the Society of Actuaries (USA), Member of the American Academy of Actuaries. The employee benefit liabilities of Central Mineral Industries (Pvt) Ltd, Kandy Private Hospital Ltd, and Mark Marine Services (Pvt) Ltd are computed based on actuarial techniques as recommended in LKAS 19 - Employee Benefits.

Details of actuarial assumptions are as follows 31.03.2013 31.03.2012 01.04.2011 Actuarial assumptions Discount rate 11% 11% 10% Expected return on plan assets 9% 9% 9% Future salary increases 12.50% 12.50% 13%

Mortality GA 1983 Mortality Table Age: 20 25 30 35 40 45 50 Turnover 10% 10% 0.1 8% 5% 2.50% 1% Disability Age: 20 25 30 35 40 45 50 55 Disability 0.08% 0.09% 0.10% 0.12% 0.18% 0.29% 0.54% 0.00%

(Long term disability 1987 Soc.Sec.Table: Rates of disability at selected ages)

Retirement Age-Normal retirement age or age at valuation date, if greater.


48 Stated Capital Company & Group 31.03.2013 31.03.2012 01.04.2011 No.of shares Stated Capital No.of shares Stated Capital No.of shares Stated Capital Issued and fully paid - ordinary shares In’000 Rs.’000 In’000 Rs.’000 In’000 Rs.’000

At the beginning of the year 104,883 568,420 20,300 203,020 20,300 203,020 Subdivision of shares (01 into 05) - - 81,200 - - - Capitalisation of reserves (01 for 30) - - 3,383 365,400 - - At the end of the year 104,883 568,420 104,883 568,420 20,300 203,020

Company’s ordinary shares were increased by subdividing each existing share into 5 shares in September 2011. Subsequent to the subdivision, reserves amounting to Rs.365.4 Million were capitalised at the rate of Rs.108/- per share through the issue of bonus shares in the proportion of 01 share for 30 shares. As a result, the number of shares increased to 104,883,333. Earnings per share and net assets per share of the previous periods are adjusted accordingly.

49 Capital reserves Group Company 31.03.2013 31.03.2012 01.04.2011 31.03.2013 31.03.2012 01.04.2011 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000

Revaluation reserve Balance at the beginning of the year 1,290,708 1,295,074 1,358,312 972,611 979,072 974,847 Depreciation on revaluation surplus (5,253) (5,331) (5,627) (3,853) (3,945) (3,954) Transitional adjustments (71,524) Revaluation surplus realised on

de-recognition of building - (3,494) - - (3,494) - Deferred tax attributable to revaluation

surplus on de-recognition of building - 978 - - 978 - Deferred tax attributable to revaluation

surplus due to change in corporate tax rate (447) 3,481 13,913 - - 8,179 Share of revaluation gain-associate company 34,375 - - - - - Balance at the end of the year 1,319,383 1,290,708 1,295,074 968,758 972,611 979,072

Capital redemption reserve 17,899 17,899 18,865 - - - Impact arising out of transitional adjustments - - (966) - - - 17,899 17,899 17,899 - - - Total 1,337,282 1,308,607 1,312,973 968,758 972,611 979,072

Revaluation reserve consists of the net surplus on the revaluation of land and buildings. Capital redemption reserve comprises of reserve funds arising from the redemption of preference shares of subsidiaries.

50 Reserve fund Group Company 31.03.2013 31.03.2012 01.04.2011 31.03.2013 31.03.2012 01.04.2011 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000

Balance at the beginning of the year 800,000 682,000 601,000 800,000 682,000 601,000 Transfers during the year 139,000 118,000 81,000 139,000 118,000 81,000 Balance at the end of the year 939,000 800,000 682,000 939,000 800,000 682,000

The Company’s Reserve fund is maintained in accordance with Direction No.9 of 1991 as amended by Direction No.1 of 2003 issued by the Central Bank of Sri Lanka under the Finance Business Act No.42 of 2011.



51 Available for sale reserve Group Company 31.03.2013 31.03.2012 01.04.2011 31.03.2013 31.03.2012 01.04.2011 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000

Balance at the beginning of the year (821) 72,282 - (821) 72,282 - Transfers during the year 13,708 (73,103) 72,282 13,708 (73,103) 72,282 Balance at the end of the year 12,887 (821) 72,282 12,887 (821) 72,282

52 Investment fund account Group Company 31.03.2013 31.03.2012 01.04.2011 31.03.2013 31.03.2012 01.04.2011 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000

Balance at the beginning of the year 223,492 - - 223,492 - - Transfers during the year 255,365 223,492 - 255,365 223,492 - Balance at the end of the year 478,857 223,492 - 478,857 223,492 -

As proposed in the Government Budget 2011,Banks and Finance Companies are required to establish and operate an Investment Fund Account (IFA) commencing January, 2011. According to the guidelines issued by the Central Bank of Sri Lanka (CBSL), Finance Companies are required to transfer 8% of the profits calculated for the payment of Value Added Tax (VAT) on financial services and 5% of the profits before tax calculated for payment of income tax. These funds have to be utilised for granting credit facilities for prescribed purposes or invested in long term government securities.

Details of investments in government securities and credit facilities granted utilising the proceeds of this fund as at 31.03.2013 are given below.

Instrument Rate of interest Maturity Amount invested(Rs.000)

Treasury bonds 11.05% 01.11.2019 178,557 Treasury bills 9.50% 11.04.2013 63,746

Sector Number of Amount Rate of Interest Tenure of Facility Facilities Granted (000)

Factory/mills modernisation 21 154,740 10.60%-16.21% 5 years Rs.000 Commitments as at 31.03.2013 9 105,854

53 Revenue Reserves Group Company 31.03.2013 31.03.2012 01.04.2011 31.03.2013 31.03.2012 01.04.2011 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000

General Reserve: Balance at the beginning of the year 8,992,420 7,581,820 6,124,070 8,981,239 7,570,639 6,112,889 Capitalisation of reserves - (365,400) - - (365,400) - Transfers during the year 2,600,000 1,776,000 1,379,000 2,600,000 1,776,000 1,379,000 Transfer (to)/from provision for bad debts - - 78,750 - - 78,750 11,592,420 8,992,420 7,581,820 11,581,239 8,981,239 7,570,639 Retained earnings 1,961,381 2,015,688 1,401,442 9,839 507,066 249,065 Balance at the end of the year 13,553,801 11,008,108 8,983,262 11,591,078 9,488,305 7,819,704

General reserve represents amounts set aside by the Directors for future expansions, and to meet any contingencies.


54 Secured liabilities Bank and other non-bank borrowings have been secured on the mortgage of specific land and buildings, pledge of specific quoted

company shares and assignment of specific lease receivables/book debts and hypothecation of hire purchase and lease contracts. The carrying value of the assets mortgaged/assigned as security amounted to Rs.11,336 Million as at 31st March 2013 (31st March 2012 - Rs.9,938 Million).

55 Capital expenditure Capital expenditure approved by the Board of Directors for which provision has not been made in the financial statements amounts

to approximately Rs.6.65 Million for the Company and the Group, (2011/2012- Rs.30.54 Million for the Company and Rs.36.83 Million for the Group).

56 Contingent liabilities Company Contingent liabilities as at Group Company 31.03.2013 31.03.2012 01.04.2011 31.03.2013 31.03.2012 01.04.2011 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000

Guarantees Issued Fully secured guarantees issued on

behalf of depositors 14,865 21,140 24,940 14,865 21,140 24,940 Performance bonds and warranties in

respect of letter of credit facilities 60,977 57,926 14,888 60,977 57,926 14,888 Corporate guarantee issued on account of

Hedges Court Residencies (Pvt) Ltd. - - 85,000 - - 85,000 75,842 79,066 124,828 75,842 79,066 124,828 Commitments Loan facilities under IFA loan scheme 105,854 - - 105,854 - - Commitment and contngent liabilities 181,696 79,066 124,828 181,696 79,066 124,828

Tax assessments against the Company Following tax assessments are outstanding which have been duly appealed against.

1 Value Added Tax (VAT) for year of assessment 2008/2009, amounting to Rs.111.5 Million, on Assessment Nos. 6487270, 6487271, 6487272, 6487273, 6487274, 6487275, 6487276, 6487277, 6487278, 6487279, 6487280 and 6487281. To be taken up at the Tax Appeals Commission pursuant to determination by Deputy Commissioner.

2 VAT for year of assessment 2009/2010, amounting to Rs.177.3 Million, on Assessment Nos. 6961125, 6961126, 6961127, 6961128, 6961129, 6961130, 6961131, 6961132, 6961133, 6961134, 6961135 and 7015292.

3 Income Tax for year of assessment 2009/2010, amounting to Rs.248.5 Million, on Assessment No. ITA 12301100091. The Company is of the view that the outcome of the above assessments will not have any material impact on the financial statements.

57 Events after the reporting period Second interim dividend and proposed final dividend

The Directors have recommended the payment of a final dividend of Rs.1.20 per share for the year ended 31st March 2013. (2011/12 – Rs.1.10 per share) which requires the approval of shareholders at the Annual General Meeting to be held on 19th July 2013. In accordance with LKAS 10 “Events after the reporting period”, this proposed final dividend and the second interim dividend of Rs.0.85 per share paid after the year-end have not been recognised as liabilities at the year-end.

As required by section 56 (2) of the Companies Act No.7 of the 2007, the Board of Directors have confirmed that the Company satisfies the solvency test in accordance with Section 57 of the Companies Act No.7 of 2007, and have obtained solvency certificates from the auditor prior to declaring the second interim dividend of Rs.0.85 and the final dividend of Rs.1.20 per share.

The Company has issued rated, redeemable,unsecured debentures with a par value of Rs.10/- to the value of Rs.2 Billion on 11.06.2013. The debentures were fully subscribed on this date.

No other circumstances have arisen since the balance sheet date, which would require adjustments to/or disclosure in the financial statements.

Group companies-Hedges Court Residencies(Pvt)Ltd.

Central Finance Company PLC has sought the approval of the Central Bank of Sri Lanka to write off the loan outstanding of Rs.184.10 Million due to the cession of business of the company. Subsequent to the obtaining the approval, steps will be taken to liquidate the company since the purpose for which the company was incorporated have now being achieved.


58 Related party disclosures58.1 Parent and ultimate parent The Company does not have a parent of its own.

58.2 Subsidiaries and associates Relationship with subsidiaries and associates are explained in the pages 133 to 136 of the annual report.

The directors of the Company are also directors of the following subsidiary and associate companies of the Group. The Company carried out transactions in the ordinary course of business at commercial rates with these related entities.

Central Industries PLC - X X X X - - - - - Central Developments Ltd. - - X X - - - - - - Dehigama Hotels Company Ltd. - X X - - - - - - - Expanded Plastic Products Ltd. - - X X - - - - - - Central Mineral Industries (Pvt) Ltd. - - X X - - - - - - Central Transport & Travels Ltd. - - X X - - - - - - Central Construction & Development (Pvt) Ltd. - - X X - - - - - - CF Growth Fund Ltd. - - X X - - X - - - Kandy Private Hospitals Ltd. - X X - - - - - - - CF Insurance Brokers (Pvt) Ltd. - - X X x - X - - - Central Homes (Pvt) Ltd. - - X X - - - - - - Mark Marine Services (Pvt) Ltd. - - - X X - X - - - Hedges Court Residencies (Pvt) Ltd. - - X X - - X - - - Capital Suisse Asia Ltd. - X - - X - - - - - Nations Trust Bank PLC - - - - X - X - - - Tea Smallholder Factories PLC - X - X - - - - - -

Group Company 31.03.2013 31.03.2012 31.03.2013 31.03.2012 Rs.’000 Rs.’000 Rs.’000 Rs.’000

58.3 Amounts due from related parties Subsidiaries Loans and advances - - 429,307 576,840 Trade and other receivables - - 27,820 29,730 457,127 606,570 Impairment provision (184,104) (203,049) Net amount due from subsidiary companies 273,023 403,521 Associates Lease and hire purchase receivables - - 29,671 48,974 Key management personnel (KMP) and their close family members Loans and advances 2,776 1,801 2,776 1,801 2,776 1,801 305,470 454,296

Amounts due to related parties Subsidiaries Deposits 281,155 156,483 Interest payable on deposits 711 3,330 Amounts due to subsidiaries 112,078 224,296 Associates Bank overdraft 392,745 183,685 Key management personnel (KMP) and their close family members Deposits 202,704 119,928 202,704 136,928 595,449 303,613 989,623 704,722


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Group Company 31.03.2013 31.03.2012 31.03.2013 31.03.2012 Year ended Rs.’000 Rs.’000 Rs.’000 Rs.’000

58.4 Transactions with related parties Subsidiaries Collection of insurance premium - - 1,412,851 1,064,659 Rendering of services - - 96,412 96,195 Loan instalment recoveries - - 161,633 401,706 Rent paid - - 26,944 26,779 Vehicle hire rentals received - - 34 427 Vehicle hire rentals paid - - 3,193 4,507 Administrative fees received - - 66 66 Management fees received - - 900 1,800 Loans given - - 14,100 - Interest received - - 43,187 51,665 Interest paid - - 30,910 23,066 Rent received - - 3,654 3,654 Associates Interest paid 47,048 9,970 47,048 9,970 Lease facilities given 30,680 27,552 30,680 27,552 Vehicle hire rentals received 6,518 7,823 6,518 7,823 Lease and hire purchase rentals received 23,152 17,848 23,152 17,848 3 Key management personnel (KMP) and their close family members Interest paid on deposits 19,887 7,554 19,887 7,554 Loans given 1,179 2,470 1,179 2,470 Interest received 1,401 272 1,401 272 Recovery of loans 8,247 2,438 8,247 2,438 Post-employment benefits Contributions to provident fund 19,158 16,998 16,282 14,703 Contributions to gratuity Fund 4,675 5,241 4,675 5,241 Compensation of key management personnel Short term employee benefits 139,607 130,837 111,469 109,020

Related parties include key management personnel defined as those persons having authority and responsibility for planning, directing and controlling the activities of the Company. Such KMPs comprise members of the Board of Directors of the Company and key employees of the Company who are responsible for planning, directing and controlling the operations of the Company.

58.5 Inter subsidiary transactions Inter-company balances between subsidiaries Due from Due to 31.03.2013 31.03.2012 Rs.000 Rs.000 Central Mineral Industries (Pvt) Ltd. Central Transport & Travels Ltd. 2,479 2,479 Central Construction & Development (Pvt) Ltd. Central Mineral Industries (Pvt) Ltd. 43 8

59 Reconciliation of reclassification and remeasurement of financial statements 2011-2012 “As stated in accounting policies, these are the Company’s first financial statements prepared in accordance with new Sri Lanka

Accounting Standards prefixed both SLFRS (corresponding to IFRS) and LKAS (corresponding to IAS), issued by the Institute of Chartered Accountants of Sri Lanka. The date of transition was 1st April 2011. The accounting policies set out in Note 1 to 9 have been applied in preparing the financial statements for the year ended 31st March 2013, the comparative information presented for the year ended 31st March 2012 and the preparation of opening statement of financial position as at 01st April 2011. In preparing its opening SLFRS/LKAS statement of financial position, amounts previously reported in accordance with previous SLASs have been adjusted.“



60 Reconcilation of reclassification & remeasurement of financial statements 2011-201260.1 Reconcilation of equity-Group As at 01 April 2011 31 March 2012 Notes Previous Effect of New Previous Effect of New transition to transition to SLAS SLFRSs SLFRS SLAS SLFRSs SLFRS Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000

ASSETS Cash in hand and at banks 345,681 - 345,681 356,483 - 356,483 Financial assets held for trading a 32,000 173 32,173 24,560 99 24,659 Tax receivables b 2,851 - 2,851 36,726 962 37,688 Available for sale investments

- government securities c - - - 176,134 (10,769) 165,365 Deposits with banks d 95,000 728 95,728 1,500,000 51,842 1,551,842 Available for sale securities e 180,331 72,252 252,583 180,331 11,718 192,049 Held to maturity investments

- government securities f 1,954,393 10,032 1,964,425 1,392,123 19,739 1,411,862 Trade and other receivables g 1,485,024 (53,612) 1,431,412 1,252,836 (109,754) 1,143,082 Inventories and other stocks h 667,967 46,332 714,299 819,257 53,727 872,984 Loans and advances i 12,832,186 (11,181,829) 1,650,357 17,892,841 (16,219,244) 1,673,597 Net investment in leases

& hire-purchase j 16,141,201 9,778,938 25,920,139 22,891,794 13,588,164 36,479,958 Investments in real estate 594,204 - 594,204 92,438 - 92,438 Investments in associates k 1,908,947 (113,346) 1,795,601 2,104,030 (92,670) 2,011,360 Investments in subsidiaries - - - - - - Other assets l 8,259 (8,259) - 18,252 (18,252) - Deferred tax asset 8,929 - 8,929 128 - 128 Intangible assets 46,491 - 46,491 38,316 - 38,316 Property, plant and equipment m 4,859,631 (775,328) 4,084,303 4,781,476 (1,035,674) 3,745,802 Total assets 41,163,095 (2,223,919) 38,939,176 53,557,725 (3,760,112) 49,797,613 LIABILITIES Bank overdrafts 505,932 - 505,932 1,711,728 - 1,711,728 Tax payable n 323,795 29,858 353,653 111,608 28,762 140,370 Commercial paper - - - 400,496 - 400,496 Trade and other payables o 5,735,556 (4,079,379) 1,656,177 7,914,095 (6,144,510) 1,769,585 Amounts due to subsidiaries - - - - - - Derivative financial instruments p - 236,033 236,033 - 66,580 66,580 Deposits q 18,757,201 1,130,705 19,887,906 21,428,425 1,366,926 22,795,351 Bank loans r 986,167 4,426 990,593 4,067,767 16,009 4,083,776 Non bank loans s 1,340,661 2,740 1,343,401 1,809,812 142,723 1,952,535 Debentures t 400,000 5,173 405,173 250,000 1,977 251,977 Retirement benefit obligations 403,982 - 403,982 480,040 - 480,040 Deferred tax liability u 1,264,795 63,934 1,328,729 1,450,094 173,186 1,623,280 Total liabilities 29,718,089 (2,606,510) 27,111,579 39,624,065 (4,348,347) 35,275,718 SHAREHOLDERS’ FUNDS Stated capital 203,020 - 203,020 568,420 - 568,420 Capital reserves v 1,385,463 (72,490) 1,312,973 1,384,240 (75,633) 1,308,607 Reserve fund 682,000 - 682,000 800,000 - 800,000 Available for sale reserve w - 72,282 72,282 - (821) (821) Investment fund - - - 223,492 - 223,492 Revenue reserves x 8,627,110 356,152 8,983,262 10,369,840 638,268 11,008,108 Funds attributable to

equity holders of the parent 10,897,593 355,944 11,253,537 13,345,992 561,814 13,907,806 Non-controlling interest y 547,413 26,647 574,060 587,668 26,421 614,089 11,445,006 382,591 11,827,597 13,933,660 588,235 14,521,895 Total liabilities, shareholders’

funds and non controlling interest 41,163,095 (2,223,919) 38,939,176 53,557,725 (3,760,112) 49,797,613 Net assets per share - Rs. 103.90 3.39 107.30 127.25 5.36 132.60


60.2 Reconcilation of equity-Company As at 01 April 2011 31 March 2012 Notes Previous Effect of New Previous Effect of New transition to transition to SLAS SLFRSs SLFRS SLAS SLFRSs SLFRS Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000

ASSETS Cash in hand and at banks 273,197 - 273,197 307,421 - 307,421 Financial assets held for trading a 32,000 - 32,000 24,560 - 24,560 Tax receivables b - - - - - - Available for sale investments

- government securities c - - - 176,134 (10,769) 165,365 Deposits with banks d 95,000 728 95,728 1,500,000 51,842 1,551,842 Available for sale securities e 173,971 72,282 246,253 173,971 11,748 185,719 Held to maturity investments

- government securities f 1,954,393 10,032 1,964,425 1,392,123 19,739 1,411,862 Trade and other receivables g 1,106,588 (46,969) 1,059,619 819,791 (107,755) 712,036 Inventories and other stocks h 433,014 46,333 479,347 555,554 53,727 609,281 Loans and advances i 13,809,721 (11,365,933) 2,443,788 18,460,378 (16,403,348) 2,057,030 Net investment in leases

& hire-purchase g 16,141,201 9,778,938 25,920,139 22,891,794 13,588,164 36,479,958 Investments in real estate k 107,811 - 107,811 72,364 - 72,364 Investments in associates 523,458 - 523,458 523,458 - 523,458 Investments in subsidiaries 312,987 - 312,987 312,987 - 312,987 Other assets l 8,259 (8,259) - 18,252 (18,252) - Deferred tax asset - - - - - - Intangible assets 43,991 - 43,991 36,109 - 36,109 Property, plant and equipment m 4,024,580 (775,328) 3,249,252 3,901,006 (1,035,674) 2,865,332 Total assets 39,040,171 (2,288,176) 36,751,995 51,165,902 (3,850,578) 47,315,324 LIABILITIES Bank overdrafts 502,367 - 502,367 1,687,625 - 1,687,625 Tax payable n 275,939 29,858 305,797 111,256 27,836 139,092 Commercial paper - - - 400,496 - 400,496 Trade and other payables o 5,488,142 (4,079,377) 1,408,765 7,702,364 (6,144,510) 1,557,854 Amounts due to subsidiaries 185,210 - 185,210 224,296 - 224,296 Derivative financial instruments p - 236,033 236,033 - 66,580 66,580 Deposits q 18,957,838 1,137,182 20,095,020 21,584,908 1,368,204 22,953,112 Bank loans r 901,167 4,426 905,593 4,019,167 16,009 4,035,176 Non bank loans s 1,340,661 2,740 1,343,401 1,809,812 142,723 1,952,535 Debentures t 400,000 5,173 405,173 250,000 1,977 251,977 Retirement benefit obligations 345,411 - 345,411 409,734 - 409,734 Deferred tax liability u 1,199,214 63,933 1,263,147 1,411,451 173,389 1,584,840 Total liabilities 29,595,949 (2,600,032) 26,995,917 39,611,109 (4,347,792) 35,263,317 SHAREHOLDERS’ FUNDS Stated capital 203,020 - 203,020 568,420 - 568,420 Capital reserves v 979,072 - 979,072 972,611 - 972,611 Reserve fund 682,000 - 682,000 800,000 - 800,000 Available for sale reserve w - 72,282 72,282 - (821) (821) Investment fund - - - 223,492 - 223,492 Revenue reserves x 7,580,130 239,574 7,819,704 8,990,270 498,035 9,488,305 Funds attributable to

equity holders of the parent 9,444,222 311,856 9,756,078 11,554,793 497,214 12,052,007 Non-controlling interest y - - 9,444,222 311,856 9,756,078 11,554,793 497,214 12,052,007 Total liabilities, shareholders’

funds and non controlling interest 39,040,171 (2,288,176) 36,751,995 51,165,902 (3,850,578) 47,315,324 Net assets per share - Rs. 90.05 2.97 93.02 110.17 4.74 114.91



60.3 Reconciliation of Comprehensive Income for the year ended 31st March 2012 Group Company Previous Effect of New Previous Effect of New transition to transition to Notes SLAS SLFRSs SLFRS SLAS SLFRSs SLFRS Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000

Income 9,260,026 (111,862) 9,148,164 8,737,392 (112,721) 8,624,671 Interest income z 7,407,431 85,544 7,492,975 7,454,354 85,544 7,539,898

Less: Interest expenses aa 2,755,184 (91,881) 2,663,303 2,778,250 (91,880) 2,686,370 Net interest income 4,652,247 177,425 4,829,672 4,676,104 177,424 4,853,528

Other operating income ab 1,379,546 (305,186) 1,074,360 743,225 (305,186) 438,039 Other income ac 473,049 107,780 580,829 539,813 106,921 646,734

6,504,842 (19,981) 6,484,861 5,959,142 (20,841) 5,938,301

Less: Operating expenses Personnel expenses ad 1,026,436 (5,910) 1,020,526 844,210 (5,910) 838,300 Premises, equipment and

establishment expenses ae 1,271,571 (178,708) 1,092,863 1,173,707 (178,708) 994,999 Employee retirement benefit expenses af 107,155 (5,297) 101,858 93,424 (4,785) 88,639 Other expenses ag 392,008 (4,366) 387,642 308,979 (4,490) 304,489

2,797,170 (194,281) 2,602,889 2,420,320 (193,893) 2,226,427

Profit before impairment on loans, advances and other assets 3,707,672 174,300 3,881,972 3,538,822 173,052 3,711,874

Less : Impairment charges/ (reversals) on financial assets and other credit losses ah 127,255 (214,775) (87,520) 126,777 (215,296) (88,519)

3,580,417 389,075 3,969,492 3,412,045 388,348 3,800,393 Share of profit of associates 465,552 29,570 495,122 - - -

Profit before VAT on financial services and income tax 4,045,969 418,645 4,464,614 3,412,045 388,348 3,800,393

Less: VAT on financial services ai 155,428 17,668 173,096 155,428 17,668 173,096 Profit before income tax 3,890,541 400,977 4,291,518 3,256,617 370,680 3,627,297 Less: Income tax expense aj 1,119,544 112,180 1,231,724 911,206 107,434 1,018,640 Profit after income tax 2,770,997 288,797 3,059,794 2,345,411 263,246 2,608,657

Attributable to equity holders of the parent 2,676,615 288,797 2,964,837 2,345,411 263,246 2,608,657 Attributable to non controlling interest 94,382 - 94,957 - - - Net profit for the year 2,770,997 288,797 3,059,794 2,345,411 263,246 2,608,657

Other comprehensive income Net gains and losses on remeasurement

of available for sale financial assets Sri Lanka government securities - (12,569) (12,569) - (12,569) (12,569)

Equity securities-quoted - (60,534) (60,534) - (60,534) (60,534) - (73,103) (73,103) - (73,103) (73,103) Actuarial gains/(losses) on defined benefit plans - (6,106) (6,106) - (4,785) (4,785) - (6,106) (6,106) - (4,785) (4,785) Other comprehensive income/(loss) net of tax - (79,209) (79,209) - (77,888) (77,888) Share of other comprehensive

income/(expense) of associates - - - - - - Other comprehensive income/(loss)

for the year,net of tax - (79,209) (79,209) - (77,888) (77,888) Total comprehensive income/(loss) for the year 2,770,997 209,588 2,980,585 2,345,411 185,358 2,530,769 Total comprehensive income/(loss)

for the year attributalbe to: equity holders of the parent 2,885,628 2,885,628 2,530,769 2,530,769 non controlling interest 94,957 94,957 - - 2,980,585 2,980,585 2,530,769 2,530,769


The impact arising from the change is summarised as follows:

(a) Financial assets held for trading

Group CompanyAs at 01.04.2011 As at 31.03.2012 As at 01.04.2011 As at 31.03.2012

Rs.’000 Rs.’000 Rs.’000 Rs.’000Consolidated Statement of Comprehensive IncomeMark to market valuation on quoted shares previously accounted at cost - (74) - - - (74) - - Consolidated Statement of Financial PositionReclassification Designation of quoted shares previously accounted at cost as FVtPL investments 30 30 - -

30 30 - - New SLFRS Adjustments Mark to market valuation on FVtPL 143 69 - - 143 69 - -

(b) Tax receivables


Rs.’000 Rs.’000 Rs.’000 Rs.’000Consolidated Statement of Financial PositionReclassification Classification change - 962 - -

- 962 - - (c) Available for sale investments-government securities


Rs.’000 Rs.’000 Rs.’000 Rs.’000Consolidated Statement of Comprehensive IncomeEIR adjustment - (1,079) - (1,079)Mark to market valuation on government securities - (12,569) - (12,569) - (13,648) - (13,648)Consolidated Statement of Financial PositionReclassification Interest receivable on government securities - 2,879 - 2,879

- 2,879 - 2,879 New SLFRS Adjustments EIR adjustment - (1,079) - (1,079)Mark to market valuation on government securities - (12,569) - (12,569) - (13,648) - (13,648)



(d) Deposits with banks


Rs.’000 Rs.’000 Rs.’000 Rs.’000Consolidated Statement of Comprehensive IncomeEIR adjustment - (478) - (478) - (478) - (478)Consolidated Statement of Financial PositionReclassification EIR adjustment on interest receivable on deposit with banks 730 52,322 730 52,322

730 52,322 730 52,322 New SLFRS Adjustments EIR adjustment on deposit with bank (2) (480) (2) (480) (2) (480) (2) (480)

(e) Available for sale securities


Rs.’000 Rs.’000 Rs.’000 Rs.’000Consolidated Statement of Comprehensive IncomeMark to market valuation on available for sale securities - (60,534) - (60,534) - (60,534) - (60,534)Consolidated Statement of Financial PositionReclassification Designation of quoted shares previously accounted at cost as FVtPL investments (30) (30) - -

(30) (30) - - New SLFRS Adjustments Mark to market valuation on available for sale securities 72,282 11,748 72,282 11,748 72,282 11,748 72,282 11,748

(f) Held to maturity investments-government securities


Rs.’000 Rs.’000 Rs.’000 Rs.’000Consolidated Statement of Comprehensive IncomeEIR adjustment on government securities - (24) - (24) - (24) - (24)Consolidated Statement of Financial PositionReclassification Interest receivable on government securities 10,237 19,968 10,237 19,968

10,237 19,968 10,237 19,968 New SLFRS Adjustments EIR adjustment on treasury bills (205) (229) (205) (229) (205) (229) (205) (229)


(g) Trade and other receivables


Rs.’000 Rs.’000 Rs.’000 Rs.’000Consolidated Statement of Comprehensive IncomeProvision for impairment on trade debtors - (522) - - - (522) - - Consolidated Statement of Financial PositionReclassification VH debtors transferred to net investment in leases & hire-purchases (529) (657) (529) (657)Service charges receivable on TR (35,472) (39,173) (35,472) (39,173)Interest receivable on held to maturity investments-government securities (10,237) (19,968) (10,237) (19,968)Interest receivable on available for sale investments-government securities - (2,880) - (2,880)Interest receivable on deposits with banks (731) (52,322) (731) (52,322)

(46,969) (115,000) (46,969) (115,000)New SLFRS Adjustments SLFRS adjustment on staff loans - 7,245 - 7,245 Provision for impairment on trade debtors (166) (688) - - Transferred from tax payable - (35) - - EIR adjustment on deposits (6,477) (1,276) - - (6,643) 5,246 - 7,245

(h) Inventories and other stocks


Rs.’000 Rs.’000 Rs.’000 Rs.’000Consolidated Statement of Comprehensive IncomeImpairment provision for fall in value of repossessed vehicles - - 7,394 - - - 7,394 Consolidated Statement of Financial PositionNew SLFRS Adjustments Impairment provision for fall in value of repossessed vehicles 46,332 53,727 46,333 53,727 46,332 53,727 46,333 53,727

(i) Loans and advances


Rs.’000 Rs.’000 Rs.’000 Rs.’000Consolidated Statement of Comprehensive IncomeSLFRS adjustment on corporate debt securities - 1,157 - 1,157 Reversal of interest in suspense of term loans - (11,700) - (11,700) - (10,543) - (10,543)



(i) Loans and advances (contd)


Rs.’000 Rs.’000 Rs.’000 Rs.’000

Consolidated Statement of Financial PositionReclassification Service charges receivable on TR 35,472 39,173 35,472 39,173 Provision related to net investment in leases and hire purchase 395,992 465,098 395,992 465,098 Interest in suspense related to net investment in leases and hire purchase 141,465 144,974 141,465 144,974 Stock out on hire and lease purchase transferred from loans and advance (10,520,773) (15,529,876) (10,520,773) (15,529,876)Amounts due from hirers transferred from loans and advances (1,364,226) (1,566,335) (1,364,226) (1,566,335)

(11,312,070) (16,446,966) (11,312,070) (16,446,966)New SLFRS Adjustments SLFRS adjustment on corporate debt securities (2,462) (1,305) (2,462) (1,305)Reversal of provision on term loans 246,137 250,909 246,137 250,909 Reversal of interest in suspense of term loans 35,005 23,305 35,005 23,305 Impairment provision (332,543) (222,046) (332,543) (222,046)SLFRS adjustment on staff loan - (7,245) - (7,245)Reversal of provision on subsidiary loans 184,104 184,104 - - 130,241 227,722 (53,863) 43,618

(j) Net investment in leases & hire-purchase


Rs.’000 Rs.’000 Rs.’000 Rs.’000Consolidated Statement of Comprehensive IncomeReveresal of interest in suspense - 3,509 - 3,509 - 3,509 - 3,509 Consolidated Statement of Financial PositionReclassification Hiring stock transfer 815,785 1,117,051 815,785 1,117,051 Hiring debtor transfer 529 657 529 657 Hiring refundable deposit transfer (67,885) (99,115) (67,885) (99,115)Pre paid rental transfer (2,769,448) (4,439,350) (2,769,448) (4,439,350)Stock out on hire and lease purchase transfer 10,520,773 15,529,876 10,520,773 15,529,876 Amounts due from hirers transfer 1,364,225 1,566,336 1,364,225 1,566,336 Provision transfer (395,993) (465,097) (395,993) (465,097)Interest in suspense transfer (141,465) (144,974) (141,465) (144,974)

9,326,521 13,065,384 9,326,521 13,065,384 New SLFRS Adjustments Reveresal of provision 511,141 559,607 511,141 559,607 Reveresal of interest in suspense 141,465 144,974 141,465 144,974 Impairment provision (200,189) (181,801) (200,189) (181,801) 452,417 522,780 452,417 522,780


(k) Investments in associates Group Company

As at 01.04.2011 As at 31.03.2012 As at 01.04.2011 As at 31.03.2012 Rs.’000 Rs.’000 Rs.’000 Rs.’000Consolidated Statement of Financial PositionReclassification Effect due to changes in retained assets of associate companies (113,346) (92,670) - -

(113,346) (92,670) - -

(l) Other assets Group Company

As at 01.04.2011 As at 31.03.2012 As at 01.04.2011 As at 31.03.2012 Rs.’000 Rs.’000 Rs.’000 Rs.’000Consolidated Statement of Comprehensive IncomeReversal of amortised front end fees of FMO - 2,678 - 2,678 - 2,678 - 2,678 Consolidated Statement of Financial PositionReclassification Success and front end fees (8,259) (20,930) (8,259) (20,930)

(8,259) (20,930) (8,259) (20,930)New SLFRS Adjustments Reversal of amortised front end fees of FMO - 2,678 - 2,678 - 2,678 - 2,678

(m) Property, plant and equipment Group Company

As at 01.04.2011 As at 31.03.2012 As at 01.04.2011 As at 31.03.2012 Rs.’000 Rs.’000 Rs.’000 Rs.’000Consolidated Statement of Comprehensive IncomeEffect on leases - 40,921 - 40,921 - 40,921 - 40,921 Consolidated Statement of Financial PositionReclassification VH stock transfer (815,785) (1,117,052) (815,785) (1,117,052)

(815,785) (1,117,052) (815,785) (1,117,052)New SLFRS Adjustments Effect on leases 40,457 81,378 40,457 81,378 40,457 81,378 40,457 81,378

(n) Tax payable Group Company

As at 01.04.2011 As at 31.03.2012 As at 01.04.2011 As at 31.03.2012 Rs.’000 Rs.’000 Rs.’000 Rs.’000Consolidated Statement of Comprehensive IncomeEffect on SLFRS Changes - 2,022 - 2,022 - 2,022 - 2,022 Consolidated Statement of Financial PositionReclassification Effect on SLFRS changes 29,858 27,836 29,858 27,836 Classification change - 962 - - Transferred to trade and receivable - (36) - -

29,858 28,762 29,858 27,836



(o) Trade and other payables Group Company

As at 01.04.2011 As at 31.03.2012 As at 01.04.2011 As at 31.03.2012 Rs.’000 Rs.’000 Rs.’000 Rs.’000Consolidated Statement of Comprehensive IncomeAdjutment on VAT on financial services - (17,668) - (17,668) - (17,668) - (17,668)Consolidated Statement of Financial PositionReclassification Hiring refundable deposit transfer (67,885) (99,115) (67,885) (99,115)Interest payable on bank loans (4,426) (16,009) (4,426) (16,009)Interest payable on non bank loans (7,369) (175,732) (7,369) (175,732)Interest payable on debt securities (7,139) (2,266) (7,139) (2,266)Interest payable on derivative financial instruments (18,056) (17,138) (18,056) (17,138)Interest payable on deposits of customers (1,226,823) (1,434,336) (1,226,821) (1,434,336)Pre paid rental transfer (2,769,448) (4,439,350) (2,769,448) (4,439,350)

(4,101,146) (6,183,946) (4,101,144) (6,183,946)New SLFRS Adjustments Adjustment on VAT on financial services 21,767 39,436 21,767 39,436 21,767 39,436 21,767 39,436

(p) Derivative financial instruments Group Company

As at 01.04.2011 As at 31.03.2012 As at 01.04.2011 As at 31.03.2012 Rs.’000 Rs.’000 Rs.’000 Rs.’000Consolidated Statement of Comprehensive IncomeFair valuation on derivative financial instruments - (65,368) - (65,368)Reversal of interest on SWAP - (103,167) - (103,167) - (168,535) - (168,535)Consolidated Statement of Financial PositionReclassification Interest payable on derivative financial instruments 18,056 17,138 18,056 17,138

18,056 17,138 18,056 17,138 New SLFRS Adjustments Mark to market valuation on derivative financial instruments 217,977 152,609 217,977 152,609 Reversal of interest on SWAP - (103,167) - (103,167) 217,977 49,442 217,977 49,442

(q) Deposits Group Company

As at 01.04.2011 As at 31.03.2012 As at 01.04.2011 As at 31.03.2012 Rs.’000 Rs.’000 Rs.’000 Rs.’000Consolidated Statement of Comprehensive IncomeEIR adjustment on deposits - 28,706 - 23,507 - 28,706 - 23,507 Consolidated Statement of Financial PositionReclassification Interest payable on deposits of customers 1,226,822 1,434,337 1,226,822 1,434,337

1,226,822 1,434,337 1,226,822 1,434,337 New SLFRS Adjustments Adjustment of CoD’s Interest paid in advance (28) (24) (28) (24)EIR adjustment on deposit (89,612) (66,109) (89,612) (66,109)EIR adjustment on deposit of subsidiaries (6,477) (1,278) - - (96,117) (67,411) (89,640) (66,133)


(r) Bank loans


Rs.’000 Rs.’000 Rs.’000 Rs.’000Consolidated Statement of Financial PositionReclassification Interest payable on bank loans 4,426 16,009 4,426 16,009

4,426 16,009 4,426 16,009

(s) Non bank loans


Rs.’000 Rs.’000 Rs.’000 Rs.’000Consolidated Statement of Comprehensive IncomeSuccess fees reversal - 2,801 - 2,801 Success fees charges as per SLFRS - (4,158) - (4,158)Provision reversal - 19,395 - 19,395 SLFRS adjustment on front end fees of FMO - (2,241) - (2,241)SLFRS adjustment of impact of effective rates on securitisation loans - (88) - (88) - 15,709 - 15,709 Consolidated Statement of Financial PositionReclassification Interest payable on non bank loans 7,369 175,732 7,369 175,732 Success fees/front end fees (8,259) (20,930) (8,259) (20,930)

(890) 154,802 (890) 154,802 New SLFRS Adjustments Succes fees reversal - (2,801) - (2,801)Succes fees charges as per SLFRS - 4,158 - 4,158 Provision reversal - (19,395) - (19,395)SLFRS adjustment on front end fees of FMO 3,718 5,959 3,718 5,959 SLFRS adjustment of impact of effective rates on securitisation loans (88) - (88) - 3,630 (12,079) 3,630 (12,079)

(t) Debentures Group Company

As at 01.04.2011 As at 31.03.2012 As at 01.04.2011 As at 31.03.2012 Rs.’000 Rs.’000 Rs.’000 Rs.’000Consolidated Statement of Comprehensive IncomeAdjustment on debentures - 1,677 - 1,677 - 1,677 - 1,677 Consolidated Statement of Financial PositionReclassification Interest payable on debt securities 7,139 2,266 7,139 2,266

7,139 2,266 7,139 2,266 New SLFRS Adjustments Adjustment on debentures (1,966) (289) (1,966) (289) (1,966) (289) (1,966) (289)


(u) Deferred tax liability Group Company

As at 01.04.2011 As at 31.03.2012 As at 01.04.2011 As at 31.03.2012 Rs.’000 Rs.’000 Rs.’000 Rs.’000Consolidated Statement of Comprehensive IncomeEffect on SLFRS changes - (109,252) - (109,456) - (109,252) - (109,456)Consolidated Statement of Financial PositionNew SLFRS Adjustments Effect on SLFRS changes 63,934 173,186 63,933 173,389 63,934 173,186 63,933 173,389

(v) Capital reserves Group Company

As at 01.04.2011 As at 31.03.2012 As at 01.04.2011 As at 31.03.2012 Rs.’000 Rs.’000 Rs.’000 Rs.’000Consolidated Statement of Financial PositionReclassification Effect on opening revenue and capital reserves (72,388) (72,388) - - Effect due to changes in reserves of associate companies (102) (102) - - Effect on deferred tax attributable to revaluation surplus due to change in corporate tax rate - (3,143) - -

(72,490) (75,633) - -

(w) Available for sale reserve


Rs.’000 Rs.’000 Rs.’000 Rs.’000Consolidated Statement of Comprehensive IncomeMark to market valuation on available for sale securities - (60,534) - (60,534)Mark to market valuation on available for sale-government securities - (12,569) - (12,569) - (73,103) - (73,103)Consolidated Statement of Financial PositionNew SLFRS Adjustments Mark to market valuation on available for sale securities 72,282 11,748 72,282 11,748 Mark to market valuation on government securities - (12,569) - (12,569) 72,282 (821) 72,282 (821)

(x) Revenue reserves


Rs.’000 Rs.’000 Rs.’000 Rs.’000Consolidated Statement of Financial PositionNew SLFRS Adjustments Adjustment on government securities (205) (1,308) (205) (1,308)SLFRS adjustment on FDs (2) (480) (2) (480)Impairment adjustment 544,126 725,165 360,188 541,517 Reveresal of interest in suspense 87,158 87,158 87,158 87,158 SLFRS adjustment on interest income of corporate debt securities (2,462) (1,305) (2,462) (1,305)Effect on leases 40,456 81,377 40,456 81,377 Adjustment on VAT on financial services (21,767) (39,436) (21,767) (39,436)Reversal of amortised front end fees of FMO - 2,678 - 2,678



(x) Revenue reserves


Rs.’000 Rs.’000 Rs.’000 Rs.’000Mark to market valuation on derivative financial instruments (217,977) (152,609) (217,977) (152,609)Add back of SWAP interest paid - 103,167 - 103,167 Adjustment of CoD interest paid in advance 28 24 28 24 Mark to market valuation on available for sale securities 89,612 66,109 89,612 66,109 Success fees reversal - 2,801 - 2,801 Success fees charges as per SLFRS - (4,158) - (4,158)Provision reversal/securitisation expense - 19,395 - 19,395 SLFRS adjustment on front end fees of FMO (3,718) (5,959) (3,718) (5,959)SLFRS adjustment of impact of effective rates on securitisation loans 88 - 88 - Adjustment on debentures 1,966 289 1,966 289 Taxation impact on SLFRS conversion (93,791) (206,814) (93,791) (201,225)Mark to market valuation on FVtPL 143 143 - - Effect to opening revenue and capital reserves 45,741 45,741 - - Effect due to changes in reserves of associate companies (113,244) (113,244) - - Increase in share of profit of associate companies - 29,570 - - Mark to market valuation on quoted shares previously accounted at cost - (36) - - 356,152 638,268 239,574 498,035

(y) Non controlling interest


Rs.’000 Rs.’000 Rs.’000 Rs.’000Consolidated Statement of Comprehensive IncomeChange in non-controlling interest 26,647 26,421 - - 26,647 26,421 - - Consolidated Statement of Financial PositionNew SLFRS Adjustments Change in net assets in group subsidiaries 26,647 26,421 - -

26,647 26,421 - -

(z) Interest income


Rs.’000 Rs.’000 Rs.’000 Rs.’000Consolidated Statement of Comprehensive IncomeAdjustment on government securities - (1,103) - (1,103)Adjustment on deposit with banks - (478) - (478)Hiring interest income transferred to interest income - 161,489 - 161,489 Finance discount and service charges on micro finance - (132,698) - (132,698)SLFRS adjustment on corporate debt securities - 1,157 - 1,157 Fair value changes in derivative financial instruments - 65,369 - 65,369 Reversal of interest in suspense - (8,192) - (8,192) - 85,544 - 85,544



(aa) Interest expenses


Rs.’000 Rs.’000 Rs.’000 Rs.’000Consolidated Statement of Comprehensive IncomeAdjutment on debentures - 1,677 - 1,677 EIR adjustment on deposit and CoD - 23,507 - 23,507 EIR adjustment on bank loans - (103,168) - (103,167)Securitisation loan expenses - (13,897) - (13,897) - (91,881) - (91,880)

(ab) Other operating income


Rs.’000 Rs.’000 Rs.’000 Rs.’000Consolidated Statement of Comprehensive IncomeHiring interest income transferred to interest income - (161,489) - (161,489)Capital payback from hiring contracts - (143,697) - (143,697) - (305,186) - (305,186)

(ac) Other income


Rs.’000 Rs.’000 Rs.’000 Rs.’000Consolidated Statement of Comprehensive IncomeTransfer finance discount and service charges on micro finance - 132,698 - 132,698 Net off of profit on sale of repossessed vehicles - (25,777) - (25,777)Effect of reclassification changes - 859 - - - 107,780 - 106,921

(ad) Personnel expenses


Rs.’000 Rs.’000 Rs.’000 Rs.’000Consolidated Statement of Comprehensive IncomeTransferred to premises, equipment and establishment expenses - (5,910) - (5,910) - (5,910) - (5,910)

(ae) Premises, equipment and establishment expenses


Rs.’000 Rs.’000 Rs.’000 Rs.’000Consolidated Statement of Comprehensive IncomeCapital depletion - (143,697) - (143,697)Transferred from premises, equipment and establishment expenses - 5,910 - 5,910 Capital pre-payment - (40,921) - (40,921) - (178,708) - (178,708)


(af) Employee retirement benefit expenses


Rs.’000 Rs.’000 Rs.’000 Rs.’000Consolidated Statement of Comprehensive IncomeActuarial loss transfer to other comprenhesive income - (5,297) - (4,785) - (5,297) - (4,785)

(ag) Other expenses


Rs.’000 Rs.’000 Rs.’000 Rs.’000Consolidated Statement of Comprehensive IncomeSLFRS adjustment on front end fees of FMO - (438) - (438)Securitisation loan expenses - (4,052) - (4,052)Effect of reclassification changes - 124 - - - (4,366) - (4,490)

(ah) Impairment losses on financial assests


Rs.’000 Rs.’000 Rs.’000 Rs.’000Consolidated Statement of Comprehensive IncomeSuccess fees reversal - (2,801) - (2,801)Success fees charges as per SLFRS - 4,158 - 4,158 Provision reversal - (19,394) - (19,394)Net off of pofit on sale of repossessed vehicles - 25,777 - 25,777 Impairment reversal - (223,036) - (223,036)Additional impariment provison - 521 - - - (214,775) - (215,296)

(ai) VAT on financial services


Rs.’000 Rs.’000 Rs.’000 Rs.’000Consolidated Statement of Comprehensive IncomeAdjutment on VAT on financial services - 17,668 - 17,668 - 17,668 - 17,668

(aj) Income tax expense


Rs.’000 Rs.’000 Rs.’000 Rs.’000Consolidated Statement of Comprehensive IncomeDeferred tax effect on SLFRS changes - 109,456 - 109,456 Tax effect on SLFRS changes - 2,724 - (2,022) - 112,180 - 107,434



61 Maturity AnalysisAn analysis of the total assets employed and the total liabilities of the Company, based on the remaining period from the balance sheet date to the respective contractual maturity dates is given below:Assets are stated net of provisions

Up to 3 months 3 to 12 months 1 to 3 years 3 to 5 years More than 5 years Impairment provision Total31.03.2013 31.03.2012 31.03.2013 31.03.2012 31.03.2013 31.03.2012 31.03.2013 31.03.2012 31.03.2013 31.03.2012 31.03.2013 31.03.2012 31.03.2013 31.03.2012

Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000Interest earning assets:Held to maturity Investments in treasury bills 439,939 1,023,649 1,480,204 388,213 - - - - - - - - 1,920,143 1,411,862

Available for sale Investments in Government securities 63,747 83,775 - - - - - - 178,557 81,590 - - 242,304 165,365

Deposits with banks 712,931 1,014,254 - 537,588 - - - - - - - - 712,931 1,551,842

Net investment in leases & hire purchases 5,402,358 4,129,959 9,373,537 7,652,690 20,906,272 18,194,334 6,921,201 6,313,624 15,638 371,152 (236,136) (181,801) 42,382,870 36,479,958

Loans and advancesTerm loans and dealer advances 420,409 254,979 54,911 348,685 149,426 214,549 419,612 366,097 78,743 111,321 (227,920) (222,046) 895,181 1,073,585

Micro finance 31,563 8,742 64,236 13,700 56,922 13,241 - 26 - - - - 152,721 35,709

Sub loans 74,868 28,711 142,427 50,055 169,410 40,036 37,842 6,307 - 114 - - 424,547 125,223

Securitisation facility - - - - - - - 47,635 - 132,910 - - - 180,545

Temporary refunds against fixed deposits 196,607 153,574 282,361 246,797 113,024 131,386 32,039 44,886 - - - - 624,031 576,643

Housing and land 18,400 18,819 9 8 15 27 64 41 575 596 (16,460) (17,268) 2,603 2,223

Staff loans 12,723 11,397 26,167 22,919 12,736 16,952 12,254 5,181 6,301 6,653 - - 70,181 63,102

Total interest earning assets 7,373,545 6,727,859 11,423,852 9,260,655 21,407,805 18,610,525 7,423,012 6,783,797 279,814 704,336 (480,516) (421,115) 47,427,512 41,666,057

Non-interest earning assets:Cash in hand and at banks 597,787 307,421 - - - - - - - - - - 597,787 307,421

Financial assets held for trading 33,000 24,560 - - - - - - - - - - 33,000 24,560

Available for sale securities - - - - - - - - 189,074 185,719 - - 189,074 185,719

Trade and other receivables 216,553 366,910 525 25,909 1,400 56,768 74 87,168 36,014 175,281 - - 254,566 712,036

Investments in real estate - - 68,079 72,364 - - - - - - - - 68,079 72,364

Inventories and other stocks 903,742 609,281 - - - - - - - - - - 903,742 609,281

Investments in associates - - - - - - - - 523,458 523,458 - - 523,458 523,458

Investments in subsidiaries - - - - - - - - 306,456 312,987 - - 306,456 312,987

Intangible assets - - - - - - - - 35,375 36,109 - - 35,375 36,109

Property, plant and equipment - - - - - - - - 3,134,479 2,865,332 - - 3,134,479 2,865,332

Total non-interest earning assets 1,751,082 1,308,172 68,604 98,273 1,400 56,768 74 87,168 4,224,856 4,098,886 - - 6,046,016 5,649,267

Total assets 9,124,627 8,036,031 11,492,456 9,358,928 21,409,205 18,667,293 7,423,086 6,870,965 4,504,670 4,803,222 (480,516) (421,115) 53,473,528 47,315,324

Percentage 17.06% 16.98% 21.49% 19.78% 40.04% 39.45% 13.88% 14.52% 8.42% 10.15% (0.89%) (0.88%) 100.00% 100.00%

Interest bearing liabilities:Deposits 9,138,511 6,936,359 12,842,753 11,285,218 4,477,537 4,158,145 807,110 573,390 - - - - 27,265,911 22,953,112

Bank overdrafts 840,177 1,687,625 - - - - - - - - - - 840,177 1,687,625

Bank loans 4,090,665 3,871,842 126,600 30,000 262,600 80,000 46,934 53,334 - - - - 4,526,799 4,035,176

Non bank loans 327,823 239,223 433,172 512,956 672,885 911,656 - 288,700 - - - - 1,433,880 1,952,535

Amounts due to subsidiaries 4,656 121,778 - - - - - - - - - - 4,656 121,778

Derivative financial instruments 23,096 66,580 - - - - - - - - - - 23,096 66,580

Commercial Paper - 140,066 10,892 260,430 - - - - - - - - 10,892 400,496

Debentures - - 11,583 - 745,933 - - 251,977 - - - - 757,516 251,977

Total interest bearing liabilities 14,424,928 13,063,473 13,425,000 12,088,604 6,158,955 5,149,801 854,044 1,167,401 - - - - 34,862,927 31,469,279

Non-interest bearing liabilities:Trade and other payables 1,271,212 1,501,186 35,677 28,581 10,152 8,411 709 5,922 14,784 13,754 - - 1,332,534 1,557,854

Retirement benefit obligation - - 9,761 8,194 14,644 12,292 24,406 20,487 439,293 368,761 - - 488,104 409,734


Tax payable 237,166 139,092 - - - - - - - - - - 237,166 139,092

Deferred tax liability - - - - - - - - 1,886,375 1,584,840 - - 1,886,375 1,584,840

Total non-interest bearing liabilities 1,615,800 1,742,796 45,438 36,775 24,796 20,703 25,115 26,409 2,340,452 1,967,355 - - 4,051,601 3,794,038

Total liabilities 16,040,728 14,806,269 13,470,438 12,125,379 6,183,751 5,170,504 879,159 1,193,810 2,340,452 1,967,355 - - 38,914,528 35,263,317

Percentage 41.22% 41.99% 34.62% 34.39% 15.89% 14.66% 2.26% 3.39% 6.01% 5.58% - - 100.00% 100.00%


61 Maturity AnalysisAn analysis of the total assets employed and the total liabilities of the Company, based on the remaining period from the balance sheet date to the respective contractual maturity dates is given below:Assets are stated net of provisions

Up to 3 months 3 to 12 months 1 to 3 years 3 to 5 years More than 5 years Impairment provision Total31.03.2013 31.03.2012 31.03.2013 31.03.2012 31.03.2013 31.03.2012 31.03.2013 31.03.2012 31.03.2013 31.03.2012 31.03.2013 31.03.2012 31.03.2013 31.03.2012

Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000Interest earning assets:Held to maturity Investments in treasury bills 439,939 1,023,649 1,480,204 388,213 - - - - - - - - 1,920,143 1,411,862

Available for sale Investments in Government securities 63,747 83,775 - - - - - - 178,557 81,590 - - 242,304 165,365

Deposits with banks 712,931 1,014,254 - 537,588 - - - - - - - - 712,931 1,551,842

Net investment in leases & hire purchases 5,402,358 4,129,959 9,373,537 7,652,690 20,906,272 18,194,334 6,921,201 6,313,624 15,638 371,152 (236,136) (181,801) 42,382,870 36,479,958

Loans and advancesTerm loans and dealer advances 420,409 254,979 54,911 348,685 149,426 214,549 419,612 366,097 78,743 111,321 (227,920) (222,046) 895,181 1,073,585

Micro finance 31,563 8,742 64,236 13,700 56,922 13,241 - 26 - - - - 152,721 35,709

Sub loans 74,868 28,711 142,427 50,055 169,410 40,036 37,842 6,307 - 114 - - 424,547 125,223

Securitisation facility - - - - - - - 47,635 - 132,910 - - - 180,545

Temporary refunds against fixed deposits 196,607 153,574 282,361 246,797 113,024 131,386 32,039 44,886 - - - - 624,031 576,643

Housing and land 18,400 18,819 9 8 15 27 64 41 575 596 (16,460) (17,268) 2,603 2,223

Staff loans 12,723 11,397 26,167 22,919 12,736 16,952 12,254 5,181 6,301 6,653 - - 70,181 63,102

Total interest earning assets 7,373,545 6,727,859 11,423,852 9,260,655 21,407,805 18,610,525 7,423,012 6,783,797 279,814 704,336 (480,516) (421,115) 47,427,512 41,666,057

Non-interest earning assets:Cash in hand and at banks 597,787 307,421 - - - - - - - - - - 597,787 307,421

Financial assets held for trading 33,000 24,560 - - - - - - - - - - 33,000 24,560

Available for sale securities - - - - - - - - 189,074 185,719 - - 189,074 185,719

Trade and other receivables 216,553 366,910 525 25,909 1,400 56,768 74 87,168 36,014 175,281 - - 254,566 712,036

Investments in real estate - - 68,079 72,364 - - - - - - - - 68,079 72,364

Inventories and other stocks 903,742 609,281 - - - - - - - - - - 903,742 609,281

Investments in associates - - - - - - - - 523,458 523,458 - - 523,458 523,458

Investments in subsidiaries - - - - - - - - 306,456 312,987 - - 306,456 312,987

Intangible assets - - - - - - - - 35,375 36,109 - - 35,375 36,109

Property, plant and equipment - - - - - - - - 3,134,479 2,865,332 - - 3,134,479 2,865,332

Total non-interest earning assets 1,751,082 1,308,172 68,604 98,273 1,400 56,768 74 87,168 4,224,856 4,098,886 - - 6,046,016 5,649,267

Total assets 9,124,627 8,036,031 11,492,456 9,358,928 21,409,205 18,667,293 7,423,086 6,870,965 4,504,670 4,803,222 (480,516) (421,115) 53,473,528 47,315,324

Percentage 17.06% 16.98% 21.49% 19.78% 40.04% 39.45% 13.88% 14.52% 8.42% 10.15% (0.89%) (0.88%) 100.00% 100.00%

Interest bearing liabilities:Deposits 9,138,511 6,936,359 12,842,753 11,285,218 4,477,537 4,158,145 807,110 573,390 - - - - 27,265,911 22,953,112

Bank overdrafts 840,177 1,687,625 - - - - - - - - - - 840,177 1,687,625

Bank loans 4,090,665 3,871,842 126,600 30,000 262,600 80,000 46,934 53,334 - - - - 4,526,799 4,035,176

Non bank loans 327,823 239,223 433,172 512,956 672,885 911,656 - 288,700 - - - - 1,433,880 1,952,535


Derivative financial instruments 23,096 66,580 - - - - - - - - - - 23,096 66,580

Commercial Paper - 140,066 10,892 260,430 - - - - - - - - 10,892 400,496

Debentures - - 11,583 - 745,933 - - 251,977 - - - - 757,516 251,977

Total interest bearing liabilities 14,424,928 13,063,473 13,425,000 12,088,604 6,158,955 5,149,801 854,044 1,167,401 - - - - 34,862,927 31,469,279

Non-interest bearing liabilities:Trade and other payables 1,271,212 1,501,186 35,677 28,581 10,152 8,411 709 5,922 14,784 13,754 - - 1,332,534 1,557,854

Retirement benefit obligation - - 9,761 8,194 14,644 12,292 24,406 20,487 439,293 368,761 - - 488,104 409,734


Tax payable 237,166 139,092 - - - - - - - - - - 237,166 139,092

Deferred tax liability - - - - - - - - 1,886,375 1,584,840 - - 1,886,375 1,584,840

Total non-interest bearing liabilities 1,615,800 1,742,796 45,438 36,775 24,796 20,703 25,115 26,409 2,340,452 1,967,355 - - 4,051,601 3,794,038

Total liabilities 16,040,728 14,806,269 13,470,438 12,125,379 6,183,751 5,170,504 879,159 1,193,810 2,340,452 1,967,355 - - 38,914,528 35,263,317

Percentage 41.22% 41.99% 34.62% 34.39% 15.89% 14.66% 2.26% 3.39% 6.01% 5.58% - - 100.00% 100.00%



62 Business Segment Information

For the year ended 31st March

Leasing, hire purchase and other advances

Vehicle hire Medical services Power generation Manufacturing Insurance broking Investments in shares and units

Real estate Intra segmental adjustments

Total

All figures in Rs.000 2013 2012 2013 2012 2013 2012 2013 2012 2013 2012 2013 2012 2013 2012 2013 2012 2013 2012 2013 2012

Revenue

Interest income 9,750,045 7,484,126 1,846 2,416 1,162 316 - - 1,060 4,416 - - - - 1,306 1,701 - - 9,755,419 7,492,975

Other operating income - - 333,103 437,612 51,926 52,312 87,775 97,690 349,002 327,648 200,571 159,098 - - - - - - 1,022,377 1,074,360

Other income 407,451 370,650 87,614 117,098 939 328 - 350 8,341 5,148 36,992 38,848 169,115 178,514 10,076 65,806 (179,550) (195,913) 540,978 580,829 Income from external customers 10,157,496 7,854,776 422,563 557,126 54,027 52,956 87,775 98,040 358,403 337,212 237,563 197,946 169,115 178,514 11,382 67,507 (179,550) (195,913) 11,318,774 9,148,164

Inter - segment income 46,906 55,309 5,552 4,934 9,025 7,662 8,833 10,171 19 32 - - 3,670 4,480 35,012 30,187 (109,017) (112,775) - -

Total income 10,204,402 7,910,085 428,115 562,060 63,052 60,618 96,608 108,211 358,422 337,244 237,563 197,946 172,785 182,994 46,394 97,694 (288,567) (308,688) 11,318,774 9,148,164

Expenses

Interest expenses 3,895,717 2,510,235 81,606 78,136 - - - - - - - - 84,391 68,014 7,328 6,918 - 4,069,042 2,663,303 Other operating and administrative

expenses 2,345,926 1,846,766 228,443 255,691 49,760 44,935 40,162 37,930 228,338 186,083 121,699 116,923 552 1,172 12,945 25,869 - - 3,027,825 2,515,369

6,241,643 4,357,001 310,049 333,827 49,760 44,935 40,162 37,930 228,338 186,083 121,699 116,923 84,943 69,186 20,273 32,787 - - 7,096,867 5,178,672

Inter - segment expenses 62,077 56,152 24 - 132 593 - - - 358 17,411 27,792 28,780 26,409 593 1,471 (109,017) (112,775) - -

Total expenses 6,303,720 4,413,153 310,073 333,827 49,892 45,528 40,162 37,930 228,338 186,441 139,110 144,715 113,723 95,595 20,866 34,258 (109,017) (112,775) 7,096,867 5,178,672

Segment results 3,900,682 3,496,932 118,042 228,233 13,160 15,090 56,446 70,281 130,084 150,803 98,453 53,231 59,062 87,399 25,528 63,436 (179,550) (195,913) 4,221,907 3,969,492

Share of profit of associates 616,084 495,122 Profit before VAT on financial services

and income tax 4,837,991 4,464,614

Less: VAT on financial services 218,177 173,096

Profit before income tax 4,619,814 4,291,518

Less: Income tax expense 1,335,096 1,231,724

Profit after income tax 3,284,717 3,059,794

Non-controlling interest 67,658 94,957 Profit attributable to equity holders of

the parent 3,217,059 2,964,837

Segment assets 47,792,552 41,704,780 1,086,607 1,050,510 233,833 221,175 131,328 171,252 1,209,027 1,112,014 1,038,177 969,341

2,184,726

2,090,736

537,308 91,972

(3,529,686) (3,098,127) 50,683,872 44,313,653

Unallocated assets 3,508,540 3,472,600

Investments in associate companies 2,364,929 2,011,360

Total assets 56,557,341 49,797,613

Segment liabilities 34,823,639 31,119,188 700,784 916,967 21,278 16,981 9,734 9,790 225,360 196,933 310,512 341,345 921,608

1,017,825

265,284

291,845 (853,590) (993,124) 36,424,609 32,917,750

Unallocated liabilities 2,611,646 2,357,968

Total liabilities 39,036,255 35,275,718

Interest expenses of the group other than the parent company are categorised under other expenses.

63 Disclosures relating to credit, market and liquidity risks and qualitative and quantitative details pertaining to capital is also given in the Integrated Risk Management Report on pages 21 to 26 of the Annual Report.


Directors’ Interest in Contracts with the Company Related party transactions as required by LKAS 24 ‘’Related Party Disclosures’’ are detailed in Note 58 to the financial statements. In

addition, the Company carries out transactions in the ordinary course of business on an arm’s length basis with entities where a director of the Company is also a director of such entities as detailed below:

Name of Director Company Relationship Nature of transaction

Rentals received Balance outstanding

2012/13Rs.000

2011/12Rs.000

31.03.2013Rs.000

31.03.2012Rs.000

J.D. BandaranayakeC.L.K.P. Jayasuriya

C.L.K.P. Jayasuriya

Finlays Colombo PLC

Hapugastenna Plantations PLC

James Finlay PlantationsHoldings (Pvt) Ltd.

Udupussellawa Plantations PLC

Ceylon Chamber of Commerce

Finlays Rentokil Ceylon (Pvt) Ltd.

Acme Printing & Packaging PLC

Lanka Aluminum Industries PLC

DirectorChairman/ MD

Director

Chairman

Director

CommitteeMember

Chairman

Director

Director

Hire of vehicles

Hire of vehicles

Hire of vehicles

Hire of vehicles

Hire of vehicles

Lease Finance facility

Lease Finance facility

Hire of vehicles

2,994

15,932

-

5,135

1,474

672

711

2,340

2,994

16,069

359

4,036

2,204

735

754

-

(11)

12

-

-

(138)

283

45

-

-

11

-

-

130

955

756

-


Group Companies Group Companies

Subsidiaries

Central Industries PLC Central Developments Ltd Central Transport and Central Construction and Travels Ltd Development (Pvt) Ltd

Year of incorporation 1984 1974 1990 1983

Stated Capital Rs.121,320,460 Rs.132,940,000 Rs.29,490,070 Rs.50,000

(9,884,214 Shares) (13,294,000 Shares) (2,949,007 Shares) (5,000 Shares)

Group Holding 49.98% 99.99% 99.99% 99.90%

Status of the Company Quoted Unquoted Unquoted Unquoted

Principal Activities Manufacture and distribution Investment company Hiring of vehicles Investment company

of PVC pipes and fittings

Registered Office No. 312, Nawala Road, No. 270, Vauxhall Street, No. 84, Raja Veediya, No. 84, Raja Veediya,

Rajagiriya Colombo 02 Kandy Kandy

S.V. Wanigasekera G.S.N. Peiris G.S.N. Peiris G.S.N. Peiris

E.H. Wijenaike R.E. Rambukwelle R.E. Rambukwelle R.E. Rambukwelle

A.N.P. Wickramasuriya C. Kiriella U.B. Elangasinha U.B. Elangasinha

G.S.N. Peiris U.B. Elangasinha

C.S.W. De Costa

R.E. Rambukwelle

A.K. Gunaratne

N.J. Abeysekera

L.R. De Lanerolle

Company Secretary Corporate Services (Pvt) Ltd. Kandy Business Kandy Business Kandy Business

216, De Saram place, Consultants (Pvt) Ltd. Consultants (Pvt) Ltd. Consultants (Pvt) Ltd.

Colombo 10 80, Kings Street, Kandy 80, Kings Street, Kandy 80, Kings Street, Kandy

COM

PAN

Y PR

OFI

LEBO

ARD

OF

DIR

ECTO

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Group Companies (contd.)

Group Companies

Subsidiaries

Central Mineral Central Homes (Pvt) Ltd CF Growth Fund Ltd CF Insurance Industries (Pvt) Ltd Brokers (Pvt) Ltd


Stated Capital Rs.3,500,000 Rs.34,175,020 Rs.163,036,780 Rs.123,750,000

(350,000 Shares) (3,417,502 Shares) (16,303,678 Shares) (12,375,000 Shares)

Group Holding 99.99% 99.99% 99.99% 99.99%

Status of the Company Unquoted Unquoted Unquoted Unquoted

Principal Activities Manufacture of mineral Property development and Investment company Insurance broking

products sale of real estate

Registered Office Diganatenna Estate, No. 270, Vauxhall Street, No. 270, Vauxhall Street, No. 270, Vauxhall Street,

Gonawala, Digana Colombo 02 Colombo 02 Colombo 02

G.S.N. Peiris G.S.N. Peiris G.S.N. Peiris M.S. Wijenaike

R.E. Rambukwelle C. Kiriella R.E. Rambukwelle A.K. Gunaratne

U.B. Elangasinha R.E. Rambukwelle D.P. de Silva G.S.N. Peiris

U.B. Elangasinha U.B. Elangasinha C. Kiriella

R.E. Rambukwelle

D.P. de Silva

Company Secretary Kandy Business Kandy Business Kandy Business Kandy Business

Consultants (Pvt) Ltd. Consultants (Pvt) Ltd. Consultants (Pvt) Ltd. Consultants (Pvt) Ltd.

80, Kings Street, Kandy 80, Kings Street, Kandy 80, Kings Street, Kandy 80, Kings Street, Kandy

COM

PAN

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OFI

LEBO

ARD

OF

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Group Companies

Subsidiaries

Dehigama Hotels Expanded Plastic Hedges Court Kandy Private Hospitals Ltd Company Ltd Products Ltd Residencies (Pvt) Ltd


Stated Capital Rs.8,280,700 Rs.64,000,000 Rs.50,000,000 Rs.6,084,750

(828,070 Shares) (6,400,000 Shares) (5,000,000 Shares) (550,500 Shares)

Group Holding 79.69% 99.99% 99.99% 66.58%

Status of the Company Unquoted Unquoted Unquoted Unquoted

Principal Activities Renting of commercial Investment company Construction and sale Provision of healthcare services

property of apartments

Registered Office No. 84, Raja Veediya, No. 270, Vauxhall Street, No. 270, Vauxhall Street, No. 255/8, Katugastota Road,

Kandy Colombo 02 Colombo 02 Kandy

E.H. Wijenaike G.S.N. Peiris G.S.N. Peiris E.H. Wijenaike

G.S.N. Peiris R.E. Rambukwelle C. Kiriella G.S.N. Peiris

C. Kiriella U.B. Elangasinha R.E. Rambukwelle S. Ranasinghe

W.A.L. Galagoda D.P. de Silva S. Kapuwatte

L. Sirimanne A.P.R. Aluwihare

A. Jayasinghe N.H.B. Mavilmada

(Alternate to C.D. Paranagama)

H.C.D. Divitotawela A.B. Abeysinghe

(Alternate to L. Sirimanne)

Company Secretary Corporate Services (Pvt) Ltd. Kandy Business Managers & Kandy Business

216, De Saram place, Consultants (Pvt) Ltd. Secretaries (Pvt) Ltd. Consultants (Pvt) Ltd.

Colombo 10 80, Kings Street, Kandy 08, Tickell Road, Colombo 08 80, Kings Street, Kandy

COM

PAN

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OFI

LEBO

ARD

OF

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Group Companies (contd.)

Group Companies Group Companies

Subsidiaries Associates

Mark Marine Capital Suisse Asia Ltd. Nations Trust Bank PLC Tea Smallholder Factories PLC Services (Pvt) Ltd


Stated Capital Rs.85,611,980 Rs.181,000,070 Rs.5,101,369,000 Rs.150,000,000

(8,561,198 Shares) (18,100,007 Shares) (230,607,283 Shares) (30,000,000 Shares)

Group Holding 58.12% 24.58% 20.00% 29.30%

Status of the Company Unquoted Unquoted Quoted Quoted

Principal Activities Hydro power generation Investment company Licensed commercial bank Manufacture and sale of

black tea

Registered Office No. 4, Circular Lane, No. 244, Vauxhall Street, No. 242, Union Place, No. 320/1, Union Place,

Sapumal Place, Rajagiriya Colombo 02 Colombo 02 Colombo 02

A.A.A. Makalanda A.K. Gunaratne A.K. Gunaratne S.C. Ratnayake

G.C.J. Makalanda E.H. Wijenaike R.N.K.Fernando A.D. Gunewardene

A.K. Gunaratne M.S. Wijenaike K.O.V.S.M.S.Wijesinghe J.R.F. Peiris

R.E. Rambukwelle S.T. Amarasuriya K.N.J. Balendra E.H. Wijenaike

U.B. Elangasinha P. Bottinelli M.E. Wickremesinghe R.E. Rambukwelle

D.P. de Silva G.N. Fernando A.R. Rasiah A.S. Jayathilleke

S.P.P. Makalanda N. Amarasuriya D. Weerakoon J.S. Ratwatte

(Alternate to A.A.A. Makalanda)

A.F. Goonetillake M. Jafferjee R. Seevaratnam

(Alternate to U.B. Elangasinha)

K. De Soysa R.S. Fernando

N.S. Panditaratne J.R.Gunarathna

D.P. de Silva

C.H.S.K. Piyaratna

Company Secretary Management B.P. De Silva (Ceylon) Ltd. Theja Silva Keells Consultants Limited.

Applications (Pvt) Ltd. 234/4, Old Awissawella 130, Glennie Street,

12, Rotunda Gardens, Road, Orugodawatta Colombo 02

Colombo 03

COM

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Group Value Added Statement For the year ended 31st March 2013 % 2012 % Rs.’000 Rs.’000

Value Added Operating Income earned by providing financial services 10,777,796 8,567,335 Cost of services (5,024,055) (3,419,133) Value added by financial services 5,753,741 5,148,202 Other Income 540,978 580,829 Impairment charges/(reversals) on financial assets and other credit losses (201,441) 87,520 Share of Associate companies’ profits before tax 616,084 495,122 6,709,362 6,311,673

Value Allocated To employees remuneration 1,246,856 18.58 1,122,384 17.78 To providers of capital Dividends to shareholders 304,162 4.53 262,207 4.15 Minority interest 67,658 1.01 94,957 1.50 To government revenue Income tax 1,335,096 19.90 1,231,724 19.52 Turnover tax and Debits tax - 1,439 0.02 VAT on financial services 218,177 3.25 173,096 2.74

To expansion and growth Retained income 3,131,075 46.67 2,875,726 45.56 Depreciation 406,338 6.06 550,140 8.72

6,709,362 100.00 6,311,673 100.00

Consolidated sources & utilisation of income For the year ended 31st March 2013 % 2012 % Rs.’000 Rs.’000

Sources of income Interest and operating income 10,777,796 90.31 8,567,335 88.84 Other Income 540,978 4.53 580,829 6.02 Share of associate companies’ profits before tax 616,084 5.16 495,122 5.13

11,934,858 100.00 9,643,286 100.00

Utilisation of income Interest expenses 4,069,042 34.09 2,663,303 27.62 Remuneration to employees 1,246,856 10.45 1,122,384 11.64 Other operating expenses including impairment charges for financial assets, diminution in value of investments and depreciation 1,562,792 13.09 1,218,450 12.64 Taxation 1,553,273 13.01 1,406,259 14.58 Dividends to shareholders 304,162 2.55 262,207 2.72 Retained income 3,131,075 26.23 2,875,726 29.82 Minority interest 67,658 0.57 94,957 0.98 11,934,858 100.00 9,643,286 100.00


Share Information 1. Stock Exchange The Ordinary Shares of the Company are listed on the Colombo Stock Exchange.

The audited Income Statement for the year ended 31st March 2013 and the audited Statement of Financial Position of the Company and of the Group as at that date have been submitted to the Colombo Stock Exchange within three months of the Balance Sheet date.

2. Ordinary Shareholders as at 31st March 2013 - 2,795 (Stated capital of the Company solely represents voting ordinary shares.).

Number of share holders (as at 31.03.2012 – 2,823) No. of shares held Residents Non-residents Total No.of No.of % No.of No.of % No.of No.of % share shares share shares share shares holders holders holders

1 - 1,000 1,296 340,069 0.32 15 6,425 0.01 1,311 346,494 0.33 1,001 - 5,000 630 1,464,403 1.40 21 55,530 0.05 651 1,519,933 1.45 5,001 - 10,000 339 2,223,578 2.12 5 33,533 0.03 344 2,257,111 2.15 10,001 - 50,000 306 6,053,742 5.77 14 355,383 0.34 320 6,409,125 6.11 50,001 - 100,000 77 5,183,509 4.94 3 224,850 0.21 80 5,408,359 5.16 100,001 - 500,000 60 12,598,491 12.01 5 1,216,569 1.16 65 13,815,060 13.17 500,001 - 1,000,000 8 5,869,064 5.60 1 749,295 0.71 9 6,618,359 6.31 Over 1,000,000 12 59,422,945 56.66 3 9,085,947 8.66 15 68,508,892 65.32 Total 2,728 93,155,801 88.82 67 11,727,532 11.18 2,795 104,883,333 100.00

There were 2,758 resident and 65 non-resident share holders as at 31st March 2012.

31st March 2013 31st March 2012 No of No of % No of No of % Share shares share shares holders holders

Individuals 2,584 56,771,817 54.13 2,595 57,347,221 54.68

Institutions 211 48,111,516 45.87 228 47,536,112 45.32 Total 2,795 104,883.333 100.00 2,823 104,883.333 100.00

As per Rule No.7.6 (iv) of the Colombo Stock Exchange, the percentage of public holding as at 31st March 2013 was 61.35% (31st March 2012 – 59.02%).

0

200

400

600

800

1000

1200

1400

Net Asset Value per share and Market Value per share (Rs.)

Net Asset Value per shareMarket Value per share

Financial Year08/09 09/10 10/11 11/12 12/13

0

50

100

150

200

250

300

Shareholders’ Funds and Market Capitalisation

Shareholders' FundsMarket Capitalisation

Financial Year08/09 09/10 10/11 11/12 12/13

Rs. M

illio

n


3. Twenty largest shareholders as at 31st March 2013. 31st March 2013 * 31st March 2012 No. of shares % No. of shares %

1. Corporate Services (Pvt) Ltd. 16,895,461 16.11 18,293,420 17.442. E.H. Wijenaike 16,164,123 15.41 16,164,123 15.41 3. Employees Provident Fund 7,911,630 7.55 6,194,693 5.914. Thurston Investments Limited 6,,032,701 5.75 1,056,501 1.015. Perpetual Capital (Pvt) Limited. 4,929,151 4.70 9,854,740 9.40 6. A.J. Wijenaike 3,271,357 3.12 3,271,357 3.127. N.W. Wijegoonawardene 2,162,353 2.06 2,162,353 2.068. G.S.N. Peiris 1,828,168 1.74 1,828,168 1.749. B P De Silva Holdings Pte Ltd 1,752,900 1.67 - -10. J.B. Cocoshell (Pvt) Ltd. 1,605,827 1.53 1,749,483 1.6711. C.R. Dunuwille 1,348,582 1.29 1,348,582 1.2912. N.M. Gunawardana 1,300,346 1.24 1,300,346 1.2413. P.R. Munasinha 1,226,980 1.17 1,226,980 1.1714. Employees Trust Fund Board 1,195,847 1.14 1,001,487 0.9515. P.M. Wijenaike 1,016,180 0.97 1,016,180 0.9716. R.E. Rambukwelle 984,906 0.94 984,906 0.9417. C. Kirielle 967,881 0.92 967,881 0.9218. S.K. Wedande 852,329 0.81 852,329 0.8119. A.K. Gunaratne 835,274 0.80 835,274 0.8020. N.M. Wahab 749,295 0.71 749,295 0.71 73,031,291 69.63 70,858,098 67.56 Others 31,852,042 30.37 34,025,235 32.44 Total 104,883,333 100.00 104,883,333 100.00

* Comparative shareholdings as at 31st March 2012 of the twenty largest shareholders as at 31st March 2013.

4. Market Value The market value of Central Finance Company PLC ordinary shares.

2012/13 2011/12 2010/11 Rs. Rs. Rs. Highest 185.00 (on 12.09.2012 1895.00 (on 25.05.2011) 1,300.00 (on 23.03.2011) &13.02.2013) Lowest 121.00 (on 29.05.2012) 149.00 (on 15.02.2012) 388.75 (on 24.05.2010) Year End 180.00 171.30 1,273.70

5. Dividend Payments 2012/13 2011/12 Rs. Rs. First interim 0.85 0.70 Second interim 0.85 0.70 Final 1.20 1.10 Total Dividend 2.90 2.50

6. Share Trading 2012/13 2011/12 2010/11 No. of shares traded 13,783,168 7,943,223 8,709,000 Value of shares traded (Rs.’000) 2,108,733 7,373,614 6,866,551 Market Capitalisation (Rs.’000) 18,879,000 17,966,515 25,856,110


Year ended 31st March 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000

Group income 3,035,435 2,092,281 4,195,574 5,332,059 6,453,132 7,405,866 7,536,516 8,094,371 9,148,164 11,318,774

Interest Income 2,095,301 2,208,204 2,704,715 3,651,989 4,662,008 5,520,829 5,723,338 6,269,481 7,492,975 9,755,419

Other operating Income 526,232 802,533 1,265,417 1,477,626 1,615,909 1,638,866 1,470,952 1,413,023 1,074,360 1,022,377

Other Income 413,902 81,544 225,442 202,444 175,215 246,171 342,226 411,867 580,829 540,978

Interest Expenses

Interest on deposits (1,045,773) (966,721) (1,063,482) (1,315,954) (1,751,728) (2,212,756) (2,561,737) (2,072,875) (2,165,955) (3,010,368)

Interest on bank and other borrowings (81,153) (101,024) (274,835) (538,298) (913,129) (1,001,190) (497,008) (282,388) (497,348) (1,058,674)

Operating expenses (693,304) (814,469) (1,447,632) (1,832,297) (2,008,313) (2,234,224) (2,335,775) (2,545,141) (2,602,889) (2,826,384)

Loan losses and provision (379,988) (224,031) (27,642) (48,357) (124,399) (220,189) (299,479) (186,822) 87,520 (201,441)

Share of profit of associate 70,489 69,865 85,909 102,150 168,434 163,953 383,868 507,781 495,122 616,084

VAT on financial services - - - (115,246) (107,803) (159,080) (200,851) (273,333) (173,096) (218,177)

Profit before income tax 905,706 1,055,901 1,467,892 1,584,057 1,716,194 1,742,380 2,025,534 3,241,593 4,291,518 4,619,814

Income tax expense (42,854) (284,149) (377,197) (419,634) (456,608) (561,336) (900,699) (1,330,155) (1,231,724) (1,335,096)

Net profit for the year 862,852 771,752 1,090,695 1,164,423 1,259,586 1,181,044 1,124,835 1,911,438 3,059,794 3,284,717

Attributable to equity holders of the parent 822,266 722,636 1,042,400 1,122,237 1,210,711 1,126,985 1,046,112 1,827,034 2,964,837 3,217,059

Attributable to Minority interest 40,586 49,116 48,295 42,186 48,875 54,059 78,723 84,404 94,957 67,658

Balance Sheet

Share capital 121,800 203,000 203,000 203,020 203,020 203,020 203,020 203,020 568,420 568,420

Capital reserves 732,895 728,514 725,677 1,308,366 1,326,647 1,382,664 1,377,177 1,342,544 1,338,178 1,366,853

Reserve fund 313,500 349,500 395,500 448,500 501,000 553,500 601,000 682,000 800,000 939,000

Unrealised income reserve 103,000 103,000 53,000 53,000 - - - - -

Investment fund - - - - - - - - 223,492 478,857

Available for sale reserve - - - - - - - 72,282 (821) 12,887

Revenue reserves 2,162,643 2,118,195 3,038,516 4,040,699 5,107,037 6,053,306 6,945,757 8,953,691 10,978,537 13,524,230

Shareholders’ funds 3,433,838 3,502,209 4,415,693 6,053,585 7,137,704 8,192,490 9,126,954 11,253,537 13,907,806 16,890,247

Minority interest 252,314 306,069 302,166 320,779 350,818 459,454 506,506 574,060 614,089 630,839

3,686,152 3,808,278 4,717,859 6,374,364 7,488,522 8,651,944 9,633,460 11,827,597 14,521,895 17,521,086

Decade at a Glance


Year ended 31st March 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000

Assets

Cash and other liquid assets 1,715,819 1,660,394 1,803,290 1,996,020 2,108,534 2,822,987 3,727,366 2,405,834 3,320,187 3,326,317

Dealing securities 21 61,296 8,208 7,322 8,168 7,444 2,200 - - -

Financial assets held for trading - - - - - - - 32,173 24,659 33,101

Investment securities 69,652 72,746 8,219 8,319 7,949 10,338 121,176 - - -

Available for sale securities - - - - - - - 252,583 192,049 195,404

Investments in associates 524,020 519,130 767,637 862,149 1,209,943 1,224,834 1,584,724 1,795,601 2,011,360 2,364,929

Advances to customers 9,406,020 12,859,872 14,143,703 18,704,532 20,768,506 21,353,518 21,733,403 27,570,496 38,153,555 44,318,139

Other assets 2,242,096 715,832 1,888,578 2,425,317 2,892,999 3,490,477 3,675,363 2,798,186 2,350,001 2,272,034

Property, plant and equipment 1,678,866 1,733,342 4,357,335 5,490,668 5,453,522 5,137,289 4,633,049 4,084,303 3,745,802 4,047,417

Total Assets 15,636,494 17,622,612 22,976,970 29,494,327 32,449,621 34,046,887 35,477,281 38,939,176 49,797,613 56,557,341

Liabilities

Deposits 9,433,518 9,614,073 10,406,456 11,765,897 12,172,031 13,354,133 17,233,458 19,887,906 22,795,351 26,984,757

Bank and other borrowings 715,316 1,227,910 3,854,109 6,299,135 6,963,437 5,866,646 1,756,655 2,839,926 7,748,039 6,869,841

Other liabilities 1,801,508 2,972,351 3,998,546 5,054,931 5,825,631 6,174,164 6,853,708 4,383,747 4,732,328 5,181,657

Total Liabilities 11,950,342 13,814,334 18,259,111 23,119,963 24,961,099 25,394,943 25,843,821 27,111,579 35,275,718 39,036,255

Key Indicators

Earnings per share (Rs.) 40.51 35.60 51.35 55.28 59.64 55.52 51.53 17.42 28.27 30.67

Net assets per share (Rs.) 172.11 175.48 220.48 298.21 351.61 403.57 449.60 107.30 132.60 161.04

Gross dividends paid (Rs.’000) 48,720 57,855 71,050 91,350 91,350 101,500 121,800 213,150 262,208 304,162

Dividend cover (times covered) 9.40 11.76 13.16 11.21 11.47 10.23 7.72 7.55 9.96 9.12

Market price per share (Rs.) 224.50 143.75 205.00 236.00 200.00 157.00 390.00 1,273.70 171.30 180.00

Normalised market value per share (Rs.) * 134.70 143.75 205.00 236.00 200.00 157.00 390.00 246.84 171.30 180.00

Price earnings ratio 3.33 4.04 3.99 4.27 3.35 2.83 7.57 14.17 6.06 5.87

Market value of previous period has been adjusted in line with changes in stated capital subsequent to the subdivision & issue of bonus shares in September 2011.


Income Statement in US Dollars Group CompanyFor the year ended 31st March 2013 2012 2013 2012

US$ 000 US$ 000 US$ 000 US$ 000

Income 89,201 71,554 84,778 67,459

Interest income 76,881 58,608 77,202 58,975

Less: Interest expenses 32,067 20,831 32,312 21,012

Net interest income 44,813 37,776 44,890 37,963

Other operating income 8,057 8,403 2,625 3,426

Other income 4,263 4,543 4,950 5,059

57,134 50,722 52,466 46,447

Less: Operating expenses

Personnel expenses 8,853 7,982 7,273 6,557

Premises, equipment and establishment expenses 9,228 8,548 8,308 7,783

Employee retirement benefit expenses 974 797 860 693

Other expenses 3,220 3,032 2,582 2,382

22,274 20,359 19,023 17,414

Less : Impairment charges/(reversals) on financial assets

and other credit Losses 1,588 (685) 1,577 (692)

33,272 31,048 31,865 29,725

Share of profit of associates 4,855 3,873 - -

Profit before VAT on financial services and income tax 38,127 34,921 31,865 29,725

Less: VAT on financial services 1,719 1,354 1,719 1,354

Profit before income tax 36,408 33,567 30,146 28,372

Less: Income tax expense 10,522 9,634 8,279 7,967

Profit after income tax 25,886 23,933 21,866 20,404

Attributable to equity holders of the parent 25,353 23,190 21,866 20,404

Attributable to non controlling interest 533 743 - -

Net profit for the period 25,886 23,933 21,866 20,404

Basic and diluted earnings per share - US$ 0.24 0.22

The income statement given on this page is solely for the convenience of the shareholders, bankers, investors, customers and other users of financial

statements and do not form part of the audited financial statements.


Balance Sheet in US Dollars Group CompanyAs at 31st March 31.03.2013 31.03.2012 31.03.2013 31.03.2012 US$ 000 US$ 000 US$ 000 US$ 000

ASSETSCash in hand and at banks 5,430 2,788 4,711 2,405 Financial assets held for trading 261 193 260 192 Tax receivables 49 295 - - Available for sale investments in government securities 1,910 1,293 1,910 1,293 Deposits with banks 5,652 12,138 5,618 12,138 Available for sale securities 1,540 1,502 1,490 1,453 Held to Maturity investments in government securities 15,132 11,043 15,132 11,043 Trade and other receivables 5,910 8,941 2,006 5,569 Inventories and other stocks 9,124 6,828 7,122 4,766 Loans and advances 15,252 13,090 17,096 16,089 Net investment in leases and hire purchase 334,013 285,334 334,013 285,334 Investments in real estate 537 723 537 566 Investments in associates 18,638 15,732 4,125 4,094 Investments in subsidiaries - - 2,415 2,448 Deferred tax asset 84 1 - - Intangible assets 291 300 279 282 Property, plant and equipment 31,897 29,298 24,702 22,412

Total assets 445,719 389,500 421,416 370,085

LIABILITIESBank overdrafts 6,746 13,389 6,621 13,200 Tax payables 2,036 1,098 1,869 1,088 Commercial paper 86 3,133 86 3,133 Trade and other payables 12,779 13,841 10,501 12,185 Amounts due to subsidiaries - - 883 1,754 Derivative financial instruments 182 521 182 521 Deposits 212,663 178,298 214,878 179,532 Bank loans 36,094 31,942 35,675 31,562 Non bank loans 11,300 15,272 11,300 15,272 Debentures 5,970 1,971 5,970 1,971 Retirement benefit obligations 4,501 3,755 3,847 3,205 Deferred tax liability 15,282 12,697 14,866 12,396

Total liabilities 307,639 275,915 306,679 275,818

SHAREHOLDERS’ FUNDSStated capital 4,480 4,446 4,480 4,446 Capital reserves 10,772 10,467 7,635 7,607 Reserve fund 7,400 6,257 7,400 6,257 Available for sale reserve 102 (6) 102 (6)Investment fund 3,774 1,748 3,774 1,748 Revenue reserves 106,582 85,870 91,347 74,214

Funds attributable to equity holders of the parent 133,109 108,782 114,737 94,267 Non controlling interest 4,972 4,803 - -

138,081 113,585 114,737 94,267

Total liabilities, shareholders’ funds and non-controlling interest 445,719 389,500 421,416 370,085

Net assets per share - US$. 1.27 1.04 1.09 0.90

Exchange rate of US$ 1 was Rs.126.89 as at 31st March 2013 (Rs,127.85 as at 31st March 2012)

The financial position given on this page is solely for the convenience of the shareholders, bankers, investors, customers and other users offinancial statements and do not form part of the audited financial statements.


Employees of the Year

Head Office 2012/13

DecemberMr. G.G.S. Chaminda

AugustMr. Hemashan Dissanayake

AprilMrs. Thilani Wimalasuriya

JanuaryMr. Buddhika Karunaratne

SeptemberMr. Y.M.M.M. Bandara

May

Mr. W.G. Gunasena

FebruaryMrs. Kumari Konara

OctoberMr. H.M.R.B. Heenkenda

JuneMrs. Anupama Bandara

MarchMr. A.M.A.S. Abeysinghe

NovemberMr. Sanka Gunawardana

JulyMr. Asanka Ratnaweera


City Office 2012/13

DecemberMr. S.R.D.P.N. Kumara

AugustMr. S.G.V.S.S. Gunasekera

AprilMr. E.P.R.R. Gunawardena

JanuaryMr. W.A.L. Sanjeewa

SeptemberMr. R. Nimal

MayMr. G.A.S. Perera

FebruaryMr. R.J. Karunathilake

OctoberMs. P.G.N.I. Hemachandra

JuneMs. K.P.D.R. Nilmini

MarchMr. G.D.E.T. Dayaratne

NovemberMs. K.S. Munaweera

JulyMr. S. Pullendran


Employees of the Year (contd.)

Branches 2012/13

DecemberMs. D.M.P.M. Dewagedara

Mahiyanganaya

AugustMr. J.G.L. Rosairo

Jaffna

AprilMr. H.M. Sumathipala

Mahiyanganaya

JanuaryMs. M.G.M.S. Madampella

Kuliyapitiya

SeptemberMs. Nilushika Wijesena

Kegalle

MayMs. R.R.M. Fernando

Wennappuwa

FebruaryMr. Susil Rajapaksha

Hanwella

OctoberMr. Manura Edirisinghe

Nugegoda

JuneMr. M. Lankathilake

Panadura

MarchMr. M.H.M.C.P. Bandara

Bandarawela

NovemberMr. Sandun Ratnayake

Avissawella

JulyMr. P.A.T. Prabath

Ambalangoda


Accrual basis - the system of accounting

wherein revenue is recognised at the time

it is earned and expenses at the time they

are incurred, regardless of whether cash

has actually been received or paid out.

Associate company - an associate

is an entity, including an unincorporated

entity such as a partnership, over which the

investor has significant influence and that

is neither a subsidiary nor an interest in a

joint venture.

Available for sale (AFS) - AFS are

those non – derivative financial assets that

are designated as available for sale or are

not classified as loans and receivable, held

–to –maturity investment or financial assets

at fire value through profit or loss.

Cash equivalents - short-term,

highly liquid investments that are readily

convertible to known amounts of cash and

which are subject to an insignificant risk of

changes in value.

Consolidated financial statements - financial statement of a holding company

and its subsidiaries based on their

combined assets, liabilities and operating

results.

Contingencies - a condition or situation

existing at the balance sheet date where

the outcome will be confirmed only by the

occurrence or non-occurrence of one or

more future events.

Corporate governance - process by

which corporate entities are governed to

promote stakeholder interest. Shareholders

exert collective pressure on management

to ensure equitable decision making on

matters that may affect the value of their

holdings and base their response on

statutory requirements or on so called

“Best Practice”.

Credit risk - the risk that one party to a

financial instrument will cause a financial

loss for the other party by failing to

discharge an obligation

Dividend cover - profit attributable to

ordinary shareholders divided by gross

dividends to ordinary shares; this indicates

number of times dividend is covered by

current year’s distributable profits.

Dividend per share - value of the total

dividend paid out and proposed to ordinary

shareholders divided by the number of

ordinary shares in issue; this indicates

the proportion of current year’s dividend

attributable to an ordinary share in issue.

Earnings per share (EPS) – profit

attributable to ordinary shareholders

divided by the number of ordinary shares

in issue; this indicates the proportion of

current year’s earnings attributable to an

ordinary share in issue.

Effective interest method- is a

method of calculating the amortised cost

of a financial asset or a financial liability

(or group of financial assets or financial

liabilities) and of allocating the interest

income or interest expense over the

relevant period.

Equity method - a method of

accounting whereby the investment is

initially recognised at cost and adjusted

thereafter for the post-acquisition change

in the investor’s share of net assets of the

investee. The profit or loss of the investor

includes the investor’s share of the profit or

loss of the investee.

Fair value - is the amount for which an

asset could be exchanged, or a liability

settled, between knowledgeable, willing

parties in an arm’s length transaction.

Financial instrument – is any contract

that gives rise to a financial asset of one

entity and a financial liability or equity

instrument of another entity.

Finance lease - a lease that transfers

substantially all the risks and rewards

incidental to the ownership of an asset to

the lessee. Title may or may not eventually

be transferred.

Gross dividend - the proportion of

profit distributed to shareholders including

the tax withheld.

Held to maturity investment – are

non-derivative financial assets with fixed or

determinable payments and fixed maturity

that an entity has the positive intention and

ability to hold to maturity.

Hire purchase - a contract between

hirer and financier where the hirer takes on

hire a particular article from the financier,

with the option to purchase the article

at the conclusion of the agreed rental

payments.

Interest cover - earnings before interest

and tax divided by interest expenses; this

indicates the ability to cover or service

interest charges of the debt holders.

Interest rate SWAP - an interest rate

SWAP is a contract, whereby two parties

agree to exchange a set of interest cash

flows based on a notional principle on

pre-arranged dates. Normally fixed rate is

exchanged for a floating rate.

Lease - an agreement whereby the

lessor conveys to the lessee in return for a

payment or series of payments the right to

use an asset for an agreed period of time.

Glossary of Financial Terms


Liquidity risk - the risk that an entity will

encounter difficulty in meeting obligations

associated with financial liabilities.

Market capitalisation - number of

ordinary shares in issue multiplied by

market value of a share and indicates total

market value of all ordinary shares in issue.

Market risk – the risk that the fair

value or future cash flows of a financial

instrument will fluctuate because of

changes in market price. Market risk

comprises three types of risk: currency risk,

interest rate risk, and other price risk.

Non-controlling interest - portion

of the profit or loss and net assets of a

subsidiary attributable to equity interests

that are not owned, directly or indirectly

through subsidiaries, by the parent.

Net asset value per ordinary share - ordinary shareholders’ funds divided by

the number of ordinary shares in issue.

Non-performing advances – loans

and advances of which rentals are in

arrears for six months or more.

Operating lease - an operating lease is

a lease other than a finance lease.

Past due – a financial asset is past due

when a counterparty has failed to make a

payment when contractually due.

Related parties - parties are considered

to be related if one party has the ability

to control the other party or exercise

significant influence over the other party in

making financial and operating decisions.

Related party transactions - is a

transfer of resources, services or obligations

between related parties, regardless of

whether a price is charged or not.

Return on average assets (ROA) - profit after tax expressed as a percentage of

average total assets.

Return on average equity (ROE) - profit after tax less preference share

dividends if any, expressed as a percentage

of average ordinary shareholders’ equity.

Segmental Analysis - analysis of

financial information by segments of

an enterprise specifically the different

industries and the different geographical

areas in which it operates.

Shareholders’ funds (Equity) – total

of issued and fully paid ordinary share

capital and capital and revenue reserves

attributable to ordinary shareholders.

Subsidiary company - an entity,

including an unincorporated entity such

as a partnership, which is controlled by

another entity, known as the parent.

Substance over form – the

consideration that the accounting

treatment and the presentation in financial

statements of transactions and the events

are governed by their financial reality and

not merely by its legal form.

Tier I capital - core capital representing

permanent share holders’ equity

and reserves created or increased by

appropriations of retained earnings or other

surpluses.

Tier II capital - supplementary capital

representing revaluation reserves, general

provisions and other capital instruments,

which combine certain characteristics of

equity and debts, such as, hybrid capital

instruments and unsecured subordinate

term debts.

Transaction costs - are incremental

costs that are directly attributable to the

acquisition, issue or disposal of a financial

asset or financial liability. An incremental

cost is one that would not have been

incurred if the entity had not acquired,

issued or disposed of the financial

instrument.

Glossary of Financial Terms (contd.)


Notice is hereby given that the Fifty Fifth Annual General Meeting of Central Finance Company PLC will be held at Earl’s Regency Hotel,

Kundasale, Kandy on this 19th day of July 2013 at 11.00 a.m. for the following purposes.

1. To receive and consider the Annual Report of the Board together with the Financial Statements of the Company for the year ended

31st March 2013 and Report of the Auditor thereon.

2. To approve a final dividend of Rs.1.20 per share as authorised by the Directors.

3. To re-elect as a Director J.D. Bandaranayake who retires by rotation in terms of Article 105 of the Articles of Association of the

Company.

4. To re-elect A.N. Fernando a Director who retires in terms of Article 111 of the Articles of Association of the Company, and being

eligible has offered himself for re-election.

5. To re-appoint SJMS Associates, Chartered Accountants, as Auditor of the Company, to hold office until the conclusion of the next

Annual General Meeting of the Company at a remuneration to be agreed with by the Board of Directors and to audit the Financial

Statements of the Company for the accounting period ending 31st March 2014.

6. To authorise the Directors to determine contributions to charities for the ensuing year.

By Order of the Board,

Director

Corporate Services (Private) Limited

Secretaries

Central Finance Company PLC

Colombo on this 18th day of June 2013

Note:

1) Any member entitled to attend and vote is entitled to appoint a proxy instead.

A proxy need not be a member, instruments appointing proxies must be lodged with the Company not less than 48 hours before the

meeting.

2) It is proposed to dispatch the dividend warrants on 31st July 2013 in accordance with the rules of the Colombo Stock Exchange, the

shares of the Company will be quoted ex-dividend with effect from 23rd July 2013.

Notice of Meeting


Notes


Form of Proxy*I/We …………………………………………………………………………………………………….……………………………………………

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

being *a member/members of CENTRAL FINANCE COMPANY PLC do hereby appoint

1. Jayampathi Divale Bandaranayake or failing him,

2. Eranjith Harendra Wijenaike or failing him,

3. Gerard Shamil Niranjan Peiris or failing him,

4. Ravindra Erle Rambukwelle or failing him,

5. Arjuna Kapila Gunaratne or failing him,

6. Sunil Chandra Sillapana Wickramasinghe or failing him,

7. Chandima Lalith Kumar Perera Jayasuriya or failing him,

8. Dhammika Prasanna de Silva or failing him,

9. Faiz Mohideen or failing him,

10. Anthony Nirmal Fernando or failing him,

……………………………………………………………………………………………………………………………………………………… of

…………………………………………………………………………………………………………………………………………………………

as *my/our Proxy to vote/speak for me/us on *my/our behalf at the 55th Annual General Meeting of the Company to be held at Earl’s

Regency Hotel, Kundasale, Kandy on the 19th day of July 2013 at 11.00 a.m. and at any adjournment thereof, and at every poll which may

be taken in consequence thereof.

For Against

1. To receive and consider the Annual Report of the Board together with the Financial Statements of the

Company

2. To approve a final dividend of Rs.1.20 per share as authorised by the Directors

3. To re-elect as a Director J.D. Bandaranayake in terms of Article 105 of the Articles of Association

4. To re-elect as a Director A.N. Fernando in terms of Article 111 of the Articles of Association

5. To appoint SJMS Associates as Auditor of the Company to audit the financial statements and

authorise the Directors to fix their remuneration

6. To authorise the Directors to determine contributions to charities

Signed this ..................... day of ..................... Two Thousand and Thirteen.

……………………………….

*Signature/s

Note: Please delete the inappropriate words

Instructions as to completion are noted on the reverse hereof.


Instructions as to Completion

1. Kindly perfect the Form of Proxy after filling in legibly your full name and address and sign in the space provided. Please fill in the date

of signature.

2. A Member entitled to attend and vote at the Meeting is entitled to appoint a Proxy who need not be a member, to attend and vote

instead of him.

3. In the case of a Corporate Member, the Form must be completed under its Common Seal, which should be affixed and attested in

the manner prescribed by Articles of Association.

4. If the Form of Proxy is signed by an Attorney, the relevant Power of Attorney should also accompany the completed Form of Proxy, in

the manner prescribed by Articles of Association.

5. The completed Form of Proxy should be deposited at the Registered Office of the Company, No.84, Raja Veediya, Kandy not less

than forty eight (48) hours before the appointed time for the Meeting.

Form of Proxy (contd.)


Investor Feedback FormTo request information or submit a comment/query to the Company, please complete the following and return this page to -

General Manager - Finance

Central Finance Company PLC,

84, Raja Veediya, Kandy

Sri Lanka

Email: [email protected]

Name : ................................................................................................................................................................................................

Permanent Mailing Address : ................................................................................................................................................................................................

................................................................................................................................................................................................

Contact Numbers (Tel) : .................................. .................................. ..................................

Country Code Area Code Number

(Fax) : .................................. .................................. ..................................

Country Code Area Code Number

Email : ................................................................................................................................................................................................

Name of Company : ................................................................................................................................................................................................

(If applicable)

Designation : ................................................................................................................................................................................................

(If applicable)

Company Address : ................................................................................................................................................................................................(If applicable) ................................................................................................................................................................................................

Please tick (ü) the appropriate box Yes No

Would you like to receive soft copies of the CF annual and interim reports via e-mail?

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Would you like to receive any information on our products/services?

Queries/Comments

NAME OF COMPANYCentral Finance Company PLC

LEGAL FORMA Quoted Public Company with limited liability incorporated in Sri Lanka on 5th December 1957 and registered under the Companies Act No.07 of 2007. Registered under Finance Business Act No.42 of 2011 and Finance Leasing Act No.56 of 2000.

Approved Credit Agency under:* Mortgage Act No.6 of 1949* Trust Receipt Ordinance No.12 of 1947

COMPANY REGISTRATION NUMBERPQ 67

DIRECTORSJ.D. Bandaranayake - ChairmanE.H. Wijenaike - Managing DirectorG.S.N. Peiris - Director (Finance)R.E. Rambukwelle - Director (Marketing and Operations)A.K. Gunaratne - Director (Group Co-ordination)D.P. de Silva - Director (Credit)C.L.K.P. JayasuriyaS.C.S. WickramasingheF. MohideenA.N. Fernando

STOCK EXCHANGE LISTINGThe ordinary shares of the Company are listed on the Colombo Stock Exchange of Sri Lanka.

HEAD/ REGISTERED OFFICE84, Raja Veediya, Kandy.Telephone : 081 - 2227000Facsimile : 081 - 2232047

CITY OFFICE270, Vauxhall Street, Colombo 2.Telephone : 011 - 2300555Facsimile : 011 - 2300441E-mail : [email protected] : www.cf.lk

BANKERSBank of CeylonCiti Bank N.A.Commercial Bank of Ceylon PLCICICI Bank Ltd.Hatton National Bank PLCHongkong & Shanghai Banking Corporation LimitedNDB Bank PLCNations Trust Bank PLCPeople’s BankSampath Bank PLCSeylan Bank PLCStandard Chartered BankHabib Bank Ltd.Deutsche Bank

AUDITORSJMS Associates,Chartered Accountants,2, Castle Lane,Colombo 04.

LEGAL ADVISERF.J. & G. De Saram,Attorneys-at-Law,P.O.Box 212,Colombo.

COMPANY SECRETARYCorporate Services (Pvt) Limited,216, De Saram Place,Colombo10.Telephone : 011 - 4605100Facsimile : 011 - 4718220

ADMINISTRATIONIf you receive more than one copy of the Annual Report at the same address, we will appreciate such information of duplication communicated to the Company Secretaries in order to update the mailing list and minimize wasted expenditure in the future.

Corporate Information

VISIONCentral Finance shall be the first choice for progressive customers in delivering innovative financial solutions.

MISSIONTo be the leader in our industry, conducting business with responsibility, using our expertise in helping customers grow and prosper whilst creating lasting value for our shareholders.

CORPORATE VALUES

Designed and produced by emagewiseDigital plates by Imageline (Pvt) LtdPrinted by Printage (Pvt) Ltd

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