The difference - CSE

The

difference we made

Commercial Leasing & Finance PLC

Annual Report 2017/18

Contents

Financial Highlights 5Chairman’s Message 6Chief Executive Officer’s Review 10Board of Directors 12Management Team 14Regional Management Team 18Management Discussion & Analysis 21Branch Network 27Financial Review 28Human Resources Report 33Report on Corporate Governance 36Enterprise Risk Management Report 62Report of the Board of Directors 66Report of the Audit Committee 69Report of the Integrated Risk Management Committee 70Report of the Remuneration Committee 71Report of the Nomination Committee 72Report of the Related Party Transaction Review Committee 73Statement of Profit or Loss and Other Comprehensive Income 80Statement of Financial Position 82Statement of Changes in Equity 84Statement of Cash Flows 88Notes to the Financial Statements 90Shareholder Information 158Summarised Quarterly Statistics 160Ten Year Summary 162Sources and Distribution of Income 164Statement of Value Added 165Glossary Terms 166Notes 169Notice of Meeting 170Form of Proxy 171

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It’s 30 years since Commercial Leasing & Finance PLC was launched, with a mandate to bring financial support to thousands of customers across the island. Over the years, we have grown, matured and evolved; now offering a broad portfolio of financial products and services that are transforming lives across the island.

This year has been a remarkable one for your Company, seeing a massive increase in our customer base, combined with significant achievements against several other key indicators, resulting in the excellent performance we report in the pages that follow.

While this report describes how we achieved an outstanding set of results this year, we are also exploring how we have created value to countless lives through our widespread impact - even as we have driven financial success, created opportunities for growth, benefitted the local economy, enriched lives and empowered every stakeholder we serve - by simply having made a difference.

The

difference we made

SUCCESS

INTEGRITY

PROGRESS

Built successful partnerships and generated valueA true success story of a solid NBFI with a

capital of Rs. 16.5 Bn generating highest

shareholder equity year after year

Profit after tax of Rs. 2.1 Bn

Set standards through responsible financing Highest levels of regulatory and other compliance

Installed confidence in all stakeholders with unmatched

compliance track record

Redefined the industry by driving standards across the financial sectorOne of the industry’s top-tier companies with

asset base of Rs. 73.5 Bn

Built a reputed brand trusted by Sri Lankans islandwide

Fostered personal growth and development among our employeesFaciliated work-life balance

Invested in development of employee skills and knowledge

Listed as a “Great Place to Work”

Established a strong value system

Increased freedom and mobility through digital and technological advancement

24 hour banking at leisure through the introduction of

digital channels for the first time

Multi-platform digital solutions made available

HAPPINESS

DEVELOPMENT

FREEDOM

EMPOWERMENTFinancial inclusionWith over 250,000 clients gaining access to

mainstream financing through us.

Contributed towards Economic Progress Created financial impact through inclusion of all

sectors of society islandwide

Vision

Mission

Values

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

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

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

To be the catalyst in the financial services industry by creating superior shareholder value and contributing to the national development through the empowerment of individuals with financial solutions delivered by an inspired and dedicated team committed to excellence.

To serve our customers with utmost care.

To serve our customers professionally.

To do work with utmost integrity.

Be performance driven.

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

ABOUT USCommercial Leasing & Finance PLC (CLC) is one of Sri Lanka’s leading non banking financial service providers offering solutions ranging from leasing, fixed deposits, savings, loans, FlexiCash, FastCash, microfinance and Islamic finance, to factoring. With 63 customer touch points spread across the country, CLC has become a trusted brand, synonymous with stability and dependability, playing an invaluable role as a key catalyst in financial empowerment.

5Annual Report 2017/18

Financial Highlights

Company

For the year ended 31 March 2014 2015 2016 2017 2018

Performance indicators (Rs. Mn)

Interest income 7,514 7,590 8,110 10,898 13,348

Interest expense 3,039 2,406 3,373 6,126 6,995

Net interest income 4,475 5,184 4,738 4,772 6,353

Other income 253 579 1,281 2,331 2,477

Profit before tax 1,289 1,728 2,008 2,205 2,905

Profit after tax 936 1,426 1,574 1,686 2,144

New executions (leases and loans) 18,593 22,762 31,986 32,833 44,670

Factoring funds in use 2,231 2,778 5,085 6,547 4,017

Financial position (Rs. 'Mn)

Total assets 32,934 42,385 84,359 77,761 73,508

Net lending portfolio 27,570 32,982 46,793 53,904 59,777

Outstanding borrowings 14,369 20,095 58,051 45,742 30,445

Deposits from customers 7,534 9,381 12,348 15,936 23,485

Shareholders funds 8,856 10,115 11,797 14,176 16,506

Key financial indicators

Earnings per share (Adjusted) (Rs. per share) 0.15 0.22 0.25 0.26 0.34

Net asset value per share (Adjusted) (Rs. per share) 1.39 1.59 1.85 2.22 2.59

Interest cover (times) 1.42 1.72 1.59 1.36 1.41

Debt to equity ratio (times) 2.47 2.91 6.43 4.75 3.45

Return on capital employed (%) 11.21 15.03 14.37 12.99 13.98

Return on average total assets (%) 4.28 4.59 3.16 2.08 2.84

Non performing ratio 2.44 2.74 1.09 1.93 2.62

Capital adequacy

Core capital ratio (%) minimum 5% 27.63 28.27 20.22 21.11 23.69

Total risk weighted capital ratio (%) minimum 10% 27.63 25.57 18.42 19.49 21.74

Core capital (minimum Rs.1 Bn from 1st January 2018) 8,404 10,119 11,627 13,300 15,317

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NET LENDING PORTFOLIO TO TOTAL ASSETS

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Net Lending portfolioTotal Asset

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CUSTOMER DEPOSITS & LIQUID ASSETS

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Customer deposits Liquid assets

2016 2017 2018

The difference we made

6 Commercial Leasing & Finance PLC

Chairman’s Message


I take pride in welcoming you to the 26th Annual General Meeting of your Company and to present before you the audited Financial Statements for the financial year ended 31st March 2018. The capacity to overcome insurmountable odds and emerge triumphant by delivering an improved performance with each passing year is a clear reflection of CLC’s rock-solid fundamentals and exceptional business model, ably supported by a committed team equipped with the precise skill sets required for achieving our aspiration to be at the forefront of the nation’s leading financial institutions.

OPERATING ENVIRONMENT

The Sri Lankan economy grew at a moderate pace of 3.1% in 2017, compared to the growth of 4.5% in 2016, amidst the challenges arising from both domestic and external fronts. Severe drought conditions that prevailed particularly in the major cultivation areas hindered the growth in major agriculture activities, paddy and subsidiary food crops. Meanwhile, excessive rains adversely affected the subsidiary and vegetable crop sectors, particularly in the Central hill country. However, Industry and Services activities contributed positively to economic growth even in the backdrop of the setback from the agriculture performance. The reinstatement of GSP+ boosted certain segments of the export sectors, such as Fisheries and Apparel. Accordingly, Manufacturing activities provided stimulus for Industry activities, amidst the moderation observed in Construction activities. Services activities expanded largely supported by the growth in Financial Services and Trading activities.

Further, the rationalisation of Government expenditure and the tight monetary policy stance also kept the economic growth in 2017 at a modest level. Investment expenditure grew at a slower pace compared to the previous year whereas consumption expenditure, which witnessed some deceleration in the previous year, accelerated in 2017. Even though exports grew at a

CLC recorded a profit before tax of Rs. 2.9 Bn which reflects a 32% increase in profitability. Loans and Advances grew to Rs. 59.7 Bn. We are now a Rs. 73.5 Bn asset level company, having a capital significantly above the regulatory requirement.

PRIYANTHA FERNANDO CHAIRMAN/ INDEPENDENT NON-EXECUTIVE DIRECTOR



higher rate benefitting from the stronger recovery of some of Sri Lanka’s major export destinations such as the US and Europe, the substantial increase in imports resulted in a further deterioration of the trade balance. Meanwhile, domestic savings grew at a slower rate while the net primary income from the rest of the world continued to contract during the year. Further, net current transfers from rest of the world moderated, reflecting the slowdown in workers’ remittances partly due to geopolitical tensions and uncertainties in some regions including the Middle East. Reflecting these developments, growth in National Savings moderated during the year, while Foreign Direct Investments (FDIs) exceeded US$1 Bn.

DYNAMIC PERFORMANCE BY CLC

Although the year under review was subdued in terms of the nation’s GDP growth, I believe the Government has set in place structures and policies to stabilise the economy. The increased GDP growth provides space for banks and financial institutions to expand financial intermediary services. Despite the constraints in the external operating environment, CLC recorded a profit before tax of Rs. 2.9 Bn, which reflects a 32% increase in profitability. Loans and Advances grew to Rs. 59.7 Bn. We are now a Rs. 73.5 Bn asset level company, having a capital

significantly above the regulatory requirement. The entire CLC team, the LOLC Group, shareholders and stakeholders can most certainly look back on 2017/18 as a year in which the company recorded a very satisfactory performance.

However, this outstanding performance was hard fought and should not in any way diminish the grit demonstrated by the CLC team. As mentioned before, the prevailing inclement weather conditions severely impacted the profitability of the SME and agriculture sector in the country. Considering that this segment is the main target group along with Microfinance operations, the CLC team had to make an extraordinary effort to maintain Non-Performing Loans (NPLs) at below industry average levels. The fact that the Company has three decades-long experience has lent maturity, that stands it in good stead and gives it an edge over its competitors. The financial backing and technical expertise of the LOLC Group has further strengthened our standing in the industry.

One of the main assets of CLC is its people who have been trained to meet the emerging challenges through internal and external training programmes. CLC has strongly leveraged on technology-backed solutions

wherever possible. The CLC branch network outreach ensures the delivery of a very efficient service to our customers.

Customer convenience is a promise CLC unfailingly delivers and takes pride in being the first finance company to receive approval for deposit taking at the customers’ doorstep by field staff, who are equipped with an app that allows them to update transactions in real time.

A strong communication pipeline exists between the company’s Board of Directors, the senior management and staff at every level. Branch managers take on a critical role in the Company and are selected after careful analysis to ensure they can take a 360-degree view of the business and manage the entire range of operations, which has helped drive profitability at branch level. CLC’s presence in rural, outlying areas has offered a much-needed fillip to the SME sector across many provinces.

FUTURE PLANS

CLC has readied its systems, processes and people for a hard journey in a competitive environment and its endeavour remains to improve financial and operational performance year after year, while maintaining loan growth without compromising credit quality. Your Company is focused on improving its credit rating from ‘A’ under ICRA with Stable Outlook, as this uplifts the ability to raise funds both domestically and internationally at relatively cheap rates. CLC values its hallmark customer-centric products and services and is gearing up to equip branches to further enhance productivity by leveraging on technology.

The challenge for the financial industry and indeed for CLC remains to bring down the cost to income ratios to more manageable levels. Our focus is to further stabilise the

Customer convenience is a promise CLC unfailingly delivers and takes pride in being the first finance Company to receive approval for deposit taking at the customers’ doorstep by field staff, who are equipped with an app that allows them to update transactions in real time.

Chairman’s Message


Islamic finance and microfinance portfolios, which are of recent vintage. At CLC, we expect the fintech and digital financial platform to be the driver of growth to the next stage.

As a company with a deep social conscience, sustainability is at the core of CLC’s actions. The course of its operations has revealed that people in the hinterlands have poor financial literacy and the Company has taken it upon itself to share its knowledge and provide guidance and support in order to infuse greater value into its customer-centric operations.

ACKNOWLEDGEMENTS

I would like to thank my colleagues on the Board and the senior management led by the CEO for their effort and dynamism shown in the year under review. My gratitude also goes to the regulator, funding partners, customers, business introducers and the entire 1,327-strong team of CLC for their unstinted support. Your Company is forging a strong and sustainable legacy that instills pride in all those who come in contact with the CLC brand.

Last, but not the least, we, at the CLC Boardroom, wish to acknowledge the LOLC Group, which has been a tower of strength to CLC and the members of the past CLC Board, for establishing a rock-solid business model and laying the foundation for a very strong financial institution in the form of CLC.

Priyantha FernandoChairman/ Independent Non-Executive Director



Chief Executive Officer’s Review


during this period increased from 140,000 to 240,000. Of course, the majority of this expansion was derived through the microfinance arm.

As always, this growth has not been without its share of challenges. The growth in credit cost rose, although it was common to the entire banking industry. However, we took many measures to reduce and minimise credit costs going forward. We were able to manage cost of funds at reasonable levels through diversified funding, increase of public deposits and through proper hedging mechanisms.

To highlight last year’s volumes, the Company disbursed a total of Rs. 45 Bn in advances, which saw a growth in portfolio by 11%; a growth in the deposit base by Rs. 7.5 Bn, an increase of 47%.

As a futuristic company, we will continue to innovate on digitalising our business processes further and offering user-friendly and 24-hour banking services for clients. We have plans to enhance product portfolios further and add more branches to augment existing customer touch-points.

All in all, it was a challenging year; well managed.

ACKNOWLEDGEMENTS

I wish to thank the Board of Directors led by the Chairman for their untiring efforts throughout the year. I place on record my appreciation to our valued shareholders for placing their confidence in us, and to our business partners, regulators and customers. Your support coupled with the dedication and commitment of our valued employees has ensured that CLC is well geared to meet challenges head-on and progress further.

Krishan ThilakaratneDirector/ Chief Executive Officer

CLC ended the 2017/18 financial year on a very positive note, completing its third decade as a giant in the financial services industry in Sri Lanka. I would like to take a quick look back at CLC’s journey where, within the first two decades, the Company functioned as a specialised leasing company with two products, leasing and factoring. Since its acquisition by LOLC in 2008, over the last decade, CLC has kept taking giant strides towards becoming a financial conglomerate and an important institution in the financial landscape of Sri Lanka. From a mere leasing company, CLC became a Registered Licensed Financial Company, opening its doors for deposit mobilisation and expanding its lending product range to encompass microfinance, Islamic finance, loans, FlexiCash, FastCash and many other products. Further expansion was achieved through widening its branch network, which currently stands at 63.

Subsequently, CLC expanded its funding sources beyond the shores of Sri Lanka. The pinnacle of our offshore financing was when CLC obtained the largest-ever syndicated loan by a Sri Lankan financial services company of US$153 million from 11 partners led by FMO, the Dutch National Development Finance Institution.

When it comes to technology, CLC has the latest online platforms which enable our clients to transact online, pay over 40 utility bills and use any VISA ATM network island-wide.

Coming back to 2017/18, CLC recorded its highest bottom-line performance with Profit Before Tax of Rs. 2.9 Bn, an increase of 32%. This is significant because the growth has come through increase of yield and top-line and not through a direct correlated portfolio growth.

Despite the challenging economic period, we opted to look for higher fee-based income and granular business, thus expanding our customer base. Our customer base

To highlight last year’s volumes, the Company disbursed a total of Rs. 45 Bn in advances, which saw a growth in portfolio by 11%; a growth in the deposit base by Rs. 7.5 Bn, an increase of 47%.



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Board of Directors

CLC’s eminent Board of Directors possesses a wealth of experience in managing financial services, providing effective governance and oversight of the company’s operations


1. PRIYANTHA FERNANDO

Chairman/ Independent Non-Executive DirectorMr. Priyantha Fernando has more than 35 years of experience at the Central Bank where he rose to the position of the Deputy Governor. He was the Deputy Governor of the Central Bank in 2010-2011 in charge of the Financial System Stability and the Corporate Services clusters. Mr. Fernando has extensive experience and expertise in the fields of Banking and Financial Sectors, particularly at the policy-making levels in financial regulation and supervision, Information technology, national accounting, macro-economic analysis and statistics, finance and fund management. At the Central Bank, he was the Chairman of the Financial Stability Committee, member of the Monetary Policy Committee, member of the Risk Management Committee and Chairman of the National Payment Council. He also functioned as the Secretary to the Monetary Board during 2009/2010. He holds a M.Sc in Statistics from the University of Birmingham, England and a B.Sc (2nd Class Upper Div) from the University of Peradeniya, Sri Lanka.

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

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

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

He has been appointed Chairman of Golden Key Credit Card Company and currently serves on the boards of Union Bank of

Colombo PLC (as Deputy Chairman), Taprobane Holdings Ltd., Ceylon Leather Products PLC, Equi Capital (Pvt) Ltd., Golden Key Hospitals Ltd., Thomas Cook Travels Sri Lanka and Imperial Institute of Higher Education.

2. LUXHMAN JAYARATNE

Independent Non-Executive DirectorMr. Luxhman Jayaratne has over 37 years of banking experience. He has worked in several countries in Asia, Europe and Africa, focusing on Management of Operations and Technology areas with involvement in product management. He had been directly involved in setting up Citibank in Sri Lanka, and Romania. He had also been the Head of Operations and Technology of Africa Citibank covering 14 countries before joining Union Bank of Nigeria PLC.

Mr. Jayaratne specialises in operations and technology management, process regionalisation and centralisation, and commercial banking.

3. EBERT SILVA

Independent Non-Executive DirectorMr. Ebert Silva has over 30 years of experience in Banking, Regulatory and Financial Reporting, Human Resource Management and Administration as a former official of the Central Bank of Sri Lanka. He joined CBSL in 1986 and has worked in the Bank Supervision, Employees’ Provident Fund, Facilities Management departments and in the Centre for Banking Studies until his retirement in year 2017.

He holds a B.Sc. degree in Business Administration from the University of Sri Jayawardenapura and has read for his M.A in Economics from the University of Ohio, USA.

4. THAMOTHARAMPILLAI SANAKAN

Independent Non-Executive DirectorHe counts for over 20 years of experience at top management level in multiple industries such as Financial Services, Trading, Manufacturing, Healthcare and Consumer.

Presently he serves as the Group Chief Financial Officer of the Browns Group of Companies and he was involved in directing Browns business lines for profitability, growth and sustainability through strategic finance directives. He was directly involved in setting up LOLC Securities Ltd., which deals with capital markets. He previously held the position of Chief Operating Officer at LOLC Securities Ltd. and served as a Rule setting committee member at the Securities and Exchange Commission of Sri Lanka.

He excels in the areas of change management, new business start-ups, business process re-engineering, project management and strategic business management. He also serves on the boards of Associated Battery Manufacturers (Ceylon) Ltd., Browns Pharmaceuticals Ltd. and Browns Pharma Ltd., He is an Associate Member of Chartered Institute of Management Accountants of UK and Chartered Global Management Accountants of USA.

5. KRISHAN THILAKARATNE

Executive Director/ CEOMr. Krishan Thilakaratne is the Director/ CEO of Commercial Leasing and Finance PLC. He is a Member of the Associateship of Institute of Bankers of Sri Lanka (AIB).

Mr. Thilakaratne is a Director of Commercial Insurance Brokers (Pvt) Ltd., the largest Insurance brokering company in Sri Lanka and also serves as a Director of Credit Information Bureau of Sri Lanka (CRIB) and as an Alternate Director on the Board of Seylan Bank PLC Sri Lanka. He is the present Chairman of the Finance Houses Association of Sri Lanka (FHASL), the apex body for the Non-Bank Financial Institutions in Sri Lanka.

Mr. Thilakaratne is a Professional Banker with 26 years of experience in Management, Credit, Channel Management, Marketing, Factoring, Portfolio Management, etc. He conceptualized and Introduced Islamic Finance to LOLC Group in 2008 and is a Guest Speaker at International Islamic Finance Forums.



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10The CLC senior management team works cohesively to ensure that conditions are right for the Company and its employees to thrive.

Management Team


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Management Team

1. Mr. Krishan Thilakaratne Director/ Chief Executive Officer

2. Mr. Nihal Weerapana Deputy General Manager Recoveries

3. Mrs. Nishanthi Kariyawasam Deputy General Manager Finance

4. Mrs. Deepamalie Abeywardhana Deputy General Manager Commercial Factors

5. Mr. Prasanna Dayaratne Assistant General Manager Factoring Operations

6. Mr. Upul Samarasinghe Assistant General Manager Credit

7. Mr. Lal Abeyratne Assistant General Manager Factoring Marketing

8. Mr. Tharanga Indrapala Assistant General Manager Operations

9. Mr. Prasanna Karandagolla Assistant General Manager Channels

10. Mr. Harsha Thilakumarage Assistant General Manager Microfinance

11. Mr. Lasantha Peiris Assistant General Manager IT Operations

12. Mr. Terence Kaushalya Assistant General Manager Savings & Deposits


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13. Mr. Hirantha Perera Chief Manager Legal

14. Mr. Hasitha Hemasiri Manager Customer Service

15. Mr. Chandimal Perera Manager Asset Backed Finance

16. Mr. Prasad Perera Manager Marketing Communications

17. Mr. Chamil Prasad Manager HR

18. Mr. Ilsam Awfer Manager Islamic Business Division

19. Mr. Oshanka De Silva Manager Treasury

20. Mr. Ranjan Gunathilaka Assistant Manager Administration



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Regional Management Team

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1. Mr. Pradeep Madurasinghe Assistant General Manager - Negombo Region

2. Mr. Sunil Shantha Assistant General Manager - Ambalangoda Region

3. Mr. Samitha Aruggoda Assistant General Manager - Kelaniya Region

4. Mr. Suneetha Samarawickrama Assistant General Manager - Colombo Region

5. Mr. Prasanna Goonetilleke Assistant General Manager - Central & Eastern Region


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6. Mr. Sarath Wijenayake Regional Manager - Avissawella

7. Mr. Sampath Palliyaguruge Regional Manager - Matara

8. Mr. Arumuganathan Pranavan Regional Manager - North

9. Mr. Chandrakumara Sirisena Regional Manager - North Central

10. Mr. Janaka Karunarathene Assistant Regional Manger - Kandy

11. Mr. Floyd Barthelot Assistant Regional Manager - Eastern

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Management Discussion & Analysis

The

Value We Created



Demonstrating the efficacy of its unique products and services, successful business model and well-entrenched credentials, Commercial Leasing & Finance PLC (CLC) once again navigated challenging macro economic conditions to record profitability that far exceeded industry growth. The financial year under review was one marked by consolidation of business channels and new business growth across the enterprise, with a special emphasis on expanding the microfinance operation. Currently, CLC offers financial solutions ranging from leasing, fixed deposits, savings, loans, FlexiCash, FastCash microfinance, Islamic finance, to factoring, with 63 customer touch-points spread across the country.

MACRO ECONOMIC CONDITIONS

Adverse weather conditions and their spillover effects continued to affect economic activity in 2017, causing economic growth to decline to 3.1%. In spite of the low real GDP growth, the economy created sufficient employment opportunities that induced a further reduction in the unemployment rate to 4.2% during the year. Both Services and Industry related activities, which together account for 92.4% of gross value added, recorded growth rates of below 4%. Agriculture-related activities recorded a negative growth for the second consecutive year. The monetary policy stance of the Central Bank that was gradually tightened since end 2015 was tightened further in March 2017 by raising the key policy interest rates of the Central Bank by 25 basis points. Increasing market interest rates were allowed to stabilise at high levels.

PERFORMANCE OF FINANCIAL SECTOR

The Licensed Finance Companies (LFCs) and Specialised Leasing Companies (SLCs) sector expanded in 2017, with an asset growth of 11.8%, representing 7.9% of Sri Lanka’s financial system. The sector remained strong, with capital maintained at healthy levels along with adequate liquidity buffers well above the regulatory minimum


levels. The sector exhibits a shift in funding mix, as increased assets were mainly funded through deposits while borrowings of the sector declined compared to the high growth recorded during the previous year.

The challenges in the sector were posed by fiscal and macro prudential policy measures taken to curtail importation of motor vehicles, moderate economic growth and natural calamities such as floods and drought conditions that prevailed in 2017. Nevertheless, the key performance indicators of the sector, including capital, liquidity and profitability, continued to be positive. Excess rupee liquidity in the money market, which declined gradually during the first half of the year, increased to a high level during the second half of the year. Financial markets remained volatile during 2017, in line with the changing local and global economic environment.

OPERATIONS

A key focus at CLC was on driving operational excellence across the enterprise. Regular evaluations of systems and processes ensured efficient and streamlined delivery of service to customers. With each passing year, the Company fine-tunes its effective decentralised operation such that branches are adequately empowered to handle services independently in order to extend speedy service to customers. All approvals are done online within the Company’s system, which enables us to respond to customers within a matter of hours as opposed to days.

CLC continues to leverage on automation and technology to further simplify documentation, with minimum paperwork, for quick turnaround times. The ability to utilise CEFTS and SLIPS facilities to make vendor payments and loan disbursements has compressed the entire process into a single working day. At the same time, these enhancements had to be undertaken within the parameters set by the regulator and it is a matter of pride to

state that the company is in full compliance with all rules and regulations.

CLC is exploring ways to further improve the facility disbursement process and to render customer service more flexible. Technology has been a key differentiator for CLC and the approval received from the Central Bank to collect funds from doorsteps of customers via the mobile app will help CLC to garner new customers and raise deposit taking efforts in future. Service remains another key differentiator for CLC and the aim of each process improvement is to raise the industry benchmark even higher.

BUSINESS CHANNELS

The Company’s business channels continued their steady performance as compared to the previous year despite challenging macro conditions. Considering the nature of the economy during the year under review, greater emphasis was placed on asset-backed facilities, bringing the total lease and loan portfolio to Rs. 56.1 Bn as at financial year-end. A growth of 17.6% was recorded in the vehicle leasing business, which is remarkable, considering the vehicle leasing sector was adversely impacted during the year. Yet again, it was the strength of the CLC brand name and quality of service that set the company apart. The Company’s strategic vision is driven by its highly-professional team, which is empowered through skills development and training, and by close engagement with senior management. Working as one cohesive unit and in perfect synchronicity has helped CLC achieve pole position in the industry.

Customer care training is a year-round endeavour at CLC. The Company strives to extend a uniform and familiar experience to customers when they visit branches. During the year, CLC service outlets in post-offices were moved out and transformed into six fully-fledged branches on the direction of the Central Bank. Strategically located, these branches are expected to enhance their contribution to the Company’s overall growth.


DEPOSITS

Our credentials continue to be the best advertisement of our deposit services. Backed by advanced technology, CLC is positioned as a modern innovative finance company, recording a growth of 47% in deposits. Its strong brand identity and financial stability continue to attract new customers.

Moreover, customer retention rates remain high due to impeccable service standards offered by CLC staff. The end-to-end process from opening the account is efficient and swift, making it highly convenient for customers. Our online platform affords easy access to customers to conduct financial transactions and pay utility bills. Today, customers are able to conduct the same transactions online as they do by visiting the branch.

CLC has already penetrated rural markets and continues to exercise financial inclusion by serving the unbanked. The children’s savings product was actively promoted to further inculcate the savings habits amongst the younger generation. CLC provides savings products for all age categories – from newborn to senior citizen - which brings customers high returns and a secure financial future.

Salary Saver has been a pioneer in its segment, proving highly beneficial for companies, as CLC offers salary management services to manage salary disbursement. In turn, salaried employees can transact online and access ATM facilities through the Salary Saver accounts, free-of-charge.

The Company recorded a strong deposit growth of 47% during the year under review, as deposits grew to Rs. 23.4 Bn from Rs. 15.9 Bn in the previous year. The facility and flexibility to deposit and withdraw from their accounts through the island-wide branch network and an island-wide partner network of over 3,000 ATMs, 24/7, offers a unique convenience to customers. As a result, not only could the Company retain existing

customers, but also successfully grew its customer base.

CREDIT

Credit constraints that prevailed in the previous year persisted in the year under review as well, further coupled with greater competition in the sector. As the pioneering finance company, CLC finds many products from its innovative portfolio have been duplicated by competitors, however, it the Company’s service levels that sets it apart.

Despite difficult operating conditions, CLC recorded 13.07% credit growth in the year 2017/18. Efforts were made to enhance branch credit and teams have been allocated for credit improvement. The Loan-to-Value ratio, a regulatory requirement, has impacted the market adversely, impacting the leasing revenues negatively in tandem with increases in vehicle taxes. The Government is clearly focused on promoting hybrid vehicles with a long-term plan in mind for improved environmental quality. The LTV ratio for hybrid vehicles increased from 50% to 70% so the Company promoted hybrid vehicles amongst its customer base and this segment of the business grew. Lending rates reflect an increasing trend but the Company’s overall Non-Performing Loans (NPLs) remained the same. NPLs are at acceptable

levels with greater coordination with the Recoveries Department, which is a repository of information that is being mined further to make more informed decisions about the credit process.

The Company successfully deployed continuous monitoring mechanisms while educating marketing staff on credit aspects and streamlined processes to improve credit quality. Credit audits are ongoing and emphasis is placed on streamlining credit proposals at branch level and putting controls to get the best out of marketers.

The strategy that CLC has adopted is to move away from traditional products to cash-flow based lending products such as personal and home loans, housing, property mortgages, and so on. Going ahead, we will continue to stringently monitor our credit growth, NPLs and collections. Our portfolio remains strong because we sustain continuous credit training for our marketers, throughout the year in an ongoing manner.

MICROFINANCE

Total No. of Customers 147,727

Total No. of Branches 55

Portfolio Rs. 5 Bn

Total No. of Staff 432

Runner-Up for Best Financial Institution of the year for Customer Convenience

(LankaPay Technovation Awards 2017)



CLC Microfinance experienced a remarkable growth despite tough market conditions. Customers can now access CLC Microfinance services at 55 branches across the island out of 63 branches. CLC continued on its strong growth trajectory and achieved commendable market recognition from every corner of the country, being able to increase financial inclusion while maintaining its sustainability.

CLC continuously taps new market segments which evince a need for access to finance. CLC is the first finance company to receive a license from the Central Bank to mobilise savings at customer’s doorstep in September 2017 and within this short time the Company was able to achieve significant growth in savings mobilisation. These customers are further encouraged to open savings accounts with CLC to cultivate the habit of saving for a better future.

New business grew during the year with a greater number of female customers accessing our microfinance loans, thereby enhancing their financial independence. Microfinance was commenced in March 2016 and since then the Company has partnered many customers to grow and upscale their business.

The microfinance team further strengthened their relationship with customers through social performance activities such as conducting educational programmes for customers’ children and also technical assistance for entrepreneurs on different aspects.

Currently, the Company is looking for new avenues by introducing new microfinance products which are coupled with latest technologies to serve customers better and faster to fulfill their credit needs together with worldwide recognised best practices.

During the year, 165 new employees were recruited by the Company to strengthen

the microfinance Business Unit. Greater emphasis was placed on promoting CLC Wasana and on improving brand recall in the effort to dominate the microfinance industry and lead the micro savings category.

CLC is reaching out to the heart of rural, remote communities and infusing new hope by extending financial support and technical know-how to improve customers’ economic prospects. Our sustainable approach to microfinance envisions supporting our customers to uplift their prosperity to the next stage of growth.

ISLAMIC FINANCE

CLC Islamic finance is among top five players offering Islamic finance in the country, having garnered a greater market share and a growth in their first couple of year. The business unit offers a fully-fledged product range to serve all customer requirements. During the financial year 2017/18, the business unit recorded Rs. 647 Mn revenue comparing to Rs. 343 Mn in the last year. The asset portfolio reached Rs. 3.6 Bn, which marks a 67% growth over the previous year. Deposit portfolio grew from Rs. 423 Mn in 2016/17 to Rs. 1.1 Bn in 2017/18, reflecting a growth of 162%. Profit Before Tax surged upwards by 52% to Rs.

385 Mn from Rs. 253 Mn in the previous year, while Profit After Tax rose from Rs. 147 Mn to Rs. 294 Mn in the year under review.

CLC Islamic finance recorded more than 40% growth in their new customers as a result of direct marketing campaigns carried out by the company during the year. A booklet was published called, ‘Handbook on Islamic Finance’, which has all necessary theoretical and practical knowledge customers need about Islamic finance. Number of customer awareness campaigns, held during the last financial year in selected towns, schools and mosques and a door-to-door marketing campaign held in selected Muslim populated towns island wide.


Best Leasing Company of the Year - Gold Award & Best Islamic Finance Window / Unit of the Year - Silver Award at Sri Lanka Islamic Banking and Finance Industry Awards 2017

Best Islamic Leasing Company of the Year – Gold Award at 2nd IFSA Awards – 2017


Islamic Finance is offered from more than 40 CLC branches and 04 dedicated Service Centers island wide by 30+ dedicated Islamic Finance Marketers and regular marketing staff. All staff members are thoroughly trained in theoretical and practical aspects of Islamic Finance through regional training sessions conducted periodically.

During the financial year 2017/18 CLC Islamic Finance awarded with 3 prestigious awards: a Gold for the ‘Best Leasing Company of The Year’ at the Islamic Finance Forum South Asia (IFFSA) Awards 2017 along with Gold for ‘The Best Islamic Leasing Company of the Year’ and Silver for the ‘Best Islamic Finance Window/Unit of the year’ at the 2018 Sri Lanka Islamic Banking and Finance Industry (SLIBFI) Awards.

FACTORING

The factoring arm recorded a slowdown, mirroring the prevailing market conditions, as customers’ businesses were negatively affected due to the decline in the nation’s economic growth and low levels of liquidity in the market during the year. Since the operating conditions were not favourable, we took on a cautious approach for this segment of the business. In view of the challenges, the CLC factoring portfolio was dropped consciously to comfortable levels from Rs. 6.5 Bn to Rs. 4 Bn by year-end.

Factoring remains a highly attractive product against receivables in order to fulfil cash flow constraints of entrepreneurs. New business grew during the year albeit on a cautious note, underscored by garnering a good portfolio of customers. At the same time, certain clients who failed to abide by the set guideline were terminated while we sustained reliable customers, thereby strengthening our portfolio. The constraints experienced during the year have caused some factoring players to exit/curtail the business and against this backdrop, we see greater opportunity to

carve out a larger share of the market in the months ahead. The company continues to closely monitor the situation and resources are fully geared to accelerate factoring services once the market conditions prove more favourable.

RECOVERIES

The Recoveries division operates in full compliance with rules of regulations. Since CLC’s focus is on the grassroots level, the performance of the Recoveries division was sustained as in the previous year. The economic slowdown continued to impact the industry as some clients’ businesses were adversely affected, which reduced their repayment capacity. The Recoveries team is working closely with them to resolve challenges in a mutually-beneficial manner. CLC’s clients in the North are facing serious issues with lack of rain through three consecutive cultivating seasons. The company understands their dilemma and engages with them to see how best they can best recover.

During the year, operational costs were brought down by automating back-office operations for a leaner business model. Automating bulk of back-office operations has freed the staff to focus on value-adding business development. Many tedious branch operations have been centralised at the head-office which has further delivered cost savings. Report generation has also been improved with technology-backed systems. The focus remains on fine-tuning the microfinance model and filling gaps, ably supported by a dedicated task force.

However, despite many challenges faced during the year, our teamwork and intricate processes ensured that NPLs remained under 2% while maintaining total provisioning of less than 2% of the total portfolio. We now have a dedicated team across 10 regions focused purely on recoveries through daily

monitoring. Moreover, adopting product-wise strategies also contributed to the improved bottom lines of the Company. The Recoveries department will continue and further improve their efforts to minimise the number of contracts that require legal action.

AUTO FINANCE

The leasing segment grew by almost 18% during the year despite the tax burden on the vehicle industry. One of the Company’s major triumphs in the year under review was “Riyasenekeriya” - a vehicle fair of unregistered and brand new vehicles outside Colombo, which gave people in the areas an opportunity to access unregistered cars without requiring travel to main city centres to visit large car dealers. By tying up with car suppliers, we enabled direct Company to customer contact. The fairs were held in Kalmunai, Batticaloa, Trincomalee, Mahiyanganaya, Embilipitiya, Ratnapura Ampara, Anuradhapura and Polonnaruwa. The main vehicle suppliers were Ishara Traders, Mahindra, AMW, DIMO, Wasana Traders and United Motors, who displayed unregistered and brand new Japanese and Indian vehicles at the site.

Potential customers in these areas were delighted to be able to visit and examine the cars for themselves. This initiative encouraged our staff to be trained in better sales and marketing techniques to enhance their experience and exposure. The fair allowed the company to strengthen brand presence amongst its customer base. The fair provided a one-stop shop with valuation, leasing and insurance facilities for greater customer convenience.

During the year in review, the FastCash product was promoted after process improvements through which the customer can access a quicker service than before, in a matter of one day. Since its launch in January 2016, FastCash has garnered Rs. 600 Mn



within a short period. Achieving revenue levels of Rs. 10 Mn in the next financial year seems to be in easy reach.

Further, during the year, the Company streamlined guidelines for asset-backed lending for SMEs along with simplifying the approvals process within three hours. The company’s relationship with the farming segment was strengthened during the year as CLC is one of the few companies facilitating farmers to adopt technology by leasing farm equipment. Going ahead, we plan to extend property-backed housing loans and mortgage loans for customer convenience.

Encouraged by the expanding customer base and interest in our portfolio of leasing products, we are in the process of developing a digital platform for customers to be able to buy and to sell vehicles with ease.

CUSTOMER SERVICE

Customer service training efforts were at their peak during the year as a large number of new recruits required training in the Microfinance division. Customer service staff also underwent training in new service standards. CLC’s service offering is one of the main contributors to the Company’s success, enabling it to emerge among the top five NBFIs in the country, inspiring us to pursue service excellence. During the year, frontline employees were trained in soft skills to enhance customer interaction. Knowledge sharing training sessions held biannually are highly valuable as on this platform, new recruits share their experiences.

The internal competition amongst branches for fixed deposits motivates branches to offer highest standards of service to garner savings. The Customer Service team assisted the Deposits team run fixed deposit campaigns. Account management activities are also handled by the Customer service team. The Company places greater emphasis on improving human resources in terms of knowledge gathering which helps in enhancing services to be true financial advisors to customers.


The main endeavour during the year was to reduce customer waiting times for loans and approvals by leveraging on technology. Time frames were established for each customer-related function to ensure uniform levels, with minimal deviations from the set standards.

CLC’s online banking portal is delivering enhanced convenience for customers to conduct financial transactions at leisure. The marketing call centre which responds to any queries from the public with regard to ongoing promotional campaigns and new products continued to play a useful role in the delivery of customer service.

MARKETING COMMUNICATIONS

The Company mainly focused on strengthening the CLC corporate band whilst increasing visibility and establishing product brands such as CLC Wasana, CLC Savings, CLC Islamic Finance, CLC FastCash and CLC FlexiCash in the market place.

The advertising mix comprised of ATL, BTL and New Media, out of which the forerunner was ATL advertising. However new media promotions such as SMS campaigns and social media advertising witnessed strong growth during the year.

In the year under review, CLC was ranked among the Top 50 brands in ‘LMD Top 100 Brands in Sri Lanka’. This established the value addition of the marketing communication activities of the Company which in turn increased the brand value of CLC.

ADMINISTRATION

Overall, administration costs increased during the period under review due to branch relocations and increased staff numbers. The year was marked by the refurbishment of six branches at Kandy, Pettah, Kelaniya, Chilaw, Mahiyanganaya, Avissawella and Embilipitiya into full-fledged branches. The upbeat décor and expanded space provides more room for meetings and training needs of staff. Meanwhile, security at branches remains a key concern and the Company renegotiated

terms with CCTV and security equipment suppliers across the branch network. In keeping with Central Bank requirements, a mandatory fire drill and workshop was conducted at CLC Head Office to ensure staff preparedness in the eventuality of a fire. In addition, first-aid training programmes were also held for staff as an important life skill. In order to enhance the CLC experience for customers, service and security staff was trained in soft skills and in interactions with customers.

We are in the process of implementing the 5S programme at the Head Office which will be launched in the next financial year, Putting our sustainability mindset into action, CLC entered into a tie-up with Abans for waste paper recycling at the Head Office as a pilot project. Abans provides purpose-built waste paper boxes which are regularly cleared for recycling is sent there to be recycled. If successful, this initiative will be rolled out to the branch level as well. While the Company exercised strict cost controls during the year, plans have been drawn up to refurbish more branches in the new financial year.

FUTURE OUTLOOK

The ‘Difference we Made’ in the 2017/18 financial year has had a positive impact on all the stakeholders of the Company, bringing prosperity and financial inclusiveness to those who need it the most. CLC is built on a strong foundation and leverages on its effective business model to run a profitable enterprise. Going ahead, we will focus on strengthening the Company’s presence across the nation while growing our share of the financial services market. Backed by the powerful LOLC Group, we are well positioned to take advantage of emerging opportunities in the sector. Over the last 30 years, CLC has unfailingly delivered its promises, which is reflected in the financial performance achieved during the year under review. This valued confidence and trust placed is us by our stakeholders will continue to inspire us to achieve more milestones in our journey ahead to reach the forefront of the financial services sector.


Nelliady

Jaffna

Kilinochchi

Mannar Parakramapura

Thambuththegama

Trincomalee

Serunuwara

Batticaloa

Kalmunai

Ampara

Monaragala

BadullaNuwara Eliya

Welimada

RatnapuraMaharagama

Kalutara

NugegodaBambalapitiya

Pettah

KiribathgodaBorella

BattaramullaKaduwela

Avissawella

Kalawana

Tissamaharama

Embilipitiya

Udugama

AmbalangodaPitigala

Baduraliya

GalleMatara Tangalle

Anuradhapura

Nochchiyagama

DambullaPolonnaruwa

Bakamuna

Puttalam

ChilawKurunegala

Matale

Mahiyanganaya

KandyWarakapola

Gampaha

Kuliyapitiya

Negombo

Wennappuwa

Medawachchiya

Vavuniya

CLC Branches

Post Office Services Centres

Commercial Factors Head Office

DehiwalaPiliyandala

Grandpass

MinuwangodaKegalle

Gampola

Wattala

Nawala

Branch Network



Financial Review

73.5BnASSETS BASE

16.5Bn

23.4Bn

CAPITAL

DEPOSIT BASE

2.1BnPROFIT

AFTER TAX

Company posted a 33% growth in Net Interest

income from Rs.4,772Mn to Rs.6,353Mn for

the financial year ended 31st March 2018 with

growth in the portfolio from Rs.53,904Mn to

Rs.59,777Mn and also as a result of the increase

in portfolio yield.

Rs.

Rs.

Rs. Rs.


OVERVIEW

The Company recorded an excellent overall performance for the financial year ended 31st March 2018, reporting a profit before income tax of Rs. 2.90Bn. This is a 32% increase from Rs. 2.20Bn reported over the corresponding period, 2017. Profit after tax grew by 27% from Rs.1.68Bn to Rs.2.14Bn whilst the earnings per share improved to Rs. 0.34 from Rs. 0.26.

BRAC Lanka Finance PLC contributed Rs.142Mn and 40% owned Commercial Insurance Brokers Ltd. contributed Rs.11Mn to the share of profit of equity accounted investees totalling up to Rs.153Mn for FY 2017/18. The Company’s interest in BRAC Lanka Finance PLC (BRAC) has decreased from 99.76% to 44.33% subsequent to the right issue of BRAC. Consequently, the Company’s holding over BRAC Lanka Finance PLC has been transferred from Investment in Subsidiary to Equity Accounted Investee. Under the equity method share of profit of the investee is recognised in the Profit or Loss Statement of the Company.

INTEREST INCOME

Interest income, the core income of the Company, improved by 22% from Rs. 10,898Mn to Rs. 13,348Mn during the year.

Interest income (Rs. Mn) FY 2017/2018

FY 2016/2017

Variance %

Leasing & hire purchase 2,874 2,770 4

Loans & advances 8,222 5,831 41

Factoring 1,296 1,304 (1)

Overdue interest 791 764 4

Rentals & sales proceeds - contracts written off

165 229 (28)

Total interest income 13,348 10,898 22

Significant growth was witnessed in loans and advances, a 41% increase over last financial year from Rs. 5,831Mn to Rs. 8,222Mn with the shifting of product mix to revolving loans (FlexiCash facilities), term loans and micro group loans, etc. The Factoring income stood at Rs.1.296Mn, decreasing marginally with the decline in the factoring portfolio.

INTEREST EXPENSE

Interest expense of the Company which accounted for 52% and 44% of the interest income and total income (including other income) respectively grew by 14% from Rs. 6,126Mn to Rs. 6,995Mn due to the increase in market interest rates and resultant repricing effect.

NET INTEREST INCOME

Expenses (Rs. Mn) FY 2017/2018

FY 2016/2017

Variance %

Interest income 13,348 10,898 22

Interest expense (6,995) (6,126) 14

Net interest income 6,353 4,772 33

The Company posted a 33% growth in Net Interest income from Rs.4,772Mn to Rs.6,353Mn for the financial year ended 31st March 2018 with growth in the portfolio from Rs.53,904Mn to Rs.59,777Mn and also as a result of the increase in portfolio yield.

OTHER INCOME

Profit before tax of the Company also includes other income which includes fee income, interest on Government securities, foreign currency term deposits, capital gains and losses arising from marked to market valuation of quoted shares and unit trusts held for trading purposes.

Fee income relating to the lending portfolio (included in other income) increased by 18% from Rs.771Mn to Rs.913Mn with the growth in the lease, loan and microfinancing portfolios. Total other income grew marginally by 6%, reaching Rs.2,477Mn from Rs.2,331Mn, with the increase in interest on government securities, profit of Rs.243Mn recorded on deemed disposal of BRAC Lanka Finance PLC and drop in market values of quoted investments.

Other Income (Rs. Mn)

FY2017/ 2018

FY2016/ 2017

Variance %

Fee income

913 771 18

Other income

1,564 1,560 0.2

Total other income

2,477 2,331 6



Financial Review

OPERATIONAL EFFICIENCY

Expenses (Rs. Mn) FY 2017/ 2018

FY 2016/ 2017

Variance %

Direct expenses 585 470 25

Premises, equipment & establishment expenses 398 346 15

Personnel costs 1,387 1,104 26

Allowance for impairment & write offs 1,056 712 48

Depreciation & amortisation 113 110 4

Other operating expenses 1,927 1,710 13

VAT on financial services 611 458 33

Total operating expenses including VAT on Financial Services 6,077 4,910 17

Total operating expenses of the Company increased by Rs. 1,167Mn to Rs. 6,077Mn due to increases in personal cost, impairment charges and VAT on financial services. Personal costs grew by 26% to Rs. 1,387Mn from Rs. 1,104Mn with the expansion in business operations at branch level. Service centres which were located in post offices were moved out to new locations and substantial investments were also made towards branch refurbishments incurring capital and revenue expenditure during the year increasing other operating expenses.

ASSET QUALITY-QUALITY OF LOAN PORTFOLIO

The allowance for impairment on leases, loans and factoring receivables for the year, increased by 48% to Rs.1,056Mn from Rs.712Mn reported previous year.

As at 31st March 2018 2017

Gross Non-Performing Accommodations Rs.Mn 1,603 1,054

Gross Non-Performing Accommodations Ratio % 2.62 1.93

Net Non-Performing Accommodation Ratio % 1.00 0.58

Gross Non-Performing Accommodations in absolute terms increased by Rs.549Mn compared to previous year with the increase in portfolio, prevailing drought and depleting macro-economic conditions. Accordingly, Gross Non-performing Accommodations Ratio increased from 1.93% to 2.62%. The Company’s asset quality remained strong with the Non-Performing Loan(NPL) ratio being much stronger compared to industry average of 5.93%.

The impairment charge was calculated using the statistical model as in previous years, in line with the requirement of the Sri Lanka Financial Reporting Standards (SLFRS). The Company’s impairment balances remain healthy.

TAX EXPENSE

The current year’s profit after tax reached Rs.2,144Mn after providing Rs.552.6Mn for income taxes and Rs.208Mn as deferred tax. The Company’s tax expense increased by 47%, from Rs.518.47Mn to Rs.760.71Mn.

ASSET GROWTH

The asset base mainly consists of the lending portfolio, which is 81% of the Company assets. The Company’s lending portfolio increased by 11% from Rs.53.90Bn to Rs.59.77Bn recording a rupee growth of Rs.5.84Bn. The credit growth was mainly through other loans such as term loans, revolving loans (FlexiCash) and microfinance products.


The investment portfolio comprising of investments in equities, corporate debt instruments and Government securities declined to 9% from 24% of the asset portfolio, reported a negative growth of 64% with the maturity of investment in unit trusts and foreign currency fixed deposits. Accordingly, total assets of the Company have decreased by 5% compared to 31st March 2017.

The Company’s foreign currency loans exchange risk management strategy of back to back loans was converted into FX SWAPs in line with the changes in the market conditions. Reduction in back to back local borrowings against foreign currency fixed deposits are reflected in loans and borrowings classified under liabilities.

Net assets value per share of the Company improved to Rs. 2.59, from Rs. 2.22 as at 31 March 2017. Profitability in terms of Return on Assets (before tax) and Return on Equity (after tax) were recorded at satisfactory levels of 3.84% and 13.98% respectively compared to 2.72% and 12.99% last year.

CUSTOMER DEPOSITS

Despite intense competition seen throughout the year, the company managed to increase its customer deposit base by almost 47% from Rs.15.93Bn to Rs.23.48Bn. This accounted for 43% of the funding mix compared to 26% in comparative last year.

COMPOSITION OF ASSETS AND LIABILITIES

Item As at 31-032018

Share As at 31-032017

Share Change

Rs. Mn % Rs. Mn % %

Assets

Loans & Advances - net 59,777.23 81% 53,903.47 69% 11%

Investments 6,659.21 9% 18,469.13 24% -64%

Investments in associate and subsidiary company 1,506.85 2% 1,106.36 1% 36%

Investment Properties,Intangible Assets and Property plant & equipment

2,863.49 4% 2,027.73 3% 41%

Other assets 2,701.67 4% 2,256.00 3% 22%

73,508.45 77,761.10 -5%

Liabilities

Customer deposits 23,485.11 32% 15,935.94 20% 47%

Borrowings 30,444.86 41% 45,742.34 59% -33%

Equity 16,506.02 22% 14,175.53 18% 16%

Total Funds 70,435.99 96% 75,853.81 98% -7%

Other 3,072.45 4% 1,907.28 2% 61%

Total Assets/Liabilities-net 73,508.45 100% 77,761.10 100% -5%

0

500

1,000

1,500

2,000

2,500

3,000

0

50,000

100,000

150,000

200,000

250,000Rs. Mn

INTEREST PAID TO CUSTOMER DEPOSITS

2014 2015 2016 2017 2018

No. of depositorsInterest paid to customer deposits



BANK BORROWINGS AND FOREIGN FUNDING

The funding base of the company further decreased from Rs. 45.65Bn to Rs. 30.28Bn due to repayments of back to back loans obtained against foreign currency fixed deposits. Foreign borrowings accounted for 40% of the total borrowing including customer deposits. Exchange rate risk was managed by converting foreign currency fixed deposits backed loans into foreign currency swaps.

REGULATORY CAPITAL ADEQUACY


Core Capital (Tier 1 Capital) Rs. Mn 15,317 13,300

Total Capital Base Rs. Mn 14,050 12,277

Core Capital Adequacy Ratio,as % of Risk Weighted Assets (Minimum Requirement, 5%) 23.69% 21.11%

Total Capital Adequacy Ratio,as % of Risk Weighted Assets (Minimum Requirement, 10%) 21.74% 19.49%

Capital Funds to Deposit Liabilities Ratio (Minimum Requirement,10%) 65.22% 83.46%

Financial Review

SHAREHOLDER FUNDS, CAPITAL ADEQUACY AND LIQUIDITY

The shareholder funds of the Company reached Rs. 16.50Bn from Rs. 14.17Bn with the earnings from its operations and increase in revaluation reserves. The Company’s rich repository of capital continues to strengthen its growth prospects.

The Company remains well capitalised with a strong core capital adequacy ratio of 23.69% and a total capital adequacy ratio of 21.73%, well above the stipulated regulatory minimum of 5% and 10% each. The regulatory capital computation excludes Rs.1.02Bn invested in BRAC Lanka Finance PLC.

REGULATORY LIQUIDITY IN RS. MN

Required minimum amount of liquid assets 3,259 2,772

Available amount of liquid assets 6,484 3,703

Required minimum amount of Government securities 5,094 3,215

Available amount of Government securities 5,487 3,300

The available liquid assets of the Company exceed the required minimum amount.

The market capitalisation of the Company exceeded Rs.17Bn as at 31st March 2018 with a closing share price of Rs.2.70 (As at 31March 2017 Rs.2.60), which resulted in a Price Earning(PE) ratio of 8 (times) compared to 10 (times) in year 2017.

ICRA Lanka Ltd. reviewed the Company’s rating and reaffirmed the rating at A-lka with a Stable Outlook.

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

0

5

10

15

20Rs. Bn

SHAREHOLDER FUNDS

2014 2015 2016 2017 2018FUNDING MIX

Foreign funding agencies

Other long-term

Short-term

Customer deposits

Debenture

7.23%

As at 31-3-2018

As at 31-3-2017

40%

1%6%

43%

9%

41%

2%23%

26%

8%

15

20

25

30

CAPITAL ADIQUACY RATIO

2014 2015 2016 2017 2018

Core capital ratio - minimum 5%Total risk weighted capital ratio - minimum 10%

%


Human Resources Report

HUMAN RESOURCES (HR) REPORT

At CLC, we remain committed to achieving our business goals while seeking to act at all times with the highest standards of corporate responsibility. The aspirations and concerns of our diverse stakeholders shape our performance and success. The Company is turning into reality its belief that the power of a small group of committed people can transform the world into a better place. Our vision to drive financial inclusion and empower all sections of society is bearing fruit as our products and services are accessible to customers in every corner of the country. CLC’s products and services are devised keeping in mind the best interests of stakeholders. Known to possess one of the most well trained and professional staff amongst finance companies, CLC is convinced that the humane and ethical nature of its operations is making a difference in society.

Our aim is to attract, develop and retain the best and the brightest talent in the country. To achieve this, we offer a motivating and inclusive workplace where we recognize and develop talent and promote well-being. We believe the Company can excel only when our people are at the peak of their professional well being so that they feel a sense of pride in the Company’s goals and objectives. The Company has in place a range of welfare, training and well-being policies to ensure employees feel valued and that hard work is rewarded with career progression. We

help our people strike a healthy balance between their professional and personal lives, creating a flexible workplace that serves the requirements of both the company and the individual.

ENSURING THE RIGHT FIT

Total Number of Recruitments

473

The 2017/18 financial year was an eventful one for the Human Resource division due to the aggressive requirement for staffing the microfinance business. As a result, CLC staff numbers swelled by 20.75% over the previous year – rising from 1,099 to 1,327 employees by 31st March 2018. The Company employs a multi-pronged effort to reach potential candidates by advertising jobs, leveraging on employment and recruitment agencies, participating in career fairs both local and Government institutes, exploring social media and other network platforms, head-hunting and walk-in Interviews. Apart from looking for specific skills in keeping with the job description, we always recruit based on attitude, because we believe the right attitude brings about greater success when it comes to the recruitment process. CLC is an equal opportunity employer irrespective of gender, race, age, religion or any other narrow considerations. The Company upholds its zero tolerance policy against discrimination of potential or existing employees on any grounds whatsoever.

LEARNING AND DEVELOPMENT

A knowledge sharing culture is omnipresent in the organisation and this empowers employees to make informed choices, which benefits customers in the long run. At CLC, substantial investment is made in ongoing training and development programmes to ensure that staff is updated with the latest regulatory changes and expertise in technical nuances for each product. Alongside technical training, CLC places emphasis on internal and external training programmes where more focus is given to develop soft skills which are required to perform their duties in a customer centric manner. Our development and training programmes ensure we have the skills and talent needed to grow our people and our business. These programmes help our employees gain new skills and experiences through formal training, on-the-job experience, coaching and mentoring. Building sales capabilities and equipping employees with the skills they need to deliver, exceptional customer service is also an important focus. Overseas training is extended to management staff as foreign exposure offers them an insight into global industry trends.

Total Training Hours - 2017/2018

17,553

Employees undergo other essential soft skills programmes such as leadership development to enable people to develop critical skills to succeed. We identify high-performing leaders, match their skills to our business needs and help them achieve their development

No. of Staff

294 1,033


34

goals. We analyse our training needs across the business annually, to identify priorities and ensure that learning plans support our business strategy. Developing the skills of employees with strong leadership potential is a key focus to strengthen our succession planning. We identify these managers across the Group through our annual talent review process.

Strategic Leadership Programme at Frankfurt School,Germany

CAREER PROGRESSION

The Company closely tracks employees’ career progression to ensure that they feel a sense of fulfillment in working for the company. Extensive training opportunities provided by the Company ensure that employees are encouraged to move to the next level through management development programmes and leadership training. We have a stringent performance appraisal process in place to ensure that deserving employees are able to achieve their career advancement goals during the annual promotion cycle. CLC has instituted considerable flexibility in terms of job enrichment and scope for employees based on the Company’s operational requirements. CLC offers competitive and fair remuneration and benefits to attract and retain the best people.

EMPLOYEE ENGAGEMENT

CLC’s high employee retention rate reflects the strong levels of satisfaction reported by employees. Open and regular communication

Pirith Ceremony at CLC Head Office

is fundamental to employee engagement. At the heart of the longstanding bond with the Company lie a truly open culture and a two-way communication channel that enables free exchange of ideas, thoughts and debates for a vibrant workplace.

A ‘process-driven’ rather than a ‘people-driven’ culture offers employees a clear sense of targets to achieve and the necessary tools to achieve the financial and operational accomplishments that it has year on year.

Leadership as a trait is encouraged within every employee because this also helps the Company to identify natural leaders while developing this trait in general amongst employees which helps them to think and act independently.

Besides the open door policy, employees are engaged across training and development, appraisals, social, sports and religious events to build a team of employees who are happy with their career growth and feel a sense of fulfillment.

Frequent interaction between management and staff ensures that staff is kept engaged and motivated. Branch visits by the senior management team, the heads of departments and the shared services team infuse a sense of belonging and pride. Regular meetings are held amongst regional managers, branch managers, middle and top management to discuss issues and strategise. At every meeting, the management is committed

Human Resources Report

Mercantile Football 7’s Bowl Champions 2017


to address any grievances or outstanding performance by staff. In addition, regional managers make it a point to visit the branches at least once a week, which gives them an opportunity to meet the branch staff to discuss any concerns. The meeting also enables the regional manager to share any vital Company information with the branch.

INVITING VALUED FEEDBACK

At CLC, we actively seek feedback from employees in order to incorporate valued suggestions and ideas to enhance our operations. We believe employee feedback and satisfaction contribute to the success of our long-term strategic goals. Our open door culture encourages employees to interact with senior management without hesitation. The HR division is a pivotal function in the organisation as it helps rally the staff together and even organises an HR Day to reach out to staff.

WORK-LIFE BALANCE

The health and well being of our employees is valuable for the Company and it has put in place numerous measures to see that employees maintain a fine work-life balance to achieve personal and professional satisfaction. It is mandatory for all staff members to take annual leave during the year. The company also offers medical benefits for the employee and his/her family. A Club Membership reimbursement

facility is provided to employees, thereby, encouraging them to take some time off their work and engage in recreational and social activities. CLC promotes sports activities such as cricket, rugby, badminton, netball, bowling, and athletics for all employees and proactively takes part in many tournaments. Further, CLC employees can avail of group synergies, such as discounted rates from the LOLC Group’s leisure properties, to spend quality time with their families.

CLC have created a culture where ample opportunities are available for staff to develop their knowledge/skills. CLC provides higher education expenses upon completing their relevant study course. Higher education policy which provides staff the opportunity to claim educational expenses, after completing their Master’s Degree. Employees have made use of this opportunity to gain the necessary qualifications, which has resulted in well-qualified staff cadre within the organisation. We encourage employees to conduct presentations of their performance. This serves to improve their presentation skills, overcome fear of public speaking, as well as providing an opportunity for the management to assess the skills of the employee. Furthermore, case studies and other similar tasks have exposed employees to various complex scenarios, which improve their skills in decision making and strategic thinking.

Blood Donation Campaign at CLC Negombo Branch



Report on Corporate Governance

Good Corporate Governance benefits all stakeholders and contributes towards the sustainability of the Company. Your Board of Directors therefore supports the principles of good corporate governance. Commercial Leasing & Finance PLC (CLC) continued to maintain high standards of corporate governance and ethical business conduct across all aspects of its operations and decision-making processes during the year under review.

STRUCTURE

The governance structure of CLC ensures alignment of its business strategy and direction through effective engagement and communication with its stakeholders, Board of Directors, Board Sub-Committees and Management.

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

INSTRUMENTS OF GOVERNANCE

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

The external instruments of governance at CLC include the Companies Act, No. 7 of

2007, the Finance Business Act, No. 42 of 2011, the Finance Leasing Act, No. 56 of 2000, the Foreign Exchange Act, No. 12 of 2017, the Payment and Settlement Systems Act, No. 28 of 2005, the Securities and Exchange Commission of Sri Lanka Act, No. 36 of 1987, and any amendments thereto, including rules and directions issued to finance companies from time-to-time by the Monetary Board of the Central Bank of Sri Lanka and the Listing Rules of the Colombo Stock Exchange. The internal instruments of governance include the Articles of Association, the Role of the Board, Board Approved Policies, Procedures, and Processes for internal controls and anti-money laundering.

Policies and procedures have been established taking into consideration governance principles that define the structure and responsibility of the Board to ensure legal and regulatory compliance, to protect stakeholder interests, to manage risk and enhance the integrity of financial reporting. A whistle-blowing policy has been introduced and the number of the related ‘hotline’ has been shared with all employees. This was done to enhance accountability, so that deliberate deviations from controls and/or processes and procedures could be highlighted by any employee and thus addressed promptly.

BOARD OF DIRECTORS

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

The members of the Board consist of persons with multiple industrial/professional backgrounds in which they have achieved eminence, who contribute effectively to decisions made by the Board to guide

CLC towards achieving its objectives. In accordance with best practices, the offices of Chairman and Chief Executive Officer are separate, and the Chairman is an Independent Non-Executive Director. This ensures a balance of power and enhances accountability.

MONITORING AND EVALUATION BY THE BOARD

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

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

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

REMUNERATION COMMITTEEThe Remuneration Committee was established to assist the Board in evaluating and recommending remuneration for Board Members including the Chief Executive Officer. The Committee held one meeting during the year.


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

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

Moreover, the following mechanisms in place enables the Board to oversee the accomplishment of the targets in the business plan: review the performance of CLC at monthly Board meetings; seeking recommendations through Board appointed Sub-Committees on governance, including compliance with internal controls, human resources, risk management, credit and IT; review of statutory and other compliances through a monthly paper on compliance submitted to the Board covering the operations of CLC. The Company has also established two management level committees: the Credit Committee and the Asset & Liability Committee, to manage matters relating to credit and liquidity.

SKILLS AND PERFORMANCE OF THE BOARD

The updating of the skills and knowledge of all Directors is achieved by updates on proposed/new regulations, industry best practices, market trends and changes in the macro environment. It is also facilitated by providing them access to external and internal auditors, access to other external

professional advisory services and the Company Secretaries, keeping them fully briefed on important developments in the business activities of the Company and by periodic reports on performance, and opportunities to meet Senior Management.

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

AVOIDING CONFLICTS OF INTEREST

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

ENGAGEMENT WITH SHAREHOLDERS

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

ENGAGEMENT WITH EMPLOYEES

CLC recognises that employee involvement is a critical pre-requisite towards ensuring the effectiveness of the Corporate Governance system and therefore attaches great importance to employee communications and employee awareness of key events and significant developments.

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

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

EXTERNAL AUDIT

M/s KPMG, Chartered Accountants were re-appointed as External Auditors of the Company by the shareholders at the Annual General Meeting held in September 2017. Their services were also engaged to seek:

a) an assessment of the Company’s compliance with the requirements of the Finance Companies Corporate Governance Direction No. 3 of 2008 issued by the Monetary Board and

b) the Company’s level of adherence to the internal controls on financial reporting.

The following chart gives more details on the Company’s compliance:




Direction No.

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

CLC’s Level of Compliance

2 THE RESPONSIBILITIES OF THE BOARD OF DIRECTORS

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

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

Complied with

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

Complied withA financial forecast for the period 2018/19 to 2020/21 has been approved by the Board.

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

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

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

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

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

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

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

Complied with

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

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

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

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

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


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

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

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

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

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

f. identifying and designating key management personnel, who are in a position to:(i) influence policy;(ii) direct activities; and(iii) exercise control over business activities, operations and risk management

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

Their appointments have been approved by the Central Bank of Sri Lanka.

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

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

Further, the responsibilities of the Board have been defined and approved.

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

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

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

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



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

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

(ii) the management of conflicts of interests; and

(iii) the determination of weaknesses and implementation of changes where necessary;

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

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

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

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

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

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

j. ensuring that the finance company has an appropriate

succession plan for key management personnel;

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

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

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

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

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

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



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

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

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

The Audit Committee has recommended that the auditors be re-appointed for 2017/18.

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

No reviews were carried out during the year under review.

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

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

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

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

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

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

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

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

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

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

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



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

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

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

Complied withThis report serves the said requirement

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

Complied withThe Directors carry out a self-evaluation annually.

Self-evaluations for the year 2017/18 have been obtained and were submitted to the Board for their review. Related records are in the custody of the Company Secretaries.

3 MEETINGS OF THE BOARD

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

Complied withThe Board met 12 times during the year. Please see page 60 for further details.

Approvals obtained through the circulation of resolutions (19) were subsequently tabled at the following Board Meeting.

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

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

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

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

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

Complied withAll the members have attended two-thirds or more of the meetings during the year. Please see page 60 for further details.

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

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



Direction No.



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

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

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

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

3.8 The Company Secretary shall maintain the minutes of Board meetings and such minutes shall be open for inspection at any reasonable time, on reasonable notice by any Director

Complied with

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

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

(b) the matters considered by the Board;

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

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

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

(f) The decisions and Board resolutions.

Complied withDetailed minutes are kept covering the given criteria.

4 COMPOSITION OF THE BOARD

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

Not Complied withThe Board comprised four directors as at 31st March 2018. The fifth Director was appointed to the Board subsequent to the year under review on 23rd May 2018.

4.2 The total period of service of a director other than a Director who holds the position of Chief Executive Officer or Executive Director shall not exceed nine years. The total period in office of a Non-Executive Director shall be inclusive of the total period of service served by such Director up to the date of this Direction.

Complied withDuring the year under review Mr. I C Nanayakkara, Mrs. K U Amarasinghe and Mr. K Jayawardena retired on 16th June 2017 on completing 9 years of service.



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4.3 An employee of a finance company may be appointed, elected or nominated as a Director of the finance company (hereinafter referred to as an “Executive Director”) provided that the number of Executive Directors shall not exceed one-half of the number of Directors of the Board. In such an event, one of the Executive Directors shall be the Chief Executive Officer of the Company.

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

4.4 The number of independent Non-Executive Directors of the Board shall be at least one fourth of the total numbers of Directors. A Non-Executive Director shall not be considered independent if such Director:

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

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

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

d) Has a relative, who is a Director or Chief Executive Officer or a key management personnel or holds shares exceeding 10% of the paid up capital of the finance company or exceeding 12.5% of the paid up capital of another finance company.

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

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

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

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

Complied withThere are four Independent Non-Executive Directors on the Board as at 23rd May 2018.

• Mr. P D J Fernando,

• Mr. L Jayaratne

• Mr. U H E Silva (appointed with effect from 09th October 2017)

• Mr. T Sanakan (appointed with effect from 23rd May 2018)



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

4.5 In the event an Alternate Director is appointed to represent an independent Non-Executive Director, the person so appointed shall also meet the criteria that apply to the independent Non-Executive Director.

During the reporting period no such requirement has arisen. Will comply in the event an alternate director is appointed for an independent director

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

Complied withDirectors profiles are provided on pages 12 to 13.

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

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

The quorum had been maintained at all Board Meetings held during the financial year 2017/18.

Details of attendance at meetings are provided on page 60.

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

Complied withThe current directorate is as given below :

Mr. P D J Fernando, Independent Non-Executive Chairman

Mr. L Jayaratne, Independent Non-Executive Director

Mr. U H E Silva, Independent Non-Executive Director (appointed with effect from 09th October 2017)

Mr. T Sanakan, Independent Non-Executive Director (appointed with effect from 23rd May 2018)

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

The Directors profiles are given on pages 12 to 13.

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

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

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

Furthermore, the Company adheres to the Finance Companies (Fitness and Propriety of Directors and Officers performing Executive Functions) Direction No. 3 of 2011 when appointing new Directors.



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

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

Mr. U H E Silva and Mr. T Sanakan will offer themselves for re-election at the forthcoming AGM.

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

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

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

Changes to the directorate during the year (appointment of Mr. U.H E Silva & Mr. T Sanakan; resignations of Mr. I C Nanayakkara, Mr. W D K Jayawardena, and Mrs. K U Amarasinghe) were approved by the Central Bank of Sri Lanka.

5 CRITERIA TO ASSESS THE FITNESS AND PROPRIETY OF DIRECTORS

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

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

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

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

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

6 DELEGATION OF FUNCTIONS

6.1 The Board shall not delegate any matters to a Board committee, Chief Executive Officer, Executive Directors or key management personnel, to an extent that such delegation would significantly hinder or reduce the ability of the Board as a whole to discharge its functions.

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

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



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

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

7 THE CHAIRMAN AND THE CHIEF EXECUTIVE OFFICER

7.1 The roles of Chairman and Chief Executive Officer shall be separated and shall not be performed by the one and the same person.

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

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

Complied withThe Chairman is an Independent Non-Executive director.

7.3 The Board shall disclose in its Corporate Governance Report, which shall be an integral part of its Annual Report, the name of the Chairman and the Chief Executive Officer and the nature of any relationship [including financial, business, family or other material/ relevant relationship(s)], if any, between the chairman and the Chief Executive Officer and the relationships among members of the Board.

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

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

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

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

7.4 The Chairman shall:

(a) provide leadership to the Board;

(b) ensure that the Board works effectively and discharges its responsibilities; and

(c) Ensure that all key issues are discussed by the Board in a timely manner.

Complied with

7.5 The Chairman shall be primarily responsible for the preparation of the agenda for each Board meeting. The Chairman may delegate the function of preparing the agenda to the Company Secretary.

Complied withThe Chairman has delegated this function to the Company Secretary. This has been included in the ‘Policy on Board’s relationship with the Company Secretary’ approved by the Board.



Direction No.



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

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

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

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

Complied with

7.8 The Chairman shall facilitate the effective contribution of Non-Executive Directors in particular and ensure constructive relationships between Executive and Non- Executive Directors.

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

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

Complied with

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

Complied withA Board approved communication policy covers this aspect.

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

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

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

Complied with

8 BOARD APPOINTED COMMITTEES

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

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

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

Please refer the Reports on pages 69 to 70.

8.2 Audit Committee Please refer page 69 for the Committee Report



Direction No.



a. The chairman of the committee shall be a Non-Executive Director who possesses qualifications and experience in accountancy and/or audit.

Complied withMr. P D J Fernando, Independent Non-Executive Director, has been appointed as the Chairman of the Audit Committee by the Board.

His qualifications are as follows:

- MSc in Statistics: University of Birmingham England

- BSc (2nd Class Upper Div): University of Peradeniya, Sri Lanka

- Central Bank of Sri Lanka: Deputy Governor – 2010 to 2011

- Central Bank of Sri Lanka: Assistant Governor – 2004 to 2009

b. The Board members appointed to the committee shall be Non-Executive Directors.

Complied withThe remaining members of the Committee are:

• Mr. L Jayaratne, Independent Non-Executive Director

• Mr. U H E Silva, Independent Non-Executive Director

• Mr. T Sanakan, Independent Non-Executive Director (appointed to the Committee with effect from 28th May 2018)

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

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

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

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

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

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

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

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

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

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



Direction No.



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

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

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

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

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

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

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

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

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

Complied with



Direction No.



g. The committee shall review the financial information of the finance company, in order to monitor the integrity of the Financial Statements of the finance company,

Its Annual Report, accounts and periodical reports prepared for disclosure, and the significant financial reporting judgments contained therein. In reviewing the finance company’s Annual Report and accounts and periodical reports before submission to the Board, the committee shall focus particularly on:

(i) major judgmental areas;

(ii) any changes in accounting policies and practices;

(iii) significant adjustments arising from the audit;

(iv) the going concern assumption; and

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

Complied withThe Committee has a process to review financial information of the Company when the quarterly and annual audited Financial Statements and the reports including accounting policies and changes to policies, significant assumptions/ judgments prepared for disclosure are presented to the Committee.

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

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

On three occasions, the Auditors met the Committee in the absence of the Executive Management.

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

Complied withThe management letter for 2016/17 has been reviewed by the Audit Committee.

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

Complied with

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

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

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

The Audit Plan for 2017/18 was tabled by the Head of Internal Audit and discussed at a Committee meeting and results of the internal audit process has been reviewed and appropriate actions obtained where necessary.

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

An overall assessment of performance of the senior staff members and the Head of Internal Audit for the year 2017/18 has been carried out by the Committee.



Direction No.



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

No such situation has arisen during the year.

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

No such situation has arisen during the year.

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

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

The Internal Auditor reports direct to the Board Audit Committee.

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

Complied with

l. The Chief Finance Officer, the Chief Internal Auditor and a representative of the external auditors may normally attend meetings. Other Board members and the Chief Executive Officer may also attend meetings upon the invitation of the committee. However, at least once in six months, the committee shall meet with the external auditors without the Executive Directors being present.

Complied withThe Committee has had four meetings with the External Auditors during the year and on three such occasions, met the BAC without the presence of the Executive Directors and the management.

m. The committee shall have:

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

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

(iii) full access to information; and

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

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

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

Complied withDuring the year 2017/18, the Committee has held five meetings and conclusions of such meetings have been recorded by the Company Secretary in the minutes of the relevant meetings.

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

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

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

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

Complied withPlease refer Report on page 69.



Direction No.



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

Complied with

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

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

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

8.3 Integrated Risk Management Committee Please refer page 70 for the Committee Report

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

Complied withThe Integrated Risk Management Committee comprises:

Mr. L Jayaratne Committee Chairman/ Independent Non-Executive DirectorMr. U H E Silva Independent Non-Executive DirectorMr. D M D K Thilakaratne Executive Director/CEO Mrs. S Wickremasekera Chief Risk Officer Mr. N Weerapane Head of RecoveriesMrs. N Kariyawasam Head of Finance/ Compliance officerMr. U Samarasinghe Head of Credit Risk ManagementMr. O de Silva Head of TreasuryMr. P Karandagolla Head of ChannelsMr. T Indrapala Head of OperationsMr. T Kaushalya Head of Savings and FDs

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

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

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

• Liquidity Risk

• Operational Risk

• Strategic Risk

• Credit Risk

• Business Risk

• Profitability Risk



Direction No.



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

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

Matters reported by the ALCO include :

• Funding Gap analysed through Maturity Gap Analysis

• Foreign Currency Position

• Inter-company Exposures

• Cost of Funds

• Investments

• Borrowings

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

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

Loss limits for FX operations; Loss Limits on marked-to-market (MtM) and counter party limits.

During the Year the Committee also reviewed the activities of the Credit Committee against its TOR/ Policies and through periodic reports of facilities approved by it; and made recommendations to revise procedures and policy for better credit governance.

d. The committee shall take prompt corrective action to mitigate the effects of specific risks in the case such risks are at levels beyond the prudent levels

Decided by the committee on the basis of the finance company’s policies and regulatory and supervisory requirements.

Complied withDecisions taken at Committee Meetings are followed up by the ERM team. All reported risks are constantly monitored and remedial corrective action is taken if an adverse movement of the risk is evident.

This process was further strengthened by establishing key risk indicators and risk appetite limits for credit, market, liquidity and operations. These are presently monitored by ERM, and those which are not within the specific limits are reported to the Committee for necessary action.

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

Complied withFour meetings were held during the financial year 2017/18.



Direction No.



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

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

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

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

Moving towards complianceThe CRO submits a summary report to the Members of the Board after the Committee meeting. This includes the risks discussed at the meeting, mitigation actions proposed by ERM and the responses received from the risk owners. Measures will be taken to dispatch the report within a week of each meeting. Further, approved Committee minutes are tabled at the subsequent Board Meeting seeking the Board’s views and specific direction.

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

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

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

9 RELATED PARTY TRANSACTIONS

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

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

a) A subsidiary of the finance company;

b) Any associate company of the finance company;

c) A director of the finance company;

d) A key management personnel of the finance company;

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

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

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

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

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

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

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



Direction No.



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

a) Granting accommodation,

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

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

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

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

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

Mr. L Jayaratne - Independent Non-Executive Director

Mr. U H E Silva - Independent Non-Executive Director Mr. D M D K Thilakaratne – Executive Director/CEO

The following personnel are invited to participate at these meetings and recommend such facilities:

Mrs. N Kariyawasam/Head of Finance & Compliance Officer

Mr. O de Silva – Manager Treasury

Mr. U Samarasinghe – AGM – Credit Risk Management

The Committee was formed in order to adhere to the Code Of Best Practice on Related Party Transactions (RPTs) issued by the Securities & Exchange Commission of Sri Lanka.

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

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

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

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

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

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

Complied withThe Directors confirm that any related party transaction entered into is compliant with the relevant rules of the Code of Best Practice on Related Party Transactions issued by The Securities & Exchange Commission of Sri Lanka. Where necessary, disclosures are made on the Colombo Stock Exchange.

The Company will further strengthen the favourable treatment monitoring mechanism by implementing an on-line system.

For further details, please refer reporting pages 55 and 56.



Direction No.



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

10 DISCLOSURES

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

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

Annual Financial Statements are disclosed in the Annual Report; biannual (unaudited) Financial Statements are published in newspapers in all three languages (Daily Maubima/ Daily FT/ Daily Thinakkural News Papers) and the quarterly statements are posted on the CSE website.

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

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

Complied withPlease refer the Directors’ Report on pages 66 to 68.

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

Complied withPlease refer the Directors’ Statement on Internal Controls on Page 74.

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

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

Please refer page 75 for the report.

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

Complied withDirectors’ names and details are given in pages 12 to 13.

Transactions with Directors during the year are as follows.

• Remuneration paid - 16,092,126/-

• Accommodations granted - Nil

• Deposits with the Company - 28,155,425/-

• Interest for the year – Rs. 1,575,505/-

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

Complied withRemuneration paid amounted to Rs. 16,092,126/-



Direction No.



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

Complied withNet accommodations granted to each category of related parties as a percentage of capital funds of the Company at the year-end was 9.67%. (Disclosed on pages 140 to 142)

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

Complied with• Remuneration paid - 24,207,448/-

• Accommodations granted - Rs. 600,000/-

• Deposits with the Company - Rs. 34,533,623.47

• Interest for the year - Rs. 3,687,670.30

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

Complied withStatus of compliance with prudential requirements, regulations and laws are in the Directors’ Report set out on pages 66 to 68.

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

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

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

Complied withThe Company has obtained a report on factual findings from the External Auditors on the Company’s level of compliance with the Finance Companies Corporate Governance Direction No. 3 of 2008 issued by the Monetary Board.

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

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

The Company is in compliance with the Corporate Governance requirements of the Listing Rules of the Colombo Stock Exchange except for the requirements relating to Minimum Public Float.

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

Complied withAs at 31st March 2018 the Board comprised Four Directors of whom Three were Independent Non-Executive Directors.

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

Complied withAs at 31st March 2018 the Board comprised three Independent Directors from whom signed declarations of independence were obtained.



Direction No.



7.10.3-4 Directors’ DisclosuresAnnual determination as to the independence or non- independence of each Non-Executive Director.

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

Please refer Directors’ Profiles on pages 12 to 13.

7.10.5 Remuneration CommitteeShall comprise of a minimum of two Independent Non-Executive Directors or of Non-Executive Directors a majority of whom shall be independent, which ever shall be higher.

Complied withAs at 31st March 2018, the Committee comprised two Independent Non-Executive Directors.

For further details, please see the Committee Report on page 71.

7.10.6 Audit CommitteeShall comprise of a minimum of two Independent Non-Executive Directors or of Non-Executive Directors a majority of whom shall be independent, which ever shall be higher.

Complied withAs at 31st March 2018, the Committee comprised three Independent Non-Executive Directors.

For further details, please see the Committee Report on page 69.

7.13.1 (b) Minimum Public Holding RequirementDisclosure in terms of rule 7.13.02 of the Listing Rules of the Colombo Stock Exchange (‘CSE”)

Not CompliedIn accordance with the requirements of the above rule, we provide below the following details as at 30th June 2018:

- The Company is not compliant with the Minimum Public Holding Requirement stipulated in CSE Rule 7.13.1 (b)

- The Public Holding percentage is 0.452%.

- The number of Public Shareholders is 990.

- The Float Adjusted Market Capitalization is Rs.66mn.

The Company has been transferred to the CSE’s Watch List with effect from July 2018. The Board of Directors of the Company is in the process of evaluating options concerning the captioned requirement and its decision will be announced in due course. Failure on the part of the listed entity to comply with rule 7.13 can result in a trading suspension of its securities and a referral to the Board of Directors of the CSE for a determination in terms of rule 10.3 (a) of their rules.

9.2.2 Related Party Transactions Review CommitteeThe Committee should comprise a combination of Non- Executive Directors and Independent Non-Executive Directors. The composition of the committee may also include executive directors, at the option of the listed entity. One independent Non-Executive Director shall be appointed as Chairman of the committee.

Complied withAs at 31st March 2018, the Committee comprised three Independent Directors one of whom is the Committee Chairman, and one Executive Director.

For further details please refer the Committee Report on page 73.



MEMBER ATTENDANCE AT MEETINGS

AUDIT COMMITTEE MEETINGS

Name of the Director Meeting Dates Total0524/05/2017 20/09/2017 14/11/2017 29/01/2018 23/02/2018

Mr. P D J Fernando 05

Mr. L Jayaratne 05

Mr. U H E Silva – by invitation (Apptd. to the Committee W.E.F. 21/03/2018)

- - 03

Mr. D M D K Thilakaratne – by invitation 05

Mrs. N Kariyawasam – by invitation 05

Mr. W D K Jayawardena (R.W.E.F 16.06.2017) - - - - 01

REMUNERATION COMMITTEE MEETINGS

Name of the Director Meeting Dates21/03/2018

Total01


Mr. L Jayaratne 01


MEMBER ATTENDANCE AT MEETINGSBoard Meetings

Name of the Director IN NI EX NEX Date of appointment

Meeting dates Total

26

/04

/20

17

24

/05

/20

17

21

/06

/20

17

28

/07

/20

17

23

/08

/20

17

11

/09

/20

17

17

/10

/20

17

14

/11

/20

17

20

/12

/20

17

29

/01

/20

18

23

/02

/20

18

21

/03

/20

18

(12)

Mr. P D J Fernando (Appointed as chairman on 28/03/2018)

30/03/2012 12

Mr. L Jayaratne 22/03/2017 12

Mr. U H E Silva 09/10/2017 - - - - - - 06

Mr. D M D K Thilakaratne 06/03/2012 12

Mr. I C Nanayakkara (R.W.E.F 16.06.2017)

17/06/2008 - - - - - - - - - - 02

Mr. W D K Jayawardena (R.W.E.F 16.06.2017)

17/06/2008 - - - - - - - - - - 02

Mrs. K U Amarasinghe (R.W.E.F 16.06.2017)

17/06/2008 - - - - - - - - - - 02

Refer 4.4 regarding new appointment on 23rd May 2018. IN Independent DirectorNI Non-Independent Director

EX Executive DirectorNEX Non-Executive Director


INTEGRATED RISK MANAGEMENT COMMITTEE MEETINGS

Name of the Director Meeting Dates Total0426/04/2017 28/07/2017 17/10/2017 23/02/2018

Mr. L Jayaratne (Apptd to the committee W.E.F 28.07.2017)

- 03

Mr. U H E Silva (A.W.E.F 09.10.2017) - - 02

Mr. P D J Fernando (Resgd from committee W.E.F 17.10.2017)

- - 02

Mrs. K U Amarasinghe (R.W.E.F 16.06.2017) - - - 01

Mr. D M D K Thilakaratne 04

Mrs. N Kariyawasam - by invitation - 03

Mr. N Weerapana - by invitation - - - 01

Mr. J Anthony (R.W.E.F 31.12.2017) Apptd Mr. P Karandagolla W.E.F 01.01.2018 to fill vacancy) - by invitation

- 03

Mr. T Indrapala - by invitation 04

Mr. U Samarasinghe - by invitation - - 02

Mr. O de Silva - by invitation - 03

NOMINATION COMMITTEE MEETINGS

Name of the Director Meeting Dates Total0221/03/2018


Mr. L Jayaratne 01

RELATED PARTY TRANSACTION REVIEW COMMITTEE MEETINGS

Name of the Director Meeting Dates Total0424/05/2017 23/08/2017 14/11/2017 29/01/2018


Mr. L Jayaratne (Apptd to the Committee on 28.07.2018 till then attended by invitation)

- - 02

Mr. U H E Silva (Apptd to the Committee on 21.03.2018. till then attended by invitation)

- - 02

Mr. W D K Jayawardena (R.W.E.F 16.06.2017) 01

Mrs. K U Amarasinghe (R.W.E.F 16.06.2017) 01

Mr. D M D K Thilakaratne 04



Enterprise Risk Management

Risk management is one of the main pillars of a good governance system and it is a necessity that it is flexible and robust enough to adopt to the dynamic risk landscape we are operating in today. The risk governance structures should be adequately receptive to capture the changes in financial, credit, market, operational and event risks in order to ensure that a reasonable assurance can be obtained on the risk mitigation and control mechanisms the organisation adopts to be with in its risk appetite

Risk management at LOLC is a group level centralised function. The risk governance structures and mechanisms adopted ensures seamless integration with the Group level policies. The central control at Group level allows for the risk management initiatives to cascade down to entities and ensure standardisation and uniformity across the Group.

The risk governance structures adopted at Commercial Leasing & Finance PLC reflect the board-level commitment and involvement with both the risk management functions and audit functions given total independence and separation from the executive management of the organisation to ensure independent unbiased opinions on risk and controls are expressed and communicated to the Board of Management.

The above unique yet highly-effective risk governance structure allows the Board of Management to have direct oversight over the Enterprise Risk Management Division and its sub functions of audit and risk management via the Integrated Risk Management Committee and the Audit Committee. This mechanism ensures that the board is appraised of the organisational risks and internal controls in an independent and unbiased manner. This boosts the level of confidence the Board has on the internal control and risk governance structures implemented and their reliability, consistency and effectiveness.

The risk governance structures implemented at CLC is a combination of risk management,

internal audit and IS audit functions which form the Enterprise Risk Management Department (ERM) where the risk management focuses on the potential and perceived risks and mitigation strategies in place while the audit function focuses on the adequacy, effectiveness, consistency and the reliability of the internal controls. The synergy between these two functions have turn out to be highly effective as it ensures efficient deployment of resources based on risk factors. In addition smooth and timely flow of risk related information between risk and audit has resulted in obtaining a reasonable assurance that the controls function as intended and identification of emerging risks at the ground and tactical level.

BOARD OF MANAGEMENT

RISK IDENTIFICATION

RISK ANALYSIS

RISK MONITORING AND REPORTING

RISK COMMUNICATION

RISK CONTROL

Audit Committee

Internal Audit Functions

Integrated Risk Management Committee

Information Systems Audit

Functions

Risk Management

Functions

Commercial Leasing & Finance

Board-level sub-committees

Enterprise Risk Management Division


The Risk management function identify possible risks which have a reasonable probability to affect the achievement of our strategic and tactical objectives by its independent reviews as well as by analysing and reviewing the periodic reporting by the risk and process owners of business and service units. It appraises the management of the impacts on crystallisation of the identified risks and the mitigation strategies available. The Integrated Risk Management Committee (IRMC) evaluates the possible impacts and in consultation with the risk owners decides on the best possible risk mitigation strategies and the internal controls to be adopted. The Board of Directors are kept informed through regular communications of the activities of the IRMC. Risk reporting to the Board is a regular process undertaken monthly with a full review by the IRMC quarterly. If any significant changes in the risk parameters are observed the relevant stake holders are kept appraised by way of a risk escalation communication which enables the risk owners and the management to take appropriate action on time.

We firmly believe the best possible defense and mitigation strategy against risks is having the appropriate risk culture within the organisation and keeping true to our vision in risk management ‘Building an organisational culture where Protection, Assurance, Reliability, Accountability, Transparency and Confidentiality are treasured and lasting values’; the Enterprise Risk Management Department engages in a consultative capacity in new product, service developments and business process formulations and conducts in house training for staff on risk and controls. The dissemination of risk and response related knowledge to all employees is a critical success factor in our risk management strategy.

The internal audit constantly reviews internal controls framework and risk mitigation controls following a risk based approach. The audit teams adopt a three-pronged strategy which consists of teams that engages in process level/department level audits, branch based audits and region based audits. The data analytic techniques are now comprehensively used for auditing purposes which had enhanced the capacity and the capability as well as completeness of the reviews.

Information Systems Audit function reviews information systems and critical system infrastructure and supports the general audits by assisting them with data analytics. In addition IS audit engages in consultative capacity in new system developments and major system acquisitions to ensure that due process is followed and as an advisory on risk and control aspect of the system.

A corporate whistle-blower hotline and a customer feedback line is operational and both the lines are managed by ERM division. The corporate whistle-blower line facilitates employee reporting of information on irregularities and suspicious activities while the customer feedback hotline is dedicated for customer complaints. All information received through both lines are treated confidentially and are inquired and followed up until resolution. The information obtained/ given through these channels based on the information category and nature are shared only on a need to know basis which elevates the confidence of both the employees and the customers alike.

Continuous improvements are a prerequisite in any effective risk management strategy therefore ERM staff is exposed to required knowledge sharing sessions and trainings continuously. Active learning is always encouraged and supported among ERM staff. This is a necessity given the dynamic and volatile nature of the business environment today. The above strategy in combination with the internal quality assurance mechanisms and standardisation allows us to maintain consistency and uniformity of our deliverables across the organisation.

RISK PROFILE

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

Risk Levels Risk Score

Very High 5

High 4

Medium 3

Low 2

Very Low 1



Enterprise Risk Management

FINANCIAL RISKS

Currency Risk

Market Risk

Liquidity Risk

Credit Risk

Capital Adequacy Risk

Profitability

& Income Risk

Asset & Liability Risk

Interest Rate Risk

5

4

3

2

1

0

EVENT RISKS

Disaster Management & Business Risk

Political Risk

Contagion Risk

Exogenous Risk

5

4

3

2

1

0

Technology Risk

Business Strategy Risk

Internal Systems &Operational Risk

Mismanagement &Fraud Risk

OPERATIONAL RISKS

5

4

3

2

10

BUSINESS RISKS

Legal Risk

Systemic Risk

Image Risk

Industry Risk Policy Risk

Financial Infrastructure Risk

5

4

3

2

1

0

The

Results We Achieved

FINANCIAL CALENDAR 2017/18

1st Quarter Results 2017/2018 released on 15th August 2017

2nd Quarter Results 2017/2018 released on 15th November 2017

3rd Quarter Results 2017/2018 released on 15th February 2018

4th Quarter Results 2017/2018 released on 31st May 2018

Annual Report for 2017/2018 released in August 2018

26th Annual General Meeting in September 2018

PROPOSED FINANCIAL CALENDAR 2018/19

1st Quarter Results 2018/2019 released on 15th August 2018

2nd Quarter Results 2018/2019 will be released on 15th November 2018

3rd Quarter Results 2018/2019 will be released on 15th February 2019

4th Quarter Results 2018/2019 will be released on 30th May 2019

Annual Report for 2018/2019 will be released in August 2019

27th Annual General Meeting in August 2019

Financial Information



Report of the Board of Directors

DIRECTORS REPORT

Your Directors have pleasure in presenting their Annual Report together with the Audited Financial Statements for the year ended 31st March 2018.

PRINCIPAL ACTIVITIES AND NATURE OF OPERATIONS

During the year the principal activities of the Company comprised provision of leasing, loans, receivable financing, mobilising of fixed and savings deposits, Islamic financing and micro financing.

MARKETS SERVED

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

DIRECTORATE

The Directors during the year under review were as follows:

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

2. Mr. L Jayaratne Independent Non- Executive Director

3. Mr. U H E Silva Appointed with effect from 09.10.2017

Independent Non- Executive Director

4. Mr. T Sanakan Appointed with effect from 23.05.2018

Independent Non- Executive Director

5. Mr. D M D K Thilakaratne

Executive Director/ CEO

The Board welcomes Mr. U H E Silva and Mr T Sanakan, who have been appointed as Independent Non-Executive Directors of the Company.

In accordance with the Direction on Corporate Governance issued by the Central Bank of Sri Lanka, on completing 9 years of service, Mr I C Nanayakkara, Mrs K U

Amarasinghe and Mr K Jayawardena retired on 16th June 2017.

The Board wish to place on record its sincere appreciation for the invaluable contribution made by them during their tenure towards the development of the Company.

RECOMMENDATIONS FOR RE-ELECTION OF DIRECTORS

Mr U H E Silva and Mr T Sanakan retire in terms of Article 70 of the Articles of Association of the Company, and being eligible offer themselves for re-election.

In terms of Article 75 of the Articles of Association Mr L Jayaratne and Mr D M D K Thilakaratne retire by rotation and being eligible offer themselves for re-election.

The Board recommends their re-election. The approval of the Central Bank of Sri Lanka has been sought for these re- elections.

DIRECTORS INTERESTS IN CONTRACTS

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

Lists of companies on which these Directors serve have been included on page 68.

DIRECTORS’ REMUNERATION

The Company paid Rs. 16,092,126.00 as Directors’ remuneration for the financial year ended 31st March 2018.

The Company has a Board approved Remuneration Policy. This policy stipulates that remuneration should be linked to competence and contribution, while serving to incentivise and motivate. This policy has been taken into account when determining remuneration for both staff and directors.

DIRECTORS SHAREHOLDING

Directors Name As at31.3.2018

As at 31.3.2017

1 Mr. P D J Fernando Nil Nil

2 Mr. L Jayaratne Nil Nil

3 Mr. U H E Silva Nil Nil

4 Mr. D M D K Thilakaratne

Nil Nil

5 Mr. T Sanakan Nil Nil

SHAREHOLDING STRUCTURE

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

MEETINGS OF THE BOARD OF DIRECTORS

Twelve regular monthly meetings were held during the year. A schedule of Directors’ attendance at Board Meetings and Sub Committee Meetings has been included on pages 60 to 61.

CORPORATE GOVERNANCE

CLC is governed by the requirements of the Finance Companies (Corporate Governance) Direction No. 3 of 2008 and the Listing Rules of the Colombo Stock Exchange and subsequent amendments thereto. The manner in which CLC ensures adherence with the above requirements has been disclosed on pages 36 to 61.

BOARD SUB COMMITTEES

In compliance with regulatory guidelines and also with best practices, the Board has formed the following sub committees:

• The Audit Committee

• The Integrated Risk Management Committee

• The Remuneration Committee

• The Related Party Transaction Review Committee

• The Nomination Committee


These Committees assist the Board with its role of oversight of the Company’s performance and conformance. Minutes of the meetings of these Committees are tabled at the next Board meeting, enabling the Board to benefit from the focused review of these Committees on the areas and issues within their purview. These subcommittees have met quarterly or as and when necessary.

The Reports of these Committees can be found on pages 69 to 73.

The Company has the following Management Level Committees:

• Credit Committee

• Asset Liability Committee

COMPLIANCE WITH LAWS AND REGULATIONS

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

The Company is compliant with the Corporate Governance requirements of the Listing Rules of the Colombo Stock Exchange with the exception of the requirements relating to the Public Float.

BRAC LANKA FINANCE PLC

The Company held 99.76% of the issued share capital of BRAC Lanka Finance PLC (BRAC) as at 31st March 2017. In May 2017 BRAC had a rights issue of which the company was entitled to 131,873,685 new shares.

However as the resultant increase in investment if the Company were to subscribe would negatively impact its capital adequacy ratio the Board of Directors, agreed to refrain from subscribing to the entitlement.

The parent company, Lanka ORIX Leasing Company PLC, purchased all unsubscribed shares primarily to ensure that the BRAC requirement for increased capital was met whilst maintaining Group control. Consequently, the Company’s holding diluted to 44.33%.

COMMERCIAL INSURANCE BROKERS (PRIVATE) LIMITED - ASSOCIATE COMPANY

The Company holds 40% of the equity of Commercial Insurance Brokers (Private) Limited. Mr D M D K Thilakaratne and Mr N Weerapana have been nominated to its Board by the Company. During the past 31 years CIB has been engaged in the business of life and general insurance. It is one of the premier insurance broking firms in the country.

EVENTS AFTER THE REPORTING DATE

No circumstances have arisen since the reporting date that would require disclosure .

HUMAN RESOURCES

The total staff strength of the Company as at end March 2018 was 1,327 (2017 – 1,099).

GOING CONCERN

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

FINANCIAL STATEMENTS & AUDITOR’S REPORT AND DIRECTORS’ RESPONSIBILITY FOR FINANCIAL REPORTING

The Financial Statements and the Auditor’s Report are given on pages 74 to 157.

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

view that the financials have been prepared in accordance with the requirements of the Sri Lanka Accounting Standards, the Companies Act, No. 7 of 2007, the Finance Business Act, No. 42 of 2011 and all relevant directions of the Central Bank of Sri Lanka.

SIGNIFICANT ACCOUNTING POLICIES

The Accounting Policies adopted in the preparation of the Financial Statements and any changes thereof where applicable have been included in the Notes to the Financial Statements on pages 90 to 157.

TRANSACTIONS WITH RELATED PARTIES

The Directors confirm that any related party transaction entered into is compliant with the relevant rules. Where necessary, disclosures are made on the Colombo Stock Exchange.

Details of related party transactions are disclosed in the Financial Statements under Note 41 on page 140.

INTERNAL CONTROLS

The Enterprise Risk Management Division regularly reviews all aspects of operations, including controls, and compliance with relevant regulations. These reports are taken up for discussion by the Audit Committee or the Integrated Risk Management Committee as appropriate.

The Board could also seek the support of the external auditors to review and advise on any improvements needed to existing controls.

The Risk Management Report is on pages 62 to 64

STATUTORY PAYMENTS

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



Report of the Board of Directors

Name Directorships held

Mr P D J Fernando

Chairman: Golden Key Credit Card CompanyCommercial Leasing & Finance PLC

Deputy Chairman:Union Bank of Colombo PLC

Director:Ceylon Leather Products PLC Thomas Cook Travels Sri Lanka Equi Capital (Pvt) LtdGolden Key Hospitals LtdTaprobane Holdings Ltd

Mr L Jayaratne Director:Commercial Leasing & Finance PLC

Mr U H E Silva Director:Commercial Leasing & Finance PLC

Mr T Sanakan Director: Commercial Leasing & Finance PLCAssociated Battery Manufactures (Ceylon) LtdBrowns Pharma LtdBrowns Pharmaceuticals Ltd

Mr D M D K Thilakaratne Director:Commercial Leasing & Finance PLC Commercial Insurance Brokers (Pvt) Ltd Commercial Factors LimitedAlternate Director Seylan Bank PLC (apptd.w.e.f. 18/04/2018 )

AUDITORS

M/s KPMG, the Auditors of the company retire and offer themselves for reappointment. The Board recommends their re-appointment for the year 2018/2019 at a fee to be decided upon by the Board.

Auditor’s remuneration is given in the Note No. 9 to the Audited financial statements on page 111.

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

ANNUAL GENERAL MEETING

The Annual General Meeting of the Company will be held on 28th September 2018 at 11.30 am, at the LOLC Auditorium, No. 100/1, Sri Jayawardenapura Mawatha, Rajagiriya. Should you be unable to attend, please complete the Proxy Form in the manner instructed therein and return it to the Company.

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

D M D K Thilakaratne Director/ CEO

P D J FernandoChairman

18th June 2018 Colombo 04


COMPOSITION

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

Mr. P D J Fernando

Committee Chairman/ Independent Non-Executive Director

Mr. L Jayaratne Independent Non-Executive Director

Mr. U H E Silva Independent Non-Executive Director

Mr. T Sanakan Independent Non-Executive Director

The Audit Committee Chairman counts thirty five years’ experience at the Central Bank where he rose to the position of the Deputy Governor. He was the Deputy Governor of the Central Bank in 2010-2011, in charge of the Financial System Stability and the Corporate Services clusters. Mr. Fernando has extensive experience and expertise in the fields of Banking and the Financial Sector, particularly at the policy making levels in financial regulation and supervision, Information technology, national accounting, macro-economic analysis and statistics. At the Central Bank, he was the Chairman of the Financial Stability Committee, member of the Monetary Policy Committee, member of the Risk Management Committee and Chairman of the National Payment Council. He also functioned as the Secretary to the Monetary Board during 2008/2009. He was an ex-officio board member in several regulatory organisations namely the Securities and Exchange Commission, the Insurance Board of Sri Lanka, the Chairman of the Credit Information Bureau, Institute of Bankers –Sri Lanka and has also served as a Board Member at Employers Trust Fund, Lanka Clear (Pvt) Ltd and Lanka Financial Services Bureau.

TERMS OF REFERENCE

The Audit Committee is governed by the Audit Charter which defines its Terms of Reference. The composition of the Committee meets the requirements set out in the Finance Companies Corporate Governance Direction No. 3 of 2008. The Committee Charter was last reviewed and revised by the Board in February 2014.

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

ACTIVITIES OF THE COMMITTEE

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

Effectiveness of the Company’s internal controls was evaluated through reports provided by the Management, and by the Internal and External Auditors. The Committee is satisfied that an effective

system of internal control is in place to provide the assurance on safeguarding the assets and the integrity of financial reporting. On behalf of the Audit Committee, the Internal Auditor performs a comprehensive exercise that entails reviewing of all aspects of MIS including operational and regulatory risks.

The Committee addressed the External Auditor’s findings reported in the Management Letter relating to the previous financial year’s (2016/17) audit.

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

The Committee meets quarterly; and additional meetings are held as and when a need arises. Five meetings were held during the year and the members’ attendance at Audit Committee meetings is provided on page 60 The CEO and the Head of Finance were present at all five meetings. Minutes of such meetings which include details of matters discussed are reported regularly at Board meetings. The Audit Partner was invited to attend four such meetings and on three occasions the auditors were able to meet with the Audit Committee members without the presence of the other Directors and members of the Management.

P D J Fernando ChairmanAudit Committee

Colombo18th June 2018

Report of the Audit Committee



Report of the Integrated Risk Management Committee

COMPOSITION

The Integrated Risk Management Committee (IRMC) was established to assist the Board in performing its oversight function in relation to the risk management framework of the Company. The Committee comprises the following members:

Mr. L Jayaratne Committee Chairman/ Independent Non-Executive Director

Mr. U H E Silva Independent Non-Executive Director

Mr. D M D K Thilakaratne Executive Director/CEO

Mrs. S Wickremasekera Chief Risk Officer

Mrs. N Kariyawasam Head of Finance/ Compliance Officer

Mr. N Weerapana Head of Recoveries

Mr. U Samarasinghe Head of Credit

Mr. P Karandagolla Head of Channels

Mr. O De Silva Head of Treasury

Mr. T Indrapala Head of Operations

Mr. T Kaushalya Head of Savings & FDs

TERMS OF REFERENCE

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

The Committee is responsible for identifying, assessing and managing broad risk categories, i.e., credit, market, liquidity, operational and strategic risks through risk indicators reviewing the adequacy and effectiveness of all management level committees such as the Credit Committee and the Asset-Liability Committee to address specific risks and to manage those risks within quantitative and qualitative risk limits taking prompt corrective action to mitigate the effects of specific risks in the case such risks are at levels beyond the prudent levels decided by the committee on the basis of the Company’s policies taking appropriate actions against the officers responsible for

failure to identify specific risks and take prompt corrective actions; and establishing a compliance function to assess the Finance Company’s compliance with laws, regulations, directions, rules, regulatory guidelines, internal controls and approved policies on all areas of business operations.


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

The attendance of members at meetings is stated on page 61.

L Jayaratne ChairmanINTEGRATED RISK MANAGEMENT COMMITTEE



Report of the Remuneration Committee

COMPOSITION

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

Mr. P D J Fernando



TERMS OF REFERENCE

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


The Committee is responsible for determining the remuneration policy relating to the Director/CEO periodically evaluating the performance of the Director/CEO against the set targets and goals and determining the basis for revising remuneration, benefits and other payments of performance based incentives; determining the Remuneration Policy relating to Executive and Non-executive Directors and recommending these to the Board for adoption. All independent Directors receive a fee for attending Board meetings and Committee meetings. They do not receive any performance or incentive payments. Directors’ emoluments have been disclosed on page 111 One Remuneration

Committee meeting was held during the year under review and the members’ attendance at of this meeting is provided on page 60 Proceedings of the meeting was also tabled at a subsequent meeting of the Board.

P D J Fernando ChairmanREMUNERATION COMMITTEE




Report of the Nomination Committee

COMPOSITION

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

Mr. P D J Fernando



TERMS OF REFERENCE

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


During the year, the Committee assessed the composition of the Board and its Sub-Committees in terms of the requirements of the relevant regulations of the CBSL and CSE. Proceedings of meetings were also tabled at a subsequent meeting of the Board. One Committee meeting was held during the year under review and proceedings of

the meeting were reported to the Board. Attendance of the Committee Members at meetings is on page 61.

P D J FernandoChairmanNOMINATION COMMITTEE



Report of the Related Party Transaction Review CommitteeCOMPOSITION

The Related Party Transaction Review Committee was formed to comply with the related rules of the Colombo Stock Exchange. The Committee Comprises the following Members:

Mr. P D J Fernando Committee Chairman


Mr. U H E Silva (A.W.E.F 21.03.2018)

Independent Non-Executive Director

Mr. D M D K Thilakaratne

Executive Director/ CEO

TERMS OF REFERENCE

The Committee has adopted the Code of Best Practice on Related Party Transactions (RPTs) issued by the Securities and Exchange Commission of Sri Lanka as its Terms of Reference. On behalf of the Board, the Committee ensures that all related party transactions of the Company are consistent with this Code.


The Committee has reviewed quarterly all recurrent and non recurrent RPTs of the Company and was satisfied that such transactions had been carried out at market rates; and where applicable, the guidelines of the CSE and the Sri Lanka Accounting Standards had been complied with in relation to approvals/reporting/ disclosure.

The Committee in discharging its functions relied on processes that have been established to ensure compliance with the Code; protection of shareholder interests; and maintaining fairness and transparency.

The Group Chief Financial Officer, Group Treasurer, Group Chief Credit Officer including the Compliance Officer/Head

of Finance are invited for all Committee meetings, to ensure on behalf of the Board that all related party transactions of the Group are consistent with the Code

MEETINGS

The Committee held four meetings during the financial year. Information on the attendance of these meetings by the members of the Committee is given on page 61 The activities and views of the Committee have been communicated to the Board of Directors quarterly through verbal briefings, and by tabling the minutes of the Committee’s meetings.

P D J FernandoChairmanRELATED PARTY TRANSACTION REVIEW COMMITTEE




Directors’ Statement on Internal Control over Financial Reporting

RESPONSIBILITY

In line with the Finance Companies Direction No. 03 of 2008 section 10(2) b), the Board of Directors present this report on Internal Control over Financial Reporting.

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

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

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

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

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 and has been done in accordance with Sri Lanka Accounting Standards and regulatory requirements of the Central Bank of Sri Lanka.

EXTERNAL AUDITOR’S CERTIFICATION

The External Auditors have submitted a certification on the process adopted by the Directors on the system of internal controls over financial reporting. The matters addressed by the External Auditor’s in this respect, will be taken in to consideration & appropriate steps will be taken to incorporate same, where applicable.

By order of the Board

Priyantha FernandoChairman

Krishan Thilakaratne Director/CEO

18th June 2018


Auditors’ Report on Internal Control

TO THE BOARD OF DIRECTORS OF COMMERCIAL LEASING & FINANCE PLC

We were engaged by the Board of Directors of Commercial Leasing & Finance PLC (“the Company”) to provide assurance on the Directors’ Statement on Internal Control (“Statement”) included in the Annual Report for the year ended 31st March 2018 as set out in page 74 in the annual report.

MANAGEMENT RESPONSIBILITY FOR THE STATEMENT ON INTERNAL CONTROL

Management is responsible for the preparation and presentation of the Statement.

SCOPE OF THE ENGAGEMENT IN COMPLIANCE WITH SLSAE 3000

Our responsibility is to issue a report to the Board on the Statement based on the work performed. We conducted our engagement in accordance with Sri Lanka Standard on Assurance Engagements SLSAE 3000 – Assurance Engagements other than Audits or Reviews of Historical Financial Information 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) Enquired 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 Management to support their Statement made.

(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) 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.

(f) 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 3000 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. SLSAE 3000 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.

LIMITATION

We conducted our engagement in accordance with Sri Lanka Standard on Assurance Engagements SLSAE 3000 – Assurance Engagements other than Audits or Reviews of Historical Financial Information issued by the Institute of Chartered Accountants of Sri Lanka as a specific standard on Assurance Engagements for finance companies has not been issued by the said Institute.

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 the financial reporting of the company except for certain areas for further improvements that we have identified while we are performing our audit procedures on director’s statement.

CHARTERED ACCOUNTANTS18th June 2018Colombo.



The financial statements are prepared in compliance with the Sri Lankan Financial Reporting Standards (SLFRS/LKAS) issued by the institute of Chartered accountant of Sri Lanka, the requirements of the Companies Act No.7 of 2007, the Finance Business Act No.42 of 2011 and the Listing Rules of the Colombo Stock Exchange.

Accordingly, the company has prepared financial statements which comply with SLFRSs/ LKASs and related interpretations applicable for period ended 31 March 2018, together with the comparative period data as at and for the year ended 31 March 2017, as described in the accounting policies.

We accept responsibility for the integrity and accuracy of these financial statements. Significant accounting policies have been applied consistently. Application of significant accounting policies and estimates that involve a high degree of judgment and complexity were discussed with the Audit Committee and the external auditors. Estimate and judgment relating to the financial statements were made on a prudent and reasonable basis, in order to ensure that the financial statements are true and fair. To ensure this, our internal auditors have conducted periodic audits to provide reasonable assurance that the established policies and procedures of the company were consistently followed.

We confirm that to the best of our knowledge, the financial statements and other financial information included in this annual report, fairly present in all material respects the financial position, results of operations and cash flows of the company as of, and for, the periods presented in this annual report.

We are responsible for establishing and maintaining internal controls and procedures. We have designed such controls and procedures, or caused such controls and procedures to be designed under our supervision, to ensure that material information relating to the company is

made known to us and for safeguarding the company’s assets and preventing and detecting fraud and error. We have evaluated the effectiveness of the company’s internal controls and procedures and are satisfied that the controls and procedures were effective as of the end of the period covered by this annual report. We confirm, based on our evaluations that there were no significant deficiencies and material weaknesses in the design or operation of internal controls and any fraud that involves management or other employees.

The financial statements were audited by Messrs. KPMG, Chartered Accountants, the Independent Auditors. The Audit Committee pre - approves the audit and non-audit services provided by KPMG in order to ensure that the provision of such services does not impair KPMG’s independence and objectivity. The Audit Committee also reviews the external audit plan and the management letters and follows up on any issues raised during the statutory audit. The Audit Committee also meets with the external and internal auditors to review the effectiveness of the audit.

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

Sunjeevani KotakadeniyaChief Financial Officer - LOLC Group

Krishan ThilakaratneDirector/CEO

18 June 2018

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


Independent Auditor’s Report

TO THE SHAREHOLDERS OF COMMERCIAL LEASING & FINANCE PLC

REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS

OPINION

We have audited the financial statements of Commercial Leasing & Finance PLC (“the Company”) and the consolidated financial statements of the Company and its subsidiary (“the Group”), which comprise the statement of financial position as at March 31, 2018, and the statement of profit or loss and other comprehensive income, statement of changes in equity and statement of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies.

In our opinion, the accompanying financial statements of the Company and the Group give a true and fair view of the financial position of the Company and the Group as at March 31, 2018, and of their financial performance and cash flows for the year then ended in accordance with Sri Lanka Accounting Standards.

BASIS FOR OPINION

We conducted our audit in accordance with Sri Lanka Auditing Standards (SLAuSs). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are

independent of the Group in accordance with the Code of Ethics issued by CA Sri Lanka (Code of Ethics), and we have fulfilled our other ethical responsibilities in accordance with the Code of Ethics. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

KEY AUDIT MATTERS

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

IMPAIRMENT OF RENTALS RECEIVABLE ON LEASES & HIRE PURCHASES, LOANS AND ADVANCES AND FACTORING RECEIVABLES

The Company has Rentals receivable on leases & hire purchases amounting to Rs 14,984 Mn and Loans and advances amounting to Rs 41,209 Mn and Factoring receivables amounting to Rs 3,585 Mn as at 31 March 2018 (Note 17, Note 18 and Note 19 to the Financial Statements respectively). The Impairment of said receivables assessed by the Company on individual and collective basis.

Risk Description

Individual impairment

The estimation of the impairment loss allowance on an individual basis requires management to make judgments to determine whether there is objective evidence of impairment to make assumptions about the financial condition of said receivables and present value of expected future cash flows.

Collective impairment

For the purposes of the collective impairment, said receivables which are having similar credit risk characteristics are assesses collectively for impairment testing. Collective assessment includes grouping of said receivables with homogeneous risk characteristics and applying historical loss rates arrives based on statistical modules.

We have identified Impairment of Rentals receivable on leases & hire purchases, Loans and advances and Factoring receivables as a key audit matter because of its significance to the financial statements and estimation uncertainty in measuring impairment.

Our Responses

Our audit procedures included:

• On sample basis, testing the accuracy of the aging and testing the completeness and accuracy of the data extraction.



Independent Auditor’s Report

• Validating the accuracy of the collective and individual impairment models by re-performing the calculations on sample basis.

• Assessing the appropriateness of key assumptions, including collateral valuations and forecasted cash flows, based on our knowledge of the business and the actual past experience of the Company’s loan portfolios on sample basis.

• Assessing the adequacy of disclosures made in the financial statements in compliance with relevant accounting standards requirements.

ACCOUNTING FOR LOSS OF INTEREST IN BRAC LANKA FINANCE PLC

As detailed in Note 12 discontinued operations, the Group interest in BRAC Lanka Finance PLC has decreased from 99.76% to 44.33% immediately after the right issue. Consequently, with effect to that, the Group’s holding over BRAC Lanka Finance PLC has been transferred from Investment in subsidiary to Equity Accounted Investee.

Risk DescriptionWe identified the accounting for the interest in BRAC as a key audit matter because the loss of control have a significant effect on the consolidated financial statements based on the size and the judgment involve in assessing the loss of control and the significant influence.

Our audit procedures included;

• Reviewing the management’s assessment of loss of control and the accounting treatment of divestment

against the requirements of relevant accounting standards.

• Assessing the appropriateness of the management assessment to account the BRAC Lanka Finance PLC under Equity Method of Accounting against the applicable accounting standards requirements.

• Assessing the accuracy of the accounting treatment for loss of control, net loss/gain attributable to discontinued operation and the equity method of accounting.

• Assessing the adequacy of disclosures made in the financial statements in compliance with relevant accounting standards requirements.

OTHER INFORMATION

Management is responsible for the other information. The other information comprises the information included in the annual report, but does not include the financial statements and our auditor’s report thereon.

Our opinion on the financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.

In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact.

RESPONSIBILITIES OF MANAGEMENT AND THOSE CHARGED WITH GOVERNANCE FOR THE FINANCIAL STATEMENTS

Management is responsible for the preparation of financial statements that give a true and fair view in accordance with Sri Lanka Accounting Standards, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, management is responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Company’s and the Group’s financial reporting process.

AUDITOR’S RESPONSIBILITIES FOR THE AUDIT OF THE FINANCIAL STATEMENTS

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with SLAuSs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be


expected to influence the economic decisions of users taken on the basis of these financial statements.

As part of an audit in accordance with SLAuSs, we exercise professional judgment and maintain professional scepticism throughout the audit. We also:

• Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company and the Group’s internal control.

• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.

• Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability

to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern.

• Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with ethical requirements in accordance with the Code of Ethics regarding independence, and to communicate with them all relationships and other matters that

may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS

As required by section 163 (2) of the Companies Act No. 07 of 2007, we have obtained all the information and explanations that were required for the audit and, as far as appears from our examination, proper accounting records have been kept by the Group.

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

CA Sri Lanka membership number of the engagement partner responsible for signing this independent auditor’s report is 2599.

CHARTERED ACCOUNTANTSColombo, Sri Lanka 18th June 2018



Statement of Profit or Loss and Other Comprehensive Income

Group Company

For the year ended 31st March 2018 2017 2018 2017

Note Rs. Rs. Rs. Rs.

Interest income 4 13,320,336,074 10,752,920,918 13,347,777,718 10,898,203,064

Interest expense 5 (6,994,794,629) (6,125,875,979) (6,994,794,629) (6,125,875,979)

Net interest income 6,325,541,445 4,627,044,939 6,352,983,089 4,772,327,085

Other income 6 2,234,424,249 2,331,372,193 2,477,072,059 2,331,372,193

Operating expenses

Direct expenses (585,305,241) (469,700,616) (585,305,241) (469,700,616)

Premises, equipment & establishment expenses (398,438,042) (346,377,030) (398,438,042) (346,377,030)

Personnel expenses 9.1 (1,387,268,219) (1,103,658,073) (1,387,268,219) (1,103,658,073)

Allowance for impairment & write offs 7 (1,055,991,702) (712,077,237) (1,055,991,702) (712,077,237)

Depreciation and amortization 8 (113,660,958) (109,605,722) (113,660,958) (109,605,722)

Other operating expenses (1,926,668,688) (1,709,840,997) (1,926,668,688) (1,709,840,997)

Results from operating activities before value added tax on financial services and NBT

9 3,092,632,844 2,507,157,457 3,362,722,298 2,652,439,603

Value added tax on financial services and NBT 10 (610,955,235) (457,910,846) (610,955,235) (457,910,846)

Results from operating activities 2,481,677,609 2,049,246,611 2,751,767,063 2,194,528,757

Share of profit of equity accounted investee (net of tax) 23 153,267,666 10,245,454 153,267,666 10,245,454

Profit before Tax 2,634,945,275 2,059,492,065 2,905,034,729 2,204,774,210

Income tax expense 11 (760,711,882) (518,470,888) (760,711,882) (518,470,888)

Profit for the period from continuing operations 1,874,233,393 1,541,021,177 2,144,322,847 1,686,303,322

Discontinued operations

Profit/ (loss) for the period from discontinued operations 12 (81,495,104) 365,209,154 - -

Profit for the year 1,792,738,289 1,906,230,331 2,144,322,847 1,686,303,322


Group Company


Note Rs. Rs. Rs. Rs.

Other comprehensive income

Revaluation of property, plant and equipment 28.2 77,008,499 747,892,179 77,008,499 747,892,179

Actuarial losses on defined benefit plan 36.2 (6,094,101) (5,625,892) (6,094,101) (8,591,135)

Net change in fair value of available for sale finance assets 150,432,262 (42,068,926) 149,781,387 (40,107,127)

Effective portion of changes in fair value of cash flow hedges

(114,212,830) 18,493,043 (114,212,830) 18,493,043

Share of other comprehensive income from equity accounted investee

11,933,238 199,410 11,933,238 199,410

Income tax recognised in other comprehensive income 35.3.1 67,750,875 (26,911,978) 67,750,875 (26,081,710)

Other comprehensive income for the year, net of tax 186,817,943 691,977,836 186,167,068 691,804,660

Total comprehensive income for the year 1,979,556,232 2,598,208,167 2,330,489,915 2,378,107,982

Profit attributable to;

Equity holders of the company 1,792,638,207 1,896,644,018 2,144,322,847 1,686,303,322

Non controlling interest 100,082 9,586,313 - -

1,792,738,289 1,906,230,331 2,144,322,847 1,686,303,322

Total comprehensive income attributable to;

Equity holders of the company 1,979,454,588 2,588,623,451 2,330,489,915 2,378,107,982

Non controlling interest 101,644 9,584,716 - -

1,979,556,232 2,598,208,167 2,330,489,915 2,378,107,982

Basic and diluted earnings per share 13.1 0.28 0.30 0.34 0.26

Earnings per share from continuing operation 13.2 0.29 0.24 0.34 0.26

The notes form an integral part of these financial statements.

Figures in brackets indicate deductions



Group Company

As at 31st March 2017 2018 2017

Note Rs. Rs. Rs.

ASSETS

Cash and cash equivalents 14.1 2,150,419,980 2,377,557,530 1,487,849,203

Financial assets held for trading 15 2,715,175,089 153,996,501 2,715,175,089

Other investments 16 16,650,125,114 6,505,214,249 15,753,953,997

Rentals receivable on leases & hire purchases 17 14,081,274,833 14,983,512,091 13,972,747,976

Loans and advances 18 43,810,290,091 41,208,800,160 33,795,065,806

Factoring receivables 19 6,167,657,168 3,584,916,333 6,167,657,168

Amount due from related companies 20 4,189,200 370 -

Value added tax (VAT) recoverable 264,968,562 94,646,134 264,968,560

Current tax assets 21 85,864,450 89,836,635 77,088,006

Other current assets 22 452,484,209 139,629,894 392,503,024

Equity accounted investees 23 83,059,004 1,506,849,622 83,059,004

Investment properties 24 46,000,000 1,632,000,000 46,000,000

Investments in subsidiaries 25 - - 1,023,301,966

Goodwill 26 253,210,966 - -

Intangible assets 27 5,943,388 3,910,108 5,943,388

Property, plant and equipment 28 2,120,039,018 1,227,575,523 1,975,784,096

Total assets 88,890,701,072 73,508,445,150 77,761,097,283

LIABILITIES AND EQUITY

Liabilities

Bank overdraft 14.2 1,805,044,333 1,353,451,358 1,390,806,997

Derivative Liabilities 29 15,562,267 271,625,120 15,562,267

Deposits from customers 30 18,749,264,785 23,485,108,879 15,935,942,434

Loans and borrowings-current 31.2 20,028,639,204 9,619,669,022 17,978,500,029

Loans and borrowings- non current 31.2 26,288,430,792 19,312,993,198 26,288,430,792

Current tax liabilities 32 520,757,787 519,857,489 413,645,436

Amount due to related companies 33 5,360,025,600 158,747,591 84,598,219

Trade and other payables 34 1,149,909,607 1,714,303,031 1,068,731,735

Deferred tax liabilities 35.1.1 347,866,851 477,339,023 337,045,278

Employee benefits 36 95,895,277 89,326,490 72,300,062

Total liabilities 74,361,396,503 57,002,421,201 63,585,563,249

Statement of Financial Position


Group Company

As at 31st March 2017 2018 2017

Note Rs. Rs. Rs.

Equity

Stated capital 37 1,425,946,629 1,425,946,629 1,425,946,629

Reserves 38 1,682,756,039 1,995,771,184 1,709,933,458

Retained earnings 39 11,417,907,696 13,084,306,136 11,039,653,947

Total equity 14,526,610,364 16,506,023,949 14,175,534,034

Non-controlling interests 2,694,205 - -

14,529,304,569 16,506,023,949 14,175,534,034

Total liabilities & equity 88,890,701,072 73,508,445,150 77,761,097,283

Net assets value per share 2.28 2.59 2.22

The notes form an integral part of these financial statements. Figures in brackets indicate deduction. These financial statements are prepared and presented in compliance with the requirements of companies Act No. 7 of 2007.

N.P. Kariyawasam Head of Finance

The board of directors is responsible for the preparation and presentation of these financial statements. Approved and signed for and on behalf of the Board by;

D.M.D.K. Thilakaratne T. Sanakan Director/ CEO Director Colombo, 18th June 2018



Statement of Changes in Equity

Group Stated capital

Revaluationreserve

Hedging reserve

Available-for-sale reserve

General reserve

Statutory reserve fund

Retainedearnings

Total Non-controllinginterest

Total equity

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

Balance as at 31st March 2016 1,425,946,629 135,980,246 46,270,286 (87,474,653) 231,779,789 565,537,505 9,617,451,437 11,935,491,239 51,044,611 11,986,535,850

1,425,946,629 135,980,246 46,270,286 (87,474,653) 231,779,789 565,537,505 9,617,451,437 11,935,491,239 51,044,611 11,986,535,850

Total comprehensive income for the year

Profit for the year - - - - - - 1,896,644,018 1,896,644,018 9,586,313 1,906,230,331

Other comprehensive income - 747,892,179 18,493,043 (42,067,329) - - (5,625,892) 718,692,001 (1,597) 718,690,404

Share of other comprehensive income from equity accounted investee - - - - - - 199,410 199,410 - 199,410

Tax impact on other comprehensive income - (11,490,828) (16,996,400) - - - 1,575,250 (26,911,978) - (26,911,978)

Total comprehensive income for the period - 736,401,351 1,496,643 (42,067,329) - - 1,892,792,786 2,588,623,451 9,584,716 2,598,208,167

Transactions with owners directly recorded in the equity

Acquisition of NCI - - - - - - 2,495,674 2,495,674 (57,935,122) (55,439,448)

Transferred to/(from) during the year - - - - - 94,832,201 (94,832,201) - - -

- - - - - 94,832,201 (92,336,527) 2,495,674 (57,935,122) (55,439,448)



Group Stated capital

Revaluationreserve

Hedging reserve


General reserve


Retainedearnings

Total Non-controllinginterest

Total equity

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


1,425,946,629 135,980,246 46,270,286 (87,474,653) 231,779,789 565,537,505 9,617,451,437 11,935,491,239 51,044,611 11,986,535,850


Profit for the year - - - - - - 1,896,644,018 1,896,644,018 9,586,313 1,906,230,331

Other comprehensive income - 747,892,179 18,493,043 (42,067,329) - - (5,625,892) 718,692,001 (1,597) 718,690,404

Share of other comprehensive income from equity accounted investee - - - - - - 199,410 199,410 - 199,410

Tax impact on other comprehensive income - (11,490,828) (16,996,400) - - - 1,575,250 (26,911,978) - (26,911,978)

Total comprehensive income for the period - 736,401,351 1,496,643 (42,067,329) - - 1,892,792,786 2,588,623,451 9,584,716 2,598,208,167


Acquisition of NCI - - - - - - 2,495,674 2,495,674 (57,935,122) (55,439,448)

Transferred to/(from) during the year - - - - - 94,832,201 (94,832,201) - - -

- - - - - 94,832,201 (92,336,527) 2,495,674 (57,935,122) (55,439,448)




Company Stated capital

Revaluationreserve

Hedging reserve


General reserve


Retainedearnings

Total

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

Balance as at 01st April 2016 1,425,946,629 135,980,245 46,270,290 (87,107,180) 288,079,789 544,604,281 9,443,651,998 11,797,426,052


Profit for the year - - - - - - 1,686,303,322 1,686,303,322

Revaluation of property, plant and equipment - 747,892,179 - - - - - 747,892,179

Other comprehensive income - - 18,493,043 (40,107,127) - - (8,591,135) (30,205,219)


- - - - - - 199,410 199,410

Tax Impact on Other Comprehensive Income - (11,490,828) (16,996,400) - - - 2,405,518 (26,081,710)

Total comprehensive income for the period - 736,401,351 1,496,643 (40,107,127) - - 1,680,317,115 2,378,107,982


Transferred to/(from) during the year - - - - - 84,315,166 (84,315,166) -

Balance as at 31st March 2017 1,425,946,629 872,381,596 47,766,933 (127,214,307) 288,079,789 628,919,447 11,039,653,947 14,175,534,034




Other comprehensive income - - (114,212,830) 149,781,387 - - (6,094,101) 29,474,456


- - - - - - 11,933,238 11,933,238

Tax on other comprehensive income - (1,507,493) 67,552,021 - - - 1,706,347 67,750,875

Total comprehensive income for the period - 75,501,006 (46,660,809) 149,781,387 - - 2,151,868,331 2,330,489,915



Balance as at 31st March 2018 1,425,946,629 947,882,602 1,106,124 22,567,080 288,079,789 736,135,589 13,084,306,136 16,506,023,949


Figures in brackets indicate deductions.

Statement of Changes in Equity


Company Stated capital

Revaluationreserve

Hedging reserve


General reserve


Retainedearnings

Total

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

Balance as at 01st April 2016 1,425,946,629 135,980,245 46,270,290 (87,107,180) 288,079,789 544,604,281 9,443,651,998 11,797,426,052




Other comprehensive income - - 18,493,043 (40,107,127) - - (8,591,135) (30,205,219)


- - - - - - 199,410 199,410

Tax Impact on Other Comprehensive Income - (11,490,828) (16,996,400) - - - 2,405,518 (26,081,710)

Total comprehensive income for the period - 736,401,351 1,496,643 (40,107,127) - - 1,680,317,115 2,378,107,982



Balance as at 31st March 2017 1,425,946,629 872,381,596 47,766,933 (127,214,307) 288,079,789 628,919,447 11,039,653,947 14,175,534,034




Other comprehensive income - - (114,212,830) 149,781,387 - - (6,094,101) 29,474,456


- - - - - - 11,933,238 11,933,238

Tax on other comprehensive income - (1,507,493) 67,552,021 - - - 1,706,347 67,750,875

Total comprehensive income for the period - 75,501,006 (46,660,809) 149,781,387 - - 2,151,868,331 2,330,489,915



Balance as at 31st March 2018 1,425,946,629 947,882,602 1,106,124 22,567,080 288,079,789 736,135,589 13,084,306,136 16,506,023,949





Statement of Cash Flows

Group Company

For the year ended 31st March 2017 2018 2017

Note Rs. Rs. Rs.

CASH FLOW FROM/ (USED IN) OPERATING ACTIVITIES

Profit before income tax 2,059,492,065 2,905,034,729 2,204,774,210

Adjustment for:

Profit on disposal of property, plant and equipment 6 (5,434,017) (10,646,161) (5,434,017)

Depreciation 8 109,605,722 113,660,958 109,605,722

Provision for employee benefits 36.1 15,378,201 17,865,691 15,378,201

Net impairment loss on financial assets 7 712,077,237 1,055,991,702 712,077,237

Change in fair value of investments 15.1 (13,049,452) (47,242,344) (13,049,452)

Dividend income 6 (46,650,781) (6,199,403) (46,650,781)

Interest expense 5 6,125,875,979 6,994,794,629 6,125,875,979

Investment income (1,266,912,404) (950,953,503) (1,266,912,404)

Adjustment for unamortised finance cost - long term borrowings 99,495,912 91,509,210 99,495,912

FV gain on investment property 24 (4,000,000) (59,882,000) (4,000,000)

Share of equity accounted investee 23 (10,245,454) (153,267,666) (10,245,454)

Profit on deemed disposal of BRAC - (242,647,810) -

Cash flows from operating activities before working capital changes 7,775,633,008 9,708,018,032 7,920,915,153

(Increase) / decrease in operating assets & liabilities

Decrease in leases, hire purchase receivables 482,356,863 257,613,523 482,356,863

Increase in advances and other loans receivable (6,812,760,209) (7,745,503,369) (6,812,760,207)

(Increase)/decrease in factoring receivable (1,532,626,826) 2,039,390,136 (1,532,626,826)

Increase in other receivables and related party receivables (94,865,221) (1,204,292,284) (94,865,221)

Increase/(decrease) in trade and other payables and related party payable (405,587,476) 1,057,974,975 (405,587,476)

Decrease in customer deposits 3,588,295,981 7,549,166,445 3,588,295,981

Cash Generated from operations 3,000,446,120 11,662,367,458 3,145,728,267

Finance cost paid (6,018,678,763) (6,602,891,628) (6,018,678,763)

Income tax paid 32 (616,248,373) (282,413,797) (616,248,373)

Employee benefits paid 36 (2,011,238) (6,933,364) (2,011,238)

Net cash from /(used in) operating activities of continuing operations (3,636,492,254) 4,770,128,669 (3,491,210,107)

Net cash from operating activities from discontinuing operations 749,956,845 - -

(2,886,535,410) 4,770,128,669 (3,491,210,107)


Group Company

For the year ended 31st March 2017 2018 2017

Note Rs. Rs. Rs.

CASH FLOW FROM INVESTING ACTIVITIES

Net cash and cash equivalents on acquisition of subsidiary (55,439,448) - (55,439,448)

Acquisition of property, plant and equipment (276,330,327) (328,093,981) (276,330,327)

Acquisition of intangible assets (6,341,400) - (6,341,400)

Net additions to financial Instruments 15,479,445,915 11,636,255,118 15,479,445,915

Acquisition / (disposal)of investment properties - (483,118,000) -

Proceeds from the sale of property, plant and equipment 6,972,873 10,777,352 6,972,873

Dividend received from investments 6 43,410,781 13,597,365 43,410,781

Interest received 1,266,912,404 1,125,198,256 1,266,912,404

Net cash flow from investing activities from continuing Operations 16,458,630,798 11,974,616,110 16,458,630,798

Net cash flow from investing activities from discontinuing Operations (925,118,908) - -

15,533,511,890 11,974,616,110 16,458,630,798

CASH FLOW FROM FINANCING ACTIVITIES

Net cash proceeds from short-term interest bearing loans and borrowings (10,964,931,756) (15,817,680,813) (10,964,931,756)

Repayments of long-term interest bearing loans and borrowings (1,570,741,911) - (1,570,741,911)

Net cash-flows used in financing activities from continuing operations (12,535,673,667) (15,817,680,813) (12,535,673,667)

Net cash flows used in financing activities from discontinuing operations (451,351,075) - -

(12,987,024,742) (15,817,680,813) (12,535,673,667)

Net (decrease) / increase in cash and cash equivalents (340,048,262) 927,063,966 431,747,024

Cash and cash equivalents at the beginning of the year 685,423,909 97,042,206 (334,704,818)

Cash and cash equivalents at the end of the year (Note A) 345,375,647 1,024,106,172 97,042,206

Note A

Cash in hand and favourable bank balances 14.1 2,150,419,980 2,377,557,530 1,487,849,203

Unfavourable bank balances used for cash management purposes 14.2 (1,805,044,333) (1,353,451,358) (1,390,806,997)

Cash and cash equivalents at the end of the year 345,375,647 1,024,106,172 97,042,206





Notes to the Financial Statements

1. CORPORATE INFORMATION

1.1 GeneralCommercial Leasing & Finance PLC was incorporated as a Private Limited Company in April 1988 and domiciled in Sri Lanka, in 1992 converted into a Public Limited Company and listed in the Colombo Stock Exchange. In 2008 with the acquisition by Lanka Orix Leasing Company PLC, the company submitted an application to de-list from Colombo Stock Exchange and it was treated as de-listed with effect from July 01, 2009.

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

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

The Consolidated Financial Statements of the Company as at and for the year ended 31st March 2018 comprise of the Company and its subsidiary (together referred to as the “Group” and individually as “Group entities”) and the Group’s interest in associates.

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

1.2 Parent entity and Ultimate Parent CompanyLanka ORIX Leasing Company PLC is the holding company of the Group and therefore, it does not have an identifiable immediate or ultimate parent of its own.

1.3 Principal Activities and Nature of OperationsThe principal activities of the Company comprised of leasing, loans, factoring, Islamic financing, micro financing and mobilization of public deposits.

Description of the nature of operations and principal activities of the subsidiary company and associate company are given on note 23 and 25 respectively to these Financial Statements with any changes to the principal activities during the financial year under review.

1.4 Number of EmployeesThe staff strength of the Company as at 31st March 2018 was 1,327 (31.03.2017 – 1,099).

2. BASIS OF PREPARATION

2.1 Statement of ComplianceThe Financial Statements of the Company and those consolidated with such are prepared in accordance with the Sri Lanka Accounting Standards (LKASs/SLFRSs) laid down by the Institute of Chartered Accountants of Sri Lanka (ICASL) and the requirements of the Companies Act No.7 of 2007. These SLFRSs and LKASs are available at www.casrilanka.com.

The presentation of these Financial Statements is also in compliance with the requirements of the Finance Business Act no 42 of 2011 and the listing rules of the Colombo Stock Exchange. These Financial Statements, except for information on cash flows have been prepared following the accrual basis of accounting.

The Group did not adopt any inappropriate accounting treatments, which are not in compliance with the requirements of the

SLFRSs and LKASs, regulations governing the preparation and presentation of the Financial Statements.

2.2 Presentation of Financial StatementsThe assets and liabilities of the Group presented in the Statement of Financial Position are grouped by nature and listed in-order to reflect their relative liquidity and maturity pattern. An analysis regarding recovery or settlement within twelve months after the reporting date (current) and more than twelve months after the reporting date (non-current) is presented in note 40 (Maturity analysis).

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

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

Items Basis of measurement Note No/s Page/s

Held-for-trading financial instruments

Fair value 15 115

Derivative financial instruments

Fair value 16.3 117

Available for sale – financial instruments

Fair value 16.1 116


accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.

Information about critical judgments, estimates and assumptions in applying accounting policies that have the most significant effect on the amounts recognized in the financial statements are included in the following notes to these Financial Statements.

Critical accounting estimate/judgment Disclosure referenceNote

Classification of financial assets and liabilities 2.13

Fair Value of financial instruments 3.3.3.6

Financial Instruments – fair value disclosure 3.3.3.5

Impairment of financial investments – available for sale 3.3.4.2

Revaluation of property, plant and equipment 3.6.1.4

Determination in fair value of Investment properties 3.4

Useful lives of intangible assets 3.5

Useful lives of property, plant and equipment 3.6.1.7

Defined benefit obligation 3.11

Deferred tax on undistributed profits of equity accounted investees 3.8.2

Write-off policy 3.3.4.4

Allowance for impairment 17.3 , 18.1.1, 19.1

Impairment of non-financial assets 3.3.8

Provisions for liabilities, commitments and contingencies 3.22

Items Basis of measurement Note No/s Page/s

The liability for defined benefit obligations

Net liability for defined benefit obligations are recognised as the present value of the defined benefit obligation, plus unrecognised actuarial gains, less unrecognised past service cost, and unrecognised actuarial losses

36 136

Lands and buildings Measured at cost at the time of acquisition and subsequently at revalued amounts which are the fair values at the date of revaluation

28 131

Investment properties Fair value 24 128

2.4 Functional and presentation currencyThe functional currency is the currency of the primary economic environment in which the entities of the Group operates. These Financial Statements are presented in Sri Lankan Rupees (LKR), which is the Group’s functional currency and the presentation currency. All financial information has been rounded to the nearest Rupee unless stated otherwise.

2.5 Use of Significant Judgments, Estimates and AssumptionsThe preparation of the financial statements in conformity with SLFRSs/LKASs requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.

Estimates and underlying assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results which form the basis of making the judgments about the carrying amount of assets and liabilities that are not readily apparent from other sources.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to

2.6 Comparative InformationComparative information including quantitative, narrative and descriptive information is disclosed in respect of the previous period in the Financial Statements in order to enhance the understanding of the current period’s Financial Statements and to enhance the inter period comparability. The presentation and classification of the Financial Statements of the previous year are amended, where relevant for better presentation and to be comparable with those of the current year.

The share of results of equity accounted investees in the income statement and other comprehensive income statement are shown net of all related taxes.

2.7 Materiality, Presentation and AggregationAs per LKAS – 01 “Presentation of Financial Statements”, each material class of similar items is presented separately in the Financial Statements. Items of dissimilar nature or



function are presented separately unless they are immaterial.

Notes to the Financial Statements are presented in a systematic manner which ensures the understandability and comparability of Financial Statements of the Group and the Company. Understandability of the Financial Statements is not compromised by obscuring material information with immaterial information or by aggregating material items that have different natures or functions.

The assets and liabilities of the Group presented in the Statement of Financial Position are grouped by nature and listed in an order that reflects their relative liquidity and maturity pattern.

2.8 OffsettingFinancial 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 liabilities simultaneously. Income and expenses are not offset in the Income Statement, unless required or permitted by an Accounting Standard or Interpretation (issued by the International Financial Reporting Interpretations Committee and Standard Interpretations Committee) and as specifically disclosed in the Significant Accounting Policies of the Group.

2.9 Going Concern The Board of Directors is satisfied that the Group has adequate resources to continue its operations in the foreseeable future and management is not aware of any material uncertainties that may cast significant doubt upon the Group’s ability to continue as a going concern. Therefore, going-concern basis has been adopted in preparing these Financial Statements.

2.10 Directors’ Responsibility for the Financial Statements The Board of Directors is responsible for the preparation and fair presentation of these Financial Statements in accordance with Sri Lanka Accounting Standards and as per the provisions of the Companies Act No. 07 of 2007. This responsibility includes: designing, implementing and maintaining internal controls relevant to the preparation and fair presentation of Financial Statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.

The Board of Directors acknowledges their responsibility as set out in the “Annual Report of the Board of Directors on the Affairs of the Company” and “Director’s Responsibility for Financial Reporting”.

These Financial Statements include the following components;

• A Statement of Financial Position providing the information on the financial position of the Group and the Company as at the year-end;

• A Statement of Profit or Loss providing the information on the financial performance of the Group and the Company for the year under review;

• A Statement of Other Comprehensive Income providing the information of the other comprehensive income of the Group and the Company;

• A Statement of Changes in Equity depicting all changes in shareholders’ funds during the year under review of the Group and the Company;

• A Statement of Cash Flows providing the information to the users, on the ability of the Group and the Company to generate cash and cash equivalents and the needs of entities to utilize those cash flows, and

• Notes to the Financial Statements comprising Accounting Policies and other explanatory information.

2.11 Approval of Financial Statements by the Board of DirectorsThe Financial Statements of the Group and the Company for the year ended 31 March 2018 (including comparatives) were approved and authorized for issue by the Board of Directors on 18 June 2018.

2.12 Changes in Accounting PoliciesThe Group and the Company has consistently applied the accounting policies as set out in Note 3 to all periods presented in these consolidated financial statements.

2.13 New Accounting Standards Issued But Not Effective at Reporting DateThe Accounting standards issued but not effective at the reporting date is given below with expected impact on Group financial statements. The Group will apply the accounting standards when they become effective.

SLFRS 9 – ‘Financial Instruments’SLFRS 09, issued in July 2014, is effective for annual periods beginning on or after 1 January 2018, with early adoption permitted. It replaces LKAS 39 – “Financial Instruments: Recognition and Measurement”.

The Group will apply SLFRS 9 as issued in July 2014 with effect from 1 January 2018 based on the transitional provisions.

The Group has assessed the impact on transition based on gap analysis and quantifications performed on its Financial Statements as at 31 March 2017 on adoption of SLFRS 9 with the assistance of an external consultant.

The Group is now in the process of testing and refining the data and models used for the calculation of initial impact assessment.



SLFRS 9 include three major sections, i.e.

• Classification and measurement of financial assets and financial liabilities

• Impairment of financial assets

• Hedge accounting

The summary of the impact to the Company is presented in the table below:

Area LKAS 39 requirement SLFRS 9 requirement

Impact to the Group

Financial asset classification and measurement

Four categories (HTM, L&R, FVTPL and AFS) Classification is based on ability and intention to hold and the marketability of the instrument.

Three categories (Amortised cost, FV through profit or loss and FV through OCI) Classification is based on characteristics of financial instruments and the business model of the portfolio.

No significant impact

If equity instrument is classified as FV through OCI, no fair value gain/loss is recognised in profit or loss.

Financial liabilities

Two categories – FV through profit or loss and amortised cost.

Two categories – FV through profit or loss and amortised cost.

No change

Impairment Incurred loss approach.

Expected loss approach.

1. Provisions for all claims including SLDB and corporate debentures.

2. Life time ECL for watch list (30-90days outstanding category).

3. Provisions for undrawn and unutilised exposures.

4. Incorporation of forward looking information/ macroeconomic factors.

Hedge accounting

The result of retrospective effectiveness should be within the range of 80-125%.

Elimination of the 80-125% qualitative threshold for recognising effectiveness.

No impact to the Group’s presently designated hedge relationship.

Classification and measurement of financial assets and financial liabilities SLFRS 9 contains a new classification and measurement approach for financial assets that reflects the business model in which assets are managed and their cash flow characteristics.

SLFRS 9 includes three principal classification categories for financial assets: measured at amortised cost, FVOCI (Fair Value through Other Comprehensive Income) and FVTPL (Fair Value Through Profit or Loss). It eliminates the existing LKAS 39 categories of held for trading, held to maturity, loans and receivables and available for sale.

All equity instruments should be fair valued either through profit or loss or OCI. Fair value through Other Comprehensive Income (OCI) is an irrecoverable option without recycling (i.e. the amount recognised in OCI/Reserves cannot be transferred to P&L at the time of disposal).

The standard will affect the classification and measurement of financial assets held as at 1 January 2018 as follows:

• Trading assets and derivative assets held for risk management, which are classified as held for trading and measured at FVTPL under LKAS 39, will also be measured at FVTPL under SLFRS 9.

• Loans and advances to banks and to customers that are classified as loans and receivables and measured at amortised cost under LKAS 39 will in general also be measured at amortised cost under SLFRS 9.

• Held-to-maturity investment securities measured at amortised cost under LKAS 39 will in general also be measured at amortised cost under SLFRS 9.

• Debt investment securities that are classified as available for sale under LKAS 39 may, under SLFRS 9, be measured at amortised cost, FVOCI or FVTPL, depending on the particular circumstances.

• The equity investment securities that are classified as available for sale under LKAS 39 will be designated as FVOCI on 1 January 2018.

• SLFRS 9 does not change the measurement rules of financial liabilities.

Impairment of financial assets SLFRS 9 brings out the concept of expected loss against the incurred loss principle used in LKAS 39. Accordingly,



a) Life Time Expected Credit Loss (ECL) to be provided for all loans. However, if loans credit risk has not increased significantly from the grant date, the expected loss should be restricted only to 12 months’ period.

b) The provision should be based on Exposure At Default (EAD) instead of outstanding balance used under LKAS 39. As a result, undrawn loan commitments/unutilised credit facilities would attract provisions.

c) Expected loss to be measured by internal estimates of following loss statistics:

• Probability of Default (PD) derived age bucket transition matrix

• Loss Given Default (LGD)-based on historical recoveries of defaulted loans.

b) Incorporate forward looking information to adjust loss statistics calculated by the Bank. These forward looking information include macroeconomic factors such as gross domestic production, inflation etc.

c) SLFRS 9 requires provision to be made for all financial assets including foreign currency denominated Government Securities and corporate debentures.

• Hedge accounting

Hedge accounting guidelines prescribed by SLFRS 9 do not have any impact on cash flow hedge accounting currently in place in the Group.

SLFRS 15 – ‘Revenue from Contracts with Customers’SLFRS 15 establishes a comprehensive framework for determining whether, how much and when revenue is recognised. New qualitative and quantitative disclosure requirements aim to enable Financial Statements users to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with

customers. It replaces existing revenue recognition guidance, including LKAS 18 on ‘Revenue’ and LKAS 11 on ‘Construction Contracts’ and IFRIC 13 on ‘Customer Loyalty Programmes’.

Entities will apply five-step model to determine when to recognize revenue and at what amount. The model specified that revenue is recognised when or as an entity transfers control of goods and services to a customer at the amount to which the entity expects to be entitled. Depending on whether certain criteria are met, revenue is recognized.

SLFRS 15 is effective for annual reporting periods beginning on or after January 01, 2018, with early adoption permitted.

The Group does not expect significant impact on its Financial Statements resulting from the application of SLFRS 15 and pending the completion of detailed review, the financial impact is not reasonably estimable as at the date of publication of these Financial Statements.

SLFRS 16 – ‘Leases’SLFRS 16 requires lessees to recognise all leases on their Statement of Financial Position as lease liabilities, with the corresponding right of use assets.

The profit or loss recognition pattern for recognised leases will be similar to existing finance lease accounting, with interest and depreciation expense recognised separately in the Profit or Loss.

SLFRS 16 is effective for annual periods beginning on or after 1 January 2019.

Based on the high level impact assessment performed, the Group is not expecting a significant impact on SLFRS 16 adoption except for the capitalisation of operating lease commitments.

The following amendments and improvements are not expected to have a significant impact on the Group's financial statements

• Annual Improvements to SLFRSs (2014–2016) Cycle - various standards

• Amendments to LKAS 28 – Long-term interests in associates and joint ventures

• Amendments to SLFRS 10 and LKAS 28 – Sale or Contribution of Assets between an Investor and its Associate or Joint Venture

• Amendments to SLFRS 2 – Classification and Measurement of Share-Based Payment Transactions

• Amendments to IFRS 9 – Financial assets with a prepayment feature with negative compensation

• Supplementary information on IFRIC 22 – Foreign Currency Transactions and Advance Consideration

• IFRIC 23 – Uncertainty over Income Tax Treatments

• Annual Improvements to SLFRSs 2015–2017 Cycle – various standards

3. SIGNIFICANT ACCOUNTING POLICIES

The accounting policies set out below have been applied consistently to all periods presented in these Consolidated Financial Statements unless otherwise indicated.

These accounting policies have been applied consistently by entities within the Group.

3.1 Basis of Consolidation3.1.1 Business combinationsThe Group’s Financial Statements comprise, Consolidated Financial Statements of the Company and its Subsidiaries in terms of the Sri Lanka Accounting Standard – SLFRS 10 on ‘Consolidated Financial Statements’ and the proportionate share of the profit or loss and net assets of its Associates in terms of the Sri Lanka Accounting Standard – LKAS 28 on ‘Investments in Associates and Joint Ventures’.



The Group measures goodwill as the fair value of the consideration transferred including the recognized amount of any non-controlling interest in the acquiree, less the net recognized amount (generally fair value) of the identifiable assets acquired and liabilities assumed, all measured as of the acquisition date. When the excess is negative, a bargain purchase gain is recognized immediately in Profit or Loss.

The Group elects on a transaction-by-transaction basis whether to measure non-controlling interest at its fair value, or at its proportionate share of the recognized amount of the identifiable net assets, at the acquisition date.

Transaction costs, other than those associated with the issue of debt or equity securities, that the Group incurs in connection with a business combination are expensed as incurred.

3.1.2 SubsidiariesSubsidiaries are entities controlled by the Group. Control exists when the Company has the power, directly or indirectly, to govern the financial and operational policies of an entity so as to obtain benefits from its activities. In assessing control, potential voting rights that presently are exercisable or convertible are taken into account.

Control over an investee is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee.

Specifically, the Group controls an investee if, and only if, the Group has:

• Power over the investee (i.e., existing rights that give it the current ability to direct the relevant activities of the investee) ;

• Exposure, or rights, to variable returns from its involvement with the investee;

• The ability to use its power over the investee to affect its returns.

When the Group has less than a majority of the voting or similar rights of an investee, the Group considers all relevant facts and circumstances in assessing whether it has power over an investee, including:

• The contractual arrangement with the other vote holders of the investee;

• Rights arising from other contractual arrangements; and

• The Group’s voting rights and potential voting rights

The Financial Statements of subsidiaries are included in the consolidated Financial Statements from the date that control commences until the date that control ceases. Acquisition of subsidiaries is accounted for using the acquisition method of accounting.

The accounting policies of subsidiaries have been changed where necessary to align them with the policies adopted by the Group. If a member of the group uses accounting policies other than those adopted in the consolidated Financial Statements for similar transactions and events in similar circumstances, appropriate adjustments are made to its Financial Statements in preparing the consolidated Financial Statements.

Any goodwill arising on the acquisition of a foreign operation and any fair value adjustments to the carrying amounts of assets and liabilities arising on the acquisition are treated as assets and liabilities of the foreign operation and translated at the closing rate.

3.1.3 Non-Controlling InterestsNon-controlling Interests is the equity in a subsidiary not attributable, directly or indirectly, to the parent are presented in the Statement of Financial Position within

Equity, separately from the Equity attributable to Shareholders Holders of the Parent (Company).

3.1.4 Acquisition of Non-Controlling interestsSubsequent to the acquisition of control, any further acquisition of net assets from non-controlling interest is accounted for as transactions with owners in their capacity as owners. Therefore, no goodwill or gain on bargain purchase is recognized as a result of such transactions.

Any difference between the amount by which the non-controlling interests is adjusted and the fair value of the consideration paid or received shall be recognized directly in equity and attributed to the owners of the parent.

3.1.5 Transactions do not result a change in controlChanges in the Group’s interest in a subsidiary that do not result in a loss of control status are accounted for as transactions with owners in their capacity as owners. Adjustments to non-controlling interests and parent’s equity are based on a proportionate amount of the net assets of the subsidiary. No adjustments are made to goodwill recognized and no gain or loss is recognized in Profit or Loss.

3.1.6 Common control transactionsA business combination involving entities or businesses under common control is a business combination in which all of the combining entities or businesses ultimately are controlled by the same party or parties both before and after the combination, and that control is not transitory.

The acquirer of the common control transaction applies book value accounting for all common control transactions.

In applying book value accounting, no entries are recognized in Profit or Loss; instead, the result of the transaction is recognized in equity as arising from a transaction with shareholders.



3.1.7 Loss of ControlThe parent can lose control of a subsidiary with or without a change in absolute or relative ownership levels. Upon the loss of control, the Group derecognises the assets and liabilities of the subsidiary, any minority interests and the other components of equity related to the subsidiary. Any surplus or deficit arising on the loss of control is recognized in the Statement of Profit or Loss.

If the Group retains any interest in the previous subsidiary, then such interest is measured at fair value at the date that control is lost. Subsequently it is accounted for as an equity-accounted investee or as other financial asset depending on the level of influence retained.

3.1.8. Equity accounted Investees - AssociatesAssociates are those entities in which the Group has significant influence, but not control, over the financial and operating activities. Significant influence is presumed to exist when the Group holds between twenty and fifty percent of the voting power of another entity.

Associates are accounted for using the equity method (equity accounted investees) and are initially recognized at cost in the terms of Sri Lanka Accounting Standards – LKAS 28 on “Investment in Associates”. The Group’s investment in associate includes goodwill identified on acquisition, net of any accumulated impairment losses.

The Consolidated Financial Statements include the Group’s share of the income and expenses and equity movements of equity accounted investees, after adjustments to align the accounting policies with those of the Group, from the date that significant influence commences until the date that significant influence ceases.

Acquisitions of additional stakes of equity accounted investees, until the control is established, are accounted as goodwill

within the equity accounted investment if consideration paid is more than the net asset acquired or taken into to profit or loss as gain on bargain purchase if the net asset acquired is more than the consideration paid.

When the Group’s share of losses exceeds its interest in an equity accounted investee, the carrying amount of that interest (including any long-term investments) is reduced to zero and the recognition of further losses is discontinued except to the extent that the Group has an obligation or has made payments on behalf of the investee. Associate Companies of the Group which have been accounted for under the equity method of accounting are disclosed under Note 23 to these Financial Statements.

3.1.9 Reporting DateThe Group’s Subsidiary Company has a common financial year end which ends on 31st March. The financial year of Commercial Insurance Brokers Limited, an associate company of the Group ends on 31st December.

The difference between the reporting date of the above companies and that of the parent does not exceed three months.

However, for the Group financial reporting purposes; the Financial Statements ending 31 March of the above mentioned subsidiaries and associates are considered.

3.1.10 Balances and Transactions Eliminated on ConsolidationIntra-group balances and transactions, including income, expenses and dividends, are eliminated in full. Profits and losses resulting from intra-group transactions that are recognized in assets, such as inventory and fixed assets, are eliminated in full.

Unrealized gains arising from transactions with equity-accounted investees are eliminated against the investment to the extent of the Group’s interest in the investee.

3.1.11 Business CombinationsAll business combinations have been accounted for by applying the acquisition method in accordance with the SLFRS 3 - Business Combinations. Applying this method involves the entity that obtains control over the other entity to recognize the fair value of assets acquired and liabilities and contingent liabilities assumed, including those not previously recognized.

3.1.12 Cost of AcquisitionThe cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange. This excludes any transaction costs incurred.

3.1.13 Goodwill on AcquisitionGoodwill represents the excess of the cost of any acquisition of a subsidiary or an associate over the Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities acquired.

The Group tests the goodwill for impairment annually and assess for any indication of impairment to ensure that its carrying amount does not exceed the recoverable amount. If an impairment loss is identified, it is recognized immediately to the Statement of Profit or Loss. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to groups of cash-generating units that are expected to benefit from the synergies of the combination.

The impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the other assets pro-rata to the carrying amount of each asset in the unit. Where goodwill forms part of a cash-generating unit and part of the operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation.



Carrying amount of the goodwill arising on acquisition of subsidiaries and joint ventures is presented as an intangible and the goodwill on an acquisition of an equity accounted investment is included in the carrying value of the investment.

3.1.14 Gain on Bargain Purchase (negative goodwill)If the Group’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities exceeds the cost of the acquisition of the entity, the Group will reassess the measurement of the acquiree’s identifiable assets and liabilities and the measurement of the cost and recognize the difference immediately in the Consolidated Statement of Profit or Loss.

3.2 FOREIGN CURRENCY

3.2.1 Foreign Currency TransactionsTransactions in foreign currencies are translated to the respective functional currency (Sri Lankan Rupees-LKR) at exchange rates at the dates of the transactions.

Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated to the functional currency at the exchange rate at that date. The foreign currency gain or loss on monetary items are the difference between amortized cost in the functional currency at the beginning of the year, adjusted for effective interest and payments during the year, and the amortized cost in foreign currency translated at the exchange rate at the end of the year.

Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are retranslated to the functional currency at the exchange rate at the date that the fair value was determined. Non-monetary items in a foreign currency that are measured in terms of historical cost are translated using the exchange rate at the date of the transaction.

Foreign currency differences arising on retranslation are recognized in Statement of Profit or Loss.

3.3 Fair Value Measurement - SLFRS 13SLFRS 13 Fair Value Measurement applies to SLFRSs that require or permit fair value measurement or disclosures and provides a single SLFRS framework for measuring fair value and disclosures on fair value measurement. The Standard defines fair value on the basis of an 'exit price' notion and uses a 'fair value hierarchy', which results in a market-based, rather than entity-specific, measurement.

SLFRS 13, defines fair value, sets out in a single SLFRS a framework for measuring fair value disclosures on fair value measurements.

Financial Instruments3.3.1 Financial AssetsFinancial assets are within the scope of LKAS 39 are classified appropriately as fair value through Profit or Loss (FVTPL), loans and receivables (L & R), held to maturity (HTM), available-for-sale (AFS) at its initial recognition.

All the financial assets are recognized at fair value at its initial recognition.

3.3.1.1 Financial Assets at Fair Value through Profit or Loss (FVTPL)A financial asset is classified at fair value through Profit or Loss if it is classified as held for trading or is designated as such upon initial recognition. Financial assets are designated at fair value through Profit or Loss if the Group manages such investments and makes purchase and sale decisions based on their fair value in accordance with the Group’s documented risk management or investment strategy. Upon initial recognition, transaction costs are recognized in Profit or Loss as incurred.

Financial assets at fair value through Profit or Loss are measured at fair value, and

subsequent therein are recognized in Profit or Loss.

The Group’s investments in certain equity securities and derivative instruments which are not accounted under hedge accounting are classified under fair value through Profit or Loss.

3.3.1.2. Loans and Receivables (L&R)Loans and receivables are financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are recognized initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, loans and receivables are measured at amortized cost using the effective interest method, less any impairment losses.

Loans and receivables of the Group comprise of the following,

3.3.1.2.1 Rental receivables on Finance Leases and Hire purchasesAssets leased to customers which transfer substantially all the risks and rewards associated with ownership other than legal title, are classified as finance leases. Amounts receivable under finance leases are included under “Lease Rentals Receivable”. Leasing balances are stated in the Statement of Financial Position after deduction of initial rentals received, unearned lease income and the provision for impairment.

Assets sold to customers under fixed rate hire agreements, which transfer all risk and rewards as well as the legal title at the end of such contractual period are classified as ‘Hire Purchase Receivable’. Such assets are accounted for in a similar manner as finance leases.

3.3.1.2.2 Rental receivables on Operating Leases Leases where the Company as the lessor effectively retains substantially all the risk and rewards incidental to the ownership are



classified as operating leases. Lease rentals from operating leases are recognized as income on a straight-line basis over the lease term.

3.3.1.2.3 Advances and Other Loans to CustomersAdvances and other loans to customers comprised of revolving loans, loans with fixed installments. Revolving loans to customers are reflected in the statement of financial position at amounts disbursed less repayments and allowance for impairment losses. Loans to customers with fixed installments are stated in the statement of financial position net of possible loan losses and net of interest, which is not accrued to revenue.

After initial measurement, ‘loans and advances’ are subsequently measured at amortised cost using the EIR, less allowance for impairment except when the Company recognises loans and receivables at fair value through profit or loss. Amortised cost is calculated by taking into account any discount or premium on acquisition and fees and costs that are an integral part of the EIR. The amortisation is included in ‘Interest Income’ in the Statement of Profit or Loss. The losses arising from impairment are recognised in the Statement of Profit or Loss.

3.3.1.2.4 Trade ReceivablesTrade receivables are stated at the amounts they are estimated to realize, net of provisions for impairment. An allowance for impairment losses is made where there is objective evidence that the Group will not be able to recover all amounts due according to the original terms of receivables. Impaired receivables are written-off when identified.

3.3.1.3 Held-to-Maturity Financial AssetsIf the company has the positive intent and ability to hold debt securities to maturity, then such financial assets are classified as held-to-maturity. Held-to-maturity financial assets are recognized initially at fair value plus any directly attributable transaction

costs. Subsequent to initial recognition held-to-maturity financial assets are measured at amortized cost using the effective interest method, less any impairment losses.

Any sale or reclassification of a more than an insignificant amount of held-to-maturity investments not close to their maturity would result in the reclassification of all held-to-maturity investments as available-for-sale, and prevent the company from classifying investment securities as held-to-maturity for the current and the following two financial years.

The Group does not have any financial assets designated as “held to maturity” as at the reporting date of financial assets.

3.3.1.4 Available-for-Sale Financial AssetsAvailable-for-sale financial assets are non-derivative financial assets that are designated as available for- sale and that are not classified in any of the previous categories of financial assets. Available-for-sale financial assets are recognised initially at fair value plus any directly attributable transaction costs.

Subsequent to initial recognition, these are measured at fair value and changes therein, other than impairment losses are recognized in other comprehensive income and presented within equity in the fair value reserve. When an investment is derecognised, the cumulative gain or loss in other comprehensive income is transferred to Profit or Loss.

Available-for-sale financial assets comprise of Treasury Bonds.

3.3.1.5 Cash and Cash EquivalentsCash and cash equivalents comprise of cash in hand and cash at banks and other highly liquid financial assets which are held for the purpose of meeting short-term cash commitments with original maturities of less than three months which are subject to insignificant risk of changes in their fair value.

Bank overdrafts that are repayable on demand and form an integral part of the Company cash management are included as a component of cash and cash equivalents for the purpose of the Statement of Cash Flows.

3.3.2 Financial Liabilities The Group initially recognizes debt securities, deposits from customers and loans & borrowings on the date that they are originated. All other financial liabilities are recognized at initially on the trade date, which is the date that the Group becomes party to the contractual provisions of the instruments.

The Group derecognises a financial liability when its contractual obligations are discharged, cancelled or expired.

The Group classifies non-derivative financial liabilities into the other financial liabilities category. Such financial liabilities are recognized initially at fair value plus any directly attributable transaction cost. Subsequent to initial recognition, these financial liabilities are measured at amortized cost using effective interest rate method.

Other financial liabilities comprise of loans & borrowings, debenture issued, bank overdraft, customer deposits and trade and other payables.

3.3.3 Accounting for Non-derivative Financial Instruments3.3.3.1 RecognitionThe Group initially recognizes loans and advances, deposits, debt securities and subordinated liabilities on the date at which they are originated. All the financial assets and liabilities other than regular purchases and sales are recognized on the date the Group becomes a party to the contractual provisions of the instrument.

3.3.3.2 De-recognitionThe Group derecognises a financial asset when the contractual rights to the cash flows from the financial asset expires, or



when it transfers the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred or in which the Group neither transfers nor retains substantially all the risks and rewards of ownership and it does not retain control of the financial asset. Any interest in transferred financial assets that qualify for de-recognition that is created or retained by the Group is recognized as a separate asset or liability in the statement of financial position. On de-recognition of a financial asset, the difference between the carrying amount of the asset (or the carrying amount allocated to the portion of the asset transferred), and the sum of :

(i) the consideration received (including any new asset obtained less any new liability assumed) and

(ii) any cumulative gain or loss that had been recognized in other comprehensive income is recognized in Profit or Loss.

The Group enters into transactions whereby it transfers assets recognized on its statement of financial position, but retains either all or substantially all of the risks and rewards of the transferred assets or a portion of them. If all or substantially all risks and rewards are retained, then the transferred assets are not derecognised.

Transactions in which the Group neither retains nor transfers substantially all the risks and rewards of ownership of a financial asset and it retains control over the asset, the Group continues to recognize the asset to the extent of its continuing involvement, determined by the extent to which it is exposed to changes in the value of the transferred asset.

3.3.3.3 OffsettingFinancial assets and liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Group has a legal right to offset the amounts and intends either to settle on a net basis

or to realize the asset and settle the liability simultaneously.

Income and expenses are not offset in the statement of profit or loss unless required or permitted by an accounting standard or interpretation and as specifically disclosed in the accounting policies of the company.

3.3.3.4 Amortized cost measurementThe amortized cost of a financial asset or liability is the amount at which the financial asset or liability is measured at initial recognition, minus principal repayments, plus or minus the cumulative amortization using the effective interest method of any difference between the initial amount recognized and the maturity amount, minus any reduction for impairment.

3.3.3.5 Fair value measurement SLFRS 13 Fair Value Measurement applies to SLFRSs that require or permit fair value measurement or disclosures and provides a single SLFRS framework for measuring fair value and disclosures on fair value measurement. The Standard defines fair value on the basis of an 'exit price' notion and uses a 'fair value hierarchy', which results in a market-based, rather than entity-specific, measurement.

SLFRS 13, defines fair value, sets out in a single SLFRS a framework for measuring fair value disclosures on fair value measurements.

Fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm's length transaction on the measurement date.

When available, the Group measures the fair value of an instrument using quoted prices in an active market for that instrument. A market is regarded as active if quoted prices are readily and regularly available and represent actual and regularly occurring market transactions on an arm's length basis.

If a market for a financial instrument is not active, the Group establishes fair value using valuation techniques. Valuation techniques include using recent arm's length transactions between knowledgeable, willing parties (if available), reference to the current fair value of other instruments that are substantially the same, discounted cash flow analysis and other equity pricing models.

The chosen valuation technique makes maximum use of market inputs, relies as little as possible on estimates specific to the Group, incorporates all factors that market participants would consider in setting a price, and is consistent with accepted economic methodologies for pricing financial instruments.

The best evidence of the fair value of a financial instrument at initial recognition is the transaction price, i.e. the fair value of the consideration given or received, unless the fair value of that instrument is evidenced by comparison with other observable current market transactions in the same instrument or based on a valuation technique whose variables include only data from observable markets. When transaction price provides the best evidence of fair value at initial recognition, the financial instrument is initially measured at the transaction price and any difference between this price and the value initially obtained from a valuation model is subsequently recognized in Statement of Financial position.

3.3.3.6 Valuation of Financial InstrumentsThe Group measures the fair values using the following fair value hierarchy that reflects the significance of the inputs used in making the measurements.

Level 1 – Quoted market price (unadjusted) in an active market of an identical instrument.

Level 2 – Valuation techniques based on observable inputs, either directly (i.e., as prices) or indirectly (i.e., derived from



prices), this category included instruments valued using: quoted market prices in active markets similar instruments; quoted prices for identical or similar instruments in markets are considered less than active: or other valuation techniques where all significant inputs are directly observable from market data.

Level 3 – Valuation techniques use significant unobservable inputs. This category includes all instruments where the valuation technique includes inputs not based on observable data and the unobservable inputs have a significant effect on the instrument’s valuation.

This category includes instruments that are valued based on quoted prices for similar instruments where significant unobservable adjustments or assumptions are required to reflect differences between the instruments.

Fair values of financial assets and financial liabilities that are traded in active markets are based on quoted market prices or dealer price quotations. For all other financial instruments the Company determines fair values using valuation techniques.

Valuation techniques include comparison to similar instruments for which market observable prices exist, other equity pricing models and other valuation models.

The objective of valuation techniques is to arrive at a fair value determination that reflects the price of the financial instruments at the reporting date that would have been determined by market participants acting at arm’s length.

The Group widely recognized valuation models for determining the fair value of common and simpler financial instruments. Observable prices and model inputs are usually available in the market for listed debt and equity securities. Availability of observable market inputs reduces the need

of management judgment and estimation and also reduces the uncertainty associated with determination of fair values. Availability of observable market prices and inputs varies depending on the products and markets are prone to changes based on specific events and general conditions in the financial markets.

3.3.4. Impairment of Financial InstrumentsAt each reporting date the Company assesses whether there is objective evidence that financial assets not carried at fair value through Profit or Loss are impaired. A financial asset or a group of financial assets is (are) impaired when objective evidence demonstrates that a loss event has occurred after the initial recognition of the asset(s), and that the loss event has an impact on the future cash flows of the asset(s) that can be estimated reliably.

Objective evidence that financial assets (including equity securities) are impaired can include:

• significant financial difficulty of the borrower or issuer;

• default or delinquency by a borrower ;

• restructuring of a loan or advance by the Group on terms that the Group would not otherwise consider

• indications that a borrower or issuer will enter bankruptcy;

• the disappearance of an active market for a security;

• other observable data relating to a group of assets such as adverse changes in the payment status of borrowers or issuers in the group of economic conditions that correlate with defaults in the group.

In addition, for an investment in an equity security, a significant or prolonged decline

in its fair value below its cost is objective evidence of impairment.

3.3.4.1 Impairment of Financial Assets carried at Amortised CostThe Group considers evidence of impairment for loans and advances at both a specific and non - specific basis. All individually significant loans and advances and held-to-maturity investment securities are assessed for specific impairment. All individually significant loans and advances and held-to-maturity investment securities found not to be specifically impaired are then assessed for any impairment separately by grouping them.

Loans and advances that are not individually significant are assessed for impairment by grouping them together with similar risk characteristics based on product types.

In assessing non-significant impairment the Group uses statistical modelling of historical trends of the probability of default, timing of recoveries and the amount of loss incurred, adjusted for management's judgment as to whether current economic and credit conditions are such that the actual losses are likely to be greater or less than suggested by historical modelling, default rates, loss rates and the expected timing of future recoveries are regularly taken into account to ensure that they remain appropriate.

Impairment losses on assets carried at amortized cost are measured as the difference between the carrying amount of the financial asset and the present value of estimated future cash flows discounted at the asset's original effective interest rate. Impairment losses are recognized in Profit or Loss and reflected in an allowance account against loans and advances. Interest on impaired assets continues to be recognized through the unwinding of the discount. When a subsequent event causes the amount of impairment loss to decrease, the decrease in impairment loss is reversed through Profit or Loss.



3.3.4.2 Impairment of Available for Sale Investment SecuritiesImpairment losses on available for sale investment securities are recognized by transferring the cumulative loss that has been recognized in other comprehensive income to Profit or Loss as a reclassification adjustment. The cumulative loss that is reclassified from other comprehensive income to Profit or Loss is the difference between the acquisition cost, net of any principal repayment and amortization, and the current fair value, less any impairment loss previously recognized in Profit or Loss. Changes in impairment provisions attributable to time value are reflected as a component of interest income. If, in a subsequent period, the fair value of an impaired available-for-sale debt security increases and the increase can be related objectively to an event occurring after the impairment loss was recognised, then the impairment loss is reversed, with the amount of the reversal recognised in profit or loss. However, any subsequent recovery in the fair value of an impaired available-for-sale equity security is recognised in other comprehensive income.

In the case of equity investments classified as available for sale, objective evidence would also include a ‘significant’ or ‘prolonged’ decline in the fair value of the investment below its cost. Where there is evidence of impairment, the cumulative loss measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that investment previously recognized in the Statement of Profit or Loss is removed from equity and recognised in the Statement of Profit or Loss Income. However, any subsequent recovery in the fair value of an impaired available-for-sale equity security is recognized in Other Comprehensive Income.

3.3.4.3 Reversal of Impairment LossIf, in a subsequent period, the fair value of an impaired available-for-sale debt security increases and the increase can be objectively related to an event occurring after the impairment loss was recognized in Profit or

Loss, the impairment loss is reversed, with the amount of the reversal recognized in Profit or Loss. However, any subsequent recovery in the fair value of an impaired available-for-sale equity security is recognized in Other Comprehensive Income. The Group writes off certain loans and advances and investment securities when they are determined to be uncollectible.

3.3.4.4 Write-off of Financial Assets carried at amortized costThe Company writes off a loan or an investment debt security balance, and any related allowances for impairment losses, when the Board of Directors determines that the loan or security is uncollectible. This determination is made after considering information such as occurrence of significant changes in the borrower’s/issuer’s financial position such that the borrower/issuer can no longer pay the obligation, or that proceeds from collateral will not be sufficient to pay back the entire exposure. For smaller balance standardized loans, write-off decisions generally are based on a product-specific past due status. The Company generally writes off balances on its past due status reaching 12 months and if no collateral is available.

The Company holds collateral against loans and advances to customers in the form of mortgage interests over property, other registered securities over assets, and guarantees. Estimates of fair value are based on the value of collateral assessed at the time of borrowing, and generally are not updated except when a loan is individually assessed as impaired. Collateral usually is not held against investment securities, and no such collateral was held at 31 March 2018 (2017: no collateral held).

3.3.4.5 De-recognition of Financial Assets and Financial LiabilitiesFinancial AssetsFinancial assets (or, where applicable or a part of a financial asset or part of a group of similar financial assets) is derecognised when;

• The rights to receive cash flows from the asset have expired; or

• The Group has transferred its rights to cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a ‘pass-through’ arrangement; and either:

• The Group has transferred substantially all the risks and rewards of the assets, or

• The Group has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

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

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

Financial LiabilitiesA financial liability is derecognised when the obligation under liability is discharged or cancelled or expired. Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts are recognised in the profit or loss.



3.3.5 Accounting for Derivative Financial InstrumentsDerivatives are initially recognized at fair value on the date on which a derivative contract is entered into and are subsequently re-measured at their fair value. Fair values are obtained from quoted market prices in active markets, or using valuation techniques. All derivatives are carried as assets when the fair value is positive and as liabilities when the fair value is negative.

3.3.5.1 Hedge accountingThe Group holds derivative financial instruments to hedge its foreign currency risk exposure. On initial designation of the derivative as the hedge instrument, the company formally documents the relationship between the hedging instrument and hedged item, its risk management objective and its strategy in undertaking the hedge.

Central treasury documents the assessment, both at hedge inception and on an on-going basis, of whether or not the hedging instruments, primarily forward rate contracts, that are used in hedging transactions are highly effective in offsetting the changes attributable to the hedged risks in the fair values or cash flows of the hedged items.

Derivatives are recognised initially at fair value; any attributable transaction costs are recognised in profit or loss as incurred. Subsequent to initial recognition, derivatives are measured at fair value, and changes therein are accounted for as described below.

3.3.5.1.1 Cash flow hedgeWhen a derivative is designated as the hedging instrument in a hedge of the variability in cash flows attributable to a particular risk associated with a recognized asset or liability or a highly probable forecast transaction that could affect profit or loss, the effective portion of changes in the fair value of the derivative is recognized in other comprehensive income and presented in the hedging reserve in equity. Any ineffective

portion of changes in the fair value of the derivative is recognized immediately in profit or loss.

When the hedged item is a non-financial asset, the amount accumulated in equity is retained in other comprehensive income and reclassified to profit or loss in the same period or periods during which the non-financial item affects profit or loss. In other cases as well, the amount accumulated in equity is reclassified to profit or loss in the same period that the hedged item affects profit or loss.

If the hedging instrument no longer meets the criteria for hedge accounting, expires or is sold, terminated or exercised, or the designation is revoked, then hedge accounting is discontinued prospectively. If the forecast transaction is no longer expected to occur, then the balance in equity is reclassified to profit or loss.

3.3.5.1.2 Hedge Effectiveness TestingTo qualify for hedge accounting, at the inception of the hedge and throughout its life, each hedge must be expected to be highly effective and demonstrate actual effectiveness on an on-going basis. The documentation of each hedging relationship sets out how the effectiveness of the hedge is assessed.

The method adopted by the Company to assess hedge effectiveness is based on its risk management strategy. For expected effectiveness, the hedging instrument must be expected to be highly effective in offsetting changes in cash flows attributable to the hedged risk during the period for which the hedge is designated. For actual effectiveness to be achieved, the changes in fair value or cash flows must offset each other in the range of 80% to 125%. The ineffective portion will be recognised immediately in income statement. In measuring the effectiveness, the forecasted transaction of entering into another forward contract is also taken into consideration.

3.3.6 Other non-trading derivatives (Derivatives that do not qualify for Hedge Accounting)When a derivative financial instrument is not designated in a hedge relationship that qualifies for hedge accounting, all changes in its fair value are recognised immediately in profit or loss.

3.3.7 Reclassification of Financial InstrumentsThe Group reclassifies non-derivative financial assets out of the ‘held for trading’ category and into the ‘available-for-sale’, ‘loans and receivables’ or ‘held to maturity’ categories as permitted by LKAS 39. Further, in certain circumstances, the Group is permitted to reclassify financial instruments out of the ‘available-for-sale’ category and into the ‘loans and receivables’ category. Reclassifications are recorded at fair value at the date of reclassification, which becomes the new amortised cost.

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

The group may reclassify a non-derivative trading asset out of the ‘held for trading’ category and into the ‘loans and receivables’ category if it meets the definition of loans and receivables and the Group has the intention and ability to hold the financial asset for the foreseeable future or until maturity. If a financial asset is reclassified, and if the Group subsequently increases its estimates of future cash receipts as a result of increased



recoverability of those cash receipts, the effect of that increase is recognized as an adjustment to the EIR from the date of the change in estimate. Reclassification is at the election of management, and is determined on an instrument-by-instrument basis.

3.3.8 Non-Financial ReceivablesOther receivable balances are stated at estimated amounts receivable after providing for impairment.

3.4 Investment Properties3.4.1 Basis of RecognitionInvestment property is the property held either to earn rental income or for capital appreciation or for both, but not for sale in the ordinary course of business, use in the production or supply of goods or services or for administrative purposes.

3.4.2 Basis of Measurement3.4.2.1 Fair value ModelInvestment properties are initially recognized at cost. Subsequent to initial recognition the investment properties are stated at fair values, which reflect market conditions at the reporting date. Gains or losses arising from changes in fair value are included in the Statement of Profit or Loss in the year in which they arise.

Where Group companies occupy a significant portion of the investment property of a subsidiary, such investment properties are treated as property, plant and equipment in the Consolidated Financial Statements, and accounted for as per LKAS 16- Property, Plant and Equipment.

3.4.2.2 De-recognition Investment properties are de-recognized when either they have been disposed of or when the investment property is permanently withdrawn from use and no future economic benefit is expected from its disposal. Any gains or losses on the retirement or disposal of an investment property are recognized in the Statement of Profit or Loss in the year of retirement or disposal.

3.4.2.3 Subsequent Transfers to/from Investment PropertyTransfers are made to investment property when, and only when, there is a change in use, evidenced by the end of owner occupation, commencement of an operating lease to another party or completion of construction or development.

Transfers are made from investment property when, and only when, there is a change in use, evidenced by commencement of owner occupation or commencement of development with a view to sale.

For a transfer from investment property to owner occupied property or inventories, the deemed cost of property for subsequent accounting is its fair value at the date of change in use. If the property occupied by the Company as an owner occupied property becomes an investment property, the Company, accounts for such property in accordance with the policy stated under property, plant and equipment up to the date of change in use.

For a transfer from inventories to investment property, any difference between the fair value of the property at that date and its previous carrying amount is recognized in the Statement of Profit or Loss. When the Company completes the construction or development of a self-constructed investment property, any difference between the fair value of the property at that date and its previous carrying amount is recognized in the Statement of Profit or Loss.

3.4.2.4 Determining Fair Value External and independent valuers, having appropriate recognized professional qualifications and recent experience in the location and category of property being valued, values the investment property portfolio as at each reporting date. In financial periods within that period the fair value is determined by the Board of Directors.

The fair values are based on market values, being the estimated amount for which a

property could be exchanged on the date of the valuation between a willing buyer and a willing seller in an arm’s length transaction after proper marketing wherein the parties had each acted knowledgeably.

3.5 Intangible Assets3.5.1 Basis of RecognitionAn intangible asset is recognized if it is probable that future economic benefits that are attributable to the assets will flow to the entity and the cost of the assets can be measured reliably.

3.5.2 Basis of MeasurementIntangible assets acquired separately are measured as initial recognition at cost. Following initial recognition intangible assets are carried at cost less any accumulated amortization and any accumulated impairment losses. The useful life of intangible assets are assessed to be either finite or indefinite. Intangible assets with finite useful life are amortized over the useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortization period and the method for an intangible asset with a definite useful life is reviewed at least at each financial year end. Intangible assets with indefinite useful lives are tested for impairment annually either individually or at the cash generating unit level.

3.5.3 Subsequent ExpenditureSubsequent expenditure on intangible assets are capitalized only when it increases the future economic benefits embodied these assets. All other expenditure are expensed when incurred.

3.5.4 De-recognitionIntangible assets are de-recognized on disposal or when no future economic benefits are expected from its use. The gain or loss arising from de-recognition of intangible assets are measured as the difference between the net disposal proceeds and the carrying amount of the asset.



3.5.5 AmortizationAmortization is recognized in the Statement of statement of profit or loss on a straight-line basis over the estimated useful life of intangible assets, other than goodwill, from the date that they are available for use.

The estimated useful life of each intangible asset is as follows;

Computer Software 5 yearsLicense and Fees 20 years

Amortization methods, useful lives and residual values are reviewed at each reporting date and are adjusted as appropriate.

3.6 Property, Plant and Equipment 3.6.1 Freehold Property, Plant & Equipment3.6.1.1 Basis of Recognition Property, plant and equipment are recognized if it is probable that future economic benefits associated with the asset will flow to the Company and cost of the asset can be reliably measured.

3.6.1.2 Basis of MeasurementItems of property, plant and equipment are measured at cost/revaluation less accumulated depreciation and accumulated impairment losses.

Cost includes expenditure that is directly attributable to the acquisition of the asset. The cost of self-constructed assets includes the cost of materials and direct labour, any other costs directly attributable to bringing the assets to a working condition for their intended use, the costs of dismantling and removing the items and restoring the site at which they are located and capitalized borrowing costs.

Purchased software that is integral to the functionality of the related equipment is capitalized as part of that equipment.

When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items of property, plant and equipment.

3.6.1.3 Cost ModelThe Company applies the cost model to all property, plant and equipment except freehold land and buildings; which records at cost of purchase together with any incidental expenses thereon less any accumulated depreciation and accumulated impairment losses if any.

3.6.1.4 Revaluation ModelThe Company revalues its land and buildings which are measured at its fair value at the date of revaluation less any subsequent accumulated depreciation and accumulated impairment losses. Revaluations are made with sufficient regularity to ensure that the carrying amount does not differ materially from that which would be determined using fair value at the reporting date.

On revaluation of lands and buildings, any increase in the revaluation amount is credited to the revaluation reserve through other comprehensive income in shareholder’s equity unless it off sets a previous decrease in value of the same asset that was recognized in the Statement of Profit or Loss. A decrease in value is recognized in the Statement of Profit or Loss where it exceeds the increase previously recognized in the revaluation reserve. Upon disposal, any related revaluation reserve is transferred from the revaluation reserve to retained earnings and is not taken into account in arriving at the gain or loss on disposal.

3.6.1.5 Subsequent Cost Subsequent expenditure is capitalized only when it is probable that the future economic benefits associated with the expenditure will flow to the Company. Ongoing repairs and maintenance are expensed as incurred.

3.6.1.6 Reclassification to investment propertyWhen the use of a property changes from owner-occupied to investment property, the property is re-measured to fair value and reclassified as investment property. Any gain arising on re-measurement is recognized in Profit or Loss to the extent that it reverses a previous impairment loss on the specific

property, with any remaining gain recognized and presented in the revaluation reserve in equity. Any loss is recognized immediately in Profit or Loss.

3.6.1.7 Depreciation Depreciation is based on the cost of an asset less its residual value. Significant components of individual assets are assessed and if a component has a useful life that is different from the remainder of that asset, that component is depreciated separately.

Depreciation is recognized in Profit or Loss on a straight-line basis over the estimated useful life of each component of an item of property, plant and equipment. Leased assets are depreciated over the shorter of the lease term and their useful lives unless it is reasonably certain that the Company will obtain ownership by the end of the lease term. Lands are not depreciated.

Depreciation of an asset begins when it is available for use and ceases at the earlier of the date that the asset is classified as held for sale and the date that the asset is de-recognized.

Depreciation methods, useful life values are assessed at the reporting date. The estimated useful lives for the current year are as follows:

Free-hold building 40 years

Fixtures 05 years

Office Furniture 05 years

Office Equipment 05 years

Free-hold motor Vehicles 04 years

Computer Equipment 05 years

Communication Equipment 01 years

3.6.1.8 De-recognitionAn item of property, plant and equipment is de-recognized upon disposal or when no future economic are expected from its use or disposal.

The gain or loss on disposal of an item of property, plant and equipment is determined



by comparing the proceeds from disposal with the carrying amount of the property, plant and equipment, and is recognized net within other income/other expenses in the Statement of Profit or Loss. When revalued assets are sold, the amounts included in the revaluation surplus reserve are transferred to retained earnings.

3.6.2 Operating Lease AssetsWhen acting as lessor, the Company includes the assets subject to operating leases in ‘Property, Plant and Equipment’ and accounts for them accordingly. Impairment losses are recognised to the extent that residual values are not fully recoverable and the carrying value of the assets is thereby impaired.

3.6.3 Capital Work-in-ProgressCapital work-in-progress represents the accumulated cost of materials and other costs directly related to the construction of an asset. Capital work in progress is transferred to the respective asset accounts at the time it is substantially completed and ready for its intended use.

3.7 Impairment of Non-financial AssetsThe carrying amounts of the Company’s non-financial assets are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated. An impairment loss is recognized if the carrying amount of an asset or its related Cash-Generating Unit (CGU) exceeds its estimated recoverable amount.

The Company’s corporate assets do not generate separate cash inflows and are utilized by more than one CGU. Corporate assets are allocated to CGUs on a reasonable and consistent basis and tested for impairment as part of the testing of the CGU to which the corporate asset is allocated.

Impairment losses are recognized in Profit or Loss. Impairment losses recognized in respect of CGUs are allocated first to reduce the carrying amount of any goodwill allocated

to the CGU (group of CGUs), and then to reduce the carrying amounts of the other assets in the CGU (group of CGUs) on a pro rata basis.

An impairment losses recognized in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation, if no impairment loss had been recognized.

3.8 Tax expenseTax expense comprises current, deferred tax and other statutory taxes. Income tax and deferred tax expense is recognized in Statement of Profit or Loss except to the extent that it relates to items recognized in the Statement of Other Comprehensive Income or Statement of Changes in equity.

3.8.1 Current tax expenseCurrent tax is the expected tax payable or recoverable on the taxable income or loss for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years. Current tax payable also includes any tax liability arising from the tax on dividend income.

The provision for income tax is based on the elements of income and expenditure as reported in the Financial Statements and computed in accordance with the provisions of the Inland Revenue Act. No 10 of 2006 and subsequent amendments thereto.

Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the Commissioner General of Inland Revenue.

3.8.2 Deferred taxDeferred tax is recognized in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognized for:

• Temporary differences on the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss;

• Temporary differences related to investments in subsidiaries and jointly controlled entities to the extent that it is probable that they will not reverse in the foreseeable future; and

• Taxable temporary differences arising on the initial recognition of goodwill.

• Taxable temporary differences arising on subsidiaries, associates or joint ventures who have not distributed their entire profits to the parent or investor.

Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date.

Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realized simultaneously.

A deferred tax asset is recognized for unused tax losses, tax credits and deductible temporary differences, to the extent that it is probable that future taxable profits will be available against which they can be utilized. Deferred tax assets are reviewed at each



reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realized.

Deferred tax assets and liabilities are not discounted.

The net increase in the carrying amount of deferred tax liability net of deferred tax asset is recognized as deferred tax expense and conversely any net decrease is recognized as reversal to deferred tax expense, in the Statement of Profit or Loss.

3.8.2.1 Deferred Tax on Undistributed Profits of Equity Accounted InvesteesThe Group does not control its equity accounted investees. It is therefore generally not in a position to control the timing of the reversal of a possible taxable temporary difference relating to the undistributed profits of the equity accounted investees.

The Group calculates deferred tax based on the most likely manner of reversal, taking into account management's intent and the tax jurisdiction applicable to relevant equity accounted investees.

The management intends to recover the carrying amount of the investment primarily through sale of the investment rather than through dividends. The deferred tax implications are evaluated based on the tax consequences on the sale of investments.

Since the carrying amount is expected to be recovered through a sale transactions which has no tax consequences, no temporary difference arise on the equity accounted investees and no deferred tax is provided.

3.8.3 Withholding Tax on DividendsDividend distributed out of taxable profit of the local companies attracts a 10% deduction at source and is not available for set off against the tax liability of the Company. Withholding tax that arises from the distribution of dividends by the Company is recognized at the same time as the liability to pay the related dividend is recognized.

3.8.4 Economic Service Charge (ESC)As per the provisions of Economic Service Charge Act No. 13 of 2006 and subsequent amendments thereto, ESC is payable on the liable turnover at specified rates. ESC is deductible from the income tax liability. Any unclaimed amount can be carried forward and set off against the income tax payable in the five subsequent years as per the relevant provision in the Act.

3.8.5 Nation Building Tax (NBT)As per the provisions of the Nation Building Tax Act, No. 9 of 2009 and the subsequent amendments thereto, Nation Building Tax should be payable at the rate of 2% with effect from 1 January 2011 on the liable turnover as per the relevant provisions of the Act.

3.8.6 Value Added Tax on Financial Services (VAT on FS)VAT on Financial Services is calculated in accordance with the amended VAT Act No. 7 of 2003 and subsequent amendments thereto. The base for the computation of VAT on Financial Services is the accounting profit before income tax adjusted for the economic depreciation and emoluments of employees. VAT on financial services is computed on the prescribed rate of 15%.

The VAT on Financial service is recognized as expense in the period it becomes due.

3.8.7 Crop Insurance Levy (CIL)As per the provisions of the Section 14 of the Finance Act No. 12 of 2013, the CIL was introduced with effect from April 01, 2013 and is payable to the National Insurance Trust Fund. Currently, the CIL is payable at 1% of the profit after tax.

3.8.8 Borrowing CostsBorrowing costs that are directly attributable to the acquisition, construction or production of qualifying assets that take a substantial period of time to get ready for its intended use or sale, are capitalized as part of the assets.

Borrowing costs that are not directly attributable to the acquisition, construction or production of a qualifying asset are recognized in Profit or Loss using the effective interest method.

Other Non-Financial Liabilities and ProvisionsLiabilities are recognized in the Statement of Financial Position when there is a present obligation as a result of a past event, the settlement of which is expected to result in an outflow of resources embodying economic benefits. Obligations payable at the demand of the creditor within one year of the reporting date are treated as current liabilities. Liabilities payable after one year from the reporting date are treated as non-current liabilities.

3.8.9 Deposits due to CustomersDeposits include term deposits and certificates of deposits. They are stated in the Statement of Financial Position at amount payable. Interest paid / payable on these deposits based on effective interest rate is charged to the Statement of Profit or Loss.

3.8.10 Deposit Insurance Scheme In terms of the Finance Companies Direction No 2 of 2010 “Insurance of Deposit Liabilities” issued on 27th September 2010, all Registered Finance Companies are required to insure their deposit liabilities in the Deposit Insurance Scheme operated by the Monetary Board in terms of Sri Lanka Deposit Insurance Scheme Regulations No 1 of 2010 issued under Sections 32A to 32E of the Monetary Law Act with effect from 1st October 2010.

Deposits to be insured include time and savings deposit liabilities and exclude the following.

Deposit liabilities to member institutions

Deposit liabilities to Government of Sri Lanka

Deposit liabilities to shareholders, directors, key management personnel and other related parties as defined in Finance



Companies Act Direction No 03 of 2008 on Corporate Governance of Registered Finance Companies

Deposit liabilities held as collateral against any accommodation granted

Deposit liabilities falling within the meaning of dormant deposits in terms of the Finance Companies Act, funds of which have been transferred to Central Bank of Sri Lanka

Registered Finance Companies are required to pay a premium of 0.15% on eligible deposit liabilities as at end of the month to be payable within a period of 15 days from the end of the respective month.

3.9. Debt Securities IssuedThese represent the funds borrowed by the Group for long-term funding requirements. Subsequent to initial recognition debt securities issued are measured at their amortised cost using the effective interest method, except where the Group designates debt securities issued at fair value through profit or loss. Interest paid/payable is recognised in profit or loss.

3.10. Other LiabilitiesOther liabilities are recorded at amounts expected to be payable at the Reporting date.

3.11 Employee Benefits3.11.1 Defined Contribution Plans A Defined Contribution Plan is a post-employment benefit plan under which an entity pays fixed contributions into a separate entity and will have no legal or constructive obligation to pay further amounts. Obligations for contributions to Defined Contribution Plans are recognized as an employee benefit expense in the Statement of Profit or Loss in the periods during which services are rendered by employees.

3.11.1.1 Employees’ Provident Fund (EPF)The Company and employees contribute 12% and 8% respectively on the salary of each employee to the above mentioned funds.

3.11.1.2 Employees’ Trust Fund (ETF)The Company contributes 3% of the salary of each employee to the Employees’ Trust Fund.

3.11.2 Defined Benefits Plans A defined benefit plan is a post-employment benefit plan other than a defined contribution plan. The Group's net obligation in respect of defined benefit pension plans is calculated by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods; that benefit is discounted to determine its present value. Any unrecognised past service costs are deducted.

The calculation is performed every three years by a qualified actuary using the projected unit credit method. For the purpose of determining the charge for any period before the next regular actuarial valuation falls due, an approximate estimate provided by the qualified actuary is used.

When the benefits of a plan are improved, the portion of the increased benefit related to past service by employees is recognized in Profit or Loss on a straight-line basis over the average period until the benefits become vested. To the extent that the benefits vest immediately, the expense is recognized immediately in Profit or Loss.

The Group recognizes all actuarial gains and losses arising from the defined benefit plan in other comprehensive income (OCI) and all other expenses related to defined benefit plans are recognize as personnel expenses in Statement of Profit or Loss. This retirement benefit obligation is not externally funded.

However, according to the Payment of Gratuity Act No.12 of 1983, the liability for the gratuity payment to an employee arises only on the completion of 5 years of continued service with the Company.

3.11.3 Short-term Employee BenefitsShort-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided. A

liability is recognized for the amount expected to be paid under short-term cash bonus if the company has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee, and the obligation can be estimated reliably.

3.12 Provisions, Contingent Assets and Contingent LiabilitiesProvisions are made for all obligations (legal or constructive) existing as at the reporting date when it is probable that such an obligation will result in an outflow of resources and a reliable estimate can be made of the quantum of the outflow. The amount recognized is the best estimate of the consideration required to settle the present obligation at the reporting date, taking into account the risks and uncertainties surrounding the obligation at that date.

All contingent liabilities are disclosed as a note to the Financial Statements unless the outflow of resources is remote. Contingent assets are disclosed, where inflow of economic benefit is probable.

Statement of Profit or Loss and Other Comprehensive Income

3.13 Revenue RecognitionRevenue is recognized to the extent that it is probable that the economic benefits will flow to the Group, and the revenue and associated costs incurred or to be incurred can be reliably measured. Revenue is measured at the fair value of the consideration received or receivable, taking into account contractually defined terms of payment.

3.13.1 Interest Income on Leases, Hire Purchases, Loans and AdvancesInterest income and expense are recognized in Profit or Loss using the effective interest method. The effective interest rate is the rate that exactly discounts the estimated future cash payments and receipts through the expected life of the financial asset or liability (or, where appropriate, a shorter period) to the carrying amount of the financial asset or liability. When calculating the effective



interest rate, the Group estimates future cash flows considering all contractual terms of the financial instrument, but not future credit losses.

The calculation of the effective interest rate includes all transaction costs and fees paid or received that are an integral part of the effective interest rate. Transaction costs include incremental costs that are directly attributable to the acquisition or issue of a financial asset or liability.

Interest income and expense presented in the Statement of Profit or Loss includes,

• interest on financial assets and financial liabilities measured at amortized cost calculated on an effective interest basis

• interest on available for sale investment securities calculated on an effective interest basis

Interest income and expense on all trading assets and liabilities are considered to be incidental to the Company's trading operations and are presented together with all other changes in the fair value of trading assets and liabilities in net trading income.

Fair value changes on other derivatives held for risk management purposes, and other financial assets and liabilities carried at fair value through Profit or Loss, are presented in net income from other financial instruments at fair value through Profit or Loss in the Statement of Profit or Loss.

The excess of aggregated contract receivable over the cost of the assets constitutes the total unearned income at the commencement of a contract. The unearned income is recognized as income over the term of the facility commencing with the month that the facility is executed in proportion to the declining receivable balance, so as to produce a constant periodic rate of return on the net investment.

3.13.2 Service charge and facility fee from micro finance facilitiesCollection on service charge and facility fee from micro finance facilities are accounted on cash basis.

3.13.3 Fees and Other IncomeFees and commission income and expense that are integral to the effective interest rate on a financial asset or liability are included in the measurement of the effective interest rate.

Other fees and commission income, including account servicing fees are recognized as the related services are performed.

Profit or loss on contracts terminated, collections on contracts written off, interest on overdue rentals, interest earned on property sale and buy back agreements are accounted for on cash basis.

3.13.4 Net income from other financial instruments at fair value through Profit or LossNet income from other financial instruments at fair value through Profit or Loss relates to non-trading derivatives held for risk management purposes that do not form part of qualifying hedge relationships and financial assets and liabilities designated at fair value through Profit or Loss, and include all realized and unrealized fair value changes, interest, dividends and foreign exchange differences.

3.13.5 Factoring IncomeRevenue is derived from two sources, Funding and providing Sales Ledger Related Services.

Funding - Discount income relating to factoring transactions is recognized at the end of a given accounting month. In computing this discount, a fixed rate agreed upon at the commencement of the factoring agreement is applied on the daily balance in the client’s current account.

Sales Ledger Related Services - A service charge is levied as stipulated in the factoring agreement.

Income is accounted for on an accrual basis and deemed earned on disbursement of advances for invoices factored.

The above revenue components are accounted on an accrual basis and deemed earned on disbursement of advances for invoices factored.

3.13.6 Other IncomeRent income and non-operational interest income are accounted for on accrual basis.

Dividend income is recognized when the right to receive payment is established.

Gain on disposal of property, plant and equipment and other non-current assets, including investments held by the Group have been accounted for in the Statement of Profit or Loss Income, after deducting from the net sales proceeds on disposal of the carrying amount of such assets.

3.13.7 Rental IncomeRental income from investment property is recognized in Profit or Loss on a straight-line basis over the term of the lease. Lease incentives granted are recognized as an integral part of the total rental income, over the term of the lease. Rental income from subleased property is recognized as other income.

3.14 Expenses RecognitionExpenses are recognized in the Statement of Profit or Loss on the basis of a direct association between the cost incurred and the earning of specific items of income. All expenditure incurred in the running of the business and in maintaining the property, plant & equipment in a state of efficiency has been charged to income in arriving at the profit for the year.



For the presentation of the Statement of Profit or Loss the Directors are of the opinion that the nature of the expenses method present fairly the element of the Company’s performance, and hence such presentation method is adopted.

3.15 Earnings per ShareThe Group presents basic earnings per share data for its ordinary shares. Basic earnings per share is calculated by dividing the Profit or Loss attributable to ordinary shareholders of the Group by the weighted average number of ordinary shares outstanding during the year.

3.16 Statement of Cash FlowsThe Cash Flow Statement has been prepared using the 'Indirect Method' of preparing Cash Flows in accordance with the Sri Lanka Accounting Standard 7 'Cash Flow Statements.' Cash and cash equivalents comprise short term, highly liquid investments that are readily convertible to known amounts of cash and are subject to an insignificant risk of changes in value.

Cash and cash equivalents comprise of cash in hand and cash at banks and other highly liquid financial assets which are held for the purpose of meeting short-term cash commitments with original maturities of less than three months which are subject to insignificant risk of changes in their fair value.

3.17 Movement of Reserves Movement of Reserves is disclosed in the Statement of Changes in Equity.

3.18 Related Party TransactionsTransactions with related parties are conducted on normal business terms. The relevant disclosures are given in Note 39 to the Financial Statements.

3.19 Transactions with Related PartiesThe Company carries out transactions in the ordinary course of its business with parties who are defined as related parties in Sri Lanka Accounting Standard 24.

3.19.1 Transactions with Key Management PersonnelAccording to Sri Lanka Accounting Standard 24 “Related Party Disclosures”, Key management personnel, are those having authority and responsibility for planning, directing and controlling the activities of the entity. Accordingly, the company has pre-defined approved list of key management personal.

3.20 Operating SegmentsAn operating segment is a component of the Company that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Company’s other components. All operating segments operating results are reviewed regularly by Board of Directors of the Company to make decisions about resources to be allocated to the segment and to assess its performance, and for which discrete financial information is available.

Accordingly, the segment comprises of financial services are described in Note 46.

Segment results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Segment capital expenditure is the total cost incurred during the period to acquire segment assets that are expected to be used for more than one period.

Expenses that cannot be directly identified to a particular segment are allocated on bases decided by the management and applied consistently throughout the year.

3.21 Subsequent Events All material subsequent events have been considered and where appropriate adjustments or disclosures have been made in the respective Notes to the Financial Statements.

3.22 Commitments and ContingenciesAll discernible risks are accounted for in determining the amount of all known liabilities. Contingent Liabilities are possible obligations whose existence will be confirmed only by uncertain future events or present obligations where the transfer of economic benefit is not probable or cannot be reliably measured. Contingent Liabilities are not recognized in the statement of financial position but are disclosed unless they are remote.

3.23 Capital Management The Board of Directors monitor the return on capital investment on a month basis. This review is mainly carried out through return on investment analysis prepared on a quarterly basis. The plan forecasts are also reviewed on a monthly basis to ensure that targets are met in order to manage the capital invested on the Group Companies.

The Board of Directors also decides and monitors the level of dividends to ordinary shareholders. The Company does not subject to any externally impose capital requirements. However, companies within the group have such requirement based on the industry in which such company established. The group companies which require externally imposed capital will monitor such requirement on a regular basis and report to respective legal authority in order to ensure compliance with such regulatory requirement.




Group Company


Rs. Rs. Rs. Rs.

4 INTEREST INCOME

Interest income on;

Finance lease 2,855,538,892 2,752,713,098 2,855,538,892 2,752,713,098

Hire purchase - 809,424 - 809,424

Loans and advances 8,194,815,090 5,685,379,988 8,222,256,734 5,830,662,134

Hire rentals 17,967,053 16,517,838 17,967,053 16,517,838

Overdue rental 791,410,853 763,979,957 791,410,853 763,979,957

Factoring 1,295,537,680 1,303,970,860 1,295,537,680 1,303,970,860

Rentals & sales proceeds - contracts written off 165,066,506 229,549,753 165,066,506 229,549,753

13,320,336,074 10,752,920,918 13,347,777,718 10,898,203,064

5 INTEREST EXPENSE

Interest on other financial liabilities due to customers 2,863,023,326 1,428,276,406 2,863,023,326 1,428,276,406

Interest on bank overdrafts and other short-term borrowings 665,978,828 2,238,959,144 665,978,828 2,238,959,144

Interest on long term borrowings 1,571,046,631 1,597,328,655 1,571,046,631 1,597,328,655

Debenture interests 478,944,034 481,974,113 478,944,034 481,974,113

Charges on forward rate contracts 1,415,801,810 379,337,661 1,415,801,810 379,337,661

6,994,794,629 6,125,875,979 6,994,794,629 6,125,875,979

6 OTHER INCOME

Dividend Income 6,199,403 46,650,781 6,199,403 46,650,781

Interest received from government securities 648,007,388 587,232,980 648,007,388 587,232,980

Interest income on commercial papers and fixed deposits 302,946,115 679,679,425 302,946,115 679,679,425

Profit on disposal of property, plant and equipment 10,646,161 5,434,017 10,646,161 5,434,017

Appreciation/ (loss) in market value of quoted investments - shares

(47,242,344) 12,225,668 (47,242,344) 12,225,668

Appreciation in market value of quoted investments - unit trust 188,314,563 84,349,868 188,314,563 84,349,868

Documentation fees 297,701,251 203,742,960 297,701,251 203,742,960

Staff loan interest - 13,862 - 13,862

Commission Income 56,764,342 48,202,500 56,764,342 48,202,500

Sundry income 77,557,370 74,876,121 77,557,370 74,876,121

Foreign exchange gain / (loss) 18,505,196 18,280,679 18,505,196 18,280,679

Change in fair value of investment properties 59,882,000 4,000,000 59,882,000 4,000,000

Transfer fees and profit/(loss) on termination 615,142,804 566,683,332 615,142,804 566,683,332

Profit on deemed disposal on BRAC Lanka Finance PLC - - 242,647,810 -

2,234,424,249 2,331,372,193 2,477,072,059 2,331,372,193


Group Company


Rs. Rs. Rs. Rs.

7 ALLOWANCE FOR IMPAIRMENT AND WRITE OFFS

Lease receivables (Note 17.1.4) 212,256,723 180,823,308 212,256,723 180,823,308

Hire purchases (Note 17.2.4) 508,059 57,553,990 508,059 57,553,990

Advances & loans (Note 18.1.2) 299,876,221 149,013,173 299,876,221 149,013,173

Factoring (Note 19.1.1) 543,350,699 324,686,766 543,350,699 324,686,766

1,055,991,702 712,077,237 1,055,991,702 712,077,237

8 DEPRECIATION AND AMORTIZATION

Depreciation of property, plant and equipment (Note 28) 111,627,678 105,921,514 111,627,678 105,921,514

Amortization off of intangible assets (Note 27) 2,033,280 3,684,208 2,033,280 3,684,208

113,660,958 109,605,722 113,660,958 109,605,722

9 RESULT FROM OPERATING ACTIVITIES

Profit from ordinary activities before VAT on financial services, NBT and tax stated after charging all expenses including the following:

Group Company


Rs. Rs. Rs. Rs.

Directors' fees & other Emoluments 16,092,126 20,980,883 16,092,126 20,980,883

Auditors' remuneration - statutory audit 1,185,000 1,300,000 1,185,000 1,300,000

- audit related services 2,274,632 1,285,000 2,274,632 1,285,000

Depreciation & amortization 113,660,958 109,605,722 113,660,958 109,605,722

Legal and professional expenses 45,751,010 22,452,074 45,751,010 22,452,074

Personnel expenses (Note 9.1) 1,387,268,219 1,103,658,073 1,387,268,219 1,103,658,073

9.1 Personnel expenses

Salaries and other benefits 1,285,522,724 1,019,199,804 1,285,522,724 1,019,199,804

Defined contribution plan cost - EPF 67,103,843 55,270,191 67,103,843 55,270,191

- ETF 16,775,961 13,809,877 16,775,961 13,809,877

Defined benefit plan costs - Employee benefits 17,865,691 15,378,201 17,865,691 15,378,201

1,387,268,219 1,103,658,073 1,387,268,219 1,103,658,073

10 VALUE ADDED TAX ON FINANCIAL SERVICES AND NBT

Value added tax on financial services 535,606,180 375,691,226 535,606,180 375,691,226

Nation building tax on financial services 75,349,055 82,219,620 75,349,055 82,219,620

610,955,235 457,910,846 610,955,235 457,910,846




Group Company


Rs. Rs. Rs. Rs.

11 INCOME TAX EXPENSE

Current tax expense (Note 11.1) 552,667,262 565,438,978 552,667,262 565,438,978

Deferred tax (reversal)/ charge (Note 35.3.1) 208,044,620 (46,968,090) 208,044,620 (46,968,090)

Current income tax expense 760,711,882 518,470,888 760,711,882 518,470,888

Tax expense on discontinued operations 16,216,944 120,825,721 - -

Consolidated Current tax expense 568,884,206 686,264,699 552,667,262 565,438,978

The company is liable for tax at the rate of 28% on its taxable income in accordance with the inland revenue Act No 10 of 2006 and subsequent amendments made thereon.

Group Company


Rs. Rs. Rs. Rs.

11.1 Current tax expense

Current year income tax expense on ordinary activities (Note 11.2)

513,957,006 565,438,978 513,957,006 565,438,978

Under provision of taxes in respect of previous years 38,710,256 - 38,710,256 -

552,667,262 565,438,978 552,667,262 565,438,978

11.2 Numerical reconciliation of accounting profits to income tax expense,

Group Company


Rs. Rs. Rs. Rs.

Accounting profit before income tax 2,634,945,275 2,059,492,065 2,905,034,729 2,204,774,210

Aggregate disallowable expenses 8,944,828,348 9,264,447,079 8,944,828,348 9,264,447,079

Aggregate tax deductible expenses (5,428,766,931) (4,942,644,275) (5,428,766,931) (4,942,644,275)

Tax exempt income (4,394,347,708) (4,352,838,279) (4,394,347,708) (4,352,838,279)

(-) Allowable tax credits (838,642,856) (750,281,780) (838,642,856) (750,281,780)

(+/-) Other adjustments 917,544,607 741,250,117 647,455,154 595,967,971

Taxable profit 1,835,560,735 2,019,424,926 1,835,560,736 2,019,424,927

Income tax at 28 % 513,957,006 565,438,978 513,957,006 565,438,978

Current income tax expense 513,957,006 565,438,978 513,957,006 565,438,978

11.3 Deferred tax has been computed using the enacted tax rate of 28%

12 DISCONTINUED OPERATIONS

The company held 99.76% of the issued share capital of BRAC Lanka Finance (BRAC) and it's holding diluted to 44.33% in May 2017 with the non subscription of rights issued by BRAC, parent company, Lanka Orix Leasing Company PLC purchased all unsubscribed shares in order to maintain group control and to ensure that BRAC meets the requirement for increased capital.


2 months ended31st May 2017

Year ended 31st Mar 2017

12.1 Profit/ (loss) for the period from discontinued operations

Interest income 621,834,234 3,385,929,993 Interest expense (184,961,256) (1,138,296,317)Net interest income 436,872,978 2,247,633,676

Other income 28,180,508 9,083,471 Allowance for impairment & write offs (148,009,821) (338,894,294)Expenses (231,684,370) (1,419,748,313)Profit before tax 85,359,295 498,074,540 Income tax expense (16,216,944) (132,865,385)Profit after tax 69,142,351 365,209,154

Results on divestment of group investments (Note 12.2) (150,637,455) - Profit/ (Loss) for the period from discontinued operations (81,495,104) 365,209,154

Earnings/ (loss) per share from discontinued operation (0.01) 0.06Net cash from operating activities from discontinuing operations (51,620,975) 749,956,846 Net cash used in investing activities from discontinuing operations (260,780,033) (925,118,908)Net cash from /(used in) financing activities from discontinuing operations 925,118,908 (451,351,075)

12.2 Effect of the disposal on the financial position of the Group

Property, plant and equipment (149,863,455)Rentals receivable on lease assets, hire purchases ,operating leases advances and other loans (11,037,439,340)Investment securities (1,220,413,497)Investment in term deposits (1,374,516,382)Cash and cash equivalents (216,458,574)Trade and other current assets (198,856,704)Bank overdrafts 410,138,019 Deposits from customers 3,396,330,685 Interest bearing loans & borrowings 4,398,438,955 Provision for taxation 118,329,295 Deferred tax liability 10,821,573 Trade and other payables 3,350,599,441 Retirement benefit obligations 24,769,828 Net Assets and Liabilities (2,488,120,156)Less - Share Capital increased due to right issue 1,321,907,080 Net Assets disposed (1,166,213,076)

2 months ended31st May 2018

Year ended31stMar 2017

12.3 Results on divestment of group investments

Fair value of BRAC Lanka Finance PLC 1,265,987,676 Not Applicable Less - Net Assets disposed (1,166,213,076) Not Applicable Less - Goodwill on acquisition (253,210,966) Not Applicable Add - Non controlling interest 2,798,911 Not Applicable

(150,637,455)



Group Company


Rs. Rs. Rs. Rs.

13 EARNINGS PER SHARE

13.1 Amount used as the numerator

Net profit attributable to equity holders of the Company 1,792,638,207 1,896,644,018 2,144,322,847 1,686,303,322

Number of ordinary shares used as the denominator

Weighted average number of ordinary shares in issue (shares) 6,377,711,170 6,377,711,170 6,377,711,170 6,377,711,170

Earnings per Share 0.28 0.30 0.34 0.26

Basic earnings per share is calculated by dividing the net profit for the year attributable to the ordinary shareholders by the weighted average number of ordinary shares outstanding during the year.

Group Company

As at 31st March 2018 2017 2018 2017

Rs. Rs. Rs. Rs.

13.2 Earnings per share from continuing operations

Profit for the year from continuing operations 1,874,233,393 1,541,021,177 2,144,322,847 1,686,303,322

Weighted average number of ordinary shares in issue (shares) 6,377,711,170 6,377,711,170 6,377,711,170 6,377,711,170

Earnings per Share from continuing Operations 0.29 0.24 0.34 0.26

13.3 Earnings/ (loss) per share from discontinuing operations

Profit/ (loss) attributable to equity holders of the company (81,299,516) 364,332,652

Weighted average number of ordinary shares in issue (shares) 6,377,711,170 6,377,711,170

Earnings per Share from discontinuing Operations (0.01) 0.06

Group Company

As at 31st March 2017 2018 2017

Rs. Rs. Rs.

14 CASH AND CASH EQUIVALENTS

Components of cash equivalents

14.1 Favourable cash & cash equivalent balances

Cash in hand 170,515,473 171,636,959 158,027,247

Investment in REPO 575,000,000 - -

Balances with banks 1,404,904,507 2,205,920,571 1,329,821,956

2,150,419,980 2,377,557,530 1,487,849,203

14.2 Unfavourable cash & cash equivalent balances

Bank overdraft (1,805,044,333) (1,353,451,358) (1,390,806,997)

Total cash and cash equivalents in the cash flow statement 345,375,647 1,024,106,172 97,042,206



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Group Company

As at 31st March 2017 2018 2017

Rs. Rs. Rs.

16 OTHER INVESTMENTS

Financial investments - Available-for-sale (Note 16.1) 2,033,067,488 1,900,074,031 1,491,486,089

Loans and receivables (Note 16.2) 14,556,356,196 4,605,140,218 14,201,766,478

Derivative assets held for risk management (Note 16.3) 60,701,430 - 60,701,430

16,650,125,114 6,505,214,249 15,753,953,997

16.1 Financial investments - Available-for-sale

Investments in treasury bonds (Note 16.1.1) 1,872,958,045 40,182,554 1,424,507,339

Treasury bills (16.1.2) 93,119,693 1,792,912,727 -

Unquoted shares (Note 16.1.3) 67,189,750 66,978,750 66,978,750

Specific allowances for impairment (16.1.4) (200,000) - -

2,033,067,488 1,900,074,031 1,491,486,089

Group Company

As at 31st March 2017 As at 31st March 2018 As at 31st March 2017

Cost Fair Value Cost Fair Value Cost Fair Value

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

16.1.1 Investments in treasury bonds

Softlogic Finance PLC 39,740,200 39,635,275 39,740,200 40,182,554 39,740,200 39,635,275

Entrust Securities PLC 21,367,125 24,723,263 - - 21,367,125 24,723,263

First Capital Treasuries Limited 502,413,529 497,454,983 - - 61,553,779 52,180,595

Capital Alliance 223,216,820 211,928,844 - - 223,216,820 211,928,844

Seylan Bank PLC 1,159,354,332 1,096,039,362 - - 1,158,450,150 1,096,039,362

Wealth Trust Securities Limited 3,078,818 3,176,318 - - - -

1,949,170,824 1,872,958,045 39,740,200 40,182,554 1,504,328,074 1,424,507,339

16.1.2 Treasury bills

First Capital Treasures Limited 93,119,693 93,119,693 1,763,311,300 1,792,912,727 - -

93,119,693 93,119,693 1,763,311,300 1,792,912,727 - -


Group Company


No. of Cost Fair Value No. of Cost Fair Value No. of Cost Fair Value

Shares Rs. Rs. Shares Rs. Rs. Shares Rs. Rs.

16.1.3 Unquoted Shares

Equity Investments Lanka Ltd 16,875 168,750 168,750 16,875 168,750 168,750 16,875 168,750 168,750

Credit Information Bureau 210 21,000 21,000 100 10,000 10,000 100 10,000 10,000

Finance Houses Consortium (Pvt) Ltd.

20,000 200,000 200,000 - - - - - -

LOLC Myanmar Micro-Finance Company Limited

519,520 66,800,000 66,800,000 519,520 66,800,000 66,800,000 519,520 66,800,000 66,800,000

67,189,750 66,978,750 66,978,750

Group Company

As at 31st March 2017 2018 2017

Rs. Rs. Rs.

16.1.4 Specific allowances for impairment

As at 01 April 2016 200,000 - -

Impairment loss for the period - - -

Charge / (reversal) for the year - - -

Balance as at 31st March 200,000 - -

16.2 Loans and receivables

Repos 3,758,141,452 3,654,437,478 3,754,956,245

Investments in term deposits 9,091,563,770 950,702,740 8,740,159,259

Commercial papers 1,706,650,974 - 1,706,650,974

14,556,356,196 4,605,140,218 14,201,766,478

16.3 Derivative assets held for risk management

Forward rate contracts (Note.16.3.1) 60,701,430 - 60,701,430

16.3.1 Forward rate contracts

The company uses a mixture of forward foreign exchange contracts to hedge the foreign currency translation risk on its foreign borrowings.

The fair value of the derivatives designated as cash flow hedges are as follows;

Group Company


Assets Liabilities Assets Liabilities Assets Liabilities


60,701,430 15,562,267 - 271,625,120 60,701,430 15,562,267



16. OTHER INVESTMENTS (CONTD.)

The time periods in which the hedged cash flows are expected to occur and affect the statement of comprehensive income are as follows;

Group Company


Within 1Year

1-5 Years

Over 5Years

Within 1Year

1-5 Years

Over 5Years

Within 1Year

1-5 Years

Over 5Years

Shares Rs. Rs. Shares Rs. Rs. Shares Rs. Rs.

22,173,892,831 - - 22,173,892,831 - - 9,492,089,194 7,873,209,130 -

For the year ended 31 March 2018 net loss of Rs.114.2 Mn (2017: Net gain of Rs. 18.5Mn) relating to the effective portion of cash flow hedges were recognised in other comprehensive income.

Group Company

As at 31st March 2017 2018 2017

Rs. Rs. Rs.

17 RENTALS RECEIVABLE ON LEASES AND HIRE PURCHASES

Finance lease receivables (Note 17.1) 14,070,619,329 14,983,134,443 13,971,615,347

Hire purchase receivables (Note 17.2) 10,655,504 377,648 1,132,629

14,081,274,833 14,983,512,091 13,972,747,976

Rentals receivable on leases and hire purchases

Gross rental receivables 18,789,600,326 20,592,152,868 18,597,917,018

Unearned income (4,460,605,297) (5,422,000,302) (4,405,457,287)

Total rentals receivable ( Note 17.4) 14,328,995,029 15,170,152,566 14,192,459,731

Allowance for impairment (Note 17.3) (247,720,196) (186,640,475) (219,711,755)

Net receivables 14,081,274,833 14,983,512,091 13,972,747,976

17.1 Finance lease receivables

Gross rentals receivable 18,705,852,395 20,589,929,519 18,534,203,245

Unearned income (4,458,959,695) (5,422,000,302) (4,405,457,287)

14,246,892,700 15,167,929,217 14,128,745,958

Allowance for impairment (Note 17.1.3) (176,273,371) (184,794,774) (157,130,611)

14,070,619,329 14,983,134,443 13,971,615,347

Finance lease receivables

Receivables within one year (Note 17.1.1) 3,931,468,053 4,232,355,256 3,864,304,726

Receivable from one to five years (Note 17.1.2) 9,834,788,964 10,439,425,477 9,794,573,627

Overdue rental receivable 480,635,683 496,148,484 469,867,605

(-) Allowance for impairment (Note 17.1.3) (176,273,371) (184,794,774) (157,130,611)

14,070,619,329 14,983,134,443 13,971,615,347



Group Company

As at 31st March 2017 2018 2017

Rs. Rs. Rs.

17.1.1 Receivables within one year


Unearned income (2,255,465,978) (2,669,962,422) (2,226,692,606)

3,931,468,053 4,232,355,256 3,864,304,726

17.1.2 Receivable from one to five years


Unearned income (2,203,493,717) (2,752,037,880) (2,178,764,681)

9,834,788,964 10,439,425,477 9,794,573,627

17.1.3 Allowance for impairment

Allowance for individually significant impairment

Balance as at 1st April 75,083,077 64,040,405 75,083,078

Charge for the year (Note 17.1.4) 75,982,428 185,540,483 75,982,428

Write offs (87,025,101) (104,773,683) (87,025,101)

Balance as at 31st March 64,040,404 144,807,205 64,040,405

Allowance for individually non-significant impairment



Write offs (73,034,850) (79,818,877) (73,034,850)


Total allowances for impairment 176,273,371 184,794,774 157,130,611

17.1.4 Impairment provision for the year

Allowance for individually significant impairment 75,982,428 185,540,483 75,982,428

Allowance for individually non-significant Impairment 101,994,458 26,716,240 104,840,880

177,976,886 212,256,723 180,823,308



Group Company

As at 31st March 2017 2018 2017

Rs. Rs. Rs.

17.2 Hire purchases receivables

Gross rentals receivable 83,747,931 2,223,347 63,713,773

Unearned income (1,645,602) - -

82,102,329 2,223,347 63,713,773


Net receivables 10,655,504 377,648 1,132,629

Hire purchase receivables

Receivables within one year (Note 17.2.1) 40,248,794 1,264,401 29,180,217

Receivables from one to five years (Note 17.2.2) 1,784,652 - -

Overdue rental receivable 40,068,883 958,946 34,533,556

(-) Allowance for impairment (Note 17.2.3) (71,446,825) (1,845,699) (62,581,144)

10,655,504 377,648 1,132,629

17.2.1 Receivables within one year

Gross rentals receivable 41,661,230 1,264,401 29,180,217

Unearned income (1,412,436) - -

40,248,794 1,264,401 29,180,217

17.2.2 Receivables from one to five years

Gross rentals receivable 2,017,818 - -

Unearned income (233,166) - -

1,784,652 - -




Charge for the year 25,540,985 1,244,186 25,540,985

Write offs (25,664,673) (30,554,429) (25,664,673)



Balance as at 1st April 21,211,705 31,466,620 825,597

Charge / (reversal) for the year 20,492,577 (736,127) 32,013,005

Write offs (1,371,983) (30,689,075) (1,371,983)

Balance as at 31st March 40,332,299 41,418 31,466,620




Group Company

As at 31st March 2017 2018 2017

Rs. Rs. Rs.

17.2.4 Impairment charge / (reversal) for the year


Allowance for individually non-significant Impairment 20,492,577 (736,127) 32,013,005

46,033,562 508,059 57,553,990

17.3 Allowance for impairment for leases and hire purchases receivables


Charge / (reversal) for the year 224,010,448 212,764,783 238,377,298

Write offs (187,096,606) (245,836,063) (187,096,606)


Group Company

Gross amount Gross amount Gross amount

2017 % 2018 % 2017 %

17.4 Concentration by sector

Manufacturing 1,036,708,997 7% 1,110,152,936 7% 1,026,186,898 7%

Agriculture 3,078,078,237 21% 3,620,113,104 24% 2,928,306,460 21%

Trade 2,656,323,207 19% 2,370,425,536 16% 2,650,895,646 19%

Transport 2,061,388,588 14% 2,084,796,934 14% 2,038,345,742 14%

Construction 851,706,794 6% 468,029,016 3% 851,199,229 6%

Services 2,311,801,596 16% 4,506,119,524 30% 2,575,590,617 18%

Micro and others 2,332,987,610 16% 1,010,515,516 7% 2,121,935,140 15%

14,328,995,029 15,170,152,566 14,192,459,731

Lease & hire purchase receivables amounting to Rs 11,251,780,305/- assigned under funding arrangement (2017- Rs..11,156,271,501 /-) also included under lease and hire purchase receivables.




Group Company

As at 31st March 2017 2018 2017

Rs. Rs. Rs.

18 LOANS AND ADVANCES

Advances and loans (Note 18.1) 43,810,290,091 41,208,800,160 33,795,065,806

43,810,290,091 41,208,800,160 33,795,065,806

18.1 Rentals receivable on loans to customers

Rentals receivable on loans to customers 43,319,653,715 40,374,967,327 33,319,861,208

Overdue loan installments 963,486,860 1,248,907,876 767,481,222

Total rentals receivable (Note 18.2) 44,283,140,575 41,623,875,203 34,087,342,430


43,810,290,091 41,208,800,160 33,795,065,806

Group Company

As at 31st March 2017 2018 2017

Rs. Rs. Rs.





Write off (40,371,451) (45,634,582) (40,371,451)


Allowance for individually non-significant Impairment



Write off (47,937,433) (131,443,220) (47,937,433)



18.1.2 Impairment provision for the year


Allowance for individually non-significant Impairment 98,935,077 165,423,619 52,797,833

273,790,343 299,876,221 149,013,173


Group Company

Gross Amount asat 31.03.2017

Rs.

% Gross Amount asat 31.03.2018

Rs.

% Gross Amount asat 31.03.2017

Rs.

%


Manufacturing 7,268,604,505 16% 4,291,009,445 10% 2,508,977,549 7%

Agriculture 4,403,141,621 10% 2,754,191,081 7% 1,982,210,004 6%

Trade 10,707,219,175 24% 9,757,546,278 23% 8,138,979,996 24%

Transport 3,740,470,801 8% 3,901,268,927 9% 3,693,626,003 11%

Construction 1,761,569,560 4% 1,951,862,823 5% 1,692,140,310 5%

Services 9,222,130,468 21% 15,140,838,424 36% 8,274,454,391 24%

Micro and Others 7,180,004,445 16% 3,827,158,225 9% 7,796,954,178 23%

44,283,140,575 41,623,875,203 34,087,342,430

Loan receivables amounting to Rs 9,024,633,560/- assigned under funding arrangement (2017- Rs.10,774,897,266/-) also included under loan receivables.

Group Company

As at 31st March 2017 2018 2017

Rs. Rs. Rs.

19 FACTORING RECEIVABLES

Factoring receivables (Note 19.2) 6,546,928,552 4,016,678,708 6,546,928,552

Allowance for impairment (Note 19.1) (379,271,384) (431,762,375) (379,271,384)

Balance as at 31 March 6,167,657,168 3,584,916,333 6,167,657,168

19.1 Allowance for impairment




Overdue interest adjustment - (58,873,863) -

Write off (70,963,249) (431,985,845) (70,963,249)





Group Company

As at 31st March 2017 2018 2017

Rs. Rs. Rs.

19.1 Allowance for impairment (Contd.)



Charge / (reversal) for the year (Note 19.1.1) (32,432,793) 9,419,168 (32,432,793)



19.1.1 Impairment charge / (reversal) for the year


Allowance for individually non-significant Impairment (32,432,793) 9,419,168 (32,432,793)

324,686,766 543,350,699 324,686,766

Group Company

Gross amount Gross amount Gross amount

2017 % 2018 % 2017 %


Agriculture 656,027,660 10% 563,753,230 14% 656,027,660 10%

Manufacturing 1,797,795,989 27% 851,490,240 21% 1,797,795,989 27%

Services 488,297,765 7% 218,829,016 5% 488,297,765 7%

Trading 978,286,361 15% 828,349,903 21% 978,286,361 15%

Transport 2,031,521,028 31% 1,202,785,530 30% 2,031,521,028 31%

Micro and Others 594,999,748 9% 351,470,789 9% 594,999,748 9%

6,546,928,552 4,016,678,708 6,546,928,552


Group Company

As at 31st March 2017 2018 2017

Rs. Rs. Rs.

20 DUE FROM RELATED PARTIES

Dickwella Resort (Private) Limited - 370 -

Brown & Company PLC 4,189,200 - -

4,189,200 370 -

21 CURRENT TAX ASSETS

With-holding tax recoverable 85,013,013 89,836,635 77,088,006

Other tax recoverable 851,437 - -

85,864,450 89,836,635 77,088,006

22 OTHER CURRENT ASSETS

Financial assets

Loans to employees (Note 22.1) 1,275,545 1,196,787 1,275,545

1,275,545 1,196,787 1,275,545

Non-financial Assets

Prepayments and advances 263,401,107 126,926,465 203,490,152

Other non-financial receivables 187,807,557 7,628,042 187,737,327

Inventories - 3,878,600 -

451,208,664 138,433,107 391,227,479

Total other current assets 452,484,209 139,629,894 392,503,024

22.1 Loans to employees

Balance at the beginning of the year 1,339,513 1,275,545 1,339,513

Loans granted during the year 4,809,000 7,893,253 4,809,000

Loans recovered during the year (4,872,968) (7,972,011) (4,872,968)

Balance at end of the year 1,275,545 1,196,787 1,275,545



Group Company

As at 31st March 2018 As at 31st March 2017 As at 31st March 2018 As at 31st March 2017

PrincipleActivity

Holding %

No. of Shares

Balance (Rs.)

Holding %

No. of Shares

Balance (Rs.)

Holding %

No. of Shares

Balance (Rs.)

Holding %

No. of Shares

Balance (Rs.)

23 EQUITY ACCOUNTED INVESTEE

Commercial Insurance Brokers Limited Insurance Brokering 40% 240,000 800,000 40% 240,000 800,000 40% 240,000 800,000 40% 240,000 800,000

Add : share of profits applicable to the company

Balance at the beginning of the year 82,259,004 75,054,139 82,259,004 75,054,139

Current year's share of profits before taxation 17,639,361 15,081,296 17,639,361 15,081,296

Taxation (6,221,388) (4,835,843) (6,221,388) (4,835,843)

Current year's share of profits after taxation 11,417,973 10,245,453 11,417,973 10,245,453

Actuarial loss (92,455) 276,959 (92,455) 276,959

Income tax on other comprehensive income 25,888 (77,548) 25,888 (77,548)

Dividends received during the year (3,600,000) (3,240,000) (3,600,000) (3,240,000)

Sub total 90,010,410 82,259,004 90,010,410 82,259,004

Balance at the end of the year 90,810,410 83,059,004 90,810,410 83,059,004

BRAC Lanka Finance PLC Insurance Brokering 44% 105,499,048 1,265,987,676 - - - 44.33% 105,499,048 1,265,987,676 - - -

Add : share of profits applicable to the Company

Balance at the beginning of the year - - - -

Current year's share of profits before taxation 227,326,133 - 227,326,133 -

Taxation (85,476,441) - (85,476,441) -

Current year's share of profits after taxation 141,849,692 - 141,849,693 -

Actuarial loss 553,069 - 553,069 -

Fair value gains/(losses) that arose during the year 11,601,596 - 11,601,596 -

Income tax on other comprehensive income (154,859) (154,859)

Dividends received during the year (3,797,962) - (3,797,962) -

Sub total 150,051,536 - 150,051,536 -

Balance at the end of the year 1,416,039,212 - 1,416,039,212 -

Total 1,506,849,622 83,059,004 1,506,849,622 83,059,004





23.1 Current year's share of profit

The Share of equity accounted investee profit is based on the audited financial statements of respective companies.

Summarized financial data as at financial year end of Commercial Insurance Brokers (Pvt) Ltd is stated below.

Company

For the year ended 31st December 2017 2016

Rs. Rs.

Revenue 251,923,383 232,301,704

Profit before tax 44,329,541 37,703,241

Profit after tax 28,711,353 25,613,634

Total assets 303,563,966 273,855,907

Total liabilities 70,557,469 60,394,343

Summarized financial data as at financial year end of BRAC Lanka Finance PLC is stated below.

For the year ended 31st March 2018 2017

Rs. Rs.

Revenue 3,690,624,940 Not Applicable

Profit before tax 512,804,271 Not Applicable

Profit after tax 319,636,439 Not Applicable

Total assets 16,493,680,720 Not Applicable

Total liabilities 13,668,023,252 Not Applicable

Group Company

As at 31st March 2017 2018 2017

Rs. Rs. Rs.

24 INVESTMENT PROPERTIES

Balance at the beginning of the year - 46,000,000 -

Additions during the year 42,000,000 483,118,000 42,000,000

Transfers (to)/from property plant and equipment - 1,043,000,000 -

Change in fair value during the year 4,000,000 59,882,000 4,000,000

Balance at the end of the year 46,000,000 1,632,000,000 46,000,000

24.1 Valuation of investment properties

The fair value of the investment properties were determined as at 31st March 2018, by Mr. W.M Chandrasena , R.I.C.S an independent valuers who hold recognized and relevant professional qualification and have recent experience in the location and category of the investments properties.


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a th

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Com

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As

at 3

1 M

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2017

No.

of S

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Cos

t (R

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No.

of S

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25

INV

ES

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NT

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-

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8

1,0

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As

at 3

1st M

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2018

2017

Rs.

R

s.

Rs.

26

GO

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3,2

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6

-

-




Group

As at 31st March Computersoftware

Licence and fees

2018

Rs. Rs. Rs.

27 INTANGIBLE ASSETS

Carrying amount

As at 31 March 2017 2,505,330 3,438,059 5,943,388

Company

As at 31st March Computersoftware

Licence and fees

TotalRs.

Cost

Balance as at 1st April 2017 3,825,000 6,341,400 10,166,400

Balance as at 31 st March 2018 3,825,000 6,341,400 10,166,400

Accumulated amortization and impairment losses

Balance as at 1st April 2017 1,319,671 2,903,341 4,223,012

Amortisation charged 765,000 1,268,280 2,033,280

Balance as at 31 st March 2018 2,084,671 4,171,621 6,256,292

Carrying amount

As at 31 March 2018 1,740,329 2,169,779 3,910,108

As at 31 March 2017 2,505,330 3,438,059 5,943,388


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28.1

P

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t & e

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28.3

If

land

and

bui

ldin

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ere

mea

sure

d us

ing

the

cost

mod

el,th

e ca

rryi

ng a

mou

nts

wou

ld b

e as

follo

ws:

Com

pany

2018

2017

Cos

t A

ccum

ulat

ed

Dep

reci

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n N

et B

ook

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umul

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D

epre

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k Va

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ss o

f Ass

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32

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hold

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0,4

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(12

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0

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40

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45

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Th

ere

wer

e no

rest

rictio

ns o

n th

e tit

le o

f the

pro

pert

y pl

ant a

nd e

quip

men

t as

at th

e re

port

ing

date

. Fur

ther

ther

e w

ere

no it

ems

pled

ged

as s

ecur

ities

for

lia

bilit

ies.


Group Company

As at 31st March 2017 2018 2017

Rs. Rs. Rs.

29 DERIVATIVE LIABILITIES

Derivative liabilities held for risk management (Note 16.3.1) 15,562,267 271,625,120 15,562,267

15,562,267 271,625,120 15,562,267

30 DEPOSITS FROM CUSTOMERS

Fixed and savings deposits at amortised cost

Fixed deposits 16,962,824,891 21,921,908,118 15,219,894,669

Saving deposits 1,446,192,999 788,591,008 386,997,426

Interest payable on customer deposits 340,246,895 774,609,753 329,050,339

18,749,264,785 23,485,108,879 15,935,942,434

31 LOANS AND BORROWINGS

Short-term loans and others 13,134,044,966 2,004,131,506 13,134,044,966

Debentures (Note 31.3) 5,121,541,096 5,112,985,130 5,121,541,096

Long-term borrowings (Note 31.1) 28,061,483,934 21,815,545,583 26,011,344,759

46,317,069,996 28,932,662,219 44,266,930,821

31.1 Long-term borrowings

Balance at the beginning of the year 29,740,006,791 26,340,684,137 27,804,228,832

Repayments (2,022,091,986) (4,284,357,313) (1,570,741,911)

Amortized interest 674,221,240 (2,951,074) 107,197,216

Balance at the end of the year - Gross 28,392,136,045 22,053,375,750 26,340,684,137

Unamortised finance cost (330,652,111) (237,830,167) (329,339,378)

Balance at the end of the year 28,061,483,934 21,815,545,583 26,011,344,759

31.2 Loans and borrowings

Loans and borrowings- Current 20,028,639,204 9,619,669,022 17,978,500,029

Loans and borrowings- Non current 26,288,430,792 19,312,993,198 26,288,430,792

Total loans and borrowings 46,317,069,996 28,932,662,220 44,266,930,821

Year of Issue

Year ofRedemption

Type of Issue

Fixed Rate Semi Annually

31.3 Debentures

Rated, Senior, Unsecured, Redeemable debenture 2015 2020 Senior -Unsecured -Redeemable

9.75%

Highest Price Lowest Price Last Traded Price Last Traded Date

Market summary 101.58 100.67 100.67 13-Oct-17



31 LOANS AND BORROWINGS (CONTD.)

Interest rate of comparable government security

Buying and selling prices of treasury bond as at 31st March 2018.

5 Year Bond Price (Rs.) Yield (%)

Buying 103.82 10.26

Selling 104.59 10.07

Market prices and yield during the period Price (Rs.) Yield (%)

5 Year Bond 104.20 10.17

Company

2018 2017

Debt to equity ratio 3.25 times 4.35 times

Quick asset ratio 1 times 1.118 times

Interest cover 1.42 times 1.36 times

Group Company

As at 31st March 2017 2018 2017

Rs. Rs. Rs.

32 CURRENT TAX LIABILITIES

Tax payable as at 1st April 588,902,778 413,645,436 464,454,831

Current tax expense for the year (Note 11.1) 686,264,699 552,667,262 565,438,978

Under/ (Over) Provision in respect of previous year - (164,041,412) -

Tax paid during the year (754,409,690) (282,413,797) (616,248,373)

Tax payable as at 31st March 520,757,787 519,857,489 413,645,436

33 AMOUNT DUE TO RELATED COMPANIES

Lanka Orix Leasing Company PLC 1,777,939,720 142,002,355 63,597,182

LOLC Motors Limited 1,984,497 3,002,161 1,939,271

LOLC Finance PLC 32,987,297 - 102,340

Lanka ORIX Information Technology Services Limited 306,478,406 10,831,909 16,047,729

LOLC Factors Limited 3,224,240,314 - -

Prosper Realty Ltd. 1,584,184 1,584,184 1,584,184

LOLC Micro Credit Limited 955,276 762,755 763,286

LOLC Corporate Services (Private) Limited 1,615,562 564,227 564,227

LOLC Life Insurance Limited 12,240,344 - -

5,360,025,600 158,747,591 84,598,219



Group Company

As at 31st March 2017 2018 2017

Rs. Rs. Rs.

34 TRADE AND OTHER PAYABLES

Financial liabilities

Accrued Expenses 567,079,810 361,857,648 520,471,289

Creditors for cost of equipment 273,357,743 686,308,175 273,357,743

Other payable 169,184,348 337,459,353 165,708,934

Total financial liabilities 1,009,621,901 1,385,625,176 959,537,966

Non-financial liabilities

Other payable 140,287,706 328,677,855 109,193,769

Total non-financial liabilities 140,287,706 328,677,855 109,193,769

Total trade and other payables 1,149,909,607 1,714,303,031 1,068,731,735

Group Company


TemporaryDifference

Tax Effect

TemporaryDifference

Tax Effect

TemporaryDifference

Tax Effect


35 DEFERRED TAX ASSETS & LIABILITIES

35.1 Recognised deferred tax liabilities

Property, Plant & Equipment 327,618,515 91,733,185 169,774,776 47,536,938 267,198,627 74,815,616

Lease receivables 838,630,293 234,816,482 1,694,273,222 474,396,504 836,806,489 234,305,817

Employee benefits (95,895,278) (26,850,678) (95,420,547) (26,717,753) (72,300,061) (20,244,017)

Revaluation of Property, plant and equipment

111,326,650 31,171,462 116,710,553 32,678,955 111,326,650 31,171,462

Derivative Asset / (Liability) 60,701,430 16,996,400 (180,555,790) (50,555,621) 60,701,430 16,996,400

1,242,381,610 347,866,851 1,704,782,214 477,339,023 1,203,733,135 337,045,278

Group Company

As at 31st March 2017 2018 2017

Rs. Rs. Rs.

35.1.1 Movement in recognised deferred tax liabilities

Balance as at the beginning of the period 357,931,658 337,045,278 357,931,658

Reversal of deferred tax asset opening balance (2,048,360) - -

Originations / (Reversal) during the year (Note 35.3.1) (8,016,448) 140,293,745 (20,886,380)




Group Company

As at 31st March 2017 2018 2017

Rs. Rs. Rs.

35.2 Deferred tax expense

Deferred tax liabilities

Originations / reversal during the period (Note 35.3.1) (8,016,448) 140,293,745 (20,886,380)

(8,016,448) 140,293,745 (20,886,380)

35.3.1 Amount originating / (reversing) during the year

Recognised in profit and loss - Continuing Operating (46,968,090) 208,044,620 (46,968,090)

Recognised in profit and loss - Discontinued Operations 12,039,664 - -

Total Recognised in profit and loss (34,928,426) 208,044,620 (46,968,090)

Recognised in other comprehensive income - Continuing Operations 26,081,710 (67,750,875) 26,081,710

Recognised in other comprehensive income - Discontinuing Operations 830,269 - -

Total Recognised in other comprehensive income 26,911,978 (67,750,875) 26,081,710

(8,016,448) 140,293,745 (20,886,380)

36 EMPLOYEE BENEFITS

Present value of unfunded gratuity

Balance as at the beginning of the year 71,097,067 72,300,062 50,341,964

Benefit paid during the year (2,260,942) (6,933,364) (2,011,238)

Expense recognised in the income statement (Note 36.1) 21,433,260 17,865,691 15,378,201

Expense recognised in the other comprehensive income (Note 36.2) 5,625,892 6,094,101 8,591,135

95,895,277 89,326,490 72,300,062

36.1 Expense recognised in the income statement

Current service cost 12,019,721 9,189,684 8,247,722

Interest on obligation 9,413,539 8,676,007 7,130,479

21,433,260 17,865,691 15,378,201

36.2 Expenses recognized in other comprehensive income

Actuarial loss / (gain) 5,625,892 8,227,464 8,591,135

Adjustment - (2,133,363) -

5,625,892 6,094,101 8,591,135

The employee benefit liability was actuarial valued under the projected unit credit (PUC) method by professionally qualified actuary firm Messrs Piyal S. Goonethilake and Associates on 31st March 2018.

The principle financial assumptions used in the valuation for the current and comparative years are as follows;



Group Company

As at 31st March 2017 2018 2017

Rs. Rs. Rs.

Actuarial assumptions

Rate of discount 12% 11.0% 12.0%

Salary increment rates 9% 9.0% 9.0%

Retirement age 55 years 55 years 55 years

36.3 Sensitivity of the actuarial assumptions

Sensitivity analysis on discounting rate and salary increment rate to statement of financial position and statement of profit and Loss.

Company

2018 2017

Assumption Rate change

Financial Position - Liability

Rate change

Financial Position - Liability

Rs. Rs.

Discount rate +1 99,673,153 +1 77,572,906

-1 82,891,111 -1 67,655,514

Future salary increases +1 82,335,746 +1 67,608,702

-1 97,196,376 -1 77,539,170

There are no material issues pertaining to employees and industrial relations of the company.

Group Company

2017 2018 2017

Rs. Rs. Rs.

37 STATED CAPITAL

Issued and fully paid (Note 37.1) 1,425,946,629 1,425,946,629 1,425,946,629

Number of shares (Note 37.2) 6,377,711,170 6,377,711,170 6,377,711,170

All shares rank equally with regard to the company’s residual assets. The holders of ordinary shares are entitled to receive dividends as declared from time to time, and are entitled to one vote per share at meetings of the company.

Group Company

2017 2018 2017

Rs. Rs. Rs.

37.1 Movement in stated capital

Balance at the beginning of the year 1,425,946,629 1,425,946,629 1,425,946,629


37.2 Movement in number of ordinary shares

No of shares at the beginning of the year 6,377,711,170 6,377,711,170 6,377,711,170

No of shares at the end of the year 6,377,711,170 6,377,711,170 6,377,711,170




Group Company

As at 31st March 2017 2018 2017

Rs. Rs. Rs.

38 RESERVES

Statutory reserve (Note 38.1) 660,369,706 736,135,589 628,919,447

Revaluation reserve (Note 38.2) 872,381,597 947,882,602 872,381,596

General reserve (Note 38.3) 231,779,789 288,079,789 288,079,789

Fair value reserve on AFS (Note 38.4) (129,541,981) 22,567,080 (127,214,307)

Hedging reserve (Note 38.5) 47,766,929 1,106,124 47,766,933

Total 1,682,756,039 1,995,771,184 1,709,933,458

38.1 Statutory reserve

The reserve is created according to Direction No.1 of 2003 issued under the Finance Business Act No.42 of 2011. The company transfers 5% of its annual net profit after tax to this reserve in compliance with this direction.

38.2 Revaluation reserve

The revaluation reserve relates to the revaluation surplus of Property, Plant and Equipments and the long term investments. Once the respective revalued items have been disposed, the relevant portion of revaluation surplus is transferred to retained earnings.

38.3 General reserve

General reserves are the retained earnings of a company which are kept aside out of company’s profits to meet future (known or unknown) obligations.

38.4 Fair value reserve on available for sale

This reserve is maintained to recognize the fair value changes of available for sale financial assets.

38.5 Hedging reserve

The hedging reserve comprises of the effective portion of the cumulative net change in fair value of cash flow hedging instruments related to hedge transactions that have not yet affected the profit or loss.

Group Company

As at 31st March 2017 2018 2017

Rs. Rs. Rs.

39 RETAINED EARNINGS

Balance brought forward 9,617,451,437 11,039,653,947 9,443,651,998

Net profit for the year 1,896,644,018 2,144,322,847 1,686,303,322

Other comprehensive income (5,625,892) (6,094,101) (8,591,135)

Share of other comprehensive income from equity accounted investee 199,410 11,933,238 199,410

Transferred to/(from) during the year (94,832,201) (107,216,142) (84,315,166)

Tax on other comprehensive income (excluding tax on revaluation) 1,575,250 1,706,347 2,405,518

Acquisition of NCI 2,495,674 - -


The carrying amount of the retained earnings represents the undistributed earnings held by the company. This could be used to absorb future losses and dividend declaration.


40M

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RE

LATE

D P

AR

TY T

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NS

AC

TIO

NS

Th

e co

mpa

ny c

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d ou

t tra

nsac

tions

in th

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ry c

ours

e of

it’s

bus

ines

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artie

s w

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re d

efin

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s re

late

d pa

rtie

s in

Sri

Lank

a A

ccou

ntin

g S

tand

ard

24

(L

KA

S 2

4) ‘

Rel

ated

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ty D

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es’,

the

deta

ils o

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ch a

re re

port

ed b

elow

.

41

.1

Iden

tity

of re

late

d pa

rtie

s

The

com

pany

has

rela

ted

part

y tr

ansa

ctio

ns w

ith, i

ts e

quity

acc

ount

ed in

vest

ee B

RA

C L

anka

Fin

ance

PLC

and

Com

mer

cial

Insu

ranc

e B

roke

rs (P

vt) L

td a

nd L

anka

O

RIX

Lea

sing

Com

pany

PLC

, the

mai

n sh

areh

olde

r of t

he C

ompa

ny a

nd w

ith it

s D

irect

ors.

41

.2

Tran

sact

ions

with

key

man

agem

ent p

erso

nnel

A

ccor

ding

to S

ri La

nka

Acc

ount

ing

Sta

ndar

d (L

KA

S) 2

4 ‘R

elat

ed P

arty

Dis

clos

ures

’, ke

y m

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t per

sonn

el a

re th

ose

havi

ng a

utho

rity

and

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bilit

y fo

r pl

anni

ng, d

irect

ing

and

cont

rolli

ng th

e ac

tiviti

es o

f the

ent

ity. A

ccor

ding

ly, t

he B

oard

of D

irect

ors

(incl

udin

g E

xecu

tive

and

Non

-Exe

cutiv

e) a

nd th

e he

ads

of it

s co

re

func

tions

hav

e be

en id

entif

ied

as k

ey m

anag

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t per

sonn

el o

f the

com

pany

. Ind

epen

dent

tran

sact

ion

with

key

man

agem

ent p

erso

nnel

, are

dis

clos

ed a

s fo

llow

s,

(i)

Loa

ns to

dire

ctor

s

No

loan

s ha

ve b

een

give

n to

the

dire

ctor

s of

the

com

pany

.


40.

MAT

UR

ITY

AN

ALY

SIS

OF

FIN

AN

CIA

L A

SS

ETS

AN

D F

INA

NC

IAL

LIA

BIL

ITIE

S (

CO

NTD

.)


(ii) Compensation of key management personnel

Short-term employment benefits

Company


Rs. Rs.

Directors fees and other emoluments 16,092,126 20,980,883

Other KMP emoluments 24,207,448 22,734,530

40,299,574 43,715,413

Long-term employment benefits

There are no long term employment benefits to key management personnel during the year.

(iii) Related party transactions

Accordingly, the value of all transactions carried out by the company with its related companies during the year ended 31 march 2018 are summarized bellow.

Company

Name of the company Relationship Nature of the transaction Transaction valuefor the year ended31st March 2018

Amount duefrom/(to) as at

31/3/2018


31/3/2017

Lanka ORIX Leasing Company PLC

Parent Interest expense (15,605,133)

Transfer of funds (4,412,419,026)

Funds received 5,544,219,026

Handling fee (537,091,572)

Guarantee fees (9,750,000)

Asset hire expenses (21,821,997)

Show back Charge (50,312,810)

Settlement of expenses by LOLC (575,623,661) (142,002,355) (63,597,182)

BRAC Lanka Finance PLC

Associate Loan given 700,000,000

Loan recovered (700,000,000)

Interest on loan 132,764,360 - -

Commercial Insurance Brokers (Pvt) Ltd

Associate Insurance commission received 56,754,342 - -

LOLC Motors Limited Fellow Subsidiary Fund transfer settlement of valuation fee income

28,746,461

Settlement of expenses LOMO (2,610,700)

Valuation fee income of LOMO (27,198,651)

Interest income received 42,785,009 (3,002,161) (1,939,272)

Lanka ORIX Information Technology Services Ltd

Fellow Subsidiary Provision for information services (125,519,451)

Payments 152,960,852

Expenses shared (22,225,581) (10,831,909) (16,047,729)

Browns & Company PLC Fellow Subsidiary Lease vehicle purchased 408,620,200 - -



Company

Name of the company Relationship Nature of the transaction Transaction valuefor the year ended31st March 2018


31/3/2018


31/3/2017

Ishara Traders Other Related Party Lease vehicle purchased 4,900,000 - -

LOLC Micro Credit Ltd. Fellow Subsidiary Provision for yard fee (7,800,000)

Expenses shared (1,618,050)

Fund transfer (Settlement of expenses by CLC)

9,418,581 (762,755) (763,286)

Prosper Realty Ltd. Fellow Subsidiary Provision for rent Fee (16,200,000)

Fund transfer settlement of rent fee

19,010,200

Tax on shared rent fee (2,810,201) (1,584,184) (1,584,184)

LOLC Corporate Services (Pvt) Ltd

Fellow Subsidiary Provision for secretarial fees (5,769,840)

Tax on shared service (1,000,891)

Fund transfer (Settlement of expenses by CLC)

6,770,731 (564,227) (564,227)

Galoya Plantations Limited

Fellow Subsidiary Interest income received 30,253,045 - -

LOLC General Insurance Ltd.

Fellow Subsidiary Insurance premium paid 2,326,606 - -

There are no related party transactions other than those disclosed in Note 41 to the financial statements.

41.3 Related party transactions exceeding 10%of the equity or 5% of the total assets of the entity as per audited financial statements, whichever is lower

There are no related party transactions those require specified disclosure in accordance with the continuing listing requirements of Colombo stock exchange.

41.4 The terms and conditions of the transactions with key management personnel and their related parties were no more favourable than those available, or which might reasonably be expected to be available, on similar transactions to non-key management personnel related entities on an arm’s length basis.

Company


Rs. Rs.

42 CONTINGENT LIABILITIES

Guarantees issued to banks and other institutions 185,553,100 59,723,175

43 CAPITAL COMMITMENTS

There were no significant capital commitments which have been approved or contracted for by the company as at the reporting date except for the following.


41 RELATED PARTY TRANSACTIONS (CONTD.)



Rs. Rs.

Forward exchange contracts 19,053,392,831 17,365,298,324

Facility limits not utilized 5,153,077,599 2,206,186,372

On this commitment the company will receive US $ 143,487,097 on conversion.

44 LITIGATION AND CLAIMS

Litigation is a common occurrence in the finance industry due to the nature of the business undertaken. The group has formal controls and policies for managing legal claims. Once professional advice has been obtained and the amount of loss reasonably estimated, the group makes adjustments to account for any adverse effects which the claims may have on its financial standing.

45 EVENTS AFTER REPORTING PERIOD

No circumstances have arisen subsequent to the reporting date which would require adjustments to or disclosure in the financial statements other than the following;

46 COMPARATIVE INFORMATION

The presentation and classification of the following items in these financial statements are amended to ensure the comparability with the current year.

Group Company

As at 31 March Other currentassets

Loans andAdvances

Other currentassets

Loans andAdvances

Rs' Rs' Rs' Rs'

Insurance premium receivables

As previously reported in the published financial statements for the year ended 31 March 2017

484,376,965 43,778,397,335 424,395,780 33,763,173,050

Adjustment made on insurance receivables (31,892,756) 31,892,756 (31,892,756) 31,892,756

Adjusted balance in the published financial statements for the year ended 31 March 2018

452,484,209 43,810,290,091 392,503,024 33,795,065,806

Trade & Otherpayable

Trading liabilities -fair value through

profit or loss

Trade & Otherpayable

Trading liabilities -fair value through

profit or loss

Rs' Rs' Rs' Rs'

Trading liabilities - fair value through profit or loss

As previously reported in the published financial statements for the year ended 31 March 2017

1,165,471,874 - 1,084,294,002 -

Adjustment made on derivative liabilities (15,562,267) 15,562,267 (15,562,267) 15,562,267

Adjusted balance in the published financial statements for the year ended 31 March 2018

1,149,909,607 15,562,267 1,068,731,735 15,562,267




Group

Note Carrying amount Level 1 Level 2 Level 3 Total

As at 31 March 2017 (Rs.) (Rs.) (Rs.) (Rs.) (Rs.)

47 VALUATION OF FINANCIAL INSTRUMENTS

47.1 Fair Value Hierarchy

Assets

Equity securities 15.1 201,238,845 201,238,845 - - 201,238,845

Unit trust 15.2 2,513,936,244 2,513,936,244 - - 2,513,936,244

2,715,175,089 2,715,175,089 - - 2,715,175,089

Other Investment

Corporate bonds 16.1.1 1,872,958,045 - 1,872,958,045 - 1,872,958,045

Treasury bills 16.1.2 93,119,693 - 93,119,693 93,119,693

Unquoted equity securities 15.1.3 67,189,750 - - 67,189,750 67,189,750

Derivative assets held for risk management 15.3 60,701,430 - 60,701,430 - 60,701,430

2,093,968,918 - 2,026,779,168 67,189,750 2,093,968,918

Investment properties 24 46,000,000 - - 46,000,000 46,000,000

Property, plant and equipment 28 2,120,039,018 - - 2,120,039,018 2,120,039,018

4,809,144,007 2,715,175,089 2,026,779,168 67,189,750 4,809,144,007

47.2 Financial instruments not measured at fair value

The following table sets out the fair values of financial instruments not measured at fair value and analyses them by the level in the fair value hierarchy into which each fair value measurement is categorised. For cash and cash equivalents, short term receivables and payables, the fair value reasonably approximates its cost.


Group

As at 31 March 2017 Note Level 1 Level 2 Level 3 Total Fair Value Total Carrying amount

(Rs.) (Rs.) (Rs.) (Rs.) (Rs.)

Assets

Investment securities

Loans & receivables

Repos 16.2 - 3,758,141,452 - 3,758,141,452 3,758,141,452

Investments in term deposits 16.2 - 9,091,563,770 - 9,091,563,770 9,091,563,770

Commercial papers 16.2 - 1,706,650,974 - 1,706,650,974 1,706,650,974

Others - - -

- 14,556,356,196 - 14,556,356,196 14,556,356,196

Finance lease receivables, hire purchases and operating leases

Finance lease receivables 17.1 - 13,001,477,374 - 14,070,619,329

Hire purchase receivables 17.2 - 14,591,712 - 10,655,504

Operating lease receivables - - - - -

- - 13,016,069,086 - 14,081,274,833

Advances and other loans

Advances and loans 18.1 - 43,698,128,964 43,698,128,964 43,810,290,091

Factoring receivables 19 - - 6,167,657,168 6,167,657,168 6,167,657,168

- - 49,865,786,132 49,865,786,132 49,977,947,259

- 14,556,356,196 62,881,855,218 64,422,142,328 78,615,578,288

Liabilities

Deposits liabilities 30 - - 16,559,337,762 16,559,337,762 18,749,264,785

Interest bearing borrowings

Short-term loans and others 31 - - 13,134,044,966 13,134,044,966 13,134,044,966

Debentures 31 - 4,321,647,595 - 4,321,647,595 5,121,541,096

Long-term borrowings 31.1 - 28,390,823,310 28,390,823,310 28,392,136,045

- 4,321,647,595 41,524,868,276 45,846,515,871 46,647,722,107

- 4,321,647,595 58,084,206,038 62,405,853,633 65,396,986,892



Company

Note Carrying amount

Level 1 Level 2 Level 3 Total


Trading assets - fair value through profit or loss


153,996,501 153,996,501 - - 153,996,501

Other Investment

Corporate bonds 16.1.1 40,182,554 40,182,554 - 40,182,554

Treasury bills 16.1.2 1,792,912,727 - 1,792,912,727 - 1,792,912,727


Derivative assets held for risk management 16.3 - - - - -

1,900,074,031 - 1,833,095,281 66,978,750 1,900,074,031

Investment properties 24 1,632,000,000 - - 1,632,000,000 1,632,000,000


2,054,070,532 153,996,501 1,833,095,281 66,978,750 2,054,070,532

Company

Note Carrying amount

Level 1 Level 2 Level 3 Total


Trading assets - fair value through profit or loss


Unit trust 15.2 2,513,936,244 2,513,936,244 2,513,936,244

2,715,175,089 2,715,175,089 - - 2,715,175,089

Other Investment

Corporate bonds 16.1.1 1,424,507,339 1,424,507,339 - - 1,424,507,339


Derivative assets held for risk management 16.3 60,701,430 - 60,701,430 - 60,701,430

1,552,187,519 1,424,507,339 60,701,430 66,978,750 1,552,187,519

Investment properties 24 46,000,000 - - 46,000,000 46,000,000


4,267,362,608 4,139,682,428 60,701,430 66,978,750 4,267,362,608


47. VALUATION OF FINANCIAL INSTRUMENTS (CONTD.)


47.3 Financial instruments not measured at fair value

The following table sets out the fair values of financial instruments not measured at fair value and analyses them by the level in the fair value hierarchy into which each fair value measurement is categorised.

As at 31 March 2018 Note Level 1 Level 2 Level 3 Total Fair Value

Total Carrying amount

(Rs.) (Rs.) (Rs.) (Rs.) (Rs.)

Assets


Repos 16.2 - - 3,654,437,478 3,654,437,478 3,654,437,478

Investments in term deposits 16.2 - - 950,702,740 950,702,740 950,702,740

- - 4,605,140,218 4,605,140,218 4,605,140,218


Finance lease receivables 17.1 - - 15,275,350,902 15,275,350,902 14,983,134,443

Hire purchase receivables 17.2 - - 377,646 377,646 377,648

- - 15,275,728,550 15,275,728,550 14,983,512,091


Advances and loans 18.1 - - 40,968,312,121 40,968,312,121 41,208,800,160


- - 44,553,228,454 44,553,228,454 44,793,716,494

- - 64,434,097,220 64,434,097,220 64,382,368,802

Level 1 Level 2 Level 3 Total Fair Value


(Rs.) (Rs.) (Rs.) (Rs.) (Rs.)

Liabilities



Debentures 31 - 4,561,097,843 - 4,561,097,843 5,112,985,130


Long-term borrowings 31.1 - - 21,815,545,583 21,815,545,583 21,815,545,583

- 4,561,097,843 23,819,677,091 28,380,774,933 28,932,662,219

- 4,561,097,843 42,318,211,280 46,879,309,124 52,417,771,098



Note Level 1 Level 2 Level 3 Total Fair Value



Assets


Repos 16.2 - - 3,754,956,245 3,754,956,245 3,754,956,245

Investments in term deposits 16.2 - - 8,740,159,259 8,740,159,259 8,740,159,259

Commercial Papers 16.2 - - 1,706,650,974 1,706,650,974 1,706,650,974

- - 14,201,766,478 14,201,766,478 14,201,766,478


Finance lease receivables 17 - - 12,865,911,299 12,865,911,299 13,971,615,347

Hire purchase receivables 17 - - 1,132,629 1,132,629 1,132,629

- - 12,867,043,928 12,867,043,928 13,972,747,976


Advances and loans 18 - - 32,411,724,747 32,411,724,747 33,795,065,806


- - 38,579,381,915 38,579,381,915 39,962,722,973

- - 65,648,192,322 65,648,192,322 68,137,237,426

Liabilities




Debentures 31 - 4,321,647,595 - 4,321,647,595 5,121,541,096

Long-term borrowings 31.1 - - 26,340,684,137 26,340,684,137 26,340,684,137

- 4,321,647,595 39,474,729,102 43,796,376,699 44,596,270,199

- 4,321,647,595 53,220,744,513 57,542,392,108 60,532,212,633


48 SEGMENT INFORMATION

Business Segment

Group Conventional Financial Services

Islamic Financial Services

Factoring Business

Others/ Adjustments

Total

For the year ended 31st March 2018

Continuing Operations

Total revenue 13,592,190,184 663,014,831 1,299,555,308 - 15,554,760,323

Net interest cost (6,485,667,636) (91,690,031) (417,436,962) - (6,994,794,629)

47. VALUATION OF FINANCIAL INSTRUMENTS (CONTD.)


Business Segment

Group Conventional Financial Services

Islamic Financial Services

Factoring Business

Others/ Adjustments

Total

Profit before operating expenses 7,106,522,548 571,324,800 882,118,346 - 8,559,965,694

Operating expenses (4,386,009,915) (97,280,840) (984,042,095) - (5,467,332,850)

Value added tax on financial services and NBT (552,500,362) (21,815,112) (36,639,762) - (610,955,235)

Profit from operations 2,168,012,271 452,228,848 (138,563,510) - 2,481,677,609

Discontinued Operations

Profit from operations of discontinued operations (net of Tax)

(81,495,104) (81,495,104)


Continuing Operations

Total revenue 11,419,532,246 355,845,395 1,308,915,470 - 13,084,293,111




Value added tax on financial services & NBT (392,976,292) (12,540,313) (52,394,242) - (457,910,846)


Discontinued Operations

Profit from operations of discontinued operations (net of Tax)

365,209,154 365,209,154


Capital expenditure - - - 318,764,443 318,764,443

Depreciation of property plant and equipment - - - 113,660,958 113,660,958

Provision for/(reversal of) for doubtful debts and bad debts written off

487,874,892 24,766,111 543,350,699 - 1,055,991,702




Provision for/(reversal) for doubtful debts and bad debts written off

381,946,123 5,444,348 324,686,766 - 712,077,237

As at 31st March 2017

Total assets 55,580,644,901 2,274,558,132 6,167,656,168 24,867,841,871 88,890,701,072

Total liabilities 64,296,599,213 2,055,906,136 7,044,371,241 964,519,913 74,361,396,503



48 SEGMENT INFORMATION (CONTD.)

Business Segment

Company Conventional Financial Services

Islamic FinancialServices

FactoringBusiness

Others/Adjustments

Total

For the year ended 31 March 2018

Total revenue 13,862,279,638 663,014,831 1,299,555,308 - 15,824,849,777




Value added tax on financial services and NBT (552,500,362) (21,815,112) (36,639,762) - (610,955,235)



Total revenue 11,564,814,390 355,845,397 1,308,915,470 - 13,229,575,257




Value added tax on financial services & NBT (392,976,292) (12,540,313) (52,394,242) - (457,910,846)

1,963,767,703 278,031,182 (47,270,128) - 2,194,528,757

Profit from operations




Provision for/(reversal of) doubtful debts and bad debts written off

487,874,892 24,766,111 543,350,699 - 1,055,991,702




Provision for/(reversal of) doubtful debts and bad debts written off

381,946,123 5,444,348 324,686,766 - 712,077,237


Total assets 52,383,673,626 3,808,507,424 3,584,916,332 13,731,347,768 73,508,445,150

Total liabilities 49,384,920,832 3,194,025,295 3,336,954,073 1,086,521,001 57,002,421,201


Total assets 45,493,254,649 2,274,558,132 6,167,656,168 23,825,628,334 77,761,097,283

Total liabilities 53,556,640,459 2,055,906,136 7,150,027,431 822,989,223 63,585,563,249



49 FINANCIAL RISK MANAGEMENT

Overview

The company has exposure to the following risks from financial instruments:

1 Credit risk

2 Liquidity risk

3 Market risk

4 Operational risk

This note presents information about the company’s exposure to each of the above risks, the company’s objectives, policies and processes for measuring and managing risk, and the company’s management of capital.

Risk management framework

The board of directors has overall responsibility for the establishment and oversight of the company’s risk management framework. The board has established the Integrated Risk Management Committee (IRMC), which are responsible for developing and monitoring company risk management policies in their specified areas. All board committees have both executive and non-executive members and report regularly to the board of directors on their activities.

The company’s risk management policies are established to identify and analyse the risks faced by the company, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions, products and services offered. The company, through its training and management standards and procedures, aims to develop a disciplined and constructive control environment, in which all employees understand their roles and obligations.

The company audit committee and the IRMC are responsible for monitoring compliance with the company’s risk management policies and procedures, and for reviewing the adequacy of the risk management framework in relation to the risks faced by the company. The company audit committee is assisted in these functions by Enterprise Risk Management division (ERM). ERM undertakes both regular and ad-hoc reviews of risk management controls and procedures, the results of which are reported to the company audit committee.

Credit risk

Credit risk is the risk of financial loss to the company if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the company’s loans and advances to customers and other company's, and investment debt securities. For risk management purposes, credit risk arising on trading assets is managed independently.

Management of credit risk

Facilities granted to customers (Lease/ Hire purchase/ Loans)

Credit department has a Credit committee formed internally, is responsible for management of the company’s credit risk, including:

1. Formulating credit policies in consultation with Branch and Regional Heads, covering collateral requirements, credit assessment, risk grading and reporting, documentary and legal procedures, and compliance with regulatory and statutory requirements.

2. Establishing the authorization structure for the approval and renewal of credit facilities. Authorization limits are allocated to branch and Regional Heads, Senior Marketing Officers at Head Office. Larger facilities require approval by company/Group Credit, Head of company Credit, company Credit Committee or the board of directors as appropriate.



49 FINANCIAL RISK MANAGEMENT (CONTD.)

3. Reviewing and assessing credit risk. Company credit assesses all credit exposures in excess of designated limits, prior to facilities being committed to customers by the business unit concerned. Renewals and reviews of facilities are subject to the same review process.

4. Limiting concentrations of exposure to counterparties, geographies and industries (for loans and advances), and by issuer, credit rating band and market liquidity (for investment securities).

5. Developing and maintaining the company’s risk grading in order to categorize exposures according to the degree of risk of financial loss faced and to focus management on the attendant risks. The risk grading system is used in determining where impairment provisions may be required against specific credit exposures. The current risk grading framework consists of eight grades reflecting varying degrees of risk of default and the availability of collateral or other credit risk mitigation. The responsibility for setting risk grades lies with the final approving executive/committee as appropriate. Risk grades are subject to regular reviews by company Risk.

6. Reviewing compliance of business units with agreed exposure limits, including those for selected industries, country risk and product types. Regular reports on the credit quality of local portfolios are provided to company credit who may require appropriate corrective action to be taken.

7. Providing advice, guidance and specialist skills to business units to promote best practice throughout the company in the management of credit risk.

Each Branch and Regional Head is required to implement company credit policies and procedures, with credit approval authorities delegated from the company credit committee. Each Branch and Regional Head is responsible for the quality and performance of its credit portfolio and for monitoring and controlling all credit risks in its portfolios, including those subject to central approval.

Regular audits of business units and company credit processes are undertaken by ERM.

Allowances for impairment

The company establishes an allowance for impairment losses on assets carried at amortized cost that represents its estimate of incurred losses in its lease and loan portfolio. The main components of this allowance are a specific loss component that relates to individually significant exposures, and, for assets measured at amortised cost,individually non-significant impairment established for groups of homogeneous assets as well as for individually significant exposures that were subject to individual assessment for impairment but not found to be individually impaired.

Write-off policy

The company writes off a loan or an investment debt security balance, and any related allowances for impairment losses, when board of directors determines that the loan or security is uncollectible. This determination is made after considering information such as the occurrence of significant changes in the borrower’s/issuer’s financial position such that the borrower/issuer can no longer pay the obligation, or that proceeds from collateral will not be sufficient to pay back the entire exposure. For smaller balance standardized loans, write-off decisions generally are based on a product-specific past due status.



Company

As at 31st March Finance lease Hire Purchase Total

Rs. Rs. Rs.

Exposure to credit risk

1. Lease and hire purchase portfolio

Carrying amount (Note 17) 14,983,134,443 377,648 14,983,512,091

Assets at amortized cost

individually significant impairment

Gross amount 144,807,205 1,804,281 146,611,486

Allowance for impairment (144,807,205) (1,804,281) (146,611,486)

Carrying amount - - -

for the rest of portfolio where individually non-significant Impairment is applicable

Gross amount 15,023,122,012 419,066 15,023,541,078

Allowance for impairment (39,987,569) (41,418) (40,028,988)

Carrying amount 14,983,134,443 377,647 14,983,512,090

14,983,134,443 377,647 14,983,512,090

Company

As at 31st March Advances andloans

Factoringreceivables

Total

Rs. Rs. Rs.

2. Advances and other loans

Carrying amount (Note 17 & 18) 41,208,800,160 3,584,916,333 44,793,716,493

Assets at amortized cost

individually significant impairment

Gross amount 287,390,480 768,566,787 1,055,957,267


Carrying amount - 369,390,773 369,390,773

for the rest of portfolio where individually non-significant Impairment is applicable

Gross amount 41,336,484,723 3,248,111,921 44,584,596,644


Carrying amount 41,208,800,159 3,215,525,559 44,424,325,720

41,208,800,159 3,584,916,333 44,793,716,493




3. Trade & Other Receivables

The Company’s exposure to credit risk is influenced mainly by the individual characteristics of each customer. However, management also considers the demographics of the Company’s customer base, including the default risk of the industry in which customers operate, as these factors may have an influence on credit risk.

The Credit Committee has established a credit policy under which each new customer is analysed individually for creditworthiness before the Company’s standard payment and delivery terms and conditions are offered. The Company’s review includes external ratings, when available, and in some cases Company references. Purchase limits are established for each customer, which represents the maximum open amount without requiring approval from the Credit Committee ; these limits are reviewed quarterly. Customers that fail to meet the Company’s benchmark creditworthiness may transact with the Company only on a prepayment basis.

More than 59 percent of the Company’s customers have been transacting with the Company for over one year. In monitoring customer credit risk, customers are Companied according to their credit characteristics, including whether they are an individual or legal entity, whether they are a wholesale, retail or end-user customer, geographic location, industry, aging profile, maturity and existence of previous financial difficulties.

4. Cash and cash equivalents

The Company held cash and cash equivalents of Rs.2,377 million at 31 March 2018 (2017 : Rs.1,488 million) which represents its maximum credit exposure on these assets.

5. Excessive risk concentration

Concentrations arise when a number of counterparties are engaged in similar business activities, or activities in the same geographical region, or have economic features that would cause their ability to meet contractual obligations to be similarly affected by changes in economic, political or other conditions. Concentrations indicate the relative sensitivity of the Company’s performance to developments affecting a particular industry.

In order to avoid excessive concentrations of risk, the Company’s policies and procedures include specific guidelines to focus on maintaining a diversified portfolio. Identified concentrations of credit risks are controlled and managed accordingly. Selective hedging is used within the Company to manage risk concentrations at both the relationship and industry levels.

Liquidity risk

Liquidity risk is the risk that the Company will encounter difficulty in meeting obligations associated with its financial liabilities that are settled by delivering cash or another financial asset.

Management of liquidity risk

The Company’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Company’s reputation.

Company central Treasury receives information from other business units regarding the liquidity profile of their financial assets and liabilities and details of other projected cash flows arising from projected future business. Company central Treasury then maintains a portfolio of short-term liquid assets, largely made up of short-term liquid investment securities, loans and advances to Company's and other inter-Company facilities, to ensure that sufficient liquidity is maintained within the Company as a whole. The liquidity requirements of business units and subsidiaries are met through short-term loans from Company central Treasury to cover any short-term fluctuations and longer term funding to address any structural liquidity requirements.



The Company relies on bank borrowings and deposits from customers and Company's, as its primary sources of funding. While the Company's bank borrowings have maturities of over one year, deposits from customers and Company's generally have shorter maturities and a large proportion of them are repayable on demand. The short-term nature of these deposits increases the Company’s liquidity risk and the Company actively manages this risk through maintaining competitive pricing and constant monitoring of market trends.

Exposure to liquidity risk

The key measure used by the Company for managing liquidity risk is the ratio of net liquid assets to deposits from customers. For this purpose net liquid assets are considered as including cash and cash equivalents and Treasury bills and Repos maturing with in next financial year. A similar, but not identical, calculation is used to measure the Company’s compliance with the liquidity limit established by the Company’s lead regulator, [Central Bank of Sri Lanka - CBSL]. Details of the reported Company ratio of net liquid assets to deposits from customers at the reporting date and during the year were as follows:

Group Company

As at 31st March 2017 2018 2017

86.04 37.54 98.45

Maturity analysis for financial assets and liabilities

Note no 38 of the financials statements summarises the maturity profile of the undiscounted cash flows of the company’s financial assets and liabilities as at 31 March 2018. The Company’s expected cash flows on these instruments vary significantly from this analysis.

Market Risk

Market risk is the risk that changes in market prices, such as interest rates, equity prices, foreign exchange rates and credit spreads (not relating to changes in the obligor’s/issuer’s credit standing) will affect the Company’s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return on risk.

Management of market risks

Interest rate risk arises from the possibility that changes in interest rates will affect future cash flows or the fair values of financial instruments. The company’s policy is to continuously monitor positions on a daily basis and hedging strategies are used to ensure positions are maintained within prudential levels.

The following table demonstrates the sensitivity to a reasonable possible change in interest rates, with all other variables held constant, of the company’s income statement.

Company

If Market rates up by 1 % the effect of the same to the Interest Income/ (Expense)

Rs.

If Market rates drop by 1 %the effect of the same to the

Interest Income/(Expense)Rs.

Effect on Rate sensitive Assets 416,238,752 (416,238,752)

Effect on Rate sensitive Liabilities (216,702,057) 216,702,057

Sensitivity of profit or loss 199,536,695 (199,536,695)




Operational Risk

Operational risk is the risk of direct or indirect loss arising from a wide variety of causes associated with the Company’s involvement with financial instruments, including processes, personnel, technology and infrastructure, and from external factors other than credit, market and liquidity risks such as those arising from legal and regulatory requirements and generally accepted standards of corporate behaviour.

The Company’s objective is to manage operational risk so as to balance the avoidance of financial losses and damage to the Company’s reputation with overall cost effectiveness and to avoid control procedures that restrict initiative and creativity.

The primary responsibility for the development and implementation of controls to address operational risk is assigned to senior management within each business unit. This responsibility is supported by the development of overall Company standards for the management of operational risk in the following areas:

Requirements for appropriate segregation of duties, including the independent authorisation of transactions;

• requirements for the reconciliation and monitoring of transactions;

• compliance with regulatory and other legal requirements;

• documentation of controls and procedures;

• requirements for the periodic assessment of operational risks faced, and the adequacy of controls and procedures to address the risks identified;

• requirements for the reporting of operational losses and proposed remedial action;

• development of contingency plans;

• training and professional development;

• ethical and business standards; and

• risk mitigation, including insurance where this is effective.

Compliance with Company standards is supported by a programme of periodic reviews undertaken by ERM. The results of ERM reviews are discussed with the department heads to which they relate, with summaries submitted to the Audit Committee and senior management of the Company.



50 CAPITAL MANAGEMENT

The Company’s capital management is performed primarily considering regulatory capital.

The Company’s lead regulator, the Central Bank of Sri Lanka (CBSL) sets and monitors capital requirements for the Company.

The Company is required to comply with the provisions of the Finance Companies (Capital Funds) Direction No.01 of 2003, Finance Companies (Risk Weighted Capital Adequacy Ratio) Direction No.02 of 2006 and Finance Companies (Minimum Core Capital) Direction No.01 of 2011 in respect of regulatory capital.

The Company’s regulatory capital consists primarily of tier 1 capital, which includes ordinary share capital, retained earnings and statutory reserves.

The Company’s policy is to maintain a strong capital base so as to ensure investor, creditor and market confidence and to sustain future development of the business. The impact of the level of capital on shareholders’ return is also recognized and the Company recognizes the need to maintain a balance between the higher returns that might be possible with greater gearing and the advantages and security afforded by a sound capital position.

The Company’s regulatory capital under the CBSL guidelines is as follows;

As at 31st March As at As at

31.03.2018 31.03.2017

Capital Element

Ordinary share capital 1,425,946,629 1,425,946,629

Statutory reserve 736,135,589 628,919,447

General reserve 288,079,789 288,079,789

Retained earnings (Excluding share of profits of equity accounted investee) 12,844,244,190 10,957,394,943

Tier I capital / Total Capital 15,294,406,197 13,300,340,808



ANALYSIS OF ORDINARY SHARES AS AT 31ST MARCH

2018 2017

Range No. ofShareholders

No. ofShares

% ofShares

No. ofShareholders

No. ofShares

% ofShares

1 - 1,000 620 147,215 0.00 580 139,168 0.00

1,001 - 10,000 187 836,103 0.01 194 838,303 0.01

10,001 - 100,000 136 5,212,438 0.08 124 4,930,089 0.08

100,001 - 1,000,000 25 9,212,099 0.15 26 9,492,094 0.15

Over 1,000,000 Shares 7 6,362,303,315 99.76 6 6,362,311,516 99.76

Total 975 6,377,711,170 100.00 930 6,377,711,170 100.00

SHAREHOLDERS AS AT 31ST MARCH

2018 2017

No. of % of Issued No. of % of Issued

Shares Capital Shares Capital

1 Lanka ORIX Leasing Company PLC 4,058,876,426 63.64 6,308,876,426 98.92

2 Hatton National Bank PLC/ Lanka ORIX Leasing Company PLC 2,250,000,000 35.28 NIL NIL

3 Browns Investments PLC 40,000,000 0.63 40,000,000 0.63

4 Sinharaja Hills Plantation Pvt Limited 5,445,851 0.09 5,445,851 0.09

5 Chemical Industries (Colombo) Ltd/CIC Charitable & Educational Trust Fund

4,000,000 0.06 4,000,000 0.06

6 Ceylon Biscuits Limited 2,000,000 0.03 2,000,000 0.03

7 Seylan Developments PLC 1,981,038 0.03 1,989,239 0.03

8 Mrs. N.R. Mather 1,000,000 0.02 1,000,000 0.02

9 Mrs. R.L. Mather 1,000,000 0.02 1,000,000 0.02

10 Mr. S.R. Mather 1,000,000 0.02 1,000,000 0.02

11 Mr. D.N.N. Lokuge 890,660 0.01 890,660 0.01

12 Mr. A.N. William 650,000 0.01 650,000 0.01

13 Mr W. Gunarathne 529,017 0.01 529,017 0.01

14 Mr. W.V.A.N. Fernando & Mrs.K.M.M.V.R. Jayasuriya 500,000 0.01 500,000 0.01

15 Dr. H.S.D.Soysa 400,100 0.01 400,100 0.01

16 Seylan Bank PLC/ K.L.G. Udayananda 366,963 0.01 415,664 0.01

17 Mr. P.B.Jayasundara 260,000 0 260,000 0

18 Mrs. A.S. Weerasuriya & Mr. G.S. Padumadasa 210,100 0 101,830 0

19 Mr. S.M.M. Abdul Ghaffoor 200,000 0 200,000 0

20 Mr. H.E.P.Babapulle & Mrs I J Babapulle 200,000 0 200,000 0

6,369,510,155 99.88 6,369,458,787 99.88

Shareholder Information


PUBLIC SHAREHOLDING

Information pertaining to public shareholding is as follows:

31-Mar-2018 31-Mar-2017

Public Holding Percentage 0.449% 1.076%

Number of Public Shareholders 971 928

Float Adjusted Market Capitalization 77,316,993 178,422,848

The Company is not compliant with the Minimum Public Holding requirement stipulated in the Listing Rule 17.13.1 (b) of the Colombo Stock Exchange. The Board of Directors of the Company is in the process of evaluating matters concerning the captioned requirement.

HIGHEST, LOWEST AND CLOSING SHARE PRICES AS AT 31 MARCH

2018 2017

Rs. Rs.

Highest 3.30 4.20

Lowest 2.60 2.40

Closing 2.70 2.60

SHAREHOLDING AS AT 31 MARCH

2018 2017

No. of Shares

% of Shares

No. of Shares

% of Shares

Residents 6,377,678,540 100.00 6,377,678,540 100.00

Non Residents 32,630 - 32,630 -

Total 6,377,711,170 100.00 6,377,711,170 100.00



INCOME STATEMENT (RS.‘000)

Company

2017/18 2016/17

For the 3 months ended 30-Jun 30-Sep 31-Dec 31-Mar 30-Jun 30-Sep 31-Dec 31-Mar

Gross income 3,077,378 3,280,032 3,487,111 3,503,257 2,467,456 2,821,439 3,040,580 2,568,728

Other Income/(Expenses) 854,184 656,729 509,553 609,874 494,940 337,193 347,767 1,161,718

Interest Costs (1,803,615) (1,843,487) (1,732,209) (1,615,484) (1,435,864) (1,422,144) (1,600,460) (1,667,408)

Profit before operating expenses

2,127,947 2,093,274 2,264,455 2,497,647 1,526,532 1,736,488 1,787,887 2,063,038

Other operating expenses (1,271,791) (1,371,013) (1,616,177) (1,819,308) (1,046,972) (1,162,570) (1,149,496) (1,550,133)

Results from operating activities

856,156 722,261 648,278 678,339 479,560 573,918 638,391 512,905

Income tax expense (170,213) (187,615) (179,657) (223,227) (133,419) (159,807) (178,090) (47,155)

Net profit after tax 685,943 534,646 468,621 455,112 346,141 414,111 460,301 465,750

FINANCIAL POSITION (RS.'000)

As at 30-Jun-17 30-Sep-17 31-Dec-17 31-Mar-18 30-Jun-16 30-Sep-16 31-Dec-16 31-Mar-17

Assets 79,228,239 75,979,723 70,332,976 73,508,445 85,035,413 84,550,023 87,046,695 77,761,097

Liabilities 64,336,556 60,534,141 54,336,282 57,002,421 72,936,841 72,053,800 74,100,216 63,585,563

Net Assets 14,891,683 15,445,582 15,996,694 16,506,024 12,098,572 12,496,223 12,946,479 14,175,534

Share capital & reserves 14,891,683 15,445,582 15,996,694 16,506,024 12,098,572 12,496,223 12,946,479 14,175,534

Share capital 1,425,947 1,425,947 1,425,947 1,425,947 1,425,947 1,425,947 1,425,947 1,425,948

Reserves 13,465,736 14,019,635 14,570,747 15,080,077 10,672,625 11,070,276 11,520,532 12,749,588

Summarised Quarterly Statistics


INCOME STATEMENT (RS.‘000)

Group

2017/18 2016/17

For the 3 months ended 30-Jun 30-Sep 31-Dec 31-Mar 30-Jun 30-Sep 31-Dec 31-Mar

Gross income 3,036,891 3,293,528 3,473,615 3,516,303 3,124,134 3,607,544 3,891,880 3,397,979

Other Income/(Expenses) 611,536 899,377 509,554 367,225 519,474 352,998 381,059 1,214,485

Interest Costs (1,803,615) (1,843,487) (1,732,209) (1,615,484) (1,643,414) (1,689,273) (1,943,155) (1,988,331)

Profit before operating expenses

1,844,812 2,349,418 2,250,960 2,268,044 2,000,194 2,271,269 2,329,784 2,624,133

Other operating expenses (1,271,791) (1,371,013) (1,616,177) (1,819,308) (1,327,899) (1,630,160) (1,645,284) (2,064,480)

Results from operating activities

573,021 978,405 634,783 448,736 672,305 641,109 684,500 559,653

Income tax expense (170,213) (187,615) (179,657) (223,227) (136,655) (249,097) (195,915) (69,670)

Net profit after tax 402,808 790,790 455,126 225,509 535,650 392,012 488,585 489,983

FINANCIAL POSITION (RS.’000)

As at 30-Jun-17 30-Sep-17 31-Dec-17 31-Mar-18 30-Jun-16 30-Sep-16 31-Dec-16 31-Mar-17

Assets 94,846,042 95,984,480 98,704,697 88,890,701 94,846,043 95,984,480 98,704,697 88,890,701

Liabilities 82,368,880 83,131,680 85,428,208 74,361,397 82,368,880 83,131,680 85,428,209 74,361,397

Net Assets 12,477,162 12,852,800 13,276,489 14,529,304 12,477,163 12,852,800 13,276,488 14,529,304

Share capital,reserves & non controlling interest

12,477,162 12,852,800 13,276,489 14,529,304 12,477,163 12,852,800 13,276,488 14,529,304

Share capital 1,425,947 1,425,947 1,425,947 1,425,947 1,425,947 1,425,947 1,425,947 1,425,947

Reserves 10,989,471 11,366,354 11,847,905 13,100,664 10,989,470 11,366,350 11,847,905 13,100,663

Non controlling interest 61,744 60,499 2,637 2,693 61,746 60,503 2,636 2,694



Ten Year Summary

Company

For the year ended 31st Dec 31st March

(Rs. 'Mn) 2008/09 2010 2011 2012 2013 2014 2015 2016 2017 2018

Operating Results

Profit before interest 2,146 1,722 2,047 5,405 4,110 4,321 4,132 5,373 8,320 9,747

Profit before tax 514 362 741 3,245 1,603 1,289 1,728 2,008 2,205 2,905

Profit after tax 415 354 664 2,964 1,168 936 1,426 1,574 1,686 2,144

Assets

Total assets 9,451 12,534 21,351 26,398 27,229 32,934 42,385 84,359 77,761 73,508

Liabilities

Total Liabilities 7,776 10,505 17,656 19,635 19,392 24,078 32,270 72,561 63,586 57,002

Shareholders' Funds

Stated capital 418 418 1,426 1,426 1,426 1,426 1,426 1,426 1,426 1,426

Reserves 1,257 1,612 2,269 5,337 6,411 7,430 8,689 10,371 12,750 15,080

Shareholders' funds 1,675 2,030 3,695 6,763 7,837 8,856 10,115 11,797 14,176 16,506

Investor Ratios

Long term borrowings to shareholders funds

0.94:1 0.69:1 1.85:1 1.43:1 0.58:1 0.83:1 0.66:1 2.32:1 1.83:1 1.32:1

Total borrowings to shareholders funds

4.64:1 4.55:1 4.19:1 2.73:1 1.87:1 1.62:1 2.91:1 5.97:1 4.35:1 3.27:1

Book value per share (Rs.) 0.26 0.32 0.58 1.06 1.23 1.39 1.59 1.85 2.22 2.59

Earnings per share(Rs.) 0.07 0.06 0.10 0.46 0.18 0.15 0.22 0.25 0.26 0.34

Return on capital employed (%) 28 19 23 57 16 11 15.03 14.37 12.99 13.98

Return on assets(%) 2 3 4 12 4 3 3.79 2.48 2.08 2.84

Non Financial Information

Number of branches (Including Service Centres)

22 26 40 50 53 53 58 60 61 63

Number of employees 276 388 413 511 539 610 670 801 1,099 1,327


0

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PROFIT BEFORE TAX & PROFIT AFTER TAX

2014 2015

Profit before Tax Profit after Tax

2016 2017 2018

0

50,000

100,000

150,000

200,000

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NUMBER OF BRANCHES INCLUDING SERVICES CENTRES

2014 2015 2016 2017 2018

0

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TOTAL ASSETS & TOTAL LIABILITIES

2014 2015

Total AssetsTotal Liabilities

2016 2017 2018

0

300

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2014 2015 2016 2017 2018



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Sources and Distribution of Income


Statement of Value Added

Company

As at 31st March 2017/18 (%) 2016/17 (%)

(Rs.'000) (Rs.'000)

VALUE ADDED

Income 13,347,778 10,898,203

Other income 2,630,340 2,341,618

15,978,117 13,239,821

Cost of services (2,910,412) (2,525,919)

Provision for losses (1,055,992) (712,077)

12,011,714 10,001,825

Distribution of value added

To employees 12% 11%

Remuneration and other benefits 1,387,268 1,103,658

To government 11% 10%

Income tax,value added tax and VAT on financial services 1,371,667 976,382

To banks and other lenders 58% 61%

Interest and bank charges on borrowings 6,994,795 6,125,876

To providers of capital - -

Dividends to shareholders - -

To expansion and growth 19% 18%

Depreciation 113,661 109,606

Retained profits 2,144,323 1,686,303

12,011,714 10,001,825 100%

DISTRIBUTION OF VALUE ADDED

10%

FY - 2016/17

FY - 2017/18

To Employees

To Goverment

To Bank & Other lenders

To Expansion & Growth

36%

1%3%36%

17%

7%

12%

11%

58%

19%

11%

10%

61%

8%



Glossary Terms

AAccounting Policies

The specific principles, bases, conventions, rules and practices adopted by an entity in preparing and presenting financial statements.

Accrual Basis

Recognizing the effects of transactions and events when they occur, without waiting for receipt or payment of cash or cash equivalents.

Associate Company-Equity accounted investee

An associate is an entity in which the investor has significant influence and which is neither a subsidiary nor an interest in a joint venture

Available- For-Sale Financial Assets

Non derivative financial assets that are designated as available for sale or are not classified as

(a) Loans and receivables,(b) Held to maturity investments or(c) Financial assets at fair value through

profit or loss.

CCapital Adequacy Ratio

This is ratio between core capital and risk weighted assets.

Cash Basis

Recognising the effects of transactions and events when receipts or payments of cash or cash equivalent occur.

Cash Equivalents

Short term highly liquid investment that are readily convertible to known amount of cash and which are subject to an insignificant risk in change in value.

Consolidated Financial Statements

Financial Statements of a Group presented as those of a single company.

Contingencies

A condition or situation existing on the statement of financial position where the outcome will be confirmed only by occurrence or non occurrence of one or more future event.

Corporate Governance

The process by which corporate entities are governed. It covers the way in which power is exercised over the management and direction of entity, the supervision of executive actions and accountability to owners and others.

Credit Risk

Credit Risk is the potential that a borrower or counterparty will fail to meet its obligations in accordance with agreed terms & conditions.

DDiffered Taxation

Sum set aside for tax in the financial statements that may become payable/receivable in a financial year other than the current financial year.

Depreciation

Depreciation is the allocation of the depreciable amount of an asset over its estimated useful life.

Derivatives

A derivative is a financial instrument or other contract, the value of which changes in response to some underlying variable (e.g., an interest rate), that has an initial net investment smaller than would be required for other instruments that have a similar response to the variable, and that will be settled at a future date.

EExecutions

Advances granted to customers under leasing, hire purchase and loan facilities.

Equity Method

The equity method is a method of accounting whereby the investment is initially recognized at cost and adjusted thereafter for the post-acquisition changes 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.

FFair Value

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 Assets

Any asset that is cash, an equity instrument of another entity or contractual right to receive cash or another financial asset from another entity.

Core Capital

Core capital is the minimum amount of capital that finance company should have on hand to comply with the regulatory requirement. Core capital consists of equity capital and declared reserves.

Finance Lease

A contract where by a lessor conveys to the lessee the right to use an asset for rent over an agreed period of time which is sufficient to amortize the capital outlay of the lessor. The lessor retains ownership of the asset but transfers substantially all the risk and rewards incidental to ownership of the asset to the lessee.


Financial Liability

Is a contractual obligation to deliver cash or another financial asset to another entity

GGoodwill

Any excess of the cost of the acquisition over the acquirer’s interest in the fair value of the identifiable assets and liabilities acquired as at the date of the exchange transaction and is recognized as an asset.

Gross Portfolio

Total rental receivable of the advances granted to customers under leasing, hire purchase and loan facilities.

HHire Purchase

A hire purchase is a contract between hirer and financier where the hirer takes on hire a particular article from the financier, with the option to purchase the article at the conclusion of the agreed rental payments.

IImpairment

Amount by which the carrying amount of an asset or cash generating unit exceeds its recoverable amount.

Interest Cost

The sum of monies accrued and payable to the sources of borrowed working capital.

Investment Property

Investment Property is a property (land or a building - or part of a building -or both) held (by the owner or by the lessee under a finance lease) to earn rentals or for capital appreciation or both rather than for use in the production or supply of goods or services or for administrative purposes or sale in the ordinary course of business.

Investment Securities

Securities acquired and held for yield or capital growth purposes and are usually held to maturity.

KKey Management Personnel

Key Management Personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the entity, directly or indirectly.

LLease

A lease is an agreement whereby the lessor conveys to the lessee in return for a payment or series of payments the right to use an asset for an agreed period of time.

Liquid Assets

Assets that are held in cash or in a form that can be converted to cash readily, such as deposits with other banks, Bills of Exchange and Treasury Bills and Bonds.

NNegative Goodwill

Any excess, as at the date of the exchange transaction, of the acquirer’s interest in the fair values of the identifiable assets and liabilities acquired over the cost of the acquisition and is treated as income in the period it arises.

Net Portfolio

Total rental instalment receivable excluding interest of the advances granted to customers under leasing, hire purchase and loan facilities.

Non-Controlling Interest

Part of the net results of operations and of net assets of a subsidiary attributable to interests who are not owned, directly or indirectly through subsidiaries, by the Parent.

Non Performing Portfolio

Facilities granted to customers who are in default for more than six months.

OOperating Lease

An operating lease is a lease other than a finance lease.

PProvision

Amount set aside against possible losses or net receivable of facilities granted to customers, as a result of them becoming partly or wholly uncollectible.

RRelated Parties

Parties are considered to be related if one party has the ability to control the other party or exercise significant influence over the other party in making financial or operating decisions.

Related Party Transactions

A transfer of resources or obligations between related parties, regardless of whether a price is charged.

Residual Value

The estimated amount that is currently realisable from disposal of asset, after deducting estimated cost of disposal, if the asset was already of the age and in the condition expected at the end of its useful life.

SSegmental Analysis

Analysis of financial information by segments of an enterprise specifically, the different industries and the different geographical areas in which it operates.



Shareholder's Funds(equity)

Total of issued and fully paid ordinary share capital and reserves.

Stated Capital

All amount received by the Company or due and payable to the Company-

(a) In respect of the issue of shares, (b) In respect of calls on shares.

Subsidiary Company

Subsidiary is a company that is controlled (power to govern the financial and operating policies of an enterprise so as to obtain benefits from its activities) by another company known as the Parent.

Substance over Form

The consideration that the accounting treatment and the presentation in Financial Statements of transactions and the events should be governed by their substance and financial reality and not merely by legal form.

TTier 1 Capital

Core capital representing permanent shareholders’ equity and reserves created or increased by appropriations of retained earnings or other surpluses.

Tier 11 Capital

Supplementary capital representing general provisions and other capital instruments which combine certain characteristics of equity and debt, such as hybrid capital instruments and unsecured subordinated term debt.

UUnearned Income

Unearned interest is an accounting method used by lending institutions to deal with long-term, fixed-income securities. Initially

recorded as a liability, the unearned interest will eventually be recorded as income in the lending institution's books over the life of the loan as time passes and the interest is earned.

VValue Addition

Value of wealth created by providing leasing and other related services considering the cost of providing such services.

RATIOSMethod of computation and indicates

DDebt to Equity (Gearing) Ratio

Total debts divided by equity. The extent to which debt contributes to fund total assets, compared to the contribution from equity.

EEarnings Per Share (EPS)

Profit attributable to ordinary shareholders divided by the weighted average number of ordinary shares outstanding during the year. Share of current year’s earnings attributable to an ordinary shares in use.

IInterest Cover

Earnings before interest and tax divided by interest expense. Ability to cover or service interest charges of the debt holders.

MMarket Capitalization

Number of ordinary shares in issue multiplied by market value of a share. Total market value of all ordinary shares in issue.

NNet Assets Value per Ordinary Share

Ordinary shareholders’ funds divided by the number of ordinary shares in issue. Book value of an ordinary share.

Non Performing Ratio

Total gross non-performing portfolio divided by total gross portfolio. Percentage of total gross non-performing portfolio against the total gross portfolio.

PPrice Earnings Ratio (PER Ratio)

Market price of a share divided by earnings per share (EPS). Number of years that would be taken to recoup shareholders' capital outlay in the form of earnings.

RReturn On Assets (ROA)

Net profit expressed as a percentage of average total assets. Overall effectiveness in generating profit with available assets; earning power of invested total capital.

Return on Equity (ROE)

Net profit, less preference share dividends if any, expressed as a percentage of average ordinary share holders' funds. Earning power on shareholders’ book value of investment (equity).

Glossary Terms


Notes



Notice of Meeting

NOTICE IS HEREBY GIVEN THAT THE 26TH ANNUAL GENERAL MEETING of Commercial Leasing & Finance PLC will be held on 28th September 2018 at 11.30 am, at the LOLC Auditorium, No. 100/1, Sri Jayawardenapura Mawatha, Rajagiriya for the following purposes:

1. To receive and consider the Annual Report and Financial Statements for the year ended 31st March, 2018, with the Report of the Auditors thereon.

2. To note the non-compliance of the Minimum Public Holding required by the Listing Rules of the Colombo Stock Exchange.

3. To re-elect as Director Mr U H E Silva, who retires in terms of Article 70 of the Articles of Association of the Company.

4. To re-elect as Director Mr T Sanakan, who retires in terms of Article 70 of the Articles of Association of the Company.

5. To re-elect as Director Mr L Jayaratne, who retires by rotation in terms of Article 75 of the Articles of Association of the Company.

6. To re-elect as Director Mr D M D K Thilakaratne, who retires by rotation in terms of Article 75 of the Articles of Association of the Company.

7. To re-appoint as Auditors M/s KPMG, Chartered Accountants at a remuneration to be fixed by the Directors.

8. To authorise the Directors to determine donations for the ensuing year.

BY ORDER OF THE BOARDCommercial Leasing & Finance PLC

LOLC Corporate Services (Pvt) LtdSecretaries

15th August 2018Rajagiriya (in the greater Colombo)

Note:

1) A member entitled to attend and vote at the Meeting is entitled to appoint a Proxy to attend and vote instead of him/her. A Proxy need not be a member of the Company.

2) The completed Form of Proxy should be deposited at the registered office of the Company, 68, Bauddhaloka Mawatha, Colombo 04, not later than 11.30am on 26th September 2018.

3) A Form of Proxy accompanies this Notice.


Form of Proxy

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

of …………………………………………………………………………………………………………………………… being a member/members

of the above named Company hereby appoint …………………………………………………………………………………………………………

……………………………………………………………… of …………………………………………………………………………… whom failing

Mr Priyantha Damian Joseph Fernando of Colombo or failing himMr Luxhman Jayaratne of Colombo or failing himMr Don Manuwelge Don Krishan Thilakaratne of Colombo or failing himMr Ulluvis Hewage Ebert Silva of Colombo or failing himMr Thamotharampillai Sanakan of Colombo

as my/our proxy to represent me/us and vote on my/our behalf at the Annual General Meeting of the Company to be held on 28th September 2018, and at any adjournment thereof and at every poll which may be taken in consequence of the aforesaid Meeting.

For Against

1 To re-elect as Director Mr U H E Silva, who retires in terms of Article 70 of the Articles of Association of the Company.

2 To re-elect as Director Mr T Sanakan, who retires in terms of Article 70 of the Articles of Association of the Company.

3 To re-elect as Director Mr L Jayaratne, who retires by rotation in terms of Article 75 of the Articles of Association of the Company.

4 To re-elect as Director Mr D M D K Thilakaratne, who retires by rotation in terms of Article 75 of the Articles of Association of the Company.

5 To re-appoint as auditors M/s KPMG Chartered Accountants at a remuneration to be fixed by the Directors.

6 To authorize the Directors to determine donations for the ensuing year.

dated this ……….………………….. day of ……………., Two Thousand Eighteen

………………………………………

Signature of Shareholder

Note:

1) a proxy need not be a member of the Company

2) Instruction as to completion appear on the reverse hereof



INSTRUCTIONS AS TO COMPLETION

1 Please return the completed Form of Proxy after filling in legibly your full name and address, signing on the space provided and filling in the date of signature.

2 The completed Form of Proxy should be deposited at the registered office of the Company, 68, Bauddhaloka Mawatha, Colombo 04 not less than 48 hours before the time appointed for the holding of the Meeting.

Form of Proxy

Designed & produced by

Printed by Printage (Pvt) LtdPhotography by Taprobane Street

NAME OF THE COMPANY

Commercial Leasing & Finance PLC

COUNTRY OF INCORPORATION

Sri Lanka

LEGAL FORM

A quoted public company with limited liability

DATE OF INCORPORATION

22nd April 1988

COMPANY REGISTRATION NO.

PQ 131/PB/PQ

STOCK EXCHANGE LISTING

The ordinary shares of the Company were listed on the Diri Savi Board of the Colombo Stock Exchange on 5th June 2012.

CREDIT RATING

ICRA Lanka assigned the company an issuer rating of (SL)A (Stable).

REGISTERED OFFICE AND HEAD OFFICE

No. 68, Bauddhaloka Mawatha, Colombo 04. Tel: 0114526500/526Fax: 0114526559Website: http://www.clc.lk

DIRECTORS

Mr. P D J Fernando – Chairman/ Independent Non-Executive Director Mr. L Jayaratne – Independent Non-Executive DirectorMr. U H E Silva - Independent Non-Executive Director (a.w.e.f 09.10.2017)Mr. T Sanakan - Independent Non-Executive Director(a.w.e.f. 23.05.2018) Mr. D M D K Thilakaratne - Executive Director/ CEO SECRETARIES

LOLC Corporate Services (Private) Limited100/1 Sri Jayawardenapura Mawatha, RajagiriyaTel: 011 5880354/6 0115880880 (general)

AUDITORS

KPMG, Chartered Accountants

LAWYERS

Julius & Creasy, Attorneys-at-LawNithya Partners

REGISTRARS

PW Corporate Secretarial (Private) LtdNo. 3/17 Kynsey Road, Colombo 8.Tel: 011 4897733-5

Corporate Information

PRINCIPAL ACTIVITIES

During the year the principal activities of the Company comprised provision of leasing, loans, mobilising of fixed and savings deposits, Islamic financing and micro financing.

BANKERS

Bank of CeylonCiti Bank N AHatton National Bank PLCHongkong and Shanghai Banking Corporation LtdNation Trust Bank PLCCommercial Bank of Ceylon PLCNDB BankSeylan Bank PLCMCB BankSampath Bank PLCDFCC Vardhana BankUnion Bank of Colombo PLCPeople’s BankHabib Bank

www.clc.lk

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