Swarnamahal Financial Services PLC Annual Report … Financial Services PLC is a Public Limited ......

Swarnamahal Financial Services PLCAnnual Report 2013/14

PLC

Contents About UsSwarnamahal Financial Services PLC is a Public Limited Liability Company incorporated in Sri Lanka on 14th January 2004, under the Companies Act No.17 of 1982, and re-registered on 16th September 2008 under the Companies Act No.7 of 2007. The Company is licensed by the Monetary Board of the Central Bank of Sri Lanka under the Finance Business Act No.42 of 2011 and listed on the Colombo Stock Exchange.

VisionTo be the Premier Financial Services Provider in the LFC market.

MissionTo create superior long - term value to our shareholders, customers and employees above the industry standard.

ValuesHighest standards of ethics and integrity

• Always do the right thing and keep commitments.

• Engage others to build trust and encourage strong communication

• Listen and share as a team

Respect

Respect all through trust, courtesy and open communication

Innovation and continuous improvements

Anticipate customer needs and work to exceed their expectations

Service Excellence

Commitment to achieve the highest standard of services quality with personalized services.

Learning focused

Search new knowledge for innovations.

Financial Highlights ....................................... 01

Board of Directors ......................................... 02

Senior Management Team ............................. 03

Risk Management.......................................... 04

Corporate Governance.................................. 07

Annual Report of the Board of Directors on the Affairs of the Company.................................. 11

Directors’ Statement on Internal Control .......... 14

Statement of Directors’ Responsibilities in Relation to Financial Statements...................... 15

Chief Executive Officer’s and Senior Finance Manager’s Statement of Responsibility............. 16

Board Audit Committee Report ....................... 17

Board Integrated Risk Management Committee Report .......................................................... 19

Board Remuneration Committee Report........... 20

Independent Auditors’ Report ......................... 22

Statement of Comprehensive Income .............. 23

Statement of Financial Position ....................... 24

Statement of Changes in Equity ...................... 25

Statement of Cash Flow ................................. 26

Significant Accounting Policies ........................ 27

Notes to the Financial Statements ................... 43

Eight Years at a Glance.................................. 62

Share Information.......................................... 64

Our Network ................................................ 66

Notice of Meeting ......................................... 67

Form of Proxy................................................ 69

Swarnamahal Financial Services PLC Annual Report 2013/2014

1

Financial Highlights

2013/14 2012/13

Financial Performance for the year (Rs. Mn)Gross Income 216 1,340

Net Profit before Tax (PBT) (1,228) 220

Income Tax Expense 17 98

Net Profit after Tax (PAT) (1,245) 122

Financial Position at the year end (Rs. Mn)Total Assets 4,494 6,103

Pawning Advances 2,261 4,610

Other loans and advances 1,121 498

Deposits 5,133 5,400

Shareholders’ Funds (805) 432

Information per Ordinary Share (Rs.)Earnings -2.49 0.24

Net Asset Value -1.61 0.86

Key IndicatorsReturn on Average Shareholders’ Funds (%) -200 33.2

Return on Average Assets(%) -23.5 2.2

Cost to Income Ratio (%) 458.6 60.6

Capital Adequacy RatiosCore Capital Ratio-Tier I (%) -42.99 22.07

Total Risk weighted Capital Ratio -Tier II (%) -40.86 25.13

Statutory RatiosShareholders’ Funds to Deposits (%) -15.69 8.00

Liquid Assets Ratio (%) 13.3 9.0


2

Board of Directors

1. Mr. J.H. Edirisinghe - Chairman

Managing Director of EAP Group of Companies. He counts over 25 years of extensive experience in the fields of Gold, Jewellery, Finance, Electronic Media and Management.

2. Mrs. A.D. Edirisinghe - Executive Director

Director of EAP Group of Companies, she counts over 20 years of experience in the fields of Management and Finance.

3. Mr. N.P. Edirisinghe - Executive Director

Director of EAP Group of Companies, he has an expert knowledge in Gold and other precious metals and stones and counts over 20 years of extensive experience in the fields of Gold, Information Technology, Finance and Management.

4. Mr. A.S. Edirisinghe - Executive Director

Director of EAP Group of Companies, he is a Finalist of the Chartered Institute of Management Accountants (UK) and a Member of the Film Association.

He counts over 20 years of experience in the fields of Film Industry, Gold, Information Technology and Finance.

5. Mr. S. Kariyawasam - Non- Executive Director

Executive Director/CEO of EAP Holdings Limited and he holds Directorships with Swarna Mahal Jewellers (Pvt.) Ltd, EAP Broadcasting Company Ltd, EAP Films & Theaters (Pvt) Ltd and Swarna Solutions Limited.

He counts over 32 years of experience in the Banking and Financial sector and holds the Bachelor of Arts Degree, University of Ceylon, Peradeniya, LLB Degree, Open University of Sri Lanka, Post Graduate Diploma in Management, University of Sri Jayawardanapura. He is a member of Association of Bankers of Sri Lanka (A.I.B.) and FBA (Sri Lanka) Professional Banker’s Association of Sri Lanka.

He is a professional banker, primarily served at People’s Bank and retired as the Deputy General Manager-Branch Operations and was the CEO/General Manager-CFL-TAFE Sri Lanka from May 2007 to May 2010.

6. Mr. S.D.Jayawardhana - Non - Executive Director

Director Finance of EAP Holdings Limited and he holds directorships with Swarna Mahal Jewellers (Pvt.) Ltd, EAP Broadcasting Company Ltd, EAP Films & Theaters (Pvt) Ltd and Swarna Solutions Limited.

He counts over 25 years of experience in finance & management (12 years overseas) in the fields of in manufacturing, constructions, trading and finance. He is an Associate Member of the Institute of Chartered Accountants of Sri Lanka (ACA) and a Fellow Member of the Society of Certified Management Accountants of Sri Lanka (FSCMA).

He has worked as a Management Consultant (2007-2011), Finance Director / Head Finance to Hemas FMCG (2006-2007), Rasasi Perfume Industry LLC, UAE (1998-2006), The Blantyre Netting Co. Ltd. Malawi (1995-1998) & CDE Group (1990-1994) and trained at KPMG (1985 -1990).

7. Mr. B.G. Wimalarathna Banda - Independent Non-Executive Director

He counts over 37 years of experience in the banking field and holds the Bachelor of Science (Business Administration) Sp. Degree, Vidyodaya University of Sri Lanka, Master of Arts (Buddhist Studies), University of Kelaniya and Diploma in Credit Management. He is an associate of the Institute of Bankers of Sri Lanka and a Fellow of the Institute of Credit Management of Sri Lanka.

He is a professional banker, primarily served at People’s Bank and retired as the Assistant General Manager-Operation Coordinator- Core Banking Project and was the Operation Manager from 2005 to May 2007, at PABC Bank. He was the Advisor-Banking from May 2007 to November 2012, at National Savings Bank.

8. Mr. S.M. Ganegoda - Non- Executive Director

He is the Chief Executive Officer of ETI Finance Limited and was the Director/Chief Executive Officer of the Company from January 2009 to September 2013. He counts over 15 years of experience in the fields of Finance and Audit and holds the Business Management Degree from the University of Kelaniya. He is an Associate Member of the Institute of Chartered Accountants of Sri Lanka and Institute of Certified Management Accountants of Sri Lanka.


3

Senior Management Team

1. Mr. Sanjaya Fernando ChiefExecutiveOfficer

He counts over 09 years of experience in the field of Banking of which over 5 years in UK banking sector. He holds a MBA from the University of Wales Institute, Cardiff, a Post Graduate Diploma in Business Management, from London School of Commerce, London and a Diploma in Information Technology from Australian College for Business and Technology.

2. Mr. George Samantha Senior Manager – Corporate Relations

He counts over 10 years of experience in the fields of Banking and Finance and holds the B.Sc Marketing Management (Special) Hons. Degree, from the University of Sri Jayawardenapura. He is a Member of the Chartered Institute of Marketing (MCIM) and Sri Lanka Institute of Marketing (MSLIM).

3. Mr. Dhanuka PereraSenior Manager - Pawning & Gold Sales

He counts over 13 years of experience in the fields of Pawning and Gold Sales and holds a Diploma in Business Management.

4. Mr. R.M.G. Ratnayake Senior Manager – Finance

He counts over 10 years of experience in Financial Sector and holds the Degree of B.Sc. Accountancy & Financial Management (Special), from the University of Sri Jayawardenapura. He holds a Diploma in Treasury Management, Institute of Bankers of Sri Lanka.

5. Mr. Newton Fernando Manager – Credit

He counts over 15 years of experience in the field of Credit and holds the B.Sc Business Administration (Special) Degree from the University of Sri Jayawardenapura.

6. Mrs. Subhani Edirisinghe Manager – Kollupitiya Branch

She counts over 13 years of experience in the field of deposit mobilization. She holds the B.Sc Business Administration (Marketing Special) Degree from the University of Sri Jayawardenapura.


4

Risk Management

Overview

Risk is a possibility that the outcome of an action or event could either result in a direct loss of earnings and/or capital or create constraints on the Company’s ability to meet its business objectives. Such constraints pose a risk as these could hinder a company’s ability to conduct its ongoing business or to take benefit of opportunities to enhance its business.

Our Risk Management policies and procedures are designed to analyze and address all types of risks, set appropriate risk limits, take apt measures on continuous basis in line with the evolving business requirements and regulatory guidelines to ensure risks are within the tolerance levels.

Our risk management strategy is based on identification, measurement, monitoring and managing risks of the Company to ensure that;

a) the individuals who take or manage risks clearly understand them.

b) the organization’s risk exposure is within the limits established by Board of Directors.

c) risk taking decisions are in line with the business strategies and objectives set by the Board.

d) risk taking decisions are explicit and clear.

Risk Governance and Integrated Risk Management Framework

The Board of Directors has the authority to determine the overall risk management framework for the Company and has the responsibility to oversee the effective implementation of risk management strategies. Accordingly, the Board approves the risk management policies and formulates goals and limits for risk appetite and strategy.

The Board has established the following committees to effectively manage all types of risks faced by the Company.

Integrated Risk Management Committee

The Board Integrated Risk Management Committee (BIRMC) is responsible to provide directions on the risk management process and formulations of policies and procedures for the ratification by the Board of Directors and the implementation of such policies and procedures and ensuring that all operations are within the guidelines and policies set by the Board.

The established policies, procedures and decision making process are integrated into the daily operations of SFS and the internal auditors conducts independent and regular inspections in order to ensure the effectiveness of the risk management strategies.

More details are given in the BIRMC Report in page 19.

Board Audit Committee

The Committee monitors the effectiveness of Internal Audit Function by reviewing and examining the adequacy, efficiency, effectiveness of the system of internal controls and procedures that are in place to mitigate risks in financial reporting.

It also reviews the accounting policies, procedures, financial reporting and compliance with other regulatory requirements.

More details are given in the Board Audit Committee report in pages 17 to 18.

Executive Credit Committee

The Committee evaluates the Credit portfolio of the Company and directs appropriate actions to control and mitigate the Credit Risk. The Committee approves Credit Facilities which are above delegated authority levels of CEO. The Committee also counter recommends credit facilities recommended by the CEO for the approval of the Board as per the defined delegated levels of authority of the Company.

Key Risks and its Mitigation Strategies

Credit risk

Credit risk is the likelihood that a debtor or financial instrument issuer is unwilling or unable to pay interest and/or repay the principal according to the terms specified in a credit agreement resulting in financial loss to the Company.

Credit risk means that payments of loan installments may be delayed or ultimately not paid at all, which can in turn cause cash flow problems and affect the company’s liquidity.

The objective of credit risk management is to minimize the risk and maximize Company’s risk adjusted rate of return by assuming and maintaining credit exposure within the acceptable parameters.


5

Credit Risk Mitigation

Credit Origination

The Company has established a sound credit evaluation process for approving credit in a safe and sound manner. The criteria laid down sets out the eligibility, quantum, types, terms and conditions for the granting of credit.

Credit process

The Credit Committee reviews the credit evaluation process periodically to avoid weaknesses in granting of credit and to ensure an effective monitoring process.

Exposure Ceilings:

The Credit Committee has clearly defined exposure limits for each category of customers and strictly adheres to the limits approved by the Board. The Credit exposure limit for Gold Loans was reduced from 75% to 50% with a view of mitigating the risk of declining gold prices.

Delegation of Authority

During the year, the delegation of authority structure of the Company was reviewed by the Board of Directors and these authority levels have been properly communicated to the relevant personnel in the senior management and the credit committee. The lending authority assigned to officers is commensurate with their experience, ability and personal character.

Credit Manual and Policy

The Credit Manual and the Credit Policy framework of the Company were reviewed and implemented by the Board. Our risk mitigation strategy is to strictly adhere to the approved credit manual and credit policy of the Company.

Credit Administration

A sound credit administration function is in place to maintain and ensure that the credit portfolio is properly maintained. This includes keeping the credit files up to date, obtaining current financial information, sending out notices etc.

Asset and Liability Committee

The Assets and Liability Committee (ALCO) is headed by the CEO and comprises of selected members of the senior management of the key business units.The committee is set up to analyze, review and mitigate the asset-liability mismatch risk. Asset-liability mismatch risk arises due to a mismatch in the maturity pattern of assets and liabilities of the Company. ALCO is responsible for

managing the lending and the borrowing rates, statement of financial position items including assets and liabilities, capital structure, business operations and liquidity.

Internal Controls

The Internal Auditors conduct ongoing assessment of the credit risk management process. All facilities granted are subjected to individual risk review at least once a month. The results of such reviews were properly documented and reported directly to Board Audit Committee with recommendations to take corrective actions. The purpose of such reviews is to assess the credit administration process, the accuracy of credit rating including adequacy of provisions for losses and overall quality of credit portfolio.

Liquidity Risk

Liquidity risk is the potential for loss to the Company arising from either its inability to meet its obligations as they fall due or to fund increases in assets without incurring unacceptable costs or losses (funding liquidity risk).

Liquidity risk management strategy involves not only analyzing the Company’s on and off-financial positions to forecast future cash flows, but also how the funding requirement would be met. The latter involves identifying the funding market the Company can have access to, understanding the nature of those markets, evaluating institution’s current and future use of such markets.

Risk Mitigations Strategies

Composition of Assets and Liabilities

The strategy is outlined concentrating the mix of assets and liabilities to maintain the required liquid assets. Over 67% of the interest earning assets comprised of Gold Loan advances with short maturity periods enable the Company to maintain robust liquidity positions at all times.

DiversificationandStabilityofLiabilities

The deposits portfolio of the Company is diversified geographically and among large number of customers, with no dependence on one or few customers to ensure that there will be no significant risk in a sudden withdrawal of funds. The Board of Directors and the senior management provide guidance relating to funding sources and ensure that the Company has diversified sources of funding for day-to-day liquidity requirements.

Interest Rate Risk

Interest Rate Risk is the potential negative impact on the Net Interest Income and it refers to the vulnerability of


6

Company’s financial condition to the movement in interest rates. Changes in interest rates affect earnings, value of assets, liabilities off-financial position items and cash flows. Hence, the objective of interest rate risk management is to maintain earnings, improve the ability to absorb potential loss and to ensure the adequacy of the compensation received for the risk taken and risk return trade-off.

Operational Risk

The Company always lives with the risks arising out of human error, financial fraud and natural disasters.

Operational risk is the risk of loss arising from inadequate or failed internal processes, people and systems or from external events.

Risk Mitigation

Key aspects of our operational risk management lie in the Company’s ability to assess its process for vulnerability and establish controls to safeguard its assets.

A well implemented sound internal control mechanism and internal audit systems of the Company are used as the primary means of Operational Risk Mitigation.

Further, we extended our operational risk mitigation strategies to obtain comprehensive insurance covers for our all Branches and Pawning Centres on 24 hours basis.

The Company is committed to secure its information by developing, implementing and monitoring comprehensive system procedures to ensure the integrity, confidentiality and availability of such information.

Strategic Risk

Strategic risk is the possibility of being unable to implement appropriate business plans, strategies, or take proper decisions or allocate adequate resources and its inability to adapt to changes in its business environment. The Risk

Management unit of the Company reviews the emerging trends in risk and involves in the implementation of the company’s strategic plan.

Compliance Risk

Compliance Risk is the risk of legal or regulatory sanctions, material financial loss or damage to reputation that an institution may suffer as a result of failure to comply with laws, regulations, rules, self-regulatory organization standards and codes of conduct applicable to its activities.

In order to mitigate the Compliance Risk, a compliance officer has been appointed to maintain a better relationship with such regulatory authorities. The compliance officer maintains a pre-planned schedule of compliance activities to ensure the compliance with regulatory authorities is in a timely manner.

Legal Risk

Legal Risk is the risk that the Company will conduct activities or carry out transactions in which they are inadequately covered or are left exposed to potential litigation. The legal risk management framework provides an outline of the important issues that Directors and/or Senior Management of the Company may need to consider in ensuring due diligence in the operations of the Company as well as an overview of liability of exposure against this risk.

Reputational Risk

Reputational Risk is the potential for negative publicity regarding an institution’s business practices, whether true or not, that will cause a decline in the customer base, costly litigation, or revenue reductions. This risk may result from an institution’s failure to effectively manage any or all of the other risk types.


7

Corporate Governance

The Board of Directors of the Company places the highest emphasis on good governance in every aspect of the Company’s operations. The necessary policies and procedures have been formulated by the Board in order to implement an adequate internal control mechanism in a manner that would enhance stakeholders’ confidence.

Accordingly, the Board is assisted by 04 Board Sub Committees to ensure that the business is carried on in compliance with the Corporate Governance Direction No. 3 of 2008 issued by the Central Bank of Sri Lanka including amendments thereto and the Listing Rules of the Colombo Stock Exchange relating to the Corporate Governance.

Corporate Governance Framework

Board of Directors

Board Integrated RiskManagement Committee

Board AuditCommittee

Board RemunerationCommitteeBoard Credit Committe

Minimum disclosures in terms of the Finance Companies (Corporate Governance) Direction No. 3 of 2008 issued by the Central Bank of Sri Lanka (CBSL).

CBSL SECTION DESCRIPTION COMPLIANCE STATUS

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 supervisory and regulatory authorities and applicable accounting standards, and that

The Annual and Interim Financial Statements have been prepared and published in accordance with the formats prescribed by the supervisory and regulatory authorities and applicable Accounting Standards.

b) Such statements are published in the newspapers in an abridged form, in Sinhala, Tamil and English.

Further, arrangements are in place to publish financial statements in all three languages in the national newspapers of Sinhala, English and Tamil in the ensuing Financial Year.

10 (2) (a) A statement to the effect that the Annual AuditedFinancial Statements have been prepared in line with applicable accounting standards and regulatory requirements, inclusive of specific disclosures.

Complied with A statement to this effect has been included in the“Statement of Directors’ Responsibility” in page 15.

(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 for external purposes has been done in accordance with relevant accounting principles and regulatory requirements.

Complied with

This report is contained in the “Directors’ statement on Internal Control over Financial Reporting” in page 14.


8

CBSL SECTION DESCRIPTION COMPLIANCE STATUS

10 2 (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.

The Board will ensure to comply with these requirements in the ensuing financial year.

(d) Details of Directors, including names, transactions with the Finance company.

Complied withThis has been included in the Annual Report of the Board of Directors on the affairs of the Company” in pages 11 to 13

(e) Fees and remuneration paid by the finance company to the Directors in aggregate in the annual reports published after January 1, 2010.

Complied withThe fees & remuneration paid to the Directors has been disclosed in Note No. 11 to the Financial Statements asgiven in page 43.

(f) Total net accommodation as defined in 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 withThe total net accommodations granted to relatedparties are disclosed in Note No 34.4 to the FinancialStatements in page 58 & 11.

(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, deposits or investment made in the finance Company.

Complied withDisclosed in Note No. 34.2 to the Financial Statements in page 56.

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

Complied withStatus of compliance with prudential requirements, regulations and laws are set out in the Annual Report of the Board of Directors on the Affairs of the Company in page 13.

(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 the rules and directions that have been communicated by the Director 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.

There were a few supervisory concerns reported. The Company is now in a process of rectifying such concerns in line with financial consolidation process of the Central Bank of Sri Lanka. The details of such concerns are given in the Indipendent Auditors’ Report in page 22.

( j) The External Auditor’s certification of the compliance with the Act and rules and direction issued by the monetary board in the annual corporate governance report published after January 1, 2011.

An arrangement is in place to comply with this requirement in the ensuing Financial Year.


9

Compliance with the section 7.10 of continuing listing requirements of the Colombo Stock Exchange.

CSE SECTION DESCRIPTION COMPLIANCE STATUS

7.10.1 Executive Directors7.10.1 (a) The 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 with The Board comprised with 8 Directors of whom 5 Directors are Non-Executive.

7.10.2 Independent Directors

7.10.2 (a) Where the constitution of the Board of Directors includes only two Non-Executive Directors in terms of Rule 7.10.1.a above, both such Non-Executive Directors shall be independent’. In all other instances two or 1/3 of Non-Executive Directors appointed to the Board, whichever is higher shall be ‘Independent’.

The Board will ensure to comply with these requirements in the ensuing Financial Year.

7.10.2 (b) The Board shall require each Non-Executive Director to submit a signed and dated declaration annually of his/ her independence or non independence against the specified criteria.

Complied with The Board has determined the independence of each Non-Executive Director based on the declarations submitted by them and will continue to evaluate them on annual basis.

7.10.3 Disclosures relating to Directors

7.10.3 (a) The Board shall make a determination annually as to the independence or non-independence of each Non- Executive Director based on such declaration and other information available to the board and shall set out in the annual report the names of directors determined to be ‘independent’.

Complied with

7.10.3 (c) The Board shall publish in its Annual Report a brief resume of each director on its board which includes information on the nature of his/her expertise in relevant functional areas.

Complied withThe brief profile of each Director has been set out in page 02.

7.10.3 (d) Upon appointment of a new Director to its Board, the Entity shall forthwith provide to the Exchange a brief resume of such director for dissemination to the public.

Complied with

7.10.5 Remuneration Committee

7.10.5 (a) The Remuneration Committee shall comprise of a minimum of two Independent Non-Executive Directors (in instances where an Entity has only two Directors on its Board) or Non-Executive Directors, a majority of whom shall be independent, whichever shall be higher.


7.10.5 (b) The Remuneration Committee shall recommend the remuneration payable to the executive directors and Chief Executive Officer of the Listed Entity and/or equivalent position thereof, to the board of the Listed Entity which will make the final determination upon consideration of such recommendations.

The Board remuneration committee was formed inorder to ensure formal and transparent procedures in developing an effective remuneration policy for all Executive Directors including the CEO and the Senior Management personnel. No Director was involved in deciding his or her remuneration in order to avoid potential conflict of interest. However, no meetings were held during the Financial Year and the Board will ensure to hold committee meetings during the ensuing Financial Year.


10

7.10.5 (c) The Annual Report should set out the names of directors comprising the remuneration committee, contain a statement of the remuneration policy and set out the aggregate remuneration paid to Executive and Non-Executive Directors.

Complied withThe names of directors of remuneration committee, Statement of remuneration policy and the aggregate of remuneration paid to the Executive and Non- Executive Directors are given in page 20.

7.10.6 Audit Committee

7.10.6 (a) The Audit Committee shall comprise of a minimum of two Independent Non-Executive Directors (in Instances where an Entity has only two directors on its board) or Non-Executive Directors a majority of whom shall be independent, whichever shall be higher.


7.10.6 (b) Functions of the Committee shall include,(i) Overseeing of the preparation, presentation and

adequacy of disclosures in the financial statements of a Listed Entity, in accordance with Sri Lanka Accounting Standards.

(ii) Overseeing of the Entity’s compliance with financial reporting requirements, information requirements of the Companies Act and other relevant financial reporting related regulations and requirements.

(iii) Overseeing the processes to ensure that the Entity’s internal controls and risk management are adequate, to meet the requirements of the Sri Lanka Auditing Standards.

(iv) Assessment of the independence and performance of the Entity’s external auditors.

(v) To make recommendations to the Board pertaining to appointment, re-appointment and removal of external auditors and to approve the remuneration and terms of engagement of the External Auditors.

Complied with

Functions of the Board Audit Committee are given in the Board Audit Committee Report in pages 17 to 18.

7.10.6 (c) The names of the Directors comprising the Audit Committee should be disclosed in the annual report.

Complied withNames of the Directors of the Board Audit Committee are given in the Board Audit Committee Report in page 17.

DIRECTORS’ ATTENDANCE AT MEETINGS DURING THE FINANCIAL YEAR 2013/14

NAMES CLASSIFICATION OF DIRECTORSHIP BOARD

AUDITCOMMITTEE

INTEGRATEDRISK

MANAGEMENTCOMMITTEE

REMUNERATIONCOMMITTEE CREDIT

COMMITTEE

No. of Meetings held 12 1 4 0 0

Mr. J.H. Edirisinghe* Non- Executive 11/12 N/A N/A N/A N/A

Mr. N.P. Edirisinghe Executive 12/12 N/A N/A N/A N/A

Mrs. A.D. Edirisinghe Executive 12/12 N/A N/A N/A N/A

Mr. A.S. Edirisinghe Executive 11/12 N/A N/A N/A N/A

Mr. S. Kariyawasam Non- Executive 9/12 0/1 0/4 0 0

Mr.S.D.Jayawardana Non- Executive 8/12 1/1 2/4 0 0

Mr. B.G. Wimalaratna Banda Independent-Non- Executive

12/12 1/1 4/4 0 0

Mr. S.M. Ganegoda Non-Executive 11/12 N/A 3/4 N/A 0

* Mr. J.H. Edirisinghe is the Chairman of the Board


11

Annual Report of the Board of Directors on the Affairs of the Company

General

The Directors have pleasure in presenting the Annual Report together with the Audited Financial Statements of the Company for the financial year ended 31st March 2014. Swarnamahal Financial Services PLC (“SFS”) is a Public Limited Liability Company, incorporated on 14th January 2004 in Colombo, under the Companies Act No. 17 of 1982 and re-registered under the Companies Act No.7 of 2007, on 16th September 2008. The company is registered as a Finance Company under the Finance Business Act No. 42 of 2011, the Finance Leasing Act No. 56 of 2000 and has quoted its shares on the Colombo Stock Exchange since May 2011.

The Annual Report together with the Audited Financial Statements was approved by the Board of Directors on 01st September 2014.

RegisteredOfficeandBusinessOffice

The registered office of the Company is situated at No. 676, Galle Road, Colombo 03 and the business office is at No.654, Galle Road, Colombo 03.

Principal Activities

During the Financial year 2013/14, the Company continued with Gold Loan services, Leasing, Hire Purchase, Personal Loans and mobilization of Fixed and Savings deposits as its main lines of business. There were no material changes in the nature of the principle business activities of the company.

Directors’ Meetings

The meetings of the Board of Directors were held once a month or more frequently when ever necessary. The Directors’ attendance at the Board Meetings is given in page 10.

Directors’ Shareholdings

The Directors’ interests in Ordinary Shares were as follows

No Name of the Director

No. of Shares held as at

31st March 2014

31st March 2013

1 Mr. S.M. Ganegoda 20,020 200,020

Stated Capital

The stated capital of the company consists of 500,000,140 Ordinary Voting Shares amounting to Rs. 250,000,070/- as at 31st March 2014.

Information relating to earnings, net assets and market value per share is given in page 01 and 64.

Shareholders

There were 2,285 shareholders registered as at 31st March 2014, the details are given in pages 64 to 65.

Related Party Transactions

In terms of the Sri Lanka Accounting Standards comprising the Sri Lanka Financial Reporting Standard (LKAS 24), Related Party Transactions, including write off balances and provisioning for doubtful receivables, have been disclosed in notes to the financial statements as given in page 58 forming the part of the Annual Report of the Board of Directors while details of the significant transactions are given below.

Name ofRelated party

Lending/Borrowings

/ Other transactions

Outstandingamount as at

31stMarch 2014.

Amount as apercentage

ofcapital fund

SwarnamahalJewellers (Pvt) Ltd

Term Loan 774,634,936 -

EAP Holdings Ltd

Pre-paid Shared Services

26,378,565 -

Directors’ Remuneration

The aggregate sum of Directors’ fees and emoluments paid during the year was Rs. 10,831,238/- and is disclosed in Note No. 11 to the Financial Statements in page 43.

Financial Statements

Financial Statements of the Company are given in pages 23 to 61.

SignificantAccountingPolicies

The significant accounting policies adopted in preparation of the Financial Statements are given in pages 27 to 42. There have been no changes in the accounting policies adopted


12

by the Company during the year except as disclosed in Note No. 2.5 in page 27 to Financial Statements.

Auditor’s Report

The Auditor’s report on the Financial Statements is given in page 22.

Statement of Compliance on the Contents of the Annual Report

The Audited Financial Statements included in this Annual Report have been prepared and presented with the relevant disclosures in accordance with the Sri Lanka Accounting Standards and other applicable regulatory requirements.

Corporate Governance

The report on Corporate Governance is given in pages 07 to 10.

Internal Controls

The Board has formed an effective and comprehensive system of Internal Controls covering financial reporting, compliance with rules and regulations of relevant authorities and risk management to carry on the business in an orderly manner to safeguard its assets and to ensure as far as possible the accuracy and reliability of the financial records.

Internal Control mechanism of the Company is reviewed and improved on a continuous basis, based on the recommendations of the Internal Auditor and on site observations of the Central Bank of Sri Lanka and the External Auditor during their inspections and audit.

Directors’ Statement of Internal Control

The Directors’ report on Internal Control is given in page 14.

Board Sub Committees

The Board of Directors of the Company has formed the following Board Sub Committees.

Audit Committee

Mr.S.D.Jayawardhana Non-Executive Director - Chairman

Mr. S. Kariyawasam Non-Executive Director

Mr. B.G. Wimalarathna Banda

Independent Non-Executive Director

The report of the Board Audit Committee is given in pages 17 to 18.

Remuneration Committee

Mr. S. Kariyawasam Non-Executive Director – Chairman

Mr.S.D.Jayawardhana Non-Executive Director



The report of the Board Remuneration Committee is given

in page 20.

Integrated Risk Management Committee





Mr. S.M. Ganegoda Non-Executive Director

The report of the Board Integrated Risk Management

Committee is given in pages 19.

Credit Committee






Directorate

The Board of Swarnamahal Financial Services PLC consists

of 8 directors with a wide array of experience in financial &

commercial sectors as at 31st March 2014. The brief profiles

of the directors are given in page 02.

The names of the Directors who are on the board are given

below.

Executive Directors

1. Mr. N.P. Edirisinghe

2. Mrs. A.D. Edirisinghe

3. Mr. A.S. Edirisinghe

Non- Executive Directors

1. Mr. J.H. Edirisinghe

2. Mr. S. Kariyawasam

3. Mr. S.D.Jayawardhana


13

4. Mr. B.G. Wimalarathna Banda*

5. Mr. S.M. Ganegoda

* Independent Non-Executive Directors as per the List-ing Rules of Colombo Stock Exchange

Re-designation of Directors

The Board has re-designated Mr. S.M. Ganegoda, as Non Executive Director upon receiving of his resignation from the post of Chief Executive Officer with effect from 01st September 2013.

Secretary

M/s SSP Corporate Services (Pvt) Ltd engaged as the Secretary and Registrar to the Company

Directors’ Responsibility of Financial Reporting

The statement of directors’ responsibility for financial statements is given in page 15 and forms an integral part of the annual report of the Board of Directors.

Human Resources

The Company recruits the best talented people and provides equal employment opportunities with no discrimination.

The Human Resources Policies of the Company includes comprehensive training and developments programs to enhance skills of new recruits and the existing staff for greater efficiency. As at 31st March 2014, 108 employees were in the company.

Report on Compliance with Prudential Requirements, Regulations and Laws

The Company has complied with the regulatory and prudential and internal control requirements arising from the provisions in the statutes applicable to the Company, such as the Finance Business Act No. 42 of 2011, Directions issued by the Central Bank of Sri Lanka, Companies Act No.7 of 2007, Inland Revenue Act No. 10 of 2006, Value Added Tax Act No. 14 of 2002, Financial Transaction reporting Act No. 06 of 2006, Sri Lanka Accounting and Auditing Standards Act No. 15 of 1995, Listing Rules of Colombo Stock Exchange etc. except as disclosed in the Independent Auditors’ Report in page 22.

Statutory Payments

The Board of Directors of the Company is satisfied, to the best of their knowledge and belief that all statutory dues to the Government and employees have been made in full, on time.

Going Concern

The Company incurred a net loss of Rs.1,245,183,376/ during the Financial Year ended 31st March 2014 and as of that date the Company’s total liabilities exceeded its total assets by Rs.804,817,268/-. The Board of Directors of the Company has assessed its ability to continue as a going concern and is satisfied that it has adequate resources to continue in operations into the foreseeable future and continue to adopt a going concern in preparing Financial Statements on the basis as disclosed in Note No. 38 in page 59 to the Financial Statements.

Events after the reporting date

There have not been any material events that occurred subsequent to the date of statement of financial position that require adjustments to the Financial Statements.

Auditor

Messrs KPMG, Chartered Accountants served as the auditor during the year under review.

During the Financial Year 2013/14, a sum of Rs. 875,000/- (2012/13 - Rs. 1,105,360) was provided as audit and audit related fees to the Auditor, Messrs KPMG, Chartered Accountants.

The Board has accepted the recommendation of the Board Audit Committee and has recommended the reappointment of Messrs KPMG, Chartered Accountants as Auditors to the Company for the Financial Year 2014/15 as they have expressed their willingness to continue in office. A resolution to re-appoint the auditors and to authorize the Directors to determine their remuneration will be proposed at the Annual General Meeting to be held 30th September 2014.

Annual General Meeting

The 09th Annual General Meeting of the Company will be held at Hotel Sapphire, No. 371, Galle Road, Colombo 06, on 30th September 2014 at 10.30 a.m.

J.H. EdirisingheChairman

SSP Corporate Services (Pvt) LtdCompany Secretaries

01st September 2014


14

Directors’ Statement on Internal Control

In line with the Finance Companies (Corporate Governance) Direction No.3 of 2008, the Board of Directors presents this report on Internal Control.

The Board of Directors (“Board”) is responsible for the adequacy and effectiveness of Swarnamahal Financial Services PLC’s (“the Company”) system of internal controls. Such a system is designed to manage the Company’s key areas of risk within an acceptable risk profile by highlighting any deviation from the limits, rather than eliminate the risk of failure to achieve the policies and business objectives of the Company.

Accordingly, the system of internal controls can only provide reasonable but not absolute assurance against material misstatements of management, financial information and records or against financial losses or fraud.

The Board has established an ongoing process for identifying, evaluating and managing the significant risks faced by the Company and this process includes enhancing the system of internal controls as and when there are changes in business environment or regulatory guidelines.

The Board is in the view that the system of internal controls in place is sound and adequate to provide a reasonable assurance regarding the reliability of financial reporting and preparation of financial statements for external purposes, and 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 on risk and control by identifying and assessing the risks faced, and in the design, operation and monitoring of suitable internal controls to mitigate and control these risks

The key processes that have been established in reviewing the adequacy and integrity of the system of internal controls with respect to financial reporting include the following:

• Sub Board Committees were established by the Board to assist the Board in ensuring the effectiveness of Company’s daily operations and that the Company’s operations are in accordance with the corporate objectives, strategies and the annual budget as well as the policies and business directions that have been approved.

• The Internal Audit checks for compliance with policies

and procedures and the effectiveness of the internal

control systems on an ongoing basis and highlights

significant findings in respect of any non-compliance.

Audits are carried out on all units, Branches and

Pawning Centres, the frequency of which is determined

by the level of risk assessed, to provide an independent

and objective report. The Annual Audit plan is reviewed

and approved by the Audit Committee. Findings of

the Internal Audit are submitted to the Board Audit

Committee for review at their meetings.

• The Audit Committee reviews internal control issues

identified by the Internal Audit, regulatory authorities

and management, and evaluates the adequacy and

effectiveness of the risk management and internal

control systems. It also reviews the Internal Audit

functions with particular emphasis on the scope of

audits and quality of Internal Audits. The minutes of the

Audit Committee meetings are tabled to the Board of

the Company.

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 that the preparation

of Financial Statements for external purposes has been

done in accordance with Sri Lanka Accounting Standards

(SLAS) and regulatory requirements of the Central Bank of

Sri Lanka.

For and on behalf of the Board

J.H. Edirisinghe

Chairman

S.D. Jayawardhana

Chairman - Board Audit Committee

01st September 2014


15

Statement of Directors’ Responsibilities in Relation to Financial Statements

The responsibility of the Directors of the Company, in relation to the preparation and presentation of the Financial Statements of the Company in accordance with the relevant provisions of the Companies Act No. 07 of 2007, Finance Business Act No. 42 of 2011 and other statutes which are applicable in the preparation of Financial Statements are set out in the following statement.

The responsibilities of the External Auditors, in relation to the Financial Statements are set out in the report of the Auditors given in page 22.

In accordance with the Companies Act No. 07 of 2007, the Directors of the Company are responsible for ensuring, the Company keeps proper books of account of all the transactions and prepare Financial Statements for each financial year. The Financial Statements of the Company are comprised of the Statement of Financial Position as at 31st March 2014, the Statement of Comprehensive Income, Statement of Changes in Equity, Statement of Cash Flow for the year ended 31st March 2014 and notes thereto.

Accordingly, the Directors confirm that the Financial Statements of the Company give a true and fair view of the state of affairs of the Company as at 31st March 2014.

The Directors are responsible to ensure that:

i The appropriate accounting policies have been selected and applied in a consistent manner and material deviations, if any, have been disclosed,

ii Judgments and estimates made are reasonable and prudent and all applicable Accounting Standards have been complied with.

The Directors accept responsibility to ensure that the company has adequate resources to continue in operation to justify applying the going concern basis in preparing these Financial Statements.

The Financial Statements of the Company for the year ended 31st March 2014 are prepared and presented, consistent with the underlying books of accounts, in accordance with the requirements of the Sri Lanka Accounting Standards issued by the Institute of Chartered Accountants of Sri Lanka, the Companies Act No. 07 of 2007, Sri Lanka Accounting and Auditing Standards Act No. 15 of 1995, Finance Business Act No. 42 of 2011 and the Listing Rules of the Colombo Stock Exchange inclusive of specific disclosures.

The Directors are responsible for ensuring that the Company keeps sufficient accounting records, which disclose the financial position of the Company with reasonable accuracy and enable them to ensure that the financial statements have been prepared and presented as aforementioned.

The Directors of the Company have instituted an effective and comprehensive system of Internal Control for identifying, recording, evaluating and managing the significant risks faced by the company throughout the year and it is under regular review of the Board of Directors. This comprises internal reviews, internal audit and the whole system of financial and other controls required to carry on the business of the Company in an orderly manner, safeguard its assets, prevent and detect frauds and secure as far as practicable, the accuracy and the reliability of the records.

The Directors of the Company are responsible for preparing and presenting the Financial Statements and have provided the Company’s External Auditor, KPMG, Chartered Accountants with every opportunity to undertake the inspections they considered appropriate and necessary. KPMG, Chartered Accountants carried out sample checks on the effectiveness of the system of internal controls as they considered appropriate and necessary in expressing their independent audit opinion on the Financial Statements and maintenance of accounting records. KPMG, Chartered Accountants has examined the Financial Statements of the Company together with all other financial records and minutes of the meetings of the Board of Directors and expressed their opinion which appears on page 22.

Compliance Report

The Directors of the Company confirm that to the best of their knowledge and belief, all statutory payments in relation to all relevant regulatory and statutory dues, as were due and payable by the Company as at the reporting date, have been paid or where relevant, provided for. The Directors are of the view that they have discharged their responsibilities as set out in this above statement.

By order of the Board

J.H. EdirisingheChairman01st September 2014


16

ChiefExecutiveOfficer’sandSeniorFinanceManager’s Statement of Responsibility

The Financial Statements of Swarnamahal Financial Services PLC for the financial year ended 31st March 2014 have been prepared and presented, consistent with the underlying books of accounts, in accordance with the requirements of the Sri Lanka Accounting Standards issued by the Institute of Chartered Accountants of Sri Lanka, the Companies Act No.07 of 2007, Sri Lanka Accounting and Auditing Standards Act No. 15 of 1995, Finance Business Act No. 42 of 2011 and the Listing Rules of the Colombo Stock Exchange.

The formats used in the presentation of the Financial Statements and the disclosures are complied with the formats prescribed by the Institute of Chartered Accountants of Sri Lanka.

The significant accounting policies and estimates that involved a high degree of judgment and complexity were discussed with the Company’s External Auditor and the Board Audit Committee. Comparative information has been reclassified whenever necessary to comply with the current presentation and material deviations, if any, have been disclosed and explained in the notes to the Financial Statements.

We confirm, to the best of our knowledge and belief, that the Financial Statements of the Company give a true and fair view of the assets, liabilities, financial position and profit of the Company, its cash flows and liquidity position. We also confirm that the Company has adequate resources to continue in operation and have applied the going concern basis in preparing Financial Statements.

The Board of Directors and the Management of the Company accept responsibility for the integrity and objectivity of these Financial Statements. The estimates and judgments relating to the Financial Statements were made on a prudent and reasonable basis, in order that the Financial Statements reflect in a true and fair manner, the form and substance of transactions and that the Company’s state of affairs is well presented. To ensure this, the Company has taken proper and sufficient care in installing a system of

Internal Controls and accounting records, for safeguarding assets and for preventing and detecting frauds as well as other irregularities, which is reviewed, evaluated and updated on an ongoing basis. Our Internal Auditors have conducted periodic audits to ensure that the policies and procedures of the Company were consistently followed.

However, there are inherent limitations that should be recognized in weighing the assurances provided by any system of Internal Controls and Accounting.

The Company’s External Auditor, Messrs KPMG, Chartered Accountants, has audited the Financial Statements of the Company and their report is given in page 22.

The Board Audit Committee reviewed all the Internal Audit inspections, audit plans, the efficiency of Internal Control Systems and procedures and also reviewed the quality of the significant Accounting Policies and their adhering to the Statutory and Regulatory requirements. To ensure complete independence, the Internal and External Auditors had full and free access to the members of the Board Audit Committee to discuss any matter of substance.

We further confirm that the Company has complied with all the guidelines for the audit services.

The Company has also complied with all applicable laws, regulations and prudential requirements except as disclosed in the Independent Auditors’ Report in page 22.

There are/ were no litigations or proceedings against the Company in the recent past.

W.M.D.S. FernandoChief Executive Officer

R.M.G. RatnayakeSenior Manager-Finance01st September 2014


17

Board Audit Committee Report

The Composition

The Board Audit Committee consisted of three Non-Executive Directors as detailed below.

Mr. S.D. Jayawardhana Non - Executive Director - Committee Chairman

Mr. S. Kariyawasam Non-Executive Director.


Independent Non-Executive Director.

The Chairman of the Committee, Mr. S.D. Jayawardhana counts over 25 years of experience in the fields of Finance & Management and is an associate Member of Chartered Accountants of Sri Lanka (ACA) and fellow member of Society of Certified Management Accountants of Sri Lanka (FSCMA).

The CEO and the Senior Manager-Finance were present at all the meetings on invitation.

Secretary to the Board Audit CommitteeSSP Corporate Services (Pvt) Ltd

Meetings of the Committee

The No. of meeting held and the members’ attendance at meetings are given in page 10.

Role of the Audit Committee

The Audit Committee assists the Board of Directors in fulfilling effectively its oversight responsibilities in the financial reporting process and other related affairs of the Company.The Committee has been empowered to:

• Analyze and review risks and examine the adequacy, efficiency, effectiveness of the system of internal controls and procedures that are in force to mitigate risks.

• Monitor and evaluate the External Auditor’s independence, objectivity and effectiveness of the Audit Process.

• Meet External Auditor during the year to discuss and finalize the Audit approach, procedures, nature and the scope, including the matters relating to the company’s compliance with directions, internal control over financial reporting and auditor’s independence.

• Review the Audited Financial Statements with the External Auditors in order to monitor the integrity of the Financial Statements and its conformity with the Sri Lankan Accounting Standards, prior to submission to the Board.

• Review Accounting Policies, emerging accounting issues and disclosures according to LKAS/SLFRS

• Review the External Auditor’s Management Letter together with the management response thereto.

• Discuss with the External Auditor regarding the issues, problems and reservations arising from the Interim and Final Audits of the Company.

• Ensure that a sound reporting system is in place to provide timely information to the Board of Directors, Regulatory Authorities, Management and Stakeholders.

• Review the performance of the Internal Audit Function, adequacy of the scope, resources and the authority of the Internal Auditors.

• Review internal audit programs and its results and ensure that appropriate actions are taken on the recommendations of Board Audit Committee.

• Ensure that the internal audit function is independent of the Company’s other activities and that it is performed with impartially, proficiency and due professional care.

• Evaluate and discuss the major findings and observations of Internal Auditor and the management responses thereon, periodically.

Financial Reporting

The Committee assists the Board of Directors in discharging their responsibilities for the preparation of financial statements that indicates a true and fair view of the affairs of the Company in accordance with the Company’s Accounting Records and in conformity with the Sri Lanka Accounting Standards, the Company’s Act No. 07 of 2007 and the Directions issued by the Central Bank of Sri Lanka.

The Committee liaised with the other Board members, reviewed the Company’s annual and interim financial statements and recommended the issue of such financial statements to the shareholders. The Committee analyzed and examined the adequacy, efficiency, effectiveness of


18

the system of internal controls and procedures in place to ensure the reliability of information provided to the Board and other stakeholders.

Internal Audit

During the financial year 2013/14, E&Y, Chartered Accountants engaged as the Internal Auditor of the Company who is responsible for reviewing and reporting on the efficiency of the system of internal controls mechanism, procedures and compliance with other regulatory requirements. The weaknesses highlighted by the Internal Auditors in relation to such control procedures were critically analyzed and recommendations suggested for implementation; such implementations were followed up and reviewed. The internal audit personnel were invited to the committee discussion as and when required, for further clarification.

External Audit

The Committee actively monitored the implementation of the recommendations of the External Auditor. Prior to commencement of the audit of the financial year 2013/14, the Auditor’s approach, procedures, nature and the scope of the Audit, including the matters relating to the company’s compliance with directions were discussed and finalized.

The Committee is also empowered to recommend the re-appointment and fees of the External Auditor. Accordingly, the Committee has recommended the re-appointment of Messrs KPMG, Chartered Accountants as auditors to the Company for the ensuing financial year 2014/15, subject to the approval of the shareholders at the Annual General Meeting.

Committee Evaluation

The evaluation of the Committee was carried out by the other members of the Board in order to assess the effectiveness of the Committee and its performance, which was found to be satisfactory.

S.D. JayawardanaChairman-Board Audit Committee01st September 2014


19

Board Integrated Risk Management Committee Report

The Composition of the Committee is given below

Mr. S. Kariyawasam Non-Executive Director - Chairman

Mr. S.D. Jayawardhana Non-Executive Director




Management Representatives who attended the meet-ings were,

Mr. Sanjaya Fernando Chief Executive Officer

Mr. Dhanuka Tharanga Senior Manager- Pawning & Gold Sales

Mr. R.M.G. Ratnayake Senior Manager-Finance

Mr. George Samantha Senior Manager-Corporate Relations

Mr. Newton Fernando Manager-Credit

Ms.Nishani Nissanka Group Compliance Officer

Mr. R.Harendran Group Risk Officer

Brief profiles of the Directors and management representatives of the Company are given in pages 02 to 03 other than Group Compliance Officer and Group Risk Officer.

Terms of Reference

The committee gives directions to ensure that the Company fulfills its statutory, fiduciary and regulatory responsibilities on risk management.

The main functions of the committee include

• Assessing all risks, including credit, market, liquidity, operational and strategic risks on a regular basis using appropriate risk indicators and MIS reports.

• Ensuring the risks of the Company is within the prudent levels decided by the committee, based on the Company’s risk appetite and the regulatory and supervisory requirements.

• Taking appropriate actions reported against officers responsible for any failure in risk management to improve the overall effectiveness of risk management at SFS.

• Taking prompt corrective actions to mitigate the effects of specific risks in the event such risks are beyond the prudent levels on the basis of the company’s policies, procedures and regulatory criteria. Compliance with laws, regulations, regulatory guidelines, internal controls and approved policies in all areas of business operations.

• Reviewing and updating the business continuity plan, for approval of the Board.

• Review specific quantitative and qualitative risk limits for all management level committees viz Credit, Asset Liability and report any risk indicators periodically to the Board.

• The Committee shall meet at least quarterly

• The Committee shall submit a risk management report to the first Board Meeting which will be held soon after each BIRMC meeting, seeking the board’s view, concurrence and /or specific directions.

Meetings

During the Financial Year 2013/14, four meetings were held and the proceedings of the committee meetings were recorded and circulated to the Board of Directors for information and advice.

The members’ attendance at the committee meeting is given on page 10.

S. KariyawasamChairman - Board Integrated Risk Management Committee01st September 2014


20

Board Remuneration Committee Report

The Composition

The Composition of the Board Remuneration Committee is given below,


Mr. S.D. Jayawardhana Non-Executive Director



The Functions of the Committee

• Determining and formulating a set of remuneration policies and criteria pertaining to the compensation and benefits of the Executive Directors including the Chief Executive Officer while ensuring that no director is involved in setting his/her own remuneration and salaries and the Committee also determines the salaries and benefits of the corporate management and senior management.

• Recommending the objectives and targets to be set for Chief Executive Officer and key managerial personnel and evaluating the performance of the Chief Executive Officer and key managerial personnel against the established goals and objectives in order to suggest suitable recommendations to the Board.

• Implementing a framework for regular performance appraisal of the staff under various performance parameters in order to obtain feedback of their work performance.

• Making independent judgments on the level of payments to the individuals according to their performance.

Policy

The set of remuneration policies of the Company is

formulated to ensure that the Executive Directors including

the Chief Executive Officer and senior management are

adequately rewarded for their individual contribution to the

success of the Company.

The primary objective of the remuneration policy aims to

ensure that the remuneration levels are sufficient to attract,

motivate, and retain talent with the appropriate professional,

managerial and operational expertise necessary to achieve

the objectives of the Company to enhance the long term

value for all stakeholders of the Company.

Committee Meetings

The Committee meets when necessary and makes

recommendation on bonuses, annual increments

and performance incentives to ensure that all level of

employees are sufficiently rewarded on their performance

and commitments.

The Chief Executive Officer who is responsible for the

overall management of the Company attends meetings by

invitation.

The total remuneration paid to the Directors during the

period under review is set out in the Note No. 11 of page

43.

S. Kariyawasam

Chairman - Board Remuneration Committee

01st September 2014

Financial Report

Independent Auditor’s Report ...................................................... 22

Statement of Comprehensive Income ....................................... 23

Statement of Financial Position .................................................... 24

Statement of Changes in Equity .................................................... 25

Statement of Cash Flow ................................................................... 26

Significant Accounting Policies ...................................................... 27

Notes to the Financial Statements ............................................... 43

Eight Years at a Glance ...................................................................... 62

Share Information ............................................................................... 64

Our Network ......................................................................................... 66

Notice of Meeting ............................................................................... 67

Form of Proxy ....................................................................................... 69

22

Independent Auditors’ Report

TO THE SHAREHOLDERS OF SWARNAMAHAL FINAN-CIAL SERVICES PLC

Report on the Financial Statements

We have audited the accompanying financial statements of Swarnamahal Financial Services PLC (The “Company”), which comprise the statement of financial position as at 31 March 2014, and the statement of comprehensive income, statement of changes in equity and cash flow statement for the year then ended, and a summary of significant accounting policies and other explanatory notes, set out on pages 23 to 61.

Management’s Responsibility for the Financial Statements

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

Scope of Audit and Basis of Opinion

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

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

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

Opinion

In our opinion, so far as appears from our examination, the Company maintained proper accounting records for the year ended 31 March, 2014 and the financial statements give a true and fair view of the financial position of the Company as at 31 March 2014, and of its financial performance and its cash flow for the year then ended in accordance with Sri Lanka Accounting Standards.

Without qualifying our opinion, we draw attention to Note 38 of the financial statements which describes that the Company incurred a net loss of Rs 1,245,183,376/-. During the year ended 31 March 2014 and as of that date has a net liability position of Rs 804,817,268/-. Due to the above it does not meet the regulatory requirements for capital. These conditions may cast significant doubt on the Company’s ability to continue as a going concern and therefore its abilities to realise assets and discharge liabilities in the normal course of business. However, as disclosed in the said note the Company is under the Central Bank of Sri Lanka’s Financial Consolidation Restructuring program and the directors plan to divest/merge it with an adequate capital injection to regain compliance and therefore continue as a going concern.

Report on Other Legal and Regulatory Requirements

These financial statements also comply with the requirements of Section 151(2) of the Companies Act No. 07 of 2007. However, the Company’s net assets are less than half of its stated capital and face a serious loss of capital situation in terms of Section 220 of the same Act for which the actions prescribed by the said Act are pending.

Other mattersThe Company also does not fulfil the requirements of the Directions issued by the Central Bank of Sri Lanka to finance companies for risk weighted capital adequacy ratio (Note 6.6) and Single borrower Limit (Note 34.5)

CHARTERED ACCOUNTANTSColombo.1 September 2014


23

Statement of Comprehensive Income

For the year ended 31 MarchAll amounts in Sri Lanka Rupees Note 2014 2013

Interest income 1,057,979,109 1,330,745,688

Interest expense (813,740,984) (794,578,117)

Net interest income 8 244,238,125 536,167,571

Net loss from financial instruments at fair value through profit or loss 9 (179,455) (103,223)

Other income/(Loss) 10 (842,216,123) 9,432,267

Total operating income / (Loss) (598,157,453) 545,496,615

Operating expenses

Personnel expenses 11 (69,372,318) (81,457,272)

Other expenses 12 (207,478,523) (243,209,509)

Impairment charges for loans and other advances 13 (353,468,031) (805,099)

Operatingprofit/(Loss)beforevalueaddedtaxandincometaxexpenses (1,228,476,325) 220,024,735

Value added tax on financial services (14,148,786) (22,102,759)

Profit/(Loss)beforeincometax (1,242,625,111) 197,921,976

Income tax expense 14 (2,558,265) (76,162,987)

Profit/(Loss)fortheyear (1,245,183,376) 121,758,989

Profit/(Loss)fortheyear (1,245,183,376) 121,758,989

Other comprehensive income, net of income tax

Actuarial gain (Loss) on employee benefits 29 893,963 (1,280,794)

Deferred tax on actuarial gain/(loss) on Employee Benefits (250,310) 358,622

Net change in fair value on available-for-sale financial assets 8,749,075 7,431,194

Net change in fair value on available-for-sale financial assets reclassified to profit or loss (1,519,337) (4,784,023)

Other comprehensive income for the year, net of tax 7,873,391 1,724,999

Total comprehensive income for the year (1,237,309,985) 123,483,988

Earnings/ (Loss) per share

Basic earnings/ (Loss) per share 15 (2.49) 0.24

The notes to the financial statements form an integral part of these financial statements.


24

As at 31 MarchAll amounts in Sri Lanka Rupees Note 2014 2013

Assets

Cash and cash equivalents 16 308,384,433 104,075,371

Deposits with financial institutions 17 - 2,598,498

Financial assets held at fair value through profit or loss 18 3,813,915 3,993,370

Financial assets available-for-sale 19 440,810,155 448,530,265

Loans and advances to customers 20 2,709,308,049 5,107,171,119

Loan to Swarna Mahal Jewellers (Private) Limited 21 673,147,416 1,063,358

Investment property 22 35,675,000 73,000,000

Property, plant and equipment 23 53,202,231 72,266,717

Other assets 24 269,779,038 289,996,624

Total assets 4,494,120,237 6,102,695,322

Liabilities

Deposits from customers 25 5,132,740,669 5,399,512,653

Bank overdrafts 16 23,845,768 43,306,040

Interest bearing borrowings 26 102,000,727 161,788,587

Current tax liabilities 27 (2,633,537) 34,804,703

Deferred tax liabilities 28 3,863,677 1,250,395

Employee benefits 29 5,401,681 5,259,000

Other liabilities 30 33,718,520 24,281,227

Total liabilities 5,298,937,505 5,670,202,605

Equity

Stated capital 31 250,000,070 250,000,070

Reserves 32 (1,054,817,338) 182,492,647

Total equity (804,817,268) 432,492,717

Total liabilities and equity 4,494,120,237 6,102,695,322


It is certified that the financial statements comply with the requirements of the Companies Act No. 07 of 2007.

..................................................

R.M.G. Ratnayake

Senior Manager - Finance

The Board of Directors is responsible for the preparation and presentation of these financial statements.

These financial statements were approved by the Board of Directors and signed on their behalf.

........................................................... ..............................................................

Chairman Director

J. H. Edirisinghe N.P.Edirisinghe

Colombo,Sri Lanka01 September 2014

Statement of Financial Position


25

Statement of Changes in Equity

All amounts in Sri Lanka RupeesStated Capital

Statutory Reserve

Investment Fund

Retained Earn-ings

Available for sale reserve Total

Balance as at 31 March 2012 250,000,070 45,093,956 22,882,378 (1,756,275) (7,211,400) 309,008,729

Profit for the Period - - - 121,758,989 - 121,758,989

Other comprehensive income, net of tax - - - - - -

- Net change in fair value - - - - 7,431,194 7,431,194

- Net amount reclassified to profit and loss - - - - (4,784,023) (4,784,023)

- Actuarial Gain or( loss) - - - (922,172) - (922,172)

Total comprehensive income for the Period - - - 120,836,817 2,647,171 123,483,988

Transfers from/to retained earnings - 60,878,100 27,822,599 (88,700,699) - - Balance as at 31 March 2013 250,000,070 105,972,056 50,704,977 30,379,843 (4,564,229) 432,492,717

Balance as at 31 March 2013 250,000,070 105,972,056 50,704,977 30,379,843 (4,564,229) 432,492,717

Profit/(Loss) for the Period - - - (1,245,183,376) - (1,245,183,376)

Other comprehensive income, net of tax - - - - - -

- Net change in fair value - - - - 8,749,075 8,749,075

- Net amount reclassified to profit and loss - - - - (1,519,337) (1,519,337)

- Actuarial gain/(loss) - - - 643,653 - 643,653

Total comprehensive income for the Period - - - (1,244,539,723) 7,229,738 (1,237,309,985)

Transfers from/to retained earnings - - - - - -

Balance as at 31 March 2014 250,000,070 105,972,056 50,704,977 (1,214,159,880) 2,665,509 (804,817,268)



26

Statement of Cash Flow

For the year ended 31 MarchAll amounts in Sri Lanka Rupees 2014 2013

Profit/(Loss)beforetaxation (1,242,625,111) 197,921,976

Adjustment for;Depreciation 20,005,200 26,611,309 Impairment for loan losses 348,273,648 (1,400,358)Impairment for gold stock 5,194,383 2,205,457 Impairment / (reversal) of real estate stock - (19,293,981)Profit from disposal of property, plant and equipment - (12,026)Other provisions 17,800,000 6,063,161 Fair value gain/ (Loss) on investment property 46,900,000 (11,000,000)Provision for gratuity 1,450,894 1,433,184 Loss on change in carrying value of Loans & Receivable 101,487,520 - Fair value Change in AFS 7,229,738 2,647,171 Fair value (gain) / loss on investments 179,455 103,223

(694,104,273) 205,279,116 Changes in;- loans and advances to customers 1,276,017,844 (962,662,002)- other assets (1,426,797) 71,261,433 - deposit from customers (266,771,984) 893,127,966 - other liabilities 3,053,846 4,869,547 Cash generated from operating activities 316,768,636 211,876,060

Tax paid (37,633,533) (83,302,239)Employee benefit paid (414,250) (236,250)Net Cash from operating activities 278,720,853 128,337,571

CashflowsfrominvestmentactivitiesInvestment in government securities 7,720,110 (109,951,915)Proceeds from disposal of property, plant and equipment - 62,074 Investment securities - - Additions to property, plant and equipment (940,714) (12,448,212)Additions to investment Property (9,575,000) - Withdrawal of Fixed Deposit 8,661,658 -

Net cash used in investment activities 5,866,054 (122,338,053)

CashflowfromfinancingactivitiesNet proceeds/(repayments) of borrowings (59,787,860) (53,180,463)Net Proceeds/(Repayment) of Lease Rentals (1,029,713)Netcashusedinfinancingactivities (60,817,573) (53,180,463) Net increase in cash and cash equivalents 223,769,334 (47,180,945)Cash and cash equivalents at the beginning of the year 60,769,331 107,950,276 Cash and cash equivalent at the end of the year 284,538,665 60,769,331

Reconciliation of cash and cash equivalentsCash in hand and bank balances 308,384,433 104,075,371 Bank overdrafts (23,845,768) (43,306,040)

284,538,665 60,769,331



27

SignificantAccountingPolicies

1. Reporting entity

Swarnamahal Financial Services PLC (the “Company”) is a public limited company incorporated and domiciled in Sri Lanka and listed on the Colombo Stock Exchange. The address of the Company’s registered office is No.676, Galle Road Colombo 03 and the principal place of business is situated at No 654, Galle Road, Colombo 03.

The principal activities of the Company are pawn brokering, granting leases, hire purchases & loan facilities and accepting fixed & savings deposits.

The Company is a registered finance company under the Finance Business Act No. 42 of 2011.

The staff strength of the Company as at 31st March 2014 is 108 (2013-140).

2. Basis of preparation

2.1 Statement of compliance

The Financial Statements of the Company which comprise the Statement of Financial Position, Statement of Comprehensive Income, Statement of Changes in Equity, Statement of Cash Flows and Notes thereto have been prepared in accordance with Sri Lanka Accounting Standards (SLAS) laid down by the Institute of Chartered Accountants of Sri Lanka, and comply with the requirements of Companies Act No 7 of 2007 and Finance Business Act No 42 of 2011.

The financial statements for the year ended 31 March 2014 were authorized for issue by the Directors on 01 September 2014.

2.2 Basis of measurement

The financial statements have been prepared on the historical cost basis except for the following material items in the statement of financial position and no adjustments have been made for inflationary effects.

• non derivative financial instruments at fair value through profit or loss are measured at fair value

• available for sale financial assets are measured at fair value

• investment property is measured at fair value

• The liability for defined benefit obligations is recognised at the present value of the defined benefit obligation

The financial statements have been prepared on a going concern basis.

2.3 Functional and presentation currency

The financial statements are presented in Sri Lankan Rupees, which is the functional currency of the Company. All financial information presented in Sri Lankan Rupees has been rounded to the nearest rupee.

2.4 Use of estimates and judgement

The preparation of financial statements in conformity with Sri Lanka Accounting Standards requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected.

Information about assumptions and estimation uncertainties that have a significant risk of resulting in a material adjustment within the next financial year are included in the following notes:

• Note 29 – Measurement of retirement benefit obligation

• Note 28 – Deferred tax liabilities

• Note 20 – Impairment allowance on loans and receivables

• Note-22- Investment property

• Note 18 & 19- Recognition and measurement of financial instruments

2.5 Change in accounting policy

DefinedBenefitplans

The Company adopted LKAS 19 Employee Benefits (2013) with effect from 1 April 2013 as part of its mandatory application and changed its basis for determining the income or expense related to defined benefit plan.


28

As a result of the change, the Company now recognises actuarial gains or losses in other comprehensive income as and when they arise as opposed to following the corridor method.

The impact of change in accounting policy is fully described in note 37.1.

3. Materiality and aggregation

Each material class of similar item is presented separately in the financial statements. Items of dissimilar nature or function are presented separately, unless they are immaterial.

4. Significantaccountingpolicies

The accounting policies set out below have been applied consistently to all periods presented in these financial statements except for change in accounting policy as explained in note 2.5.

4.1 Financialassetsandfinancialliabilities

4.1.1 Recognition

The Company initially recognises loans and receivables and deposits on the date that they are originated. All other financial instruments (including regular way purchases and sales of financial assets) are recognised on the trade date, at which is the date on which the Company becomes a party to the contractual provisions of the instrument.

For financial assets and liabilities held at fair value through profit and loss any changes in fair value from the trade date to settlement date is accounted in the statement of comprehensive income while for available for sale financial assets any changes in fair value from the trade date to settlement date is accounted in the statement of other comprehensive income.

A financial asset or financial liability is measured initially at fair value plus, for an item not at fair value through profit or loss, transaction costs that are directly attributable to its acquisition or issue.

4.1.2 Classification

Financial assets

The Company classifies its financial assets in one of the following categories

• Loans and receivables

• Available for sale or

• At fair value through profit or loss and within the category as

▪ Held for trading

▪ Designated at fair value through profit or loss

4.1.2.1 Financialassetsatfairvaluethroughprofit or loss

A financial asset is classified as at fair value through profit or loss if it is classified as held-for-trading or is designated as such on initial recognition. Financial assets are designated as at fair value through profit or loss if the Company manages such investments and makes purchase and sale decisions based on their fair value in accordance with the Company’s documented risk management or investment strategy. Attributable transaction costs are recognised in profit or loss as incurred. Financial assets at fair value through profit or loss are measured at fair value and changes therein, which takes into account any dividend income, are recognised in profit or loss.

4.1.2.2 Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition loans and receivables are measured at amortised cost using the effective interest method, less any impairment losses.

Loans and other receivables comprise total loans and advances.

4.1.2.3 Available-for-salefinancialassets

Available-for-sale financial assets are non-derivative financial assets that are designated as available-for-sale or are not classified in any of the 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, they are measured at fair value and changes therein, other than impairment losses are recognised in other comprehensive income and presented in the fair value reserve in equity. When an investment is

SignificantAccountingPolicies(Contd.)


29

derecognised, the gain or loss accumulated in equity is reclassified to profit or loss.

Unquoted equity securities whose fair value cannot reliably be measured are carried at cost. All other available for sale investments are carried at fair value.

Financial liabilities

The Company classifies its financial liabilities, other than guarantees and loan commitments as measured at amortised cost or fair value through profit or loss

4.1.3 Derecognition

Financial assets

The Company derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred or which the company neither transfers nor retains substantially all of the risks and rewards of ownership and it does not retain control of the financial asset.

On derecognition of a financial asset, the difference between the carrying amount of the asset (or the carrying amount allocated to the portion of the asset transferred), and the sum of (i) the consideration received (including any new asset obtained less any new liability assumed) and (ii) any cumulative gain or loss that had been recognised in other comprehensive income is recognised in profit or loss. Any interest in transferred financial assets that is created or retained by the Company is recognised as a separate asset or liability.

Financial liabilities

The Company derecognises a financial liability when its contractual obligations are discharged, cancelled or expire.

4.1.4 Offsetting

Financial assets and financial liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Company has a legal right to offset the amounts and intends either to settle on a net basis or to realise the asset and settle the liability simultaneously.

Income and expenses are presented on a net basis only when permitted under Sri Lanka Accounting Standards, or for gains and losses arising from a group of similar transactions such as in the company trading activity.

4.1.5 Amortised cost measurement

The amortised cost of a financial asset or financial liability is the amount at which the financial asset or liability is measured at initial recognition, minus principal repayments, plus or minus the cumulative amortisation using the effective interest method of any difference between the initial amount recognised and the maturity amount, minus any reduction for impairment.

4.1.6 Fair value measurement

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 Company 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, then the Company establishes fair value using a valuation technique. 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 option pricing models. The chosen valuation technique makes maximum use of market inputs, relies as little as possible on estimates specific to the company and 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



30

same instrument, i.e. without modification or repackaging, or based on a valuation technique whose variables include only data from observable markets. When transaction price provides the best evidence of fair value at initial recognition, the financial instrument is initially measured at the transaction price and any difference between this price and the value initially obtained from a valuation model is subsequently recognised in profit or loss on an appropriate basis over the life of the instrument but not later than when the valuation is supported wholly by observable market data or the transaction is closed out.

Any difference between the fair value at initial recognition and the amount that would be determined at that date using a valuation technique in a situation in which the valuation is dependent on unobservable parameters is not recognised in profit or loss immediately but is recognised over the life of the instrument on an appropriate basis or when the instrument is redeemed, transferred or sold, or the fair value becomes observable.

4.1.7 Identificationandmeasurementofimpairment

At each reporting date the company assesses whether there is objective evidence that financial assets not carried at fair value through profit or loss are impaired. A financial asset or a group of financial assets 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 are impaired includes,

• Default or delinquency by a debtor

• Indications that a debtor or issuer will enter bankruptcy

• Adverse changes in the payment status of borrowers or issuers

• The disappearance of an active market for a security or

• Observable data indicating that there is measurable decrease in expected cash flows from a group of financial assets

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.

The Company considers evidence of impairment for loans and advances at both a specific asset and collective level. All individually significant loans and advances are assessed for specific impairment. All individually significant loans and advances found not to be specifically impaired are then collectively assessed for any impairment that has been incurred but not yet identified. Loans and advances that are not individually significant are collectively assessed for impairment by grouping together loans and advances with similar risk characteristics.

In assessing collective impairment the Company uses statistical modelling of historical trends of the probability of default, timing of recoveries and the amount of loss incurred, adjusted for management’s judgement 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 benchmarked against actual outcomes to ensure that they remain appropriate.

Impairment losses on assets carried at amortised cost are measured as the difference between the carrying amount of the financial asset and the present value of estimated future cash flows discounted at the asset’s original effective interest rate. Impairment losses are recognised in profit or loss and reflected in an allowance account against loans and advances.

Impairment losses on available-for-sale investment securities are recognised by transferring the cumulative loss that has been recognised in other comprehensive income to profit or loss as a reclassification adjustment.

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 in profit or loss, 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.

4.2 Cash and cash equivalents

Cash and cash equivalents comprise cash balances and deposits with maturities of three months or less from the



31

acquisition date that are subject to an insignificant risk of changes in their fair value, and are used by the Company in the management of its short-term commitments.

4.3 Stated capital

Ordinary shares

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of ordinary shares are recognised as a deduction from equity, net of any tax effects.

4.4 Property plant and equipment

4.4.1 Recognition and measurement

Items of property, plant and equipment are measured at cost 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 following:

• the cost of materials and direct labour;

• any other costs directly attributable to bringing the assets to a working condition for their intended use;

Purchased software that is integral to the functionality of the related equipment is capitalised as part of the equipment.

When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (major components) of property, plant and equipment.

Gains and losses on disposal of an item of property, plant and equipment are determined by comparing the proceeds from disposal with the carrying amount of property, plant and equipment, and are recognised net within other income in profit or loss.

4.4.2 Subsequent costs

The cost of replacing a part of an item of property, plant and equipment is recognised in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the Company, and its cost can be measured reliably. The carrying amount of the replaced part is derecognised. The costs of the day-to-day servicing of property, plant and equipment are recognised in profit or loss as incurred.

4.4.3 Depreciation

Depreciation is calculated over the depreciable amount, which is the cost of an asset, or other amount substituted for cost, less its residual value.

Depreciation is recognised in profit or loss on a straight-line basis over the estimated useful lives of each part of an item of property, plant and equipment, since this most closely reflects the expected pattern of consumption of the future economic benefits embodied in the asset.

Items of property, plant and equipment are depreciated from the date that they are installed and are ready for use, or in respect of internally constructed assets, from the date that the asset is completed and ready for use.

The estimated useful lives for the current and comparative years of significant items of property, plant and equipment are as follows:

CategoryYears of

depreciation

Buildings improvements (Includes partitions and other permanent fixtures)

10 years

Computer and software 04 years

Office equipment 03 years

Motor vehicles 04 years

Furniture and fittings 03 years

Leased assets 04 years

Depreciation methods, useful lives and residual values are reassessed at each reporting date and adjusted if appropriate.

4.5 Investment property

Investment property is property held either to earn rental income or for capital appreciation or both but not for sale in the ordinary course of business, used in the production or supply of goods or services or for administrative purposes.

4.5.1 Basis of recognition

Investment property is recognised if it is probable that future economic benefits that are associated with the investment property will flow to the Company and cost of the investment property can be reliably measured.



32

4.5.2 Measurement

An investment property is measured initially at its cost. The cost of a purchased investment property comprises of its purchase price and any directly attributable expenditure. The cost of a self-constructed investment property is its cost at the date when the construction or development is complete.

The Company applies the fair value model for subsequent measurement of investment properties in accordance with Sri Lanka Accounting Standard (LKAS 40) “Investment Property”. Accordingly, investment properties are stated at fair value and an external independent valuer having an appropriate recognized professional qualification values the properties every year. Any gain or loss arising from a change in fair value is recognized in income statement.

4.5.3 Derecognition

Investment properties are derecognized when disposed of or permanently withdrawn from use because no future economic benefits are expected. Transfers are made to and from investment properties only when there is change in use.

4.6 Inventory

Inventory mainly consists of real estate stock and gold. The Company’s policy for the accounting of inventory is as follows.

4.6.1 Real estate

Investments in real estate are carried at cost or net realisable value whichever is lower. Cost of purchase, costs of conversion and other costs including selling and distribution expenses that are necessary to bring the asset to the saleable condition are included in the carrying value of the property. Net realisable value is the price at which inventories can be sold in the ordinary course of business, less the estimated cost of completion and the estimated cost necessary to make the sale. Net Realisable Value is determined based on independent, external valuations made by a qualified valuer.

4.6.2 Gold stock

Cost or Market value whichever is lower at the year-end. Market value is determined in relation to the gold prices quoted in the international market as at 31 March 2014.

4.7 Impairmentofnon-financialassets

The carrying amounts of the Company’s non-financial assets, other than deferred tax 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.

The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For the purpose of impairment testing, assets that cannot be tested individually are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or group of assets (the “cash-generating unit, or CGU”).

An impairment loss is recognised if the carrying amount of an asset or its CGU exceeds its estimated recoverable amount. Impairment losses are recognised in profit or loss.

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 or amortisation, if no impairment loss had been recognised.

4.8 Employeebenefits

4.8.1 Definedcontributionplans

A defined contribution plan is a post-employment benefit plan under which an entity pays fixed contributions into a separate entity and will have no legal or constructive obligation to pay further amounts. Obligations for contributions to defined contribution plans are recognised as an employee benefit expense in profit or loss in the periods during which services are rendered by employees.

The Company contributes 12% and 3% of gross emoluments of employees as provident fund (EPF), and trust fund (ETF) contribution respectively.



33

4.8.2 Definedbenefitplan

A defined benefit plan is a post-employment benefit plan other than a defined contribution plan. The defined benefit is calculated by an independent actuary using Projected Unit Credit method as recommended by LKAS 19 “Employee Benefits” The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using the yield on government bonds at the reporting date and have maturity dates approximating to the terms of the Company’s obligations.

The Company recognises actuarial gains and losses that arise in calculating the Company’s obligation in respect of a plan in other comprehensive income.

The present value of the defined benefit obligation depends on a number of factors that are determined on an actuarial basis using a number of assumptions. Key assumptions used in determining the defined retirement benefit obligations are given in Note 27. Any changes in these assumptions will impact the carrying amount of defined benefit obligations.

Provision has been made for retirement gratuities from the first year of service for all employees, in conformity with LKAS 19 “Employee Benefits”. However, under the Payment of Gratuity Act No.12 of 1983, the liability to an employee arises only on completion of 5 years of continued service.

The gratuity liability is not externally funded.

4.9 Provisions

A provision is recognized if, as a result of a past event, the Company has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation.

4.10 Revenue

4.10.1 Interest

Interest 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 Company 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 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 income statement include interest on financial assets and liabilities measured at amortised cost calculated on an effective interest basis and interest income on available for sale investment securities calculated on an effective interest basis.

4.10.2 Finance lease income

Assets leased to customers who transfer substantially all the risk and rewards associated with ownership other than the legal title are classified as finance leases. Amounts receivable under finance leases are included under “Lease rental receivable”. Leasing balances are stated in the statement of financial position after deduction of initial rental received.

The excess of aggregate rentals receivable over the cost of the leased assets constitutes the total unearned income. The unearned income is taken into revenue over the term of the lease, commencing from the month in which the lease is executed in proportion to the remaining receivable balance of the lease.

4.10.3 Dividend income

Dividend income is recognised in the statement of comprehensive income on an accrual basis when the Company’s right to receive the dividend is established.

4.10.4 Overdue interest

Overdue interest income from leasing and other loans have been accounted for on a cash basis.

4.10.5 Real estate income

Revenue is recognized when properties are sold and the buyer has taken possession of such properties. However, when there is insufficient assurance as to the receipt of the total consideration, income is accounted for on a cash basis.



34

4.10.6 Gains or losses on disposal of property, plant & equipment

Profit/loss from sale of property plant and equipment is recognized in the period in which the sale occurs.

4.10.7Profitfromgoldsale

Profit/loss from gold sale is recognized in the period on a cash basis.

4.10.8 Other income

Other income is recognized on an accrual basis.

4.11 Expenses

Expenses are recognized in profit or loss as they are incurred, in the period to which they relate.

4.11.1 Operating leases

Leases where the Lessor effectively retains substantially all the risks and rewards of ownership over the lease term are classified as operating leases. Payments made under operating leases are recognised in profit and loss on a straight-line basis over the term of the lease.

4.11.2 Operating expenses

All expenses incurred in day to day operations of the business and in maintaining the property, plant and equipment in a state of efficiency has been charged to the Income Statements in arriving at the profit for the year. Provision has also been made for bad and doubtful debts, all known liabilities and depreciation on property, plant and equipment.

4.11.3 Finance expense

Finance costs comprise interest expense on short and long term borrowing and bank charges.

4.11.4 Income tax expenses

Income tax expenses comprise current and deferred tax. Current tax and deferred tax is recognized in profit or loss except to the extent that it relates to items recognized directly in equity or in other comprehensive income.

4.11.4.1 Current tax

Current tax is the expected tax payable or receivable 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 declaration of dividends.

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 thereon.

4.11.4.2 Deferred tax

Deferred 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 measured at the tax rates that are expected to be applied to temporary differences when they reverse, using tax rates enacted or substantively enacted at 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 taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realised simultaneously.

A deferred tax asset is recognised to the extent that it is probable that future taxable profits will be available against which they can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised.

4.11.5Valueaddedtaxonfinancialservices

The value base for value added tax for the Company is the adjusted accounting profit before tax and emoluments of employees. The adjustment to the accounting profit before tax is for economic depreciation computed on prescribed rates instead of the rates adopted in the financial statements.

4.11.6 Economic Service Charges (ESC)

ESC is payable on the liable turnover at specified rates. As per the provision of the Economic Service Charge Act No. 13 of 2006 and subsequent amendments thereto, ESC is



35

deductible from the income tax liability. Any unclaimed payment can be carried forward and set off against the income tax payable as per the relevant provision in the Act.

4.12 Earnings per share

The Company presents basic earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing the profit attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during the year.

4.13 Commitments and contingencies

Contingencies are possible assets or obligations that arise from a past event and would be confirmed only on the occurrence or non-occurrence of uncertain future events, which are beyond the Company’s control.

4.14 Events occurring after the reporting date

All material events occurring after the reporting date have been considered and where necessary, adjustments to or disclosure have been made in the financial statements.

4.15 Comparative information

The comparative information is re-classified wherever necessary to conform with the current year’s presentation in order to provide a better presentation.

4.16 Directors’ responsibility statement

The Board of Directors of the Company is responsible for the preparation and presentation of these financial statements.

4.17 Cashflowstatement

The cash flow statement has been prepared using the indirect method in accordance with Sri Lanka Accounting Standard 7 - Statement of Cash Flows.

4.18 New Accounting Standards issued but not effective as at reporting date

The Institute of Chartered Accountants of Sri Lanka has issued the following new Sri Lanka Accounting Standards which will become applicable for financial periods beginning on or after 1st January 2014/ 2015.

The extent of the impact of these Standards to the Financial

Statements has not been determined as at 31 March 2014. None of these are expected to have a significant impact on the company’s financial statements

SLFRS 9 - Financial Instruments: Classification andMeasurement

SLFRS 9, as issued, reflects the first phase of work on replacement of LKAS 39 and applies to classification and measurement of financial assets and liabilities.

The effective date for SLFRS 9 is yet to be announced by the Institute of Chartered Accountants of Sri Lanka.

SLFRS 13 - Fair Value Measurement

SLFRS 13 establishes a single source of guidance under SLFRS for all fair value measurements. SLFRS 13 provides guidance on all fair value measurements under SLFRS.

SLFRS 13 will be effective for financial periods beginning on or after 1 January 2014.

5. Regulatory provisions

5.1 Deposit insurance scheme

In terms of the Finance Companies (Insurance of deposit liabilities) Direction No. 2 of 2010, “Sri Lanka Deposit Insurance Scheme Regulations”, issued on 27th September 2010 and subsequent amendments thereto 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 the Government of Sri Lanka inclusive of Ministries, Departments and Local Governments.

• Deposit liabilities to shareholders, directors, key management personnel and other related parties

• Deposit liabilities held as collateral against any accommodation granted.

• Deposits falling within the meaning of dormant deposits in terms of the Finance Companies Act, funds



36

of which have been transferred to the Central Bank of Sri Lanka in terms of the relevant Directions issued by the Monetary Board.

A premium of 0.15 per centum per annum is payable monthly, calculated on total amount of all eligible deposits as at end of the month.

5.2 Investment Fund Account (IFA)

As proposed in the budget proposals of 2011 every person or partnership who is in the business of banking or financial services is required to establish and operate an Investment Fund Account. As and when taxes are paid after 1st January 2011, Registered Finance Companies are required to transfer the following funds to the Investment Fund Account and build a permanent fund in the Company.

• 8% of the profits calculated for the payment of Value Added Tax (VAT) on financial services on dates as specified in the VAT Act for payment of VAT.

• 5% of the profit before tax calculated for payment of income tax purposes on dates specified in Section 113 of the Inland Revenue Act and amendments thereto for the self-assessment payments of tax.

RFCs shall commence utilization of funds in the IFA in the following manner within three months from the date of transfer to the IFA;

(i.) Invest in long-term Government securities and/or bonds with maturities not less than seven years.

(ii.) Lend on maturities not less than five years at interest rates not exceeding 5-year Treasury bond rates plus 2 per cent.

(iii.) Facilities granted only for the following purposes

a. Long-term loans for cultivation of plantation crops/agriculture crops including, fruits, vegetables, cocoa and spices and for livestock and fisheries.

b. Factory / mills modernization / establishment/expansion.

c. Small and medium enterprises:

i. loans up to Rs. 30 million or;

ii. loans over Rs. 10 million to enterprises with

annual turnover less than Rs. 300 million and employees less than 400.

d. Information Technology related activities and Business Process Outsourcing.

e. Infrastructure development.

f. Education - vocational training and tertiary education.

g. Restructuring of loans extended for the above purposes.

5.3 Statutory reserve

Reserve fund is a capital reserve which contains profit transferred as required by Section 3(b)(ii) of Central Bank Direction No. 1 of 2003.

As per the said Direction, every Licensed Finance Company shall maintain a Reserve Fund and transfer to such reserve fund out of the net profits of each year after due provisions have been made for taxation and bad and doubtful debts on the following basis:

Capital funds to Deposit Liabilities% of transfer to Reserve Fund

Not less than 25% 5%

Less than 25% and not less than 10% 20%

Less than 10% 50%

6. Financial risk management

6.1 Introduction and overview

The Company has exposure to the following risks from financial instruments:

a) credit risk

b) liquidity risk

c) market risks

d) operational risks.

This note presents information about the Company’s exposure to each of the above risks (except market risk), the Company’s objectives, policies and processes for measuring and managing risk, and the Company’s management of capital



37

Risk management framework

The Board of Directors has overall responsibility for the establishment and oversight of the Company’s risk management framework. In discharging its governance responsibility it operates through two key committees the Board Integrated Risk Management Committee and the Audit Committee.

The BIRMC provides the Board the assurance that risk management strategies, policies and processes are in place to manage events / outcomes that have the potential to impact significantly on earnings performance, reputation and capital. The approach entails active monitoring of the level of risk exposure against the parameters set in the risk appetite. The BIRMC also assists the Board by assessing and approving significant credit and other transactions beyond the discretion of executive management.

The following Executive Management Sub - Committees, each with specialized focus, support the BIRMC and are responsible for the co-ordination of risk matters for each of the areas of risk management:

• Asset and Liability Committee (ALCO)

• Credit Committee

• Remuneration Committee

Internal audit undertakes both regular and ad-hoc reviews of risk management controls and procedures, the results of which are reported to the Audit Committee. The Audit Committee provides its assessment on the effectiveness of internal audit and external disclosure of accounting policies and financial reporting to the Board. Risk management policies and systems are reviewed regularly to reflect changes in market conditions, products and services offered.

6.2 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 investment in debt/equity securities. For risk management reporting purposes the Company considers and consolidates all elements of credit risk exposure (such as individual obligor default risk, industry risk etc.)

Management of credit risk

The Company has developed a policy which defines the principles encompassing client selection, due diligence, early alert reporting, tolerable levels of concentration risk and portfolio monitoring in line with Company’s risk appetite. The policy is reviewed at least annually ensuring consistency with the Company’s business strategy. A monthly Credit Policy Meeting chaired by the Chief Executive Officer, drives policy decisions and implementation plans.

Allowances for impairment

The Company established an allowance for impairment losses on assets carried at amortised cost/available for sale that represents its estimate of incurred losses in its loan and investment debt/equity security 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, a collective loan loss allowance 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.

Assets carried at fair value through profit or loss are not subject to impairment testing as the measure of fair value reflects the credit quality of each asset.

Collateral held and other credit enhancement and the financialeffect

The Company holds collateral and other credit enhancements against certain of its credit exposure. The table below sets out principal types of collateral and their approximate collateral percentages that are held against different types of financial assets.



38

Fair value of collateral held

An estimate made at the time of borrowing of the fair value of collateral and other security enhancements held against loans and receivables to customers is not available in the Company.

6.3 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, that funds available are adequate to meet credit demands of its customers and to enable deposits to be repaid on demand or upon maturity as appropriate.

The main sources of the Company’s funding are capital, core deposits from customers and access to borrowed funds

from the market. The Company also maintains a portfolio of readily marketable securities to further strengthen its liquidity position. The treasury and liquidity policies and compliance there under are reviewed and approved by the ALCO. A summary report, including any exceptions and remedial action taken, is submitted quarterly to ALCO.

Exposure to liquidity risk

Liquid assets include cash and short term funds, bills purchased and short term investments. Short term liabilities include savings deposits, repo borrowings and current taxation.

The Company also monitors the maturity profile of its assets and liabilities. Maturity analysis of assets and liabilities which is based on the remaining period as at the date of the statement of financial position to the respective contractual maturity date is given in Note 39 to the financial statements. The maturity analysis of company liabilities for 2014 are depicted below;


2013/14 Less than 3 Months (Rs.000)

3 Months to 1 Year (Rs.000)

1-5 Years (Rs.000)

More than 5 Years (Rs.000)

Total (Rs.000)

Non Derivative Liabilities

Deposits 1,987,574 2,128,058 1,017,109 - 5,132,741

Bank over draft 23,846 - - - 23,846

Interest bearing borrowings - 102,001 - - 102,001

Other liabilities 282 847 1,418 37,803 40,350

Type of credit exposure Principal type of collateral held for secured lending

Percentage of exposure that is subject to an arrangement that requires collateralization

31-Mar-14 31-Mar-13

Loans and advances to retail customers

Finance leases Property and equipment 100% 100%

Hire purchase Property and equipment 100% 100%

Loans against FD Fixed Deposit 100% 100%

Personal loans None - -

Loans and advances to corporate customers

Finance leases Property and equipment 100% 100%

Hire Purchase Property and equipment 100% 100%

Loans against FD Fixed Deposit 100% 100%

Loan to Swarna Mahal Jewellers (Pvt.) Ltd. None - N/A


39

6.4 Market Risk

Market risk is the risk that changes in market prices such as interest rates, equity prices, foreign exchange rates that 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 exposure within acceptable parameters, while optimising the return on risk.

The following assets of the Company are subject to market risk.

Assets subject to market risk Carrying Amount as at 31 March 2014 (Rs.)

Trading portfolio(Rs) Non trading portfolio (Rs)

FVTPL Assets 3,813,915 3,813,915 -

Financial assets through AFS 440,810,155 - 440,810,155

Loans and receivables 3,382,455,465 - 3,382,455,465

Liabilities subject to market risk Amount as at 31 March 2014(Rs.)


Deposits 5,132,740,669 - 5,132,740,669

Bank over draft 23,845,768 - 23,845,768

Interest bearing borrowings 102,000,727 - 102,000,727

Assets subject to market risk Carrying Amount as at 31 March 2013 (Rs.)


FVTPL Assets 3,933,370 3,933,370 -

Financial assets through AFS 448,530,265 - 448,530,265

Loans and receivables 5,108,234,477 - 5,108,234,477

Liabilities subject to market risk Amount as at 31 March 2013(Rs.)


Deposits 5,399,512,653 - 5,399,512,653

Bank over draft 43,306,040 - 43,306,040

Interest bearing borrowings 161,788,587 - 161,788,587


2012/13Less than 3 Months (Rs.000)

3 Months to 1 Year (Rs.000)

1-5 Years (Rs.000)

More than 5 Years (Rs.000)

Total (Rs.000)

Non Derivative Liabilities

Deposits 1,879,622 2,398,410 1,105,078 16,403 5,399,513

Bank over draft 43,306 43,306

Interest bearing borrowings 39,099 20,388 102,302 161,789

Other liabilities 37,332 24,281 3,982 65,595


40

Management of market risk

The Company separates its exposure to market risk between trading and non-trading portfolios. Overall authority of market risk is vested with the ALCO. The head of the risk management committee is responsible for the development of detailed risk management policy overseen by the ALCO and for the day to day review of their implementation

Equity Price Risk

A sensitivity analysis of the share trading portfolio is shown below at shock level of 10% 15% and 20%

2013/14

At shock levels of Impact on income statement(Rs)

Effect on portfolio (Rs)

10% 381,392 3,432,524

15% 572,087 3,241,828

20% 762,783 3,051,132

2012/13

At shock levels of Impact on income statement(Rs)

Effect on portfolio (Rs)

10% 399,337 3,594,033

15% 599,006 3,394,365

20% 798,674 3,194,696

Exposure to interest rate risk-Non trading portfolio

principal risk to which non-trading portfolios are exposed is the risk of loss from fluctuations in the future cash flows or fair values of financial instruments because of a change in market interest rates. Interest rate risk is managed principally through monitoring interest rate gaps and by having pre-approved limits for re pricing bands. ALCO is the monitoring body for compliance with these limits.

6.5 Operational risks

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.

Compliance with Company’s standards is supported by a program of periodic reviews undertaken by Internal Audit. The results of Internal Audit reviews are discussed with the management of the business unit to which they relate, with summaries submitted to the Audit Committee and senior management of the Company.

6.6 Capital management risk

Capital Adequacy is a measure of a finance company’s ability to withstand the associated risks of its business. Regulators find it necessary that every finance company to hold adequate capital to absorb unexpected losses as a going concern, while they price their products and services to take care of expected risks.

For the purpose of computing the capital adequacy ratio of finance companies, the constituent of capital shall be:-

I. Tier 1

Core capital: representing permanent shareholder’s equity (paid-up shares/common stock) and reserves created or increased by appropriation of retained earnings or other surpluses, i.e. share premia, retained profits and other reserves; and

II. Tier 2

Supplementary capital: representing revaluation reserves, general provisions and other capital instruments which combine certain characteristics of equity and debt, such as, hybrid capital instruments and unsecured subordinated term debts.

Every finance company shall, subject to the provisions of the Finance Companies (Minimum Core Capital) Direction No. 1 of 2006, at all times, maintain its capital (adjusted for the items that may be specified by the Director) at a level not less than 10 per cent of its risk weighted assets with the core capital constituting not less than 5 per cent of its risk weighted assets, computed as per instructions issued by the CBSL.



41

Description 2014 2013

Total tier 1 capital (808,126) 433,412

Total tier 2 capital 40,000 60,000

Total risk weighted assets 1,879,810 1,963,680

Off balance sheet exposure - -

Capital adequacy ratio

-Tier 1 (%)- Stipulated limit 5% (42.99%) 22.07%

-Tier 1 &2 (%)Stipulated limit 10% (40.86%) 25.13%

The Company is not compliant with these directions, as at 31 March 2014.

6.7 Use of estimates and judgement

Management discusses with the Company’s Audit Committee the development, selection and disclosure of the Company’s critical accounting policies and their application, and assumptions made relating to major estimation uncertainties.

Key sources of estimation uncertainty

Allowance for credit losses

Assets accounted for at amortised cost are evaluated for impairment on a basis described in Note 4.17

The specific counterparty component of the total allowances for impairment applies to financial assets evaluated individually for impairment and is based upon management’s best estimate of the present value of the cash flows that are expected to be received.

In estimating these cash flows, management makes judgements about a counterparty’s financial situation and the net realisable value of any underlying collateral. Each impaired asset is assessed on its merits, and the workout strategy and estimate of cash flows considered recoverable are independently approved by ALCO

Collectively assessed impairment allowances cover credit losses inherent in portfolios of loans and advances and investment securities measured at amortised cost with similar credit risk characteristics when there is objective evidence to suggest that they contain impaired financial

assets, but the individual impaired items cannot yet be identified.

In assessing the need for collective loss allowances, management considers factors such as credit quality, portfolio size, concentrations and economic factors. In order to estimate the required allowance, assumptions are made to define the way inherent losses are modelled and to determine the required input parameters, based on historical experience and current economic conditions. The accuracy of the allowances depends on the estimates of future cash flows for specific counterparty allowances and the model assumptions and parameters used in determining collective allowances.

Determining fair values

The determination of fair value for financial assets and liabilities for which there is no observable market price requires the use of valuation techniques as described in accounting policy Note 4.1.2.3 for financial instruments that trade infrequently and have little price transparency, fair value is less objective, and requires varying degrees of judgement depending on liquidity, concentration, uncertainty of market factors, pricing assumptions and other risks affecting the specific instrument.

Level 1 – fair value measurements using quoted prices (unadjusted) in active markets for identical assets or liabilities;

Level 2 – fair value measurements using inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and

Level 3 – fair value measurements using inputs for the asset or liability that are not based on observable market data (i.e. unobservable inputs).

The table below analyses financial instruments measured at fair value at the end of the reporting period, by the level in the fair value hierarchy into which the fair value measurement is categorised:



42

2014 2013

All Amounts in Sri Lanka Rupees Level 1 Level 2 Level 3 Level 1 Level 2 Level 3

Trading & AFS assets Financial Assets held for trading 3,814 - - 3,993 - -

Financial Investments - Available-for-Sale 440,808 0.25 448,528 0.25

The following table shows a reconciliation from the beginning balances to the ending balances for fair value measurements in Level 3 of the fair value hierarchy:

All Amounts in Sri Lanka Rupees 2014 2013

Financial Investments - Available-for-Sale

Balance as at 1 April 0.25 0.25

Total gain in other comprehensive income

- -

Balance as at 31 March 0.25 0.25

6.8 Fair value of financial instruments carried atamortised cost

The below table shows a comparison of the carrying

amounts, as reported on the statement of financial position,

and fair values of financial assets and liabilities carried at

amortised cost.

Carrying value(Rs)

Fair value(Rs)

Financial Asset

Loans and receivables 3,382,455,465 3,382,455,465

Financial Liabilities

Deposits 5,132,740,669 5,132,740,669

Debentures 102,000,727 102,000,727

There are various limitations inherent in this fair value

disclosure particularly where prices may not represent the

underlying value due to dislocation in the market. Not all

of the Company’s financial instruments can be exchanged

in an active market.

Given below are the methodologies and assumptions used

in fair value estimation

Loans and receivable

Approximately 83.21% of the total portfolio of loans and

receivables to customers have a remaining contractual

maturity of less than one year. Therefore it’s assumed that fair value equals the carrying value.

Deposits

More than 80.18% of the customer deposits are either repayable on demand or have a remaining contractual maturity of less than one year. Customer deposits with a contractual maturity of more than one year are subject to pre-mature upliftment. Amounts paid to the customer in the event of premature upliftment would not be materially different to its carrying value as at the date. Therefore fair value of customer deposits approximate to their carrying value as at the reporting

Debentures

Debentures include fixed rate debentures. The Company’s fixed rate debentures mature with in a period of one year (31 March 2015). Therefore it is assumed that fair value will equal market value

7. Segment Reporting

An operating segment is a component of the Company that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Company’s other components, whose operating results are reviewed regularly by the Company’s Management to make decisions about resources allocated to each segment and assess its performance, and for which discrete financial information is available. For each of the strategic divisions, the Company’s management monitors the operating results separately for the purpose of making decisions about resource allocation and performance assessment. The company has two reportable segments, as described in the Note No. 40.



43

Notes to the Financial Statements

For the year ended 31st MarchAll Amounts in Sri Lanka Rupees 2014 2013

8. Net interest incomeInterest incomePlacements with financial institutions 964,341 204,000 Financial investments - loans and receivables 1,003,710,066 1,281,641,632 Financial investments - available for sale 53,304,702 48,900,056 Total interest income 1,057,979,109 1,330,745,688

Interest expenseInterest on deposits from customers 783,981,679 762,377,106 Interest on interest bearing borrowings 29,458,043 31,794,570 Other interest expenses 301,262 406,441 Total interest expense 813,740,984 794,578,117 Net interest income 244,238,125 536,167,571

9. Netlossfromfinancialinstrumentsatfairvaluethroughprofitorloss

Equity shares (179,455) (103,223) (179,455) (103,223)

10. Other income/(Loss)Service income 1,241,909 1,506,744 Sundry income 939,763 3,023,809 (Loss)/Profit on gold sales (694,151,214) (15,394,120)Gain on sale of property, plant & equipment - 12,026 Change in fair value of investment property (46,900,000) 11,000,000 Rent income from Lavinia Breeze Sea Food Restaurent (Pvt.) Ltd. 600,000 600,000 Loss on change in carrying value of Loans & Receivable (101,487,520) - Other income (2,459,061) 8,683,808

(842,216,123) 9,432,267

11. Personnel expensesSalaries and wages 31,354,148 45,408,343 Directors’ emoluments 10,831,238 10,100,000 Contributions to defined contribution plans 4,812,822 6,882,272 Contributions to defined benefit plans 1,450,894 1,433,184 Over time payment 3,285,177 5,295,727 Fuel expense 5,340,026 5,374,820 Staff welfare 2,058,067 2,815,601 Others 10,239,946 4,147,325

69,372,318 81,457,272

12. Other expensesAudit fee and expenses 875,000 550,360 Audit related fee and expenses - 555,000 Professional and legal expenses 2,711,229 3,126,505

Depreciation of property, plant & equipment 20,005,200 26,611,309

Office administration and establishment expenses 183,887,094 212,366,335

207,478,523 243,209,509


44

Notes to the Financial Statements (Contd.)

For the year ended 31st MarchAll Amounts in Sri Lanka Rupees 2014 2013

13. Impairment charges/(reversals) for loans and other lossesImpairment on collective impairment (Note 13.1) 348,273,648 (1,400,358)Impairment of gold stock (Note 24.1) 5,194,383 2,205,457

353,468,031 805,099

13.1 Impairment charge/(reversal) on collective impairmentImpairment charge on gold loans 336,047,665 20,766,577 Impairment charge on lease rentals receivables 5,084,200 178,991 Impairment charge/(reversal) on hire purchase receivables 4,473,109 (23,681,540)Impairment charge/(reversal) on other term loans 2,668,674 1,335,614

348,273,648 (1,400,358)

14. Income tax expenseCurrent income tax 2,722,035 72,083,993 Deemed dividend tax for undistributed profit - 5,864,330 Over provision (2,526,742) (424,168)Deferred tax expense (Note 28) 2,362,972 (1,361,168)Total income tax expense 2,558,265 76,162,987

Reconciliation of the Total Tax charge2014 2013

Leasing Other Business Leasing Other

Business

14.1 Netprofitbeforetax (11,317,832) (1,231,307,279) 1,908,738 196,009,365

Adjustments:

Non-taxable income - - (83,747) (19,612,087)

Disallowable expenses 40,696,174 443,718,507 27,484,704 99,856,571

Allowable expenses (19,656,787) (25,506,037) (19,751,496) (28,369,218)

Total statutory income 9,721,555 (813,094,809) 9,558,199 247,884,631

Less : Qualifying payments - - -

Taxable income/(loss) 9,721,555 (813,094,809) 9,558,199 247,884,631

Income tax rate 28% 28% 28% 28%

Income tax 2,722,035 - 2,676,296 69,407,697

Deemed Dividend Tax for undistributed profit - - - 5,864,330

Over provision - (2,526,742) - (424,168)

Deferred tax expense (Note 28) - 2,362,972 - (1,361,168)

Incometaxonprofitfortheyear 2,722,035 (163,770) 2,676,296 73,486,691

Tax losses carry forward 813,094,809

15. Basic earnings/ (Loss) per share (EPS)

Basic earnings per share has been calculated by dividing the profit for the year attributable to equity holders of the Company by the weighted average number of ordinary shares on issue during the year, as per the requirements of the Sri Lanka Accounting Standard (LKAS 33) - “Earnings per share”.


45

As at 31st MarchAll Amounts in Sri Lanka Rupees 2014 2013

Profit/ (Loss) (for the year attributable to equity holders of the Company (1,245,183,376) 121,758,989 Weighted average number of ordinary shares 500,000,140 500,000,140 Basic earnings/ (Loss) per share (Rs.) (2.49) 0.24

16. Cash and cash equivalentsCash in hand 61,608,682 67,673,709 Cash at bank 245,973,008 36,203,987 Stamps on hand 802,743 197,675

308,384,433 104,075,371 Bank overdrafts (23,845,768) (43,306,040)

284,538,665 60,769,331

17. DepositswithfinancialinstitutionsFixed deposits with financial institutions 2,598,498 8,661,659 Interest on settlement 913,341 - Provision-(Charge)/Reversal 6,063,161 (6,063,161)Settlement (* Note) (9,575,000) -

- 2,598,498

(* Note) Standard Credit Finance Limited was unable to pay the deposit, therefore as a settlement three commercial parcels in Reality Plaza Ja-Ela, were transferred to the Company as settlement of the deposit. The transferred commercial parcels are reflected under investment property in Note - 22

18. FinancialassetsheldatfairvaluethroughprofitorlossEquity shares (Note 18.1) 3,813,915 3,993,370

3,813,915 3,993,370

18.1 Equity shares

2014 2013

Quoted shares:No. of shares

Cost/Market value at the beginning of the year

Market value

Cost/Market value at the beginningof the year

Market value

Commercial Bank of Ceylon PLC-Voting 2,228 247,696 274,043 215,400 247,696

Commercial Bank of Ceylon PLC-Non Voting 4,509 428,395 437,373 346,400 428,395

John Keels Holdings PLC 1,333 329,251 302,591 274,598 329,251 Seylan Bank PLC 1,015 65,200 64,656 66,900 65,200 LB Finance PLC 2,000 265,400 200,200 269,800 265,400 Pan Asia Bank PLC 4,000 76,000 64,800 94,000 76,000 Sampath Bank PLC 1,077 235,245 196,121 183,935 235,245 Distilleries Lanka PLC 1,000 166,500 203,000 145,000 166,500 Lanka Century Investment PLC 500 7,800 6,150 8,400 7,800



46


Hatton National Bank PLC 3,085 406,603 370,200 283,500 406,603 Aitken Spence PLC 1,000 119,600 97,900 112,700 119,600 Cargills PLC 1,000 151,800 136,500 174,000 151,800 Ceylon Theatres PLC 1,000 126,200 135,000 150,100 126,200 Laughs Lanka PLC 1,600 28,480 42,080 24,960 28,480 Vallible One PLC 51,700 827,200 878,900 982,300 827,200 Renuka Shaw Wallace PLC 4,000 72,000 64,400 104,600 72,000 Sierra Cables PLC 200,000 440,000 340,001 660,000 440,000

3,993,370 3,813,915 4,096,593 3,993,370 Mark to market losses (179,455) - (103,223) -

3,813,915 3,813,915 3,993,370 3,993,370

19. Financial assets available-for-saleTreasury bills (Note 19.1) 386,343,404 399,959,313 Treasury bonds (Note 19.2) 54,464,251 48,568,452 Share investment - unquoted company (Note 19.3) 2,500 2,500

440,810,155 448,530,265

19.1 Treasury bills

2014 2013

Face valueYear of

MaturityCarrying

valueCost of

investmentMarket value

Cost ofinvestment

Market value

Rs. 40.130 Mn 2014 39,914,099 36,049,943 39,914,099 - - Rs. 80.435 Mn 2014 79,558,561 72,549,187 79,558,561 - -

Rs. 21.190 Mn 2014 20,959,524 19,124,998 20,959,524 - - Rs. 38.681 Mn 2014 38,043,731 35,000,000 38,043,731 - - Rs. 78.700 Mn 2014 77,401,450 75,010,387 77,401,450 - - Rs. 14.781 Mn 2014 14,107,780 13,915,942 14,107,780 - - Rs. 50.000 Mn 2014 47,435,000 46,890,300 47,435,000 - - Rs. 48.385 Mn 2015 45,322,462 45,186,064 45,322,462 - - Rs. 23.996 Mn 2014 23,600,797 23,615,785 23,600,797 - - Rs. 36.050 Mn 2013 35,781,156 - - 35,838,489 35,781,156 Rs. 19.125 Mn 2013 18,836,214 - - 18,836,341 18,836,214 Rs. 72.549 Mn 2013 71,453,708 - - 71,136,522 71,453,708 Rs. 35.000 Mn 2013 34,191,644 - - 33,984,290 34,191,644 Rs. 60.771 Mn 2014 55,293,083 - - 55,809,715 55,293,083 Rs. 46.200 Mn 2014 42,035,544 - - 42,319,401 42,035,544



47


Rs. 45.121 Mn 2014 40,601,168 - - 41,129,942 40,601,168 Rs. 48.655 Mn 2014 43,780,595 - - 44,350,776 43,780,595 Rs. 38.575 Mn 2013 36,248,305 - - 36,251,181 36,248,305 Rs. 22.252 Mn 2013 21,737,896 - - 21,821,991 21,737,896

367,342,606 386,343,404 401,478,648 399,959,313

19.2 Treasury bonds2014 2013

Face value Year of Maturity

Carryingvalue

Cost of investment Market value Cost of

investment Market value

Rs. 34.100 Mn 2022 30,441,070 27,768,346 30,441,070 28,519,440 27,040,941 Rs. 6.000 Mn 2019 5,802,000 5,027,598 5,802,000 5,332,548 5,210,928 Rs. 10.000 Mn 2016 9,727,000 9,148,260 9,727,000 9,462,011 8,710,270 Rs. 8.733 Mn 2016 8,494,181 8,014,954 8,494,181 8,299,347 7,606,313


20. Loans and advances to customers

2014 2013

Gross Amount

Impairment allowance

Carrying amount

Gross Amount

Impairment allowance

Carrying amount

Gold loans (Note 20.2) 2,680,920,954 (420,310,807) 2,260,610,147 4,694,362,855 (84,263,142) 4,610,099,713 Finance lease receivable (Note 20.3) 37,856,908 (6,710,443) 31,146,465 55,320,831 (1,626,243) 53,694,588

Hire purchase receivables (Note 20.4) 151,599,833 (11,519,276) 140,080,557 234,405,746 (7,046,166) 227,359,580

Other term loans (Note 20.5) 290,646,655 (13,175,775) 277,470,880 226,524,340 (10,507,102) 216,017,238 3,161,024,350 (451,716,301) 2,709,308,049 5,210,613,772 (103,442,653) 5,107,171,119

49,959,158 54,464,251 51,613,346 48,568,452

19.3 Share investment - unquoted company2014 2013

No of shares Cost of investment

Market value

Cost of Investment

Market value

Credit Information Bureau of Sri Lanka Ltd 25 2,500 2,500 2,500 2,500 2,500 2,500 2,500 2,500

2014 2013

20.1 Allowance for impairmentCollective Allowance for impairment Balance as at 1 April 103,442,653 104,843,011 Impairment loss for the year-Charge/(Reversal) for the year 348,273,648 (1,400,358)Balance as at 31 March 451,716,301 103,442,653

Total Allowance for impairment 451,716,301 103,442,653


48



20.2 Gold loansGold loans - 1 month 373,922,747 - Gold loans - 3 months 105,867,358 352,866,596 Gold loans - 6 months 72,907,560 148,394,455 Gold loans - 12 months 894,121,397 3,675,938,551 Gold stock for auction (Note*) 1,234,101,892 517,163,253 Gross gold loans 2,680,920,954 4,694,362,855

* NoteThis relates to gold held against non-performing gold loans which are to be auctioned. Further, Rs. 724,458,384/- has been recovered from auctions up to 31 August 2014 with a loss of Rs. 438,635,802/-. Whereas, impairment provisions made for total gold loans as at 31 March 2014 was Rs 420,310,807/-

20.3 Finance lease receivableGross investment in finance leases, receivable- less than one year 4,996,644 40,717,331 - between one and five years 42,544,386 35,223,209

47,541,030 75,940,540

unearned finance income (9,684,122) (20,619,709)Netinvestmentinfinancelease 37,856,908 55,320,831

Netinvestmentinfinanceleases,receivable-less than one year 3,978,826 29,814,781 -between one and five years 33,878,082 25,506,050

37,856,908 55,320,831

There were no lease receivables beyond five years.

20.4 Hire purchase receivables

Gross investment in hire purchase, receivable- less than one year 29,094,810 186,323,613 - between one and five years 168,721,450 128,885,350

197,816,260 315,208,963

unearned finance income (46,216,427) (80,803,217)Net investment in hire purchase 151,599,833 234,405,746

Net investment in hire purchase, receivable

- less than one year 22,499,818 139,122,354

- between one and five years 129,100,015 95,283,392 151,599,833 234,405,746

20.5 Other term loansMedium term loans 78,453,784 68,700,916 Wedaduru loans 9,999,808 16,486,031 Revolving loans 1,767,645 14,445,487 Wisdom loans 132,410 132,410 Staff loans 3,675,279 2,425,174 On-time loans 196,617,729 124,334,322

290,646,655 226,524,340


49



21. Loan to Swarna Mahal Jewellers (Private) Limited

Medium term loan to Swarna Mahal Jewellers (Pvt) Ltd 1,063,358 1,063,358

Gold loan to Swarna Mahal Jewellers (Pvt) Ltd 773,571,578 -

Loss on change in carrying value of Loans & Receivable (101,487,520) -

673,147,416 1,063,358

The gold loan granted to Swarna Mahal Jewellers (Private) Limited is unsecured and was rescheduled in March 2014 effective from 1 April 2014 by the Board. Its stated at amortised cost based on the original EIR in accordance with LKAS 39.

22. Investment property

Opening balance 73,000,000 62,000,000

Additions during the year 9,575,000 -

Change in fair value (46,900,000) 11,000,000

Closing balance 35,675,000 73,000,000

22.1 Valuation of investment properties

Location Extent Date of valuation Market value

No 10, De Alwis Avenue, Mount Lavinia

- Land &Building 0A - 0R - 40.42 20.03.2014 26,100,000

03 commercial parcels in Reality Plaza

- Unit A/F1/U17 301 Sq. Ft23.03.2014

4,000,000

- Unit A/F1/U18 150 Sq. Ft 2,150,000

- Unit A/F3/U13 269 Sq. Ft 3,425,000

Rental Income from the Mount Lavinia Property is depicted in Note 10, the Company is yet to rent out commercial parcels in reality

plaza as such property was received close to the year end. No direct operating expenses were incurred by the Company for the

above investment properties

Fair value of the Company’s investment property as at 31 March 2014 has been arrived on the basis of a valuation carried out by

Mr. G.J. Sumanasena incorporated valuer and having recent experience in the location and the category of the investment property

being valued. He has used the investment method in arriving at the valuations for both properties

50

Not

es to

the

Fina

ncia

l Sta

tem

ents

(Con

td.)

23.

Prop

erty

, pla

nt &

equ

ipm

ent

In R

upee

sBu

ildin

g Im

prov

emen

tsOffice

Equi

pmen

tFu

rnitu

re &

Fi

ttin

gsM

otor

Vehi

cles

Leas

ed A

sset

s Co

mpu

ters

&

Soft

war

eTo

tal

Rs.

R

s.

Rs.

R

s.

Rs.

R

s.

Rs.

Cost

Bala

nce

as a

t 1Ap

ril 2

012

62,

273,

584

40,

993,

380

17,

300,

602

19,

324,

387

1,7

07,0

05

28,

331,

082

169

,930

,040

Ad

ditio

ns 6

,387

,422

1

,328

,075

2

91,5

48

-

2,9

50,9

82

1,4

90,1

85

12,

448,

212

Dis

posa

ls

-

-

-

-

-

(69,

000)

(69,

000)

Tran

sfer

s -

-

-

-

(1

,707

,005

) 1

,707

,005

-

Ba

lanc

e as

at 3

1 M

arch

201

3 6

8,66

1,00

6 4

2,32

1,45

5 1

7,59

2,15

0 1

9,32

4,38

7 2

,950

,982

3

1,45

9,27

2 1

82,3

09,2

52

Bala

nce

as a

t 1 A

pril

2013

68,

661,

006

42,

321,

455

17,

592,

150

19,

324,

387

2,9

50,9

82

31,

459,

272

182

,309

,252

Ad

ditio

ns 5

68,0

04

352

,550

-

-

-

2

0,16

0 9

40,7

14

Dis

posa

ls

-

-

-

-

-

-

-

Writ

e-of

f dur

ing

the

year

-

-

-

-

-

(1,4

46,0

91)

(1,4

46,0

91)

Tran

sfer

s -

-

-

-

-

-

-

Ba

lanc

e as

at 3

1 M

arch

201

4 6

9,22

9,01

0 4

2,67

4,00

5 1

7,59

2,15

0 1

9,32

4,38

7 2

,950

,982

3

0,03

3,34

1 1

81,8

03,8

75

Acc

umul

ated

dep

reci

atio

nBa

lanc

e as

at 1

April

201

2 1

9,52

8,77

2 2

9,56

4,31

3 1

1,41

4,44

0 3

,424

,691

4

26,7

51

19,

091,

211

83,

450,

178

Dep

reci

atio

n fo

r the

yea

r 6

,647

,406

7

,128

,572

3

,487

,108

4

,731

,648

1

,892

,684

2

,723

,891

2

6,61

1,30

9 D

ispo

sals

-

-

-

-

-

(18,

952)

(18,

952)

Tran

sfer

s -

-

-

-

(1

,707

,005

) 1

,707

,005

-

Ba

lanc

e as

at 3

1 M

arch

201

3 2

6,17

6,17

8 3

6,69

2,88

5 1

4,90

1,54

8 8

,156

,339

6

12,4

30

23,

503,

155

110

,042

,535

Bala

nce

as a

t 1st

Apr

il 20

13 2

6,17

6,17

8 3

6,69

2,88

5 1

4,90

1,54

8 8

,156

,339

6

12,4

30

23,

503,

155

110

,042

,535

Ch

arge

for t

he y

ear

6,8

92,0

15

2,0

01,8

66

1,8

07,7

30

4,6

49,2

77

737

,745

3

,916

,567

2

0,00

5,20

0 W

rite-

off d

urin

g th

e ye

ar -

-

-

-

-

(1

,446

,091

) (1

,446

,091

)D

ispo

sals

dur

ing

the

year

-

-

-

-

-

Bala

nce

as a

t 31

Mar

ch 2

014

33,

068,

193

38,

694,

751

16,

709,

278

12,

805,

616

1,3

50,1

75

25,

973,

631

128

,601

,644

Bala

nce

as a

t 31

Mar

ch 2

014

36,

160,

818

3,9

79,2

54

882

,872

6

,518

,771

1

,600

,807

4

,059

,710

5

3,20

2,23

1

Bala

nce

as a

t 31

Mar

ch 2

013

42,

484,

828

5,6

28,5

70

2,6

90,6

02

11,

168,

048

2,3

38,5

52

7,9

56,1

17

72,

266,

717

Leas

e Co

mm

itmen

ts o

n bu

ildin

gs im

prov

emen

ts a

re d

iscl

osed

in N

ote

33


51



23.1 Fully depreciated property, plant & equipment

The cost of fully-depreciated property, plant & equipment of the Company which are still in use as at the statement of financial position date is as follows:

Office equipment 36,184,797 25,119,088

Furniture and fittings 9,076,237 9,076,237

Computer equipment 12,624,761 15,628,595

Motor Vehicles 490,340 490,340

58,376,135 50,314,260

23.2 Leased assetsLeased assets for the year 2013/14 consists solely of 15 units of Motorbikes leased under a 3 year agreement. All leases are classified as finance leases and corresponding liability to the asset is accounted for in accordance with the accounting policy applicable to that leased asset as disclosed in note 30.1.

24. Other assets

Deposits & prepayments 66,914,933 70,211,008

Gold stock (Note 24.1) 48,635,177 53,829,560

Real estate stock (Note 24.2) 154,228,928 165,956,056

Rent receivable from Lavinia Breeze Sea Food Restaurant (Pvt) Ltd (Note 24.3) - -

269,779,038 289,996,624

24.1 Gold Stock

Gold stock 56,035,017 56,035,017

Impairment for gold stock (7,399,840) (2,205,457)

48,635,177 53,829,560

The Gold stock was pledged for the overdraft facility obtained by the Sampath Bank PLC amounting to Rs. 28 Mn. An impairment test was carried out as at year end and Rs. 7.4 Mn was made to compensate for the decline in prevailing market prices for gold.

24.2 Real estate stock

As at 31st March 2013 Thalawathugoda Nawala Boralesgamuwa Kandy Total

Balance at the beginning of the year 55,525,000 119,000,000 4,725,000 38,276,056 217,526,056

Additions/Transfers during the year - - - -

Disposals during the year (31,348,014) - (4,725,000) - (36,073,014)

Impairment during the year (2,896,986) (12,600,000) - - (15,496,986)

Balance at the end of the year 21,280,000 106,400,000 - 38,276,056 165,956,056

As at 31 March 2014Balance at the beginning of the year 21,280,000 106,400,000 - 38,276,056 165,956,056 Additions/Transfers during the year - - - - - Disposals during the year (9,473,972) - - (2,253,156) (11,727,128)Impairment during the year - - - - - Balance at the end of the year 11,806,028 106,400,000 - 36,022,900 154,228,928


52


As at 31st MarchAll Amounts in Sri Lanka Rupees

In order to ascertain the Net Realizable Value of the real estate stock, the company valued them as at 31 March 2014 by a profes-sionally qualified independent valuer. The valuation was carried out by taking into account the observable prices in active market or recent market transactions on arm’s length term. The Net Realizable Value was compared with the Net book value and have been accounted for in accordance with LKAS 2.

24.3 Rent receivable from Lavinia Breeze

2014 2013

Rent receivable from Lavinia Breeze 6,800,000 6,350,000

Provision for rent receivable from Lavinia Breeze (6,800,000) (6,350,000)

- -

25. Deposits from customers

Fixed deposits (Note 25.1) 5,068,260,986 5,344,855,081

Other deposits (Note 25.2) 64,479,683 54,657,572

5,132,740,669 5,399,512,653

25.1 Fixed deposits

Fixed deposits - General 1,101,929,265 1,345,449,782

SFS - Abhimana 3,945,433,754 3,999,191,899

Staff fixed deposits 198,513 213,400

Ranwasi Deposits 20,699,454 -

5,068,260,986 5,344,855,081

25.2 Other deposits

Savings - General 30,120,193 32,255,621

SFS Kumara Kumari 16,550,829 16,403,595

Staff savings 615,021 413,640

Dhanajaya savings 415,156 391,041

SFS saver 4,425,591 3,245,572

Dhana Pragathi 3,820 3,597

Miscellaneous savings 12,349,073 1,944,506

64,479,683 54,657,572

26. Interest bearing borrowings

Debentures (Note 26.1) 102,000,727 102,301,798

Borrowings from securitization - 20,388,397

Temporary borrowings from banks & financial institutions - 39,098,392

102,000,727 161,788,587

26.1 Debentures

Number of debentures 1,000,000 1,000,000

Value of debentures 102,000,727 102,301,798

The Rs. 100,000,000/- Unsecured redeemable subordinated debentures issued in 2010 at following rates will mature on 31 March 2015.


53


Category Amount Interest rate Value as at 2014

Value as at 2013

Type A 11,565,000 15.00% 11,712,878 11,767,166 Type B 500,000 15.50% 506,446 506,450 Type C 72,275,000 16.00% 73,413,396 73,524,212 Type D 15,660,000 16.50% 16,368,007 16,503,970

100,000,000 102,000,727 102,301,798

27. Current tax liabilitiesBalance at the beginning of the year 34,804,703 40,582,784 Current tax charge for the year 2,722,035 77,524,155 Current tax payment (34,830,569) (63,158,619)VAT receivable - (11,882,327)Economic Service Charge receivable - (3,366,761)WHT receivable on Treasury Bill and Treasury Bonds interest (4,950,292) (4,638,066)WHT receivable on FD interest income (379,414) (256,463)

(2,633,537) 34,804,703


28. Deferred tax liabilities Deferred tax asset Deferred tax liability Net deferred tax asset/ liability

Recognised deferred tax asset and liabilities 2014 2013 2014 2013 2014 2013

Leased property plant and equipment

(250,262) (423,429) - - (250,262) (423,429)

Provision for gratuity (1,512,471) (1,472,520) - - (1,512,471) (1,472,520)

Property plant and equip-ment

- - 4,430,803 2,492,525 4,430,803 2,492,525

Lease rentals - - 1,195,607 653,819 1,195,607 653,819

Total (1,762,733) (1,895,949) 5,626,410 3,146,344 3,863,677 1,250,395

Movement in deferred tax during the year

Balance as at 1 April

2012

Recognised inprofitor

loss

Recognised in OCI

Balance as at 31 March

2013

Recognised inprofitor

loss

Recognised in OCI

Balance as at 31 March

2014

Leased property plant and equipment

- (423,429) - (423,429) 173,167 - (250,262)

Provision for gratuity (778,756) (335,142) (358,622) (1,472,520) (290,261) 250,310 (1,512,471)

Property plant and equip-ment

4,842,641 (2,350,116) - 2,492,525 1,938,278 - 4,430,803

Lease rentals - 653,819 - 653,819 541,788 - 1,195,607

Bad debt provison (1,037,992) 1,037,992 - - - - -

Lease rentals (55,708) 55,708 - - - - -

2,970,185 (1,361,168) (358,622) 1,250,395 2,362,972 250,310 3,863,677

The Company has provided for the above deferred tax liability without considering the impact of the following deductible temporary difference, as it is not probable that future taxable profit will be available against which the Company can utilize the benefits, in the foreseeable future considering the pending restructuring/consolidation plans by the directors.


54


Unrecognised deferred tax asset- Collective and significant impairment on loans 126,480,564 - Tax lossess carried forward 227,666,547

354,147,111

29 EmployeeBenefit

29.1 Amount recognized in balance sheet

- Present value of defined benefit obligation 5,401,681 5,259,000

29.2 Movementinthepresentvalueofdefinedbenefitobligation

Defined benefit obligation as at 1 April 5,259,000 3,111,813

Actuarial (Gain)/Loss (893,963) 950,252

Benefits paid during the year (414,250) (236,250)

Current service costs and interest 1,450,894 1,433,185

Definedbenefitobligationasat31March 5,401,681 5,259,000

29.3 ExpenserecognizedinprofitorlossCurrent service cost 578,490 1,059,767 Interest cost 872,404 373,418

1,450,894 1,433,185

29.4 Amounts recognized in other comprehensive income

Actuarial (gain)/loss (893,963) 1,280,794

29.5 Actuarial assumptions

An actuarial valuation of the gratuity liability was carried out as at 31st March 2014 by Mr. M. Poopalanathan, AIA, of Messrs Actuarial and Management Consultants (Pvt) Ltd, a firm of professional actuaries.

The valuation method used by the actuaries to value the Fund is the “Projected Unit Credit Method”, the method recommended by the Sri Lanka Accounting Standard (LKAS 19) “Employee Benefits”.

Retirement age 55 Years 55 Years

Discount rate 10% 11%

Salary increment 10% 10%

29.6 Sensitivity analysis

The following table demonstrates the sensitivity to a reasonably possible change in the key assumptions employed with all other variables held constant in the employment benefit liability measurement.

Discount Rate Salary escalation rate Effect on charge to OCI

Effectonemployeebenefitobligation

1% Increase As given in the report (271,683) (271,683)1% Decrease As given in the report 301,423 301,423 As given in the report 1% Increase 273,418 273,418 As given in the report 1% Decrease (251,088) (251,088)



55


30. Other liabilitiesAccounts payable 30,543,655 31,804,992 Other tax payables 1,857,187 (9,871,156)Lease creditors (Note 30.1) 1,317,678 2,347,391

33,718,520 24,281,227

30.1 Lease creditorsLess than one year 1,115,954 943,890 One to five years 201,724 1,403,501

1,317,678 2,347,391

31. Stated capital

Stated capital. 250,000,070 250,000,070

250,000,070 250,000,070

No of shares 500,000,140 500,000,140

As per the Special Resolution passed at the Extraordinary General Meeting (EGM) held on 27th March, 2012, it was resolved that each of the issued and subscribed 25,000,007 Voting Ordinary shares be sub - divided in to 20 (Twenty) Ordinary shares (Voting) fully paid up. Therefore, the number of ordinary shares outstanding was increased without an increase in resources.

32. ReservesStatutory reserve fund (Note 32.1) 105,972,056 105,972,056 Investment fund (Note 32.2) 50,704,977 50,704,977 Available for sale reserve (Note 32.3) 2,665,509 (4,564,229)Retained earnings (1,214,159,880) 30,379,843

(1,054,817,338) 182,492,647

32.1 Statutory reserve Balance at the beginning of the year 105,972,056 45,093,956 Transfers during the year - 60,878,100 Balance at the end of the year 105,972,056 105,972,056

Statutory reserve is a capital reserve which contains profit transferred as required by Section 3(b)(ii) of Central Bank Direction No.

1 of 2003, issued to Finance Companies.

As per the said Direction, every Licensed Finance Company shall maintain a Reserve Fund and transfer to such reserve fund out of the net profits of each year after due provisions have been made for taxation and bad and doubtful debts on the following basis:

Capital funds to Deposit Liabilities % of transfer to Reserve Fund

Not less than 25% 5%Less than 25% and not less than 10% 20%Less than 10% 50%

No transfers have been made as at 31 March 2014 as the Company is incurring losses

32.2 Investment fundBalance at the beginning of the year 50,704,977 22,882,378 Transfers during the year - 27,822,599 Balance at the end of the year 50,704,977 50,704,977



56

As proposed in the budget proposals of 2011 every person or partnership who is in the business of banking or financial services is required to established to operate an Investment fund account.

As and when taxes are paid after 1 January 2011, Registered Finance Companies (RFCs) shall transfer the following funds to the IFA and build a permanent fund in the RFC.

- 8% of the profits calculated for the payment of value Added Tax (VAT) on financial services on dates as specified in the VAT Act for payment of VAT.

- 5% of the profit before tax calculated for payment of income tax on dates specified in Section 113 of the Inland Revenue Act and amendments thereto for the self-assessment payment of tax.

As per the requirements specified by the Central Bank guidelines on the operations of the Investment Fund Account, the funds are invested in government treasury bonds purchased from Wealth Trust securities Ltd, with a maturity of greater than 7 years.

ISIN Code Interest rate Maturity Amount (Rs)

LKB01022A018 8.00% 1-Jan-22 27,768,346

LKB01019E016 8.50% 1-May-19 5,027,598

32,795,944

No transfers were made to the investment fund as the Company incurred losses in the current year.

32.3 Available for sale reserve

Balance at the beginning of the year (4,564,229) (7,211,400)

Gain/(Loss) during the year 8,749,075 7,431,194

Matured T-bills and T-bonds (1,519,337) (4,784,023)

Balance at the end of the year 2,665,509 (4,564,229)

33. Commitments and contingencies

There were no commitments and contingencies as at reporting date, which require adjustments to or disclosures in the financial statements other than the below mentioned lease commitments

Lease commitments Minimum lease paymentsNot later than one year 33,088,858 31,585,358 Later than one year & less then five years 124,541,160 133,774,610 Later than five years 88,989,444 112,844,852

246,619,462 278,204,820

34. Related party disclosures

The Company carries out transactions in the ordinary course of its business with parties who are defined as related parties as per the Sri Lanka Accounting Standard - LKAS 24 “Related Party Disclosures”, the details of which are reported below.

34.1 Parent and ultimate controlling party

The Company’s parent company is ETI Finance Ltd which is the ultimate controlling party with 90% shareholding.

34.2 Transactions with Key Management Personnel (KMP)

According to Sri Lanka Accounting Standard - LKAS 24 “Related Party Disclosures”, Key Management Personnel are those having authority and responsibility for planning, directing and controlling the activities of the entity directly or indirectly including any director(whether executive or otherwise of that entity). The Company considered the members of its Board and their close family members as Key Management Personnel (KMP) of the Company. Close family members are defined as spouse or dependent. Dependent is defined as any one who depends on the respective director for more than 50% of his/her financial needs. Since they have the authority and responsibility for planning, directing and controlling the activities of the Company.



57


As at 31st MarchAll Amounts in Sri Lanka Rupees

Compensation to KMP 2014 2013

Short term employment benefits (including CEO) 15,114,571 17,300,000

There were no post employment benefits or long term benefits provided to key management personnel.

34.3 Mr. Jeewaka Edirisinghe, Ms. Deepa Edirisinghe, Mr. Nalaka Edirisinghe, Mr. Asanka Edirisinghe, Mr. Sumathipala Kariyawasam, and Mr. Sujith D. Jayawardena are the Directors of the Company and Key Management Personnel of the following companies and have had transactions as disclosed below.

Company names

Mr.

J. H

. Edi

risin

ghe

Mrs

. A. D

. Edi

risin

ghe

Mr.

N. P

. Edi

risin

ghe

Mr.

A. S

. Edi

risin

ghe

Mr.

Sum

athi

pala

Kar

iyaw

asam

Mr.

Sujit

h D

. Jay

awar

dena

EAP Holdings Ltd √ √ √ √ √ √ETI Finance Ltd √ √ √ √ * *Swarnamahal Jewellers (Pvt) Ltd √ √ √ √ √EAP Network (Pvt) Ltd √ √ √ √ √ √Lavinia Breeze Sea Food Restaurant (Pvt) Ltd √ √ √ √EAP Security Services (Pvt) Ltd √ √ √ √EAP Films & Theatres (Pvt) Ltd √ √ √ √ √ √Hotel Sapphire (Pvt) Ltd √ √ √ √EAP RMS Insurance Brokers (Pvt) Ltd √ √ √ √ √ √Hotel Concord (Pvt) Ltd √ √ √ √ √ √

Mr. B. G. Wimalarathna Banda is an Iindipendent Non Executive Director and Mr. Sameera Ganegoda is a Non - Executive Director and CEO of ETI Finance Ltd.

* Mr. Sumathipala Kariyawasam and Mr. Sujith D. Jayawardana had tendered their resignation to resign from the Directorship of ETI Finance Ltd. w.e.f 1 November 2013


58


34.4 Transactions with entities that are controlled, jointly controlled or significantly influenced by Key Management Personnel or their close member of family, or shareholders who have either control, significant influences or joint control over entity are as follows;

Transactions with related parties

Name of the Company Description of Transaction Amounts(paid)/received Rs.

Balance as at31st March 2014 Rs.

Swarnamahal Jewellers (Pvt) Ltd. Settlement of loan (122,115,500) -

Loan Granted during the year (Note 34.5) 824,893,679 -

Loan balance due from the company - 774,634,936

Gold sales 532,254,422 - Amount recovered during the year (532,254,422)

Balance due from gold sales - -

EAP Security Services (Pvt) Ltd Security expenses 4,207,177 (971,444)

EAP Holdings Ltd Shared services expense 4,689,031 -

Prepaid balance - 26,378,565 Lavinia Breeze Sea Food Restaurant (Pvt) Ltd Rent income (600,000)

Provision for rent not recevied 600,000

EAP Broadcasting Company Limited Advertising Expense 889,668 -

34.5 Related party lending to Swarna Mahal Jewellers (Private) Limited

This accommodation was unsecured and exceeded the Single Borrower Limit set by the CBSL Directions. It was rescheduled in March 2014 effective from 1 April 2014, by reducing the rate of interest from 24% to 16% and waiver of penal interest. However, the outstanding amount has reduced to Rs. 661,559,961/- as at 31 August 2014.

35. Events after the reporting date

There have been no other material events occurred between the reporting date and the date on which the financial statements are authorised for issue which require adjustments to or disclosure in the financial statements

36 Litigation and Claims

There were no litigation claims against the company as at the reporting date


59


37 Comparative Information

37.1 Restatement

The following comparative figures have been restated in the 2013 Financial Statement due to the adoption of LKAS 19 (Revised)-Employee Benefits to maintain comparability of Financial Statements in order to provide a better presentation as required by LKAS 8-Accounting policies, Changes in Accounting Estimates and Errors;

DefinedBenefitObligation As Disclosed in 2012/13

Restated balance Adjustment

Employee Benefits 3,982,079 5,259,000 1,276,921 Personal Expenses 81,461,145 81,457,272 (3,873)

Other comprehensive income- Actuarial loss - 1,280,794 1,280,794 - Deferred tax impact - (358,622) (358,622)

922,172

Income Tax expense 76,161,903 76,162,987 1,084

Reconciliation of retained earnings

As per 2012/13 annual report 31,299,226 Defined benefit obligation 3,873Actuarial gain (922,172)Deferred tax impact (1,084)As per 2013/14 annual report 30,379,843

37.2 Re-Classification

The following comparative figures have been reclassified in the financial statements for the year ended 31 March 2014 in order to provide a better presentation. Comparative information in the financial statements have been reclassified as follows

Interest income has been reclassified as follows;

2013Interest income previously reported 1,339,429,496 Transferred to other income (8,683,808)Reclassified balance 1,330,745,688

Other income has been reclassified as follows

Other income previously reported 748,459 Transferred from interest income 8,683,808 Reclassified balance 9,432,267

38 Going Concern

The Company incurred a loss of Rs.1,245,183,376/- during the year ended 31 March 2014 and as of that date the Company’s total liabilities exceeded its total assets by Rs.804,817,268/-. The financial statements of the Company have been prepared on a going concern basis without making adjustments that may be required to the recorded assets and the classification of liabilities if the Company is unable to continue as a going concern. The validity of the above going concern assumption is justified by a 5 year cash flow projection of the company.

The significant and sudden drop in Gold Prices has significantly affected the Company’s performance and the provisions made in this regard is the main reason for the loss during the year and the resultant negative net liability. The Company is under the Central Bank of Sri Lanka’s Financial Consolidation Restructuring program and the directors plan to divest/merge it with an adequate capital injection to regain compliance and therefore continue as a going concern.


60

39 Maturity of assets and liabilities

An analysis of the total assets employed and total liabilities as at the year end ,based on the remaining period at the reporting date to the respective contractual maturity dates is given below.

Assets/Liabilities

Maturity period Up to 1-3 3-12 1-5 Over 5

Total 1 month Months Months Years Years

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

Interest earning assetsCash at bank 245,973,008 - - - - 245,973,008 Deposits with financial institutions - - - - - -

Financial assets available for sale- Treasury Bills 39,914,099 239,564,063 106,865,242 - - 386,343,404 - Treasury Bonds - - - 18,221,181 36,243,070 54,464,251 - CRIB - - - - 2,500 2,500

Loans & receivables *- Pawning 972,102,785 535,897,619 752,609,743 - - 2,260,610,147 - Leasing 1,964,572 3,929,144 17,681,148 7,571,601 - 31,146,465 - HP 8,790,689 17,581,378 79,116,200 34,592,290 - 140,080,557 - Term Loans 28,142,056 53,648,248 343,176,773 525,651,219 - 950,618,296

1,296,887,209 850,620,452 1,299,449,106 586,036,291 36,245,570 4,069,238,628

Non interest earning assetsCash in hand 62,411,425 - - - - 62,411,425 Financial assets held at fair value through profit and loss 3,813,915 - - - - 3,813,915

Real estate stock - - 11,806,027 142,422,901 - 154,228,928 Gold stock - 48,635,177 - - 48,635,177 Property, plant & equipment - - - - 53,202,231 53,202,231 Investment property - - - - 35,675,000 35,675,000 Other assets - - - 61,767,395 5,147,538 66,914,933

66,225,340 - 60,441,204 204,190,296 94,024,769 424,881,609 Total assets 1,363,112,549 850,620,452 1,359,890,310 790,226,587 130,270,339 4,494,120,237

Percentage - 31st March 2014 32.05 19.87 28.11 17.21 2.76 100 Percentage - 31st March 2013 2.44 7.97 71.28 15.40 2.91 100

Bank overdrafts - 23,845,768 - - - 23,845,768 Deposits from customers 720,229,652 1,267,344,635 2,128,057,822 1,017,108,560 - 5,132,740,669 Interest bearing borrowings - - 102,000,727 - - 102,000,727

720,229,652 1,291,190,403 2,230,058,549 1,017,108,560 - 5,258,587,164

Non interest bearing assets

Other liabilities 94,118 188,240 847,080 1,418,380 37,802,523 40,350,341

Equity - - - - (804,817,268) (804,817,268)

94,118 188,240 847,080 1,418,380 (767,014,745) (764,466,927)Total liabilities 720,323,770 1,291,378,643 2,230,905,629 1,018,526,940 (767,014,745) 4,494,120,237

Percentage - 31st March 2014 16.03 28.73 49.64 22.66 (17.07) 100 Percentage - 31st March 2013 13.48 17.96 40.61 18.84 9.11 100

* Loans and receivables are reported net of impairment



61


40. Segmental information

As at 31st MarchAll Amounts in Sri Lanka Rupees Pawning Other Total

Income

Interest income 812,900,813 245,078,296 1,057,979,109

Other income (694,151,214) (148,244,364) (842,395,578)

Total income 118,749,599 96,833,932 215,583,531

Percentage 76.84% 23.16% 100%

Less :

Interest 625,239,858 188,501,126 813,740,984

Other expenses 495,178,287 149,289,371 644,467,658

Total expenses 1,120,418,145 337,790,497 1,458,208,642

Profit before taxation (1,001,668,547) (240,956,565) (1,242,625,111)

Less : income tax - (2,558,265) (2,558,265)

Profit after taxation (1,001,668,547) (243,514,829) (1,245,183,376)

Segment assets 2,309,245,326 2,184,874,910 4,494,120,237

Percentage 51.38% 48.62% 100%

Segment liabilities 2,722,790,228 2,563,800,909 5,298,937,505

For the year ended 31st March 2013

Income

Interest income 1,168,702,500 162,043,188 1,330,745,688

Other income (15,373,693) 24,702,737 9,329,044

Total income 1,153,328,807 186,745,925 1,340,074,732

Percentage 87.82% 12.18% 100%

Less :

Interest 697,823,363 96,754,754 794,578,117

Other expenses 305,250,924 42,323,716 347,574,640

Total expenses 1,003,074,287 139,078,470 1,142,152,757

Profit before taxation 150,254,520 47,667,456 197,921,976

Less : income tax (66,888,718) (9,274,269) (76,162,987)

Profit after taxation 83,365,802 38,393,187 121,758,989

Segment assets 4,663,929,273 1,438,766,049 6,102,695,322

Percentage 76.42% 23.58% 100%

Segment liabilities 4,332,698,026 1,336,585,196 5,669,283,222


62

Eight Years at a Glance

Year Ended 31st March (Audited) 2007 2008 2009 2010 2011 2012 2013 2014

Profitperformance

Gross Income 155 190 309 425 714 1,078 1,340 216

Interest Income 164 256 417 706 1,061 1,332 1,058

Interest Expenses 1 151 228 274 383 529 794 814

Interest on customers deposits 102 151 228 274 363 502 762 784

Interest on other borrowings - - - - 20 27 32 30

Net Interest Income 40 13 28 143 323 532 537 244

Other Income 13 26 53 8 8 17 9 (842)

Operating Expenses * 48 78 93 121 230 315 325 277

Impairment charges/(reversals) for loans and other losses - - - 4 16 (27) 1 353

Profit before tax (PBT) 5 (39) (12) 26 (25) 261 220 (1,228)

Income Tax & Other Tax expenses ** 2 - - 9 49 102 98 17

Profit after tax (PAT) 3 (39) (12) 17 (74) 159 122 (1,245)

Other comprehensive income for the year, net of tax - - - - (1) (6) 1 8

Total comprehensive income for the year 3 (39) (12) 17 (75) 153 123 (1,237)

Assets

Cash and cash equivalents 5 88 55 122 130 205 104 308

Investments In Government Securities 104 124 148 126 183 339 449 441

Other Investments 114 153 156 130 68 75 80 40

Pawning Gold Jewellery - 6 84 864 2,714 3,694 4,610 2,261

Hire Purchase Receivable - 53 87 211 192 219 227 140

Lease rentals receivable 4 20 21 23 31 42 54 31

Other Loans & Advances 545 569 505 304 233 189 217 950

Value of non performing Advances - - - 9 11 13 530 1,280

Other Trading Stock 49 172 263 272 243 274 220 203

Other Receivables 40 104 256 245 80 71 70 67

Fixed assets 72 82 89 122 74 86 72 53

Total Assets 933 1,371 1,664 2,419 3,948 5,194 6,103 4,494

Liabilities

Fixed Deposits 682 1,120 1,285 1,896 3,502 4,456 5,345 5,068

Savings 11 18 65 48 50 50 55 65

Borrowings (Refinance) - - - 100 102 215 162 102

Other Liabilities 32 64 157 144 138 164 109 64


63

Total Liabilities 725 1,202 1,507 2,188 3,792 4,885 5,671 5,299

Shareholders’ Funds

Stated Capital 200 200 200 250 250 250 250 250

Reserves 8 (31) (43) (19) (94) 59 182 (1,055)

Total Shareholders’ Fund 208 169 157 231 156 309 432 (805)

Total Equity and Liabilities 933 1371 1664 2419 3,948 5,194 6,103 4,494

Other Information

Number of Staff as at 31st March 42 69 83 131 196 198 135 112

Number of Branches & Pawning Centers 4 4 9 11 15 17 17 17

Ratios

Growth of Income -9.4% 22.6% 62.6% 37.5% 68.0% 51.0% 24.2% -83.9%

Cost to Income Ratio 90.6% 200.0% 114.8% 80.1% 69.5% 57.4% 60.6% 458.6%

Growth of Deposits -27.4% 64.2% 18.6% 44.0% 82.7% 26.9% 19.8% -4.9%

Growth of Advances -45.6% 18.0% 7.6% 101.1% 126.1% 30.7% 23.3% -33.8%

ROA (before Tax) 0.5% -3.4% -0.8% 1.3% -0.8% 5.7% 3.9% -23.2%

ROA (After Tax) - -3.8% -0.8% 0.8% -2.3% 3.5% 2.2% -23.5%

ROE (after Tax) 1.6% -20.7% -7.4% 8.8% 38.8% 65.8% 33.2% -200.0%

Advances to Deposits & Borrowings 80.5% 57.9% 54.2% 70.2% 88.0% 88.7% 92.8% 65.4%

Total Assets to Shareholders funds (times) 4.5 8.1 10.6 10.5 25.3 16.8 14.1 -5.6

EPS (after Tax) (Rs.){considered Subdivision} 0.01 -0.10 -0.03 0.03 0.15 0.32 0.24 -2.49

Net Asset Value P.S. (Rs.) {considered Subdivision} 0.52 0.42 0.39 0.46 0.31 0.62 0.87 -1.61

Interest Cover (times) 1.4 1.1 1.1 1.5 1.8 2.0 1.7 1.3

Net Interest Margin 4.8% 1.8% 3.5% 12.1% 13.2% 13.6% 10.7% 5.2%

Net Interest Spread *** 3.6% 2.9% 8.3% 15.2% 14.4% 14.0% 10.7% 7.2%

Liquid Assets Ratio 15.7% 18.6% 13.6% 11.9% 8.4% 11.2% 9.0% 13.0%

Government Security / TB Ratio 11.9% 12.6% 12.4% 8.6% 10.0% 11.1% 10.1% 7.1%

NPL Ratio 0% 0% 0% 0.64% 0.35% 0.31% 10.2% 30.95%

Core Capital Ratio 28.8% 16.8% 12.9% 16.0% 10.3% 17.4% 22.3% -43.0%

Total Risk Weighted Capital Ratio 28.8% 16.8% 12.9% 23.7% 16.9% 21.8% 25.3% -40.9%

* Ratios for the FY’s before 2011 have been calculated based on the Financial Statement prepared in accordance with the SLAS.


64

Share Information

1. Colombo Stock Exchange

The Company’s Ordinary Voting shares were listed on the “DiriSavi” Board of the Colombo Stock Exchange with effect from 26th May 2011.

The interim financial statements of the Company were submitted to the Colombo Stock Exchange within two months from the reporting date.

2. Twenty largest Ordinary Shareholders as at 31st March 2014

Names No. of Shares

Percent-age (%)

M/s ETI Finance Ltd 450,000,100 90.00

Mr. W.A.S.P. De Saram 8,054,009 1.61M/s Awis Holdings (Private) Ltd. 4,173,133 0.83Mrs. N. Muljie 2,148,580 0.43Mrs. T.H. Fernando 2,144,615 0.43Mr. P.A. Anil 1,334,300 0.27Mr. W.A.K.D. Saparamadu 670,608 0.13Mrs. F.R. Rafaideen 575,000 0.11Mr. K.L. Udayananda 536,843 0.11Mr. R.E. Rambukwelle 505,000 0.10Mr. J.M.I. Jayaweera 500,682 0.10M/s Seylan Bank PLC/Mr.S.N.C.W.M.BandaraChandrasekera Kandegedara 484,000 0.10Mrs. S.S.Navaratnam 456,235 0.09Mr.R.M.I. Rajapaksa 451,964 0.09Mr. A.Y. Gunawardane 450,000 0.09Mr. H.A. Van Starrex 400,000 0.08Mr. H.W.M. Woodward 390,400 0.08Mr. T. Rajasekaran 375,000 0.07Mr. S.N.C.W.M.B.C. Kandegedara 350,000 0.07Mrs. F.F. Hamid 318,377 0.06Others 25,681,294 5.15

Total Shares 500,000,140 100.00

The stated Capital of the company consisting solely issued and fully paid up Ordinary Voting Shares of 500,000,140 as at 31st March 2014.

3. Market Price of an Ordinary Share

31st March 2014 31st March 2013Highest 2.80 4.00

Lowest 2.00 3.10

Closing 2.10 3.20

No. of Ordinary Voting Shares 500,000,140 500,000,140


65

4. Number of Ordinary Shareholders as at 31st March 2014

ShareHoldings

Resident Non Resident Total

Number of Sharehold-

ersNo of Shares

Percent-age(%)

Number of Shareholders

No of Shares

Percentage(%)

Number of Shareholders

No of Shares

Percentage(%)

1 to 1000 844 334,172 0.07 1 100 0.00 845 334,272 0.07

1001 to 10,000 912 4,034,331 0.81 4 34,800 0.01 916 4,069,131 0.82

10,001 to 100,000 460 14,593,863 2.92 2 102,719 0.02 462 14,696,582 2.94

100,001 to1000,000 53 12,065,293 2.41 3 980,125 0.20 56 13,045,418 2.61

Over 1,000,000 5 465,710,122 93.13 1 2,144,615 0.43 6 467,854,737 93.56

Total 2,274 496,737,781 99.34 11 3,262,359 0.66 2,285 500,000,140 100

Categories of shareholders No. of Shareholders No. of Shares Percentage (%)

Individuals 2,236 43,846,887 8.77

Institutional 49 456,153,253 91.23

Total 2,285 500,000,140 100

Public holding as a percentage of Issued Share Capital as at 31st March 2014 10.00%


66

Our Network

Jaffna

Chilaw

NegomboJa-ela Gampaha

RagamaWattala

Kollupitiya Sea Street

Nugegoda

Aluthgama

Vavuniya

Trincomalee

Batticaloa

Kandy

Hatton

Ratnapura

FULLY FLEDGED BRANCHESNo Branch Address Tele No.01 Batticaloa No. 190,

Trincomalee Road, Batticaloa

065-2222880

02 Chilaw No.24A, Bazaar Street, Chilaw

032-2224888

03 Hatton No.15, Main Street, Hatton

051-2224466

04 Jaffna No.338, Hospital Road, Jaffna

021-2220245

05 Kandy No.156, Kotugodella Street, Kandy

081-2226126

06 Kollupitiya No.654, Galle Road, Colombo 03

011-2556160-4

07 Negombo No.93, Rajapaksha, Broadway, Negombo

031-2222619

08 Nugegoda No.31, St. Thilakarat-na Mw, Nugegoda

011-2810666

09 Ratnapura No.15, Main Street, Ratnapura

045-2226270

10 Trincomalee No.31, Central Road, Trincomalee

026-2226677

11 Vavuniya No.141, Kandy Road, Vavuniya

0242226233

PAWNING CENTRES

No Branch Address Tele No.12 Aluthgama No.164, Galle Road,

Aluthgama034-2271775

13 Gampaha No.16, Market Street, Gampaha

033-2248444

14 Ja-Ela No.120, Negombo Road, Ja- Ela

011-2249085

15 Ragama No.62A,Tewatte Road, Ragama

011-2957053

16 Sea Street No. 05, Jampettah Street, Colombo 13

011-2452245

17 Wattala No.416, Negombo Road, Wattala

011-3193340


67

Jaffna

Chilaw

NegomboJa-ela Gampaha

RagamaWattala

Kollupitiya Sea Street

Nugegoda

Aluthgama

Vavuniya

Trincomalee

Batticaloa

Kandy

Hatton

Ratnapura

Notice of Meeting

Notice is hereby given that the Nineth (09th) Annual General Meeting of Swarnamahal Financial Services PLC will be held at Hotel Sapphire, No. 371, Galle Road, Colombo 06 on Tuesday, the Thirtieth (30th) day of September 2014 at 10.30 a.m. for the following purposes.

1 To consider and adopt the Annual Report of the Board of Directors on the Affairs of the Company and the Statements of Accounts for the year ended 31st March 2014 with the Report of the Auditors thereon.

2. To re-elect Mr. B. G. Wimalarathna Banda who in terms of Article 20(5)of the Articles of Association of the Company retires by rotation at the Annual General Meeting as a Director.

3. To re-elect Mr. S. M. Ganegoda who in terms of Article 20(5)of the Articles of Association of the Company retires by rotation at the Annual General Meeting as a Director.

4. To re-appoint Messrs KPMG, Chartered Accountants as the Auditors for the ensuing year and authorize the Directors to determine their remuneration.

5. To authorize the Directors to determine contributions to charities for the Financial Year ending 31st March 2015.

BY ORDER OF THE BOARDS S P CORPORATE SERVICES (PRIVATE) LIMITED

SecretariesNo.101, Inner Flower Road,Colombo 03.01st September 2014

Note:-

A member is entitled to appoint a proxy to attend and vote instead of himself/herself and a Proxy need not be a member of the Company.

A Form of Proxy is enclosed for this purpose. The instrument appointing a proxy must be deposited at the Registered Office of the Secretaries, S S P Corporate Services (Pvt) Ltd .101, Inner Flower Road, Colombo 03.

Security Check:-

We shall be obliged if the shareholders/proxies attending the Annual General Meeting produce their National Identity Card to the security personnel stationed at the entrance.


69

Form of Proxy

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

being a member/members of Swarnamahal Financial Services PLC hereby appoint :

Mr. J.H. Edirisinghe or failing him

Mr. N. P. Edirisinghe or failing him

Mrs. A.D. Edirisinghe or failing her

Mr. A.S. Edirisinghe or failing him

Mr. S. Kariyawasam or failing him

Mr. S.D. Jayawardhana or failing him

Mr. B.G. Wimalaratna Banda or failing him

Mr. S.M. Ganegoda or failing him ............................................................................................of......................................................................................................................................, holder of .............................................................(National Identity Card Number) as* my/our proxy, to represent *me/us and to vote as indicated hereunder for *me/us on *my/our behalf at the Annual Meeting of the Company to be held at Hotel Sapphire No.371, Galle Road, Colombo 6 on Tuesday, the Thirtieth (30) day of September 2014 at 10.30 a.m. and at any adjournment thereof and at every poll which may be taken in consequence thereof:

For Against01. To consider and adopt the Annual Report of the Board of Directors on the Affairs of the

Company and the Statements of Accounts for the year ended 31st March 2014 with the Report of the Auditors thereon.

02. To re-elect Mr. B. G. Wimalarathna Banda who in terms of Article 20(5) of the Articles of Association of the Company retires by rotation at the Annual General Meeting as a Director.

03. To re-elect Mr. S. M. Ganegoda who in terms of Article 20(5) of the Articles of Association of the Company retires by rotation at the Annual General Meeting as a Director.

04. To re-appoint Messrs KPMG, Chartered Accountants as the Auditors for the ensuing year and authorize the Directors to determine their remuneration.

05. To authorize the Directors to determine contributions to charities for the Financial Year ending 31st March 2015.

Signed this ......................................... day of ...........................Two Thousand and Fourteen.

Signature of the shareholder: …………………………….

Note :

(a) *Please delete the inappropriate words. (b) Instructions are noted on the reverse hereof.


70

1. Kindly perfect the form of proxy by filling in legibly your full name and address, your instructions as to voting, by signing in the space provided and filling in the date of signature.

2. Please indicate with an ‘X’ in the cages provided how your proxy is to vote on the Resolutions. If no indication is given, the proxy in his/her discretion may vote as he/she thinks fit.

3. A Proxy for a Shareholder is entitled to attend and be heard at a meeting of shareholders as if the proxy was the shareholder.

4. In case of a Company or corporate body, the form of Proxy must be completed and signed under its Common Seal, which should be affixed and attested in accordance with the Articles of Association or the Constitution of that Company or corporate body.

5. In case of a proxy signed by an Attorney, the original or a certified copy of the Power of Attorney should also accompany the completed Form of Proxy, in the manner prescribed in the Articles of Association.

6. Every alteration or addition to the Proxy must be duly authenticated by the shareholders with the full signature. Such signature should as far as possible be placed in proximity to the alteration.

7. The completed Proxy should be deposited at the registered office of the Secretaries, at No. 101, Inner Flower Road, Colombo 03, not less than 24 hours before the time appointed for holding of the Meeting.

Note:

If the shareholder is a Company or body corporate, Section 138 of Companies Act No.7 of 2007 applies to Corporate Shareholders of Swarnamahal Financial Services PLC. Section 138 provides for representation of Companies at meetings of Companies. A Corporation, whether a Company within the meaning of this Act or not, may - where it is a member of another Corporation, being a Company within the meaning of this Act, by resolution of its Directors or other governing body authorized as aforesaid - shall be entitled to exercise the same power on behalf of the Corporation which it represents, as that Corporation could exercise if it were an individual shareholder.

Instructions to Complete Proxy

Corporate Information

Name of the CompanySwarnamahal Financial Services PLC

Legal Form

A Public Limited liability Company incorporated 14th January 2004, under the Companies Act No.17 of 1982 and re-registered 16th September 2008 under the Companies Act No.7 of 2007, registered as a Finance Company under the Finance Business Act No. 42 of 2011 by the Monetary Board of the Central Bank of Sri Lanka.

Registered Office

No.676, Galle Road, Colombo 03.

Business Office

No. 654, Galle Road, Colombo 03Tel : 011 2556160-4 Fax: 011 2595062E-mail : [email protected] web: www.sfs.lk

Board of Directors

Mr. J.H. EdirisingheMr. N.P. EdirisingheMrs. A.D. EdirisingheMr. A.S. EdirisingheMr. S. KariyawasamMr. S.D. JayawardhanaMr. B.G. Wimalaratna BandaMr. S.M. Ganegoda

Company Registration No.

PB 594 PQ

VAT Registration No.

114363510 – 7000

Credit Ratings

B-/NP RAM Ratings (Lanka) Limited

Number of employees 108

Company Secretary

SSP Corporate Services (Pvt) LtdNo. 101, Inner Flower Road, Colombo 03

Auditors

Messrs KPMGChartered Accountants32A, Sir Mohamed Macan Markar Mawatha,Colombo 3.

Bankers

Commercial Bank of Ceylon PLCSampath Bank PLCSeylan Bank PLCHatton National Bank PLC

Principal Activities

Fixed DepositsSavings and Minors’ Savings AccountsGold Loan servicesFinance LeasesHire Purchase and Term Loan facilities

A trust etched in goldAn E A P Group of Company

No.654, Galle Road, Colombo 03, Sri LankaTel. 011 2556160-4, 2595061Fax : 011 2589823, 2595062E-mail: [email protected] Web. www.sfs.lk

PLC

Swarnamahal Financial Services PLC Annual Report … Financial Services PLC is a Public Limited ......

Documents

Transcript of Swarnamahal Financial Services PLC Annual Report … Financial Services PLC is a Public Limited ......