Swarnamahal Financial Services PLC Annual Report 2011/12

Transcription

Swarnamahal Financial Services PLC I Annual Report 2011/12
FINANCIAL SERVICES PLC
No 654, Galle Road, Colombo 03, Sri Lanka.
Tel.011 2556160-4, 2595061
Fax: 011 2589823, 2595062
E-mail:[email protected] Web.www.sfs.lk
Together in
Growth
Swarnamahal Financial Services PLC
Annual Report 2011/12
ABOUT US
Contents
CORPORATE INFORMATION
Swarnamahal Financial Services PLC is a Public Limited Liability Company
Financial Highlights
Chairman’s Message
Director/Chief Executive Officer’s Message
Board of Directors
Senior Management Team
Management Discussion and Analysis Financial Review
Sustainability Report
Risk Management
Corporate Governance
Annual Report of the Board of Directors on the Affairs of the Company
Directors’ Statement on Internal Control
Auditor’s Report on Internal Control
Statement of Directors’ Responsibilities in Relation to Financial Statements
Chief Executive Officer’s and Senior Finance
Manager’s Statement of Responsibility
Board Audit Committee Report
Board Integrated Risk Management
Committee Report (BIRMC)
Board Human Resources and Remuneration Committee Report
Independent Auditor’s Report
Income Statement
Balance Sheet
Statement of Changes in Equity
Cash Flow Statement
Significant Accounting Policies
Notes to the Financial Statements
Six Years at a Glance
Share Information
Glossary of Financial Terms
Our Network
Notice of Meeting
Form of Proxy 2
4
8
11
16
18
22
27
32
37
63
69
71
72
74
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Incorporated in Sri Lanka 14th January 2004, under the Companies
Name of the Company
VAT Registration No.
Act No.17 of 1982, and re-registered 16th September 2008 under the
114363510 – 7000
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
Legal Form
No.42 of 2011.
A Public limited liability Company incorporated 14 January
VISION
To be the Premier Financial Services Provider in LFC market.
MISSION
To create superior long - term value to our shareholders, customers and
78
81
82
83
84
85
86
93
114
116
118
121
122
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BB+/NP RAM Ratings (Lanka) Limited
2004, under the Companies Act No.17 of 1982 and
re-registered 16th September 2008 under the Companies Act
Number of employees
No.7 of 2007, registered as a finance Company under the
207
Finance Business Act No. 42 of 2011 by the Monetary Board of
the Central Bank of Sri Lanka.
Company Secretary
SSP Corporate Services (Pvt) Ltd
Registered Office
No. 101, Inner Flower Road, Colombo 03
employees above the industry standard.
No.676, Galle Road, Colombo 03.
VALUES
Business Office
Messrs BDO Partners
No. 654, Galle Road, Colombo 03
Chartered Accountants
Highest standards of ethics and integrity
Te.l. 011 2556160-4 Fax: 011 2595062
65/2, Sir Chiththampalam A Gardiner
Auditors to the Company - Financial Year 2011/12
Always do the right thing and keep commitments.
77
Credit Ratings
th
Mawatha,
Engage others to build trust and encourage strong communication.
Board of Directors
Listen and share as a team
Mr. J. H. Edirisinghe
Colombo 02.
Mr. N. P. Edirisinghe
Bankers to the Company
Mrs. A. D. Edirisinghe
Commercial Bank of Ceylon PLC
Mr. A. S. Edirisinghe
Sampath Bank PLC
Innovation and continuous improvements
Mr. D. S. Abayaratne
Seylan Bank PLC
Anticipate customer needs and work to exceed their expectations
Mr. S. M. Ganegoda
Hatton National Bank PLC
Respect
Respect all through trust, courtesy and open communication
Service Excellence
Commitment to achieve the highest standard of services quality with
personalized services.
Mr. J. F. G. De Silva
Mr. S. A. Weerasinha
Mr. N. G. M. De Silva
Learning focused
Company Registration No.
Search new knowledge for innovations
PB 594 PQ
Together in
Growth
Growth is never achieved singularly and it is by working shoulder to shoulder
that visions are created and targets achieved and at the end of another year
we have seen results. Here at Swarnamahal Financial Services PLC, we are
proud to work together towards a common goal of development and progress.
regardless of differences. The teamwork displayed by our company can be
summed up in a few words, “We believe in each other and likewise in the
potential of a company whose trust is etched in gold”.
2
2011/12 2010/11 Change %
Gross Income
1,069 713 49.93
Net Profit Before Tax (PBT)
247 112 120.54
Tax Expense
106 49 116.33
Financial Performance for the year (Rs. Mn)
Net Profit After Tax (PAT)
141 63 123.81
Net Profit per Employee
Financial Position at the year end (Rs. Mn)
1.19
0.57
108.77
Total Assets
5,315 4,079 30.30
Pawning Advances
3,155 2,434 29.62
Other Loans and Advances
473 538 -12.08
Deposits 4,399 3,470 26.77
Shareholders’ Funds Information per Ordinary Share (Rs.)
435 294 47.96
Earnings
0.28 0.13
115.38
Net Asset Value
0.87 0.58 50.00
38.7%
24.0%
61.18
Key Indicators
Return on Average Shareholders’ Funds
(%)
Return on Average Assets(%)
5.3%
3.5%
51.43
Cost to Income Ratio (%)
Capital Adequacy Ratios
54.3%
65.4%
-16.99
Core Capital Ratio-Tier I (%)
21.1%
15.7%
34.22
Total Risk weighted Capital Ratio -Tier II (%)
Statutory Ratios
25.1%
21.6%
16.23
Shareholders’ Funds to Deposits (%)
9.89%
8.47%
16.71
Liquid Assets Ratio (%)
11.4%
8.47%
34.42
3
Gross Income
1,069
Rs.
Net Profit (PAT)
141
Rs.
mn
Total Assets
Rs.Mn
6000
mn
Rs.
Deposits
5,315
mn Rs.
Profit Before Taxation
Rs.Mn
141
140
112
40
20
0
11
63
11
12
3,470
3,155
2,434
2500
2000
1,944
2000
1500
1500
1000
1000
500
500
0
11
Year
12
12
Rs.Mn
3000
3000
11
Shareholders’ Fund
Pawning Advances
3500
10
10
Year
4,399
3500
2500
20
Rs.Mn
4000
54.26
Year
Total Deposits
4500
80.10
0
Year
Rs.Mn
100
40
17
10
12
Cost to Income
65.40
0
10
12
Year
60
60
26
11
10
80
80
100
0
%
100
150
1000
Profit After Taxation
120
200
2,419
2000
mn
160
247
250
50
4,399
Rs.Mn
300
4,079
4000
3000
Total Assets
5,315
5000
864
0
10
11
Year
12
500
450
400
350
300
250
200
150
100
50
0
435
294
231
10
11
Year
12
4
“Given your company’s highly respected reputation in the gold
loan services market, we will continue to sustain our growth
momentum through strategic market expansion of our core
business of gold loans in the ensuing year.”
5
It gives me a great pleasure to welcome you all to the 7th Annual
General Meeting and to present the performance of your
company for the financial year 2011/12, that evidences a year
of commendable growth, with high returns for all stakeholders.
During the year, the regulatory and prudential framework of
the financial sector focused on capital enhancements and
improvements to corporate governance and risk management
infrastructure.
Economic Overview
The performance of the non-bank financial institution sector
(LFCs and specialized leasing companies) improved due
to expansion of business activities. There were notable
improvements in asset quality, profitability and capital
adequacy.
Globally, financial markets remained sluggish due to rising
sovereign debt problems in the European Union and increased
uncertainty about the prospects of the global economy. As a
result, investors adopted a cautious approach and prices of
safe haven assets, such as gold, rose significantly in 2011.
Domestically, 2011 was a year of growth for Sri Lanka, with the
economy recording the highest post independence growth
of 8.3%. Inflation remained at single digit levels with annual
average inflation at 6.7%, while year-on-year inflation was 4.9%
in December 2011. In the favourable economic climate, imports
and credit demand continued to grow and in February 2012,
the Central Bank raised interest rates and capped bank lending
to 18% with an additional 5% allowed for foreign funds, to
rein in possible demand fuelled inflation and to contain import
related credit to safeguard national foreign exchange reserves.
To further strengthen external stability, in February 2012, the
Central Bank allowed greater flexibility in the exchange rate
by limiting its interventions in the domestic foreign exchange
market. Taxes on imported motor vehicles were raised in March
2012 to control vehicle imports and save foreign exchange.
During the first quarter of 2012, despite rising concerns of an
Euro zone crisis and a global slowdown, Sri Lanka’s economic
growth continued to remain strong. The Sri Lankan economy
recorded a 7.9% growth between January and March 2012,
supported by an agriculture sector growth of 11.5%, an
industrial sector growth of 10.8% and services growth of 5.8%.
Licensed Finance Companies (LFC)
In 2011, Sri Lanka’s financial systems continued to remain
stable and resilient, sustained by strong domestic economic
growth, despite the uncertain global financial environment.
The new Finance Business Act was effected in November 2011,
introducing a stronger system to regulate finance companies.
In addition, LFCs were required to list on the Colombo Stock
Exchange by June 2011.
In 2011, the Central Bank also implemented a mandatory
deposit insurance scheme under the provisions of the Monetary
Law Act, to safeguard interests of small depositors and maintain
public confidence in the financial system.
During 2011, the total asset base of the non bank financial
sector grew by 26% to Rs. 490 billion, compared with a growth
of 30% in 2010. The main contributory factor in the expansion
of the asset base was the growth of the accommodations
portfolio. Accommodations grew by 46% to Rs. 388 billion as
at end 2011, compared to a growth rate of 35% during 2010.
Finance leases, hire purchases and other secured advances
were the major sources of the increase in accommodations,
accounting for 43%, 30% and 15%, respectively of total
accommodations. Among the products, finance leasing, other
secured loans and pawning, indicated high growth rates of
90%, 58% and 35%, respectively. As at September 2011, LFCs
accounted for 4.1% of financial sector assets at Rs. 301 billion
and 5.8% of deposits, at Rs. 182.3 billion.
SFS Performance
Your company was able to sustain a strong growth throughout
the financial year 2011/12. As a reputed finance company that
has had the trust and confidence of consumers for many years,
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Chairman’s Message Contd.
compliance with the stronger governance and security process
introduced by the Central Bank, through the new Finance
Business Act, was easily accommodated.
Despite the current negative market sentiments, we are happy
to announce that the Company’s share price remained buoyant
throughout the year, reflecting our strong fundamentals. The
Company commenced trading 26th May 2011, and during
the period 26th May 2011 to 31st March 2012, trade volumes
reached 53,502, while the traded share volumes rose to 42.1
million, recording a turnover above Rs. 4 billion. The Market
Capitalization was over Rs. 3.9 billion as at 31st March 2012.
The price increase of gold during the year resulted a higher
demand for our gold related services that contributed towards
the overall profit growth. The increased gold prices also
strengthened our asset base, making SFS one of the most
stable and secured finance companies in the country.
Despite competition from 38 LFCs operating in the country,
the total income of your company grew by 49% during the year
under review, to reach Rs. 1.06 billion, compared to the income
of Rs. 713 million in the previous year. As a result of this strong
performance, our profit after tax more than doubled to Rs. 140.7
million. This strong growth is a result of the quality of services
and accessibility of services offered by SFS to consumers.
Our highly trained and experienced staff, seven days a week
service, access points at all major cities and modern security
facilities have contributed towards establishing SFS as a
premier service provider, particularly in the gold loans market.
The rise of interest rates in 2012, caused interest rates of fixed
deposits and savings deposits to increase. This upward trend in
interest rates will exert pressure on the interest rate spread and
cost of borrowing. These changes did not have a significant
impact during the financial year under review. However, they
may affect the company performance in the new financial year.
Future Outlook
The country’s economic growth forecast has been revised
downwards from 8.0%, to 7.2%, for the year 2012. Private
sector credit is also expected to contract during the year, due
to the cap on bank lending and the higher cost of credit. In
this environment of slow overall national economic growth, our
challenge will be to retain the growth momentum sustained over
the past years.
However, despite the new challenges, we hope to sustain our
growth momentum through strategic market expansion of our
core business of gold loans and also the provision of fixed
deposit services. Given the high yield, high security and high
liquidity of gold loans, compared to other lending products,
expansion of gold loan services will contribute towards
strengthening the Company’s asset base, while ensuring high
returns. Given your Company’s highly respected reputation in
the gold loan services market and our in-house expertise in
gold transactions, I am confident we will be able to sustain a
strong growth in this segment during the ensuring financial year.
As a part of our expansion programme, we will add five new
branches to our network during the financial year 2012/13, with
greater penetration in the North and East of the country, with
our expertise. We will also convert a number of our pawning
centres into full service branches. This will enable us to offer
a full range of services, including fixed deposits, to a larger
market.
We also wish to notify our valued shareholders that your
Company will retain the earnings of the year under review, to
strengthen the Company’s Tier 1 capital base and will also wish
to issue debentures during the new financial year, to strengthen
Tier 11 capital, to meet the Central Bank’s capital adequacy
requirements in line with our expansion plans.
In addition, we will continue our endeavours to keep improving
the quality of our services and maintain our commitment
towards the training and development of our staff.
7
Appreciations
I would like to extend my wholehearted appreciation to
our former Chairperson, Dr.(Mrs) Soma Edirisinghe, for her
direction and total dedication in guiding this Company since its
inception. I would also like to thank the Board of Directors for
their guidance in steering the Company to achieve its current
performance.
For their continued support and trust in the company, all
our shareholders and customers, deserve my unreserved
appreciation. I have no doubt that our shareholders will join me
in commending the CEO, his management team and staff of
SFS, for their dedication and team spirit that has resulted in the
Company for achieving its current success.
J. H. Edirisinghe
Chairman
05th June 2012
8
“During the Financial Year 2011/12, we continued to surge
ahead in a strong growth trajectory with revenues, profits
and assets, all showing commendable growth and reflecting
consumer trust placed in the Company.”
9
I am happy to announce that your Company has recorded an
exceptional performance during the financial year 2011/12.
The year under review reported a number of significant
regulatory and policy changes that directly impacted the LFC
sector and your Company. However, I am confident our strong
fundamentals will continue to sustain growth in the coming year.
Performance Overview
In the financial year 2011/12, your Company continued to
surge ahead in a strong growth trajectory with revenues, profits
and assets, all showing commendable growth and reflecting
consumer trust in the Company. The year also saw our asset
base strengthen, with gold backed assets rising to 65% of total
assets. This has made SFS one of the most stable and secured
LFCs operating in the country today.
Our overall income grew by 50% to reach Rs. 1.07 billion,
compared to the income of Rs. 713.1 million in the financial
year 2010/11. Our profit before tax grew by 126%, to reach
Rs. 218.9 million, from Rs. 96.9 million during the previous
financial year. Profit after tax meanwhile, more than doubled to
Rs. 140.7 million, from Rs. 62.7 million in the previous year. Our
asset base also expanded by Rs. 1.3 billion, to Rs. 5.3 billion
from Rs. 4.0 billion. We are happy to announce that our (NPL)
ratio also, indicated a reduction during the year, to 0.3% from
0.4% previously, due to our ongoing efforts to streamline debt
collections.
Our gold loans portfolio continued to expand by 30%, from
Rs. 2.4 billion in the previous year, to Rs. 3.2 billion during the
2011/12 financial year. The growth in this segment in particular,
reflects consumer confidence in the Company’s expertise in
gold transactions, including valuations and security facilities.
It gives us a great pride to record that SFS has some of the
most experienced and highly trained gold assessors in the
country, providing the best standard of service for consumers.
We maintain utmost integrity in all transactions, ensuring the
security of gold items left in our custody, and their safe return
to the rightful owners. During the year, the rising gold prices
contributed towards increased demand for our gold loan
services and we saw higher demand from the North and East of
the country. As a result the North and East now account for one
third of our total assets.
Our fixed deposit portfolio increased from Rs. 3.5 billion to
Rs. 4.4 billion in the financial year 2011/12. Due to the higher
cost of bank credit, fixed deposits continued to remain as the
main source of funding for the Company. In addition to the gold
loan services, we also continued to provide credit facilities,
such as Leasing and Hire Purchase and Education Loans for
our customers.
Due to the negative trend in the real estate market and the
downturn in investor sentiments at the Colombo Stock Market,
it was necessary to re-evaluate our strategies in the real estate
sector and equities investments. While adequate provisioning
have been made against contingencies in the property
development market and share market, we are hopeful that
improved investor confidence in the share market would enable
us to reverse provisioning on share market investment during
the new financial year, as our investments are in Blue Chips/
high potential companies. However, as an improvement in the
real estate sector cannot be envisaged in the short term, new
strategies will be formulated to ensure the best returns for the
Company and to ensure the best interests of our shareholders.
During the current financial year we did not continue the
purchasing of land. Instead, we adopted a strategy of disposal
of low yielding properties and re-investing the funds in higher
yielding products.
During the year, the Company added two new pawning centres
to its network in Batticaloa and Aluthgama, thereby expanding
our market coverage.
The year also brought in many significant regulatory changes
including the introduction of the Finance Business Act, to
regulate finance companies in the country. As a Company with
a strong brand name built on trust, we welcome these initiatives
10
Director/Chief Executive Officer’s Message Contd.
to improve governance of the LFC sector, as they will boost
consumer confidence in the sector. As a part of these regulatory
changes LFCs were also required to list on the Colombo Stock
Exchange (CSE) before end June 2011. Therefore, SFS listed
its Ordinary Voting Shares on the DiriSavi Board of the CSE and
commenced trading activities 26th May 2011.
Future Outlook
In the face of slow economic growth and credit constraints,
in the financial year 2012/13, we plan to operationalize our
strategic expansion plan, focussing strongly on expanding our
geographic coverage of the country, with further emphasis on
the North and East. In this context we hope to establish five
new branches in strategic locations in the North and East and
in the South. In addition, we also plan to convert some of our
pawning centres into fully fledged branch offices enabling us to
offer our full range of services to a wider customer base.
Due to higher credit cost and increased vehicle import taxes,
we anticipate lower demand for vehicle hire purchase and
leasing services. In addition, securitised credit from banks, for
finance companies, has also slowed down due to the cap on
bank lending. However we plan to meet our funding targets by
floating Debentures and mobilising more Fixed Deposits.
However, in an environment of rising inflationary pressures and
higher requirements for credit, we anticipate higher demand for
gold loans to be sustained. In the face of rising interest rates,
the fixed deposit segment too, can be expected to remain
strong. Therefore, in the new financial year, we will continue
to focus strongly on growing our fixed deposit and gold loan
portfolios. Our geographic expansion will be strategically linked
with our gold loan and fixed deposit service expansion. We will
also continue to focus on skills development of our team and
upgrading of technology, to facilitate this process.
We are confident our market expansion plan for the year
2012/13 will contribute significantly towards reaching our goal
of being ranked among the top 10 companies in the LFC sector,
in terms of profitability, over the next two years.
Appreciations
On behalf of the shareholders and employees, I extend my
warm appreciation to our former Chairperson, Dr (Mrs) Soma
Edirisinghe for her untiring efforts in guiding the Company to its
present position.
I also extend my gratitude to the Chairman and my colleagues
on the Board, for their active interest in the Company and their
strategic guidance. Our shareholders, providers of Credit Lines
and depositors deserve my gratitude for the confidence they
continue to place in us.
I also thank our borrowing customers for their patronage and
appreciation of our services.
I firmly believe that our success is due to the hard work and
dedication of our team of employees. Our service quality and
the quality of our team of personnel, are what differentiates
SFS from the competitors in the industry, consolidating
the Company’s reputation for trust, reliability and security.
Therefore, I extend a warm thank to our ‘team SFS’ for its
contribution towards the success of our company.
S. M. Ganegoda
Director/Chief Executive Officer
05th June 2012
11
Board of Directors
Standing from Left to right :
1. Mr. J. H. Edirisinghe
2. Mr. N. P. Edirisinghe
3. Mrs. A. D. Edirisinghe
12
Board of Directors Contd.
4. Mr. A. S.Edirisinghe
5. Mr. D. S. Abeyratna
6. Mr. S.M. Ganegoda
13
7. Mr. J.F.G. De Silva
8. Mr. S. A. Weerasinha
9. Mr. N.G. M. De Silva
14
Board of Directors Contd.
1. Mr. J. H. Edirisinghe
Chairman
Managing Director of EAP Edirisinghe group of companies, he
counts over 25 years of extensive experience in the fields of
Gold, Jewellery, Finance, Electronic Media and Management.
2. Mr. N. P. Edirisinghe
Executive Director
Director of EAP Edirisinghe 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.
3. Mrs. A. D. Edirisinghe
Executive Director
Director of EAP Edirisinghe group of companies, she counts
over 20 years of experience in the fields of Management and
Finance.
4. Mr. A. S.Edirisinghe
Executive Director
Director of EAP Edirisinghe group of companies, he is a Finalist
of the Chartered Institute of Management Accountants (UK) and
a Member of the Film Association.
Partner:
AbeyRatna & Co., Chartered Accountant, an associate of AGN
International Limited UK and is the 04th largest Accounting
association in the world. AGN is represented in102 countries.
Chairman:
West Asia and African region of AGN.
Director:
AGN International Board, UK, Navaloka Hospitals PLC, East
West Properties PLC, Eastern Brokers Ltd.
ACA, B.B.Mgt. (Acc), ASCMA
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 and is an Associate Member of the
Institute of Chartered Accountants of Sri Lanka and Society of
Certified Management Accountants of Sri Lanka.
7. Mr. J.F.G. De Silva
Independent Non-Executive Director
BSc., FCIB (UK)
He counts for over 20 years of experience in the fields of Film
Industry, Gold, Information Technology and Finance.
5. Mr. D. S. Abeyratna
PhD (UH-USA), FCA (SL), FCMA (SL),
FCMA (UK), CMA (AUS.)
He counts over 40 years of experience in the fields of Finance
and Audit and a Fellow Member of the Institute of Chartered
Accountants of Sri Lanka, Fellow Member of the Institute
of Management Accountants of UK, Member of Certified
Management Accountants of Australia. He also a Fellow
Member of Certified Management Accountants of Sri Lanka
and obtained a Doctorate in philosophy, from the University of
Honolulu USA.
He counts over 40 years’ experience in the banking and
financial sector and is a Fellow Member of the Chartered
Institute of Bankers (UK) and holds a Bachelor of Science
Degree, University of Ceylon, Peradeniya. He is a professional
banker, primarily served at Bank of Ceylon and retired as the
Senior Deputy General Manager having also been its Country
Manager in UK (1996 to 2000).
He also was the Managing Director/CEO of People’s Merchant
Bank PLC from May 2003 to September 2007. He has held
Directorships at the subsidiaries of Bank of Ceylon namely
Ceybank Securities Ltd, Ceylease Financial Services Ltd, BOC
Travels Ltd and Nepal Bank of Ceylon Ltd.
15
8. Mr. S. A. Weerasinha
He is a professional banker having over 25 years of banking
experience at People’s Bank. He joined the People’s Bank as
a Senior Finance Officer in 1979 and retired from the Bank as
the Deputy General Manager – Human Resources in December
2006. He was the General Manger of State Mortgage and
Investment Bank from November 2006 to November 2009.
He has held Directorships at the Board of Uva Development
Bank and Ruhunu Venture Capital Company.
9. Mr. N.G. M. De Silva
Non-Executive Director
FCA (SL), MBA (SRI.J’PURA), FCMA (SL), CMA (Aus)
He counts over 25 years of experience in the field of Finance &
holds a Master’s Degree in Business Administration (MBA) from
the University of Sri Jayawardenapura. He is a Fellow Member
of the Institute of Chartered Accountants of Sri Lanka and
Society of Certified Management Accountants of Australia.
16
4
8
2
9
6
7
3
5
1
ACA, B.B.Mgt. (Acc), ASCMA
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 and is an Associate Member of the Institute of
Chartered Accountants of Sri Lanka and Society of Certified Management Accountants of Sri Lanka.
2. Mr. Dhanuka Perera
Senior Manager - Pawning & Gold Sales
He counts over 10 years of experience in the fields of Pawning and Gold Sales and holds a Diploma in
Business Management from JMC.
17
3. Mr. R.M.G. Ratnayake
8. Mr. R Harendran
Senior Manager – Finance
Manager – Internal Audit
He counts over 08 years of experience in Financial
Sector and holds the Degree of B.Sc.Accountancy &
Financial Management (Special), from the University of Sri
Jayawardenapura. Diploma in Treasury Management, Institute
of Bankers of Sri Lanka.
He counts over 05 years of experience in the fields of audit and
assurance. He holds the Bachelor of Business Administration
(Special Finance Management) Degree from the University
of Colombo and is an Associate Member of the Institute of
Chartered Accountants of Sri Lanka. He counts over 04 years of
experience at Ernst and Young (E&Y) Chartered Accountants.
4. Mr. George Samantha
9. Mr. Samith Ganepola
Senior Manager – Corporate Relations
Manager - IT
He counts over 08 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 and is an Associate Member of Sri Lanka
Institute of Marketing (AMSLIM).
He counts over 05 years of experience in the field of Information
Technology and holds the B.Sc Information Technology
(Special) Hons. Degree from the Sri Lanka Institute of
Information Technology.
5. Mr. Mahesha Withanawasam
Manager – Branch Operations
He counts over 09 years of experience in the fields of
Accounting and Finance. He holds the B.Sc. Accountancy &
Financial Management (Special) Degree from the University of
Sri Jayawardenapura.
6. Mrs. Subhani Edirisinghe
Manager - Deposit Mobilizations
She counts over 11 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.
7. Mr. Newton Fernando
Manager – Credit
He counts over 13 years of experience in the field of Credit and
holds the B.Sc Business Administration (Special) Degree from
the University of Sri Jayawardenapura.
18
Management Discussion and Analysis
Overview
We are happy to announce that our Company was able to
sustain its growth momentum during the financial year 2011/12
to show commendable growth in revenues, profits and assets.
Swarnamahal Financial Services PLC (SFS), is a public limited
liability Company, incorporated 14th January 2004 in Colombo,
under the Companies Act No 17 of 1982 and re-registered 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 DiriSavi Board of the Colombo Stock Exchange.
SFS is one of the fastest growing finance companies in the non
bank financial services sector of Sri Lanka, with a highly trained,
experienced staff. The Company provides a wide array of
financial services for both corporate and individual customers.
These include fixed deposits, pawning and gold loan services,
leasing and hire purchase, term loans and savings and minors’
savings accounts.
Operating Environment
Plagued by the Euro area sovereign debt crisis, slow global
economic recovery and geopolitical uncertainties in some oil
producing Middle Eastern and North African countries, the
global economy grew at the modest rate of 3.9% in 2011,
according to the IMF, and is projected to slow down further
to 3.5% in 2012. Despite the sluggish global economy, Sri
Lanka recorded an impressive 8.3% GDP growth in 2011, with
exports growing by 22% and imports growing by 51%. In the
first quarter of 2012, the Sri Lankan economy recorded a 7.9%
growth supported by an agriculture sector growth of 11.5%, an
industrial sector growth of 10.8% and services growth of 5.8%.
In the Licensed Finance Business sector in Sri Lanka, comprised
of 39 LFCs competing directly in the financial services market of
the country. To differentiate our services, and to gain an edge over
the competition, we continued to invest in our core expertise of
gold services and enhanced our customer care services to ensure
best value for consumers at our 17 branch offices and gold loan
service centres.
In November 2011, the Finance Companies Act was replaced
by the Finance Business Act, to regulate finance companies.
The new law introduced stronger measures to prevent
unauthorized deposit-taking, while improving the regulation
of finance companies. Unauthorised finance businesses and
deposit-taking are targeted through several measures. These
include, widening the definition of deposits to cover a broader
range of fund mobilisation activities and strengthening the
powers of the Central Bank to investigate unauthorised entities.
The regulatory framework for Licensed Finance Companies
(LFC) was also upgraded with enhanced prudential, reporting
and compliance requirements. In addition, it has been made
mandatory for any licensed finance company to have the word
‘finance’, ‘financing’ or ‘financial,’ as part of its name, to easily
identify a finance company by its name. Other institutions have
been prohibited from using the word ‘finance’ ‘financing’ or
‘financial’ or any of its derivatives, or its transliterations or their
equivalent, in any other language, in their company name or
description, without the prior written approval of the Monetary
Board.
To improve governance standards of finance companies and
to broad-base ownership, LFCs were required to list on the
Colombo Stock Exchange by June 2011. The public listing is
also expected to facilitate capital augmentation of LFCs.
The minimum capital requirement for non bank financial
institutes is being enhanced gradually, to facilitate business
expansion in a sustainable manner. As a result, the core capital
requirement of LFCs, which is currently Rs. 200 million, has
been increased to Rs. 300 million, by 2013, and Rs. 400 million
by 2015.
During the year, the Central Bank introduced a mandatory
deposit insurance scheme to safeguard interests of small
depositors and strengthen public confidence in the financial
system. All licensed banks and LFCs are members of the
scheme, and a premium on eligible deposits, ranging from
0.10 % to 0.15%, is levied on a monthly/quarterly basis. The
premium is credited to a Deposit Insurance Fund, operated and
managed by a separate unit of the Central Bank. Depositors
will be compensated through this scheme if required.
19
A number of key national policy changes were introduced
during the financial year 2011/12, that impacted on our overall
operating environment. The cap on bank lending in February
2012 introduced constraints to private sector credit. Higher
vehicle import taxes resulted in increased vehicle prices and
rising cost of leasing and hire purchase. However, as these
developments occurred during the latter part of the financial
year 2011/12, their impact will be felt more significantly in the
new financial year.
The Central Bank’s decision to limit its interventions in the
foreign exchange market resulted in the rupee depreciating
against the US dollar. This caused gold prices to increase in
the Sri Lankan market, and in turn, generated higher demand
for gold loans and also encouraged customers to redeem their
gold articles without defaulting. This situation therefore, was
favorable for SFS and the year saw strong growth in our gold
services. The increased gold prices also strengthened our
asset base. Nearly 65% of our asset base is currently backed
by gold, making SFS one of the most stable and secured
financial service providers in the country.
In an operating environment of rising interest rates and
inflationary pressures, the expansion of credit assets can be
expected to slow down in the new financial year, while also
increasing the risk of asset quality. The industry will also have to
preserve its profit margins in the face of rising interest rates and
higher cost of funding.
to other lending products. Currently pawning and gold loans
are our main lending product, as pawning advances are a low
risk lending instrument with short maturity periods and high
collaterals.
During the year we continued to expand our pawning portfolio
by offering attractive loans at competitive interest rates to
customers. The rising world market prices of gold strengthened
our gold portfolio in 2011. Though the rate of appreciation of
world gold prices declined in the first quarter of 2012, it had
no adverse effect on the value of our gold portfolio due to
depreciation of Sri Lankan rupee. However, to mitigate risks in
the gold segment, we have maintained a loan to value ratio of
75% on our gold lending.
Our gold assessors, who have years of experience in the gold
market, are a strong asset to the Company in expanding our
gold services, by ensuring quick and accurate assessments
during gold transactions. This expertise has contributed
towards building consumer confidence in the Company and
helped to reduce assessment risks.
We have ensured easy access to our gold services by locating
our gold loan service centres in all major cities and by keeping
our gold loan service centres open on all seven days of the
week. During the year, we also opened two new pawning
centres in Batticaloa and Aluthgama. We have invested in
modern security measures for the safety of all gold stocks in our
custody.
Principal Activities
The Company’s principal lines of business are broadly
classified under two categories:
Lending products and borrowing products. Lending products
include pawning and gold loans, leasing, hire purchase and
term loans, while borrowing products include fixed deposits
and savings accounts.
Pawning and Gold Loans
We focused strongly on expanding our market share of the
pawning and gold loans sector during the year, due to the
products high yield, high security and high liquidity, compared
During the year, our pawning portfolio, which amounted to
Rs. 2,434 million as at 31st March 2011, grew by 30% to reach
Rs. 3,155 million by 31st March 2012. The interest income from
pawning recorded a significant growth of 69% from Rs. 542
million in 2010/11 to Rs. 917 million during the financial year
2011/12. The Company has already identified new strategic
locations to open 5 new branches with particular emphasis on
the North and East. The North and East are strong emerging
markets in the gold services sector with growing demand for
gold services from our existing branches in Vavunia, Jaffna,
Batticaloa and Trincomalee. These areas already account for
20
Management Discussion and Analysis Contd.
nearly one third of our total assets. Supported by our expansion
in the North and East, we hope to augment our gold advances
portfolio to Rs.5.0 billion by the end of the financial year
2012/13.
Leasing, Hire Purchase and Term Loans
Our leasing, hire purchase and term loans are designed to suit
the requirements of our different customers with competitive
interest rates and personalized, efficient support services.
The Company’s lease and hire purchase portfolio stood as Rs.
290 million as at 31st March 2012.
LFCs, at SFS, we do not penalise customers for early withdrawal
of fixed deposits and our customers are not required to give
prior notice for pre-mature withdrawals of fixed deposits. As a
Company with the customer’s best interest at heart, we facilitate
immediate withdrawal of fixed deposits by customers, even
in the case of pre-mature withdrawals. This strong customer
orientation has resulted in higher customer satisfaction and
repeat customer visits to the Company.
We intend to enhance our fixed deposits portfolio to Rs.5.5
billion by the end of the financial year 2012/13.
Savings Accounts
Higher vehicle prices due to increased vehicle import taxes
and rupee depreciation, coupled with rising interest rates,
have resulted in rising leasing and hire purchase costs. This
situation is expected to dampen the demand for leasing and
hire purchase of vehicles in the coming year.
Fixed Deposits
Fixed deposits were the main source of funding for the
Company during the year. Reflecting consumer confidence
in the Company and supported by our flexible customer care
services, this segment showed a growth of 26% from Rs. 3.4
billion as at 31st March 2011, to Rs. 4.3 billion by 31st March
2012.
Due to rising cost of bank credit, fixed deposits will continue to
be the most cost effective source of funding for the Company
in the new financial year. Therefore, we hope to expand our
fixed deposits segment by leveraging the existing customer
confidence in the Company and by extending our branch
network to new geographic locations. In addition, we intend
floating a substantial debenture to augment our Tier 2 capital
fairly soon. Our expansion plans will be supported by staff
training, to provide exceptional and personalised customer care
services.
Our customer care services are a significant factor
differentiating SFS in the LFC sector in Sri Lanka. Unlike many
Our savings products are specially designed for corporate and
individual customers, including children.
•• SFS SAVER – This product is exclusively designed for depositors who opt to deposit in large volumes. Clients earn higher interest rates on savings, depending on the deposit amount.
•• NORMAL SAVINGS ACCOUNT – This account provides competitive interest rates for savings regardless of the volume of savings.
•• MINOR’S SAVINGS ACCOUNT –The “Kumara Kumari” savings accounts are designed for children, with an attractive interest rate to encourage the savings habit among children.
Investments in Shares
During the year, the Company continued to invest in equities
with strong fundamentals, mainly focussing on Blue Chips /
high yield potential companies, trading in the Colombo Share
Market. Despite their strong potential, due to the downturn
experienced by the Colombo Stock Market, our equities
portfolio has generated negative returns during the year. While
our investment portfolio totaled Rs. 5.7 million, the market
value reflected, was Rs.3.9 million, as at 31st March 2012. As
such, adequate provisioning has been made as impairment in
the financial accounts of the year 2011/12. However, we are
21
confident of renewed investor confidence in the Stock Market
reversing the downtrend and our share investments generating
improved returns during the new financial year.
Company has also implemented stringent security procedures
to mitigate operational risk.
Future Outlook
Investments in the Property Market
The real estate sector in Sri Lanka experienced a downturn
during the year under review, prompting us to reconsider our
strategies in this sector. Therefore, during the year, we did not
expand our investments in this sector and instead, adopted a
strategy of disposing our property portfolio to mitigate losses
in the sector. These incomes have been re-invested in more
lucrative products. In addition, we have made provisioning
for losses in this sector in the profit and loss accounts of the
financial year under review. We will continue to monitor this
segment closely in the new financial year, for any potential
opportunities.
Human Resources
We believe that our team of employees are our most valuable
asset and we are committed towards their development and
growth, in parallel with the growth of the Company. As such,
we provide regular training for our employees to upgrade their
skills and to equip them with the skills required to perform their
duties, while fulfilling their own goals and ambitions. We also
focus on attracting and retaining the best talent.
In the provision of gold services in particular, our experienced
and well trained staff have directly contributed towards
customer confidence and trust in the Company. This in-house
pool of expertise has also helped to reduce risks associated
with gold transactions, through accurate assessments of the
value of gold items deposited with the company.
As at March 31, 2012, our total staff strength was 207 persons.
Information Technology
The Company is equipped with a state-of the- art IT system. All
branches and pawning centres island wide are electronically
linked, enabling real time transactions through 365 days of the
year. The system enables faster service delivery and accuracy,
enhancing the overall quality of our customer care. The
A number of challenges have emerged in the new financial
year. The increased cost of vehicles and rising cost of credit,
is expected to slow down the growth of the vehicle leasing
and hire purchase market. We also anticipate restrictions in
bank funding, due to higher cost of credit and the cap on bank
lending. However, we hope to address these challenges and
sustain growth momentum in the coming year, by re-aligning
our operational and marketing strategies.
Given the lower growth potential in the leasing and hire
purchase sector, and rising cost of funding, during the new
financial year, we hope to focus on expanding our fixed deposit
and gold loan services portfolios. To achieve our objective, we
are planning to expand our branch network to new geographic
locations and also increase our service coverage.
We plan on adding five new branches, mainly focussed in the
emerging markets of the North and East, while also increasing
our coverage in the South. This move will increase our total
number of branches and pawning centres to 22, from the
current 17. In addition, we propose to expand our service
coverage to a wider geographic area, by converting some of
our existing pawning centres into branches. Currently out of our
17 service points, 10 are dedicated pawning centres. We hope
to convert some of these pawning centres, located in strategic
growth areas, into full service branches, offering the full range
of our services to a larger segment of customers.
We are confident that our market expansion programme
will contribute significantly towards sustaining our growth
momentum in the coming financial year and that our medium
term goal of being ranked among the top 10 companies in the
LFC sector, in terms of profitability, will be achieved over the
next two years.
22
Financial review
Profitability
Profitability
1069
Rs.Mn
1200
1000
713
800
08
09
10
247
141
112
63
26
17
0
-12
-12
190
200
309
400
425
600
-39
-39
Despite a number of key policy changes that affected the
company, SFS recorded a strong performance during the
financial year 2011/12. We are happy to announce that
our overall income grew by 50% to reach Rs. 1.07 billion,
compared to the income of Rs. 713.1 million in 2010/11. Our
before tax profit surged by 126%, to Rs. 218.9 million, from
Rs. 96.9 million during the previous financial year. Profit after
tax meanwhile, more than doubled to Rs. 140.7 million in the
financial year 2011/12, from Rs. 62.7 million in the previous
year.
-200
11
12
F.Y.
Total Assets
The total asset base of the Company grew from Rs. 4 billion
to Rs. 5.3 billion, an increase of Rs. 1.3 billion. This strong
growth in assets was mainly driven by further enhancement
of our gold loan advances and gold stocks. Gold loan
advances grew by 29% to reach Rs. 3.2 billion, from Rs.
2.4 billion in the previous year. In addition, our investments
in government securities increased from Rs. 180.2 million
to Rs. 336.1 million during the year, also boosting our asset
base.
Gross Income
PBT
PAT
Growth of Total Assets
Rs.Mn
6000
5000
4000
3000
2000
1000
0
08
09
10
F.Y.
11
12
Fixed assets (PPE)
Other Receivables
Other Trading Stock
Other Loans & Advances
Pawning Gold Jewellery
Other Investments
Government Securities
Cash and cash equivalents
23
Interest Income
Our interest income increased by Rs. 354.8 million, which is a
growth of 50%, to Rs. 1.05 billion during the year, from Rs. 703.8
million in 2010 / 11. The main contributor to this growth was
gold loans. Interest income from gold loans increased by 69%,
from Rs. 542.2 million during the previous financial year, to Rs.
917.3 million during the year under review. Interest income from
Treasury Bills too, increased by 54% to Rs. 21.6 million, from Rs.
14.0 million.
Interest Income
Rs.Mn
1,200
1,000
800
600
400
200
0
08
09
10
11
12
F.Y.
Interest on other Investment
Interest on Gvt.Securities
Interest on other Loan
Interest on Pawn Broking
Interest Expenses
Interest Expense
Rs.Mn
27
600
500
19
400
-
300
-
274
364
502
0
228
100
-
200
151
Interest expenses showed an increase of 38% during the year,
from Rs. 383. 4 million in 2010/11, to Rs. 528.8 million. This
rise in expenses was mainly driven by the growth in interest
payments for deposits. Interest payments increased by 38% from
Rs. 363.5 million in the financial year 2010/11 to Rs. 502.1 million
in 2011/12.
08
09
10
11
12
F.Y.
Interest on other Borrowings
Interest on Customer Deposit
24
Financial review Contd
Operating Expense
63
Personnel Expenses
87
1
1
Gratuity Provision
22
32
Premises, Equipment & Establishment Exp.
3
(1)
Loan Loss provision
78
Other Administrative Expenses
126
Rs.Mn
140
120
80
40
0
20
Financial & Other Expenses
60
51
47
-20
Operating expenses during the year increased by 34% to Rs.
292.6 million, from Rs. 217.8 million in the previous financial
year. This was mainly due to our geographical expansion
programme that added two additional pawning centres to our
network, taking the total number of customer contact points
to 17 from 15 in the previous financial year. Our administrative
expenses rose from Rs. 77.5 million to Rs. 125.8 million.
Personnel expenses too, increased from Rs. 63 million to Rs.
87.3 million.
100
Operating Expenses
2011
2012
Total Liabilities
Total liabilities of the Company increased by 29%, from Rs.
3.7 billion, in the financial year 2010/11, to Rs. 4.8 billion, in
2011/12. This augmentation of liabilities was driven by the
increase in customer deposits, interest payable and a sharp
increase in income tax payable. Customer deposits increased
from Rs. 3.5 billion, to Rs. 4.4 billion. The interest payable,
increased to Rs. 109.4 million from Rs. 83.9 million. Meanwhile,
income tax payable increased by 702%, from Rs. 5.5 million
in the previous year to Rs. 44.7 million in the financial year
2011/12. In addition, our Loans and borrowings stood at Rs.
112.8 million by the end of the financial year. However, the
company was able to contain bank overdrafts to Rs. 97. 8
million from Rs. 110.3 million in the previous financial year, while
other liabilities were reduced from Rs. 8.9 million in the previous
financial year, to Rs. 6.9 million.
Growth in Liabilities
Rs.Mn
5000
4500
4000
3500
3000
2500
2000
1500
1000
500
0
Other Liabilities
Other Borrowings
Debentures
Retirement Benefit
Tax Payable
Interest Payable
08
09
10
F.Y.
11
12
Customer Deposit
Bank OverDraft
25
Deposit Base
Fixed & Saving Deposits
3,469
08
09
Total Capital and Reserves
50
51
48
10
11
12
Year
Our shareholders’ funds grew to Rs. 434.5 million during the
financial year 2011/12, from Rs. 293.7 million in the previous year,
with retained earnings rising from Rs. 26.8 million to Rs. 116.5
million. Our statutory reserves too, increased to Rs. 45 million,
from Rs. 16.9 million in the previous year.
Fixed Deposit
Saving Deposit
Shareholders’ Fund
27
Retained Earnings
Investment Fund
117
23
17
Statutory Reserve
45
Taxation
2012
During the financial year, the VAT payments on financial services
increased to Rs. 28.1 million from Rs. 15 million in the previous
year. Income tax expenses of the Company increased from
Rs. 34.1 million in the financial year 2010/11 to Rs. 78.1 million.
As a result, our financial VAT and Income Tax liabilities increased
from Rs. 49 million in the financial year 2010/11 to Rs. 106 million
during the financial year 2011/12.
2011
250
200
150
100
50
300
250
250
Stated Capital
0
As per the Special Resolution passed at the Extraordinary
General Meeting (EGM) held 27th March, 2012, it was resolved
that each of the issued and subscribed 25,000,007 Ordinary
Voting shares be sub - divided in to 20 (twenty) Ordinary Voting
shares without any increase in resource. As a result, the number
of Ordinary Voting shares, that stood at 25,000,007 as at 01st
April 2011, increased to 500,000,140, as at 31st March 2012 and
the issued share capital of the company remained unchanged at
Rs. 250 million.
1,896
1,267
65
1,024
5000
4500
4000
3500
3000
2500
2000
1500
1000
500
0
4,399
Rs.Mn
18
Our customer deposit base comprises of fixed deposits and
different categories of savings deposits targeted at individuals,
businesses and children. During the financial year, our deposits
base grew by 26%, from Rs. 3.5 billion to Rs. 4.4 billion, mainly
due to rising demand for fixed deposits.
Rs.Mn
26
Financial review Contd
Profitability Ratios
The Company’s Return on Assets (ROA) increased from 3.5%
to 5.3% from the previous financial year showing growth in
profitability against the asset base. The Return on Equity, which
shows profitability against each rupee of shareholder equity
improved from 24% in 2010/11 to 38.7% during the financial
year 2011/12.
Capital Adequacy
The capital adequacy ratio increased from 15.7% in 2010/11 to
21.1% during the financial year 2011/12. The total risk weighted
capital ratio was also strengthened to 25.1% from 21.6% in the
previous year.
Net Interest Margin & Spread
Ratio
20%
15.6
15.2
16%
16.7
14.9.7
13.8
12%
12.1
8.3
8%
4%
Net Interest Margin and Net Interest Spread
2.9
3.5
1.8
0%
08
The Net Interest Margin increased from 13.8% in the
previous financial year to 14.9% in the financial year
2011/12, while the Company’s Net Interest Spread
increased from 15.6% to 16.7%.
09
10
11
12
F.Y.
Net Interest Margin
Net Interest Spread
NPL (%)
Asset Quality and Provisioning for Loan Losses
The Non Performing Loans (NPL) ratio declined
from 0.4% in the previous year to 0.3% during the
financial year 2011/12 due to the implementation of
improved collection procedures.
Ratio
0.6
0.6
0.5
0.4
0.4
0.3
0.3
0.2
0.1
0
0
08
0
09
10
F.Y.
11
12
27
We view sustainability as a long term, strategic process
that encompasses social, economic and environmental
considerations, while we pursue our business objectives.
Therefore, while striving to achieve our corporate objectives,
we fully appreciate the importance of being a good corporate
citizen and are committed to deliver sustainable value to all our
stakeholders.
Our Approach to Sustainability
Our approach to sustainability revolves on adding value to all
our stakeholders by fostering an excellent team sprit among
our staff by making them a part of our success and by ensuring
equitable returns to our other stakeholders, while consciously
reducing environmental impacts from our operations.
Our efforts towards sustainability cover a range of stakeholders;
Employees: We invest in fostering an excellent team spirit,
providing a rewarding, diverse and inclusive workplace.
Customers: We believe in providing a superior service that
delights our customers.
Shareholders : We conduct our business operations with a view
to maximize shareholder wealth.
Community: We support communities by providing assistance
for the quality of life improvement of disadvantaged persons.
Suppliers: We work with suppliers to improve their social and
environmental performance.
Employee Responsibility
We are an equal opportunity employer and as such we provide
opportunities for employment, development and growth with no
discrimination.
We comply with all labour laws of the country and offer a
competitive remuneration package to all our employees in line
with the industry standards, based on experience, performance
and qualifications. In addition, we provide a number of other
facilities and rewards aimed at motivating our employees.
These include fuel allowances, incentives to employees who
achieve their targets, loans for employees at concessionary
rates and bonuses twice a year. Further, we maintain a
retirement gratuity scheme and a health insurance scheme for
our employees.
Recruitments
During the year under review, emphasis was placed on the
recruitment of Tamil conversant personnel, to support our
expansion in the North and East, and to facilitate better
customer care for our customers from those parts of the
country. Therefore, during the year, 25 personnel conversant in
Tamil, were recruited from the areas of Hatton, Jaffna, Vavuniya
and Batticaloa. These new recruits have been systematically
inducted into the Company and have been exposed to the
required training, to maintain the high standard of our service to
our customers.
In addition, we provided on-the-job training opportunities
for university students who require corporate exposure, with
an attractive allowance during the training period. We also
provided the opportunity for those who successfully completed
their training period, to join our company and advance in their
careers.
28
Sustainability Report Contd.
Analysis of Staff
With the growth of the Company, our employee strength has also grown. As at 31st March 2012, our employee strength stood at 207 persons.
Staff Gender Ratio
Age Analysis
Service at SFS
Provincial Distribution of Staff
2% 5%
9%
13%
31%
11%
69%
43%
33%
13%
19%
25%
45%
7%
1%
3%
47%
9%8%
Male
Female
20-24
25-29 30-34
Over 35
Over 5 years
3-5 1-2
Below 1
15%
Western
Central
Eastern
Northern
North Central
Sabaragamuwa Southern
Uva
Wayamba
Training and Development
Employee Profitability
We believe employees are an asset and as such, we invest in
training and development of our employees on a regular basis.
Training programs were conducted using internal and external
resource personnel in order to develop technical skills of our
employees covering both front and back office activities. On the
job training is provided for each category of new employees.
As indicated below, the net profit per employee increased by
109% year on year, from Rs 0.57 million in 2010/11 to Rs 1.19
million in 2011/12.
0.57
1,0.18
-0.12
1,024
1.4
1.2
1
0.8
0.6
0.4
0.2
0
-0.2
-0.4
-0.6
-0.8
1.19
Rs.Mn
-0.54
During the year under review, in addition to ongoing training
programmes we conducted a special training for the
employees to develop their leadership skills and communication
skills.
Net profit per employee before taxation
08
09
10
Year
11
12
29
Performance Evaluation and Rewards
We believe in fostering a performance oriented culture, to
motivate our employees, by acknowledging and rewarding their
efforts.
The fifth annual staff get together held at the Jaic Hilton,
Colombo 02 , 03rd December 2011 proved a grand success.
All employees face annual appraisals, against set goals.
Rewards and increments are based on the outcome of the
appraisals. We also offer job rotation and career path planning
for personal growth and development of our employees.
Work Life Balance
We believe in maintaining a work life balance for a positive
attitude and optimum performance of our employees. As
such, while ensuring employment related facilities and support
systems, we also provide opportunities for our employees to
build team spirit and friendships among colleagues.
2
During the year, we conducted the fifth annual Avurudu Festival,
15th May 2011. This was a wonderful opportunity for all staff
grades to have fun and re-establish contacts.
1
Photo one above is a scene from the festival.
3
Photos 2 and 3 above depict two pictures of the function.
30
Sustainability Report Contd.
In appreciation of service, a special awards and recognition
ceremony was held for employees who completed 05 years of
service at SFS.
Shareholder Responsibility
We provide many opportunities for our valued key shareholders
to contribute suggestions and recommendations to the
management and to discuss company strategies and
implementation.
We ensure prompt communications with our shareholders by
presenting the financial reports and disclosing other relevant
information in a timely manner.
Our shareholders’ wealth grew by Rs. 141 million (48%) to
Rs. 435 million, as at 31st March 2012, from Rs.294 million on
31st March 2011.
Compliance with Regulations
The Company has complied with regulatory requirements of
relevant authorities.
Environmental Responsibility
We believe awakening an environmental consciousness is
vital for sustainability in the current age of climatic change and
extreme weather patterns, experienced not only in Sri Lanka
but across the globe. Therefore, we believe in conducting our
business activities while making a conscious effort to minimize
adverse impacts on the natural environment.
In this context we have invested in a number of sustainable
initiatives for environmental conservation.
Reduce, Reuse, Recycle
•• We have a policy of recycling and reusing waste paper and
envelopes within the organization, wherever possible.
•• Continuous awareness programs are conducted to reduce
printing of e-mails and unnecessary documents and to encourage the use of e-mails and electronic documents
instead of printed matter.
•• To reduce energy consumption, CFL bulbs have been
introduced at all our branch offices and our head office
•• We limit the use of air conditioners during office hours to
reduce electricity consumption.
•• We practice separating recycled paper, polyphone and
organic waste in separate bins to ensure methodical
garbage disposal.
Customer Responsibility
We have developed a Customer Service Action Plan to enhance
our service delivery and to ensure customer satisfaction in our
services. Customer feedback is ensured through year round
engagements with management, marketing and front office staff
in the form of promotional visits, direct mails, calls and personal
visits.
Community Responsibility
We are committed to uplift our communities where ever we
operate and conduct a number of programmes to assist
different community groups. An ongoing programme at
SFS is to contribute towards the the Punarjeewa – Dr. Soma
Edirisinghe Fund, which has been set up for the highly
commendable purpose of raising funds to assist heart patients
faced with financial difficulties in undergoing heart surgery.
Our staff raised over Rs.500, 000/= for the Punarjeewa fund
during the year through the sale of Punarjeeva bands.
They also participated in the fund raiser “Walk for Heart Work”
organised by Punarjeewa Fund, 26th February 2012 to raise
funds for heart patients.
31
Over 30 SFS employees donated blood at the Janasarana
Foundation’s blood donation campaign, held 25th June 2011, at
the Thilakarathnaramaya Temple, Borella.
1
3
2
Photos 1 and 2 above depict staff participation in the fund
raiser.
4
Photos 3 and 4 above show the blood donation in progress.
32
Risk Management
Overview
Risk Governance and Integrated Risk Management
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 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.
Framework
Risks are usually defined as adverse impacts on profitability
from several distinct sources of uncertainty, while the types and
degree of risks that the Company may be exposed to, depend
upon a number of factors such as its size, complexity of
business activities, volume, clients, etc,. The key areas of Risks
that our Company focuses on are Credit, Market, Liquidity,
Operational, Compliance (Legal & Regulatory), Reputational
and Strategic.
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 controlling 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 strategy
and objectives set by the Board.
d) risk taking decisions are explicit and clear.
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 implication 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 board
sub 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 a direction 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 audit department conducts independent and regular
inspections in order to ensure the effectiveness of the risk
management strategies.
The BIRMC is comprised of five Non-Executive Directors,
one of whom chairs the meetings and the Director/CEO,
Senior management staff that attended meetings were Senior
Manager-Pawning and Gold Sales, Senior Manager Finance,
Senior Manager Corporate- Relations, Manager Credit and
Manager IT.
The Committee oversees the risks of the Company by
assessing Market, Credit, Liquidity, Operational, Compliance,
Reputational and Strategic risks regularly, reviews and
monitors the functions and the effectiveness of committees
such as ALCO and Credit to manage the risks of the Company
within the set limits.
33
It also has established a compliance function to access the
Company’s compliance with laws, regulations, regulatory
guidelines, internal controls and approved policies in all areas
of business operations.
Asset and Liability Committee
Board Audit Committee
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, balance sheet items including assets
and liabilities, capital structure, business operations and
liquidity. This is supported by the implementation of asset
liability management strategies including sensitivity analysis,
variance analysis and cash flow forecasts. The Committee
meets once a month or more frequently if necessary, to develop
long term strategies to maintain the balance sheet structure
in an optimal manner and ensure that controls are currently in
place to address the risks, the Company is exposed to.
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. The
committee operates under the direction of the Board.
Risk Management Framework
The Assets and Liability Committee (ALCO) is headed by the
Director/CEO and comprises of selected members of the senior
management of the key business units.
Board of Directors
Board Integrated Risk
Management Committee
Assets and Liability
Committee (ALCO)
Board Credit Committee
Board Audit Committee
Compliance
Internal Audit
Business unit heads
Risk exposures
Credit, Market, Liquidity,
Operational, ect
34
Risk Management Contd.
Board Credit Committee
Credit process
The Committee evaluates the Credit portfolio of the Company
and direct appropriate actions to control and mitigate the
Credit Risk. The Committee reviews the facilities granted under
the approval level of the Director/CEO and approves Credit
Facilities above his delegated authority level. The Committee
also counter recommends credit facilities recommended by the
Director/CEO for the approval of the Board as per the defined
delegated levels of authority of the Company. The committee
meets at least once a month, or more frequently if necessary, to
review and approve the credit facilities.
The Company has reviewed its Credit evaluation process to
avoid weaknesses in grant of credit and to ensure an effective
monitoring process.
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 or repay the
principal according to the terms specified in a credit agreement
resulting in economic loss to the Company.
Credit risk means that payments may be delayed or ultimately
not paid at all, which can in turn cause cash flow problems and
affect the company’s liquidity.
These losses could take the form of outright default or
alternatively, from changes in portfolio value arising from actual
or perceived deterioration in credit quality that is short of
default. 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.
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 grant of credit. The process requires that
sufficient information be gathered to enable a comprehensive
assessment of true risk profile of the borrower.
Exposure Ceilings:
The Company has clearly defined exposure limits for each
category of customers and strictly adheres to the limits
approved by the Board
Delegation of Authority
During the year, the delegation of authority structure of the
Company was revised 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 of the Company was reviewed and revised
by the Board and the Credit policy framework is being reviewed
for implementation in the ensuring year. Our risk mitigation
strategy is to strictly adhere to the approved credit manual and
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 renewal notices and
preparing various documents such as loan agreements.
Portfolio Management
The Credit portfolio of the Company has been properly
diversified across geographical areas and among large number
of middle market and retail customers in order to optimize
the benefits associated with diversification and to reduce the
potential adverse impact of concentration of exposure to a
particular borrower or a sector.
35
Internal Controls
Diversification and Stability of Liabilities
The Internal Audit Department of the Company conducts
ongoing assessment of the credit risk management process.
All facilities 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.
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.
NPL Ratio
Interest Rate Risk
Non performing ratio has eased from 0.4% in the previous year
to 0.3% as at 31st March 2012 due to the implementation of
sound recovery process and risk mitigation strategies.
Liquidity Risk
Liquidity risk is the potential for loss to the Company arising
from either its inability to meet obligations as they fall due or to
fund increases in assets without incurring unacceptable cost or
losses (funding liquidity risk).
Liquidity risk management strategy involves not only analyzing
the Company’s on and off-balance sheet 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 by the mix of assets and liabilities to
maintain liquidity position.
89% of the interest earning assets comprised of Pawning
advances with short maturity periods which enable the
Company to maintain robust liquidity positions at all times.
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 is the potential negative impact on the Net
Interest Income and it refers to the vulnerability of Company’s
financial condition to the movement in interest rates. Changes in
interest rate affect earnings, value of assets, liability off-balance
sheet items and cash flow. 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 effect risk return
trade-off.
Management of interest rate risk aims at capturing the risks
arising from the maturity and re-pricing mismatches and
is measured both from the earnings and economic value
perspective. Earnings perspective involves analyzing the
impact of changes in interest rates on accrual or reported
earnings in the near term. This is measured by measuring
the changes in the Net Interest Income (NII) equivalent to the
difference between total interest income and total interest
expense.
In order to manage interest rate risk, the Company has
been evaluating the vulnerability of their portfolios to the risk
of fluctuations in market interest rates. The Asset Liability
Committee (ALCO) of the Company uses the information
contained in the duration gap analysis to guide and frame
strategies.
36
Risk Management Contd.
Operational Risk
Compliance Risk
The Company always lives with the risks arising out of human
error, financial fraud and natural disasters.
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.
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.
Continuous risk education for familiarizing the complex
operations at all levels of staff can also reduce operational risk.
Obtaining comprehensive insurance covers are our most
important Operational Risk mitigation strategy.
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.
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 to timely ensure the
compliance with regulatory authorities. In the coming year, the
compliance officer position will be filled by an independent
dedicated officer.
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 operation 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.
Policies and Procedures
A plan is underway to adopt sound risk management practices
that include the practice of building reputation and earning the
goodwill of key stakeholders.
37
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 05 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
Chairman (Non - Executive Director)
04 Executive - Directors
03 Independent Non - Executive Directors
1 Non - Executive Director
Board Integrated Risk
Management Committee
ALCO
Board Audit
Committee
Board Credit
Committee
Board Remuneration
Committee
Board Executive
Operations Committee
38
Corporate Governance Contd.
SECTION 01
Details of Compliance with the Finance Companies (Corporate Governance) Direction No. 03 of 2008, issued by the Central Bank of Sri Lanka
CBSL
Section
Description
Compliance status
(2) RESPONSIBILITIES OF THE BOARD OF DIRECTORS
2(1)
The Board of Directors shall strengthen the safety
and soundness of the Company by ensuring the
implementation of the following.
(a)
Approving and overseeing the Finance Company’s
strategic objectives and corporate values and ensuring
that such objectives and values are communicated
throughout the Finance Company.
The Board approved the Company’s strategic objectives and
corporate values, ensured that they were communicated
throughout the company and monitored to ensure that they were
being achieved.
(b)
Approving the overall business strategy of the
Company, including the overall risk policy and risk
management procedures and mechanisms with
measurable goals, for at least the next three years.
The Board approved the Overall Business strategy of the
Company which is now being implemented
Identifying the risks and ensuring implementation of
appropriate systems to manage the risks prudently.
The Board appointed Integrated Risk Management Committee
is in the process of formulating appropriate risk measurement
indicators with assistance of Senior Management to address the
overall risk of the Company.
(c)
The overall risk management strategies and procedures are
being further refined with the assistance of the Integrated Risk
management Committee to manage all risks arising from the
operations of the Company.
Company will strengthen risk measurement areas by initiating action
to evaluate all risks such as Credit, Market, Liquidity and Strategic
risks.
(d)
A policy of communication with all stakeholders,
including depositors, creditors, shareholders and
borrowers.
An appropriate communication policy will be prepared during
the Financial Year 2012/13 to communicate with all stakeholders
including depositors, creditors, shareholders and borrowers of the
Company.
(e)
Reviewing the adequacy and the integrity of the finance
company’s internal control system and management of
information systems
The Board reviews the adequacy and the integrity of the
Company’s internal control systems through the Board Audit
Committee by reviewing the internal audit reports and upgrades
the company’s internal control systems to address such findings.
39
CBSL
Section
Description
Compliance status
Identifying and designating key management
personnel, who are in a position to
(i) Significantly influence policy
(ii) Direct activities and
(iii) Exercise control over business activities, operations
and risk management.
Key Management personnel who are in a position to influence and
control over the business activities and risk management have
been identified / designated by the Board.
(g)
Defining the areas of authority and key responsibilities
for the Board and for the key management personnel.
The Board approved the delegation of authority levels for the
Board and management with clear directions and definitions.
(h)
Ensuring that there is appropriate oversight of the
affairs of the finance Company by key management
personnel , that is consistent with the finance
company’s policy.
The policies, procedures and decisions approved by the Board
relevant to the Key Management personnel have been duly
communicated to them for proper oversight of the affairs of the
Company.
(i)
Periodically assessing the effectiveness of its
governance practices including (i) the selection,
nomination, and election of Directors and appointment
of key management personnel (ii) the management
of conflicts of interest and (iii) the determination of
weaknesses and implementation of changes where
necessary.
The Board assesses periodically effectiveness of its governance
practices especially in these three areas.
(j)
Ensuring the company has an appropriate succession
plan for key management personnel.
The Board is in a process of developing an appropriate succession
plan for all key management personnel.
(k)
Meeting regularly with key management personnel to
review policies, establish lines of communication and
monitor progress towards corporate objectives.
Polices are reviewed regularly with participation of all the key
management personnel to monitor progress towards corporate
objectives.
(I)
Understanding the regulatory environment.
The Board of Directors updates the changes in regulatory environment
on regular basis and the Company maintains an effective relationship
with all regulatory authorities.
Exercising due diligence in the hiring and oversight of
external auditors.
The Board carries out the functions of hiring and oversight of external
auditors through the Board Audit committee and subject to the
shareholder approval at the AGM.
2(1) (f)
(m)
40
CBSL
Section
Description
2(2)
The Board shall appoint the Chairman and Chief
Executive Officer and define and approve the
functions and responsibilities of the Chairman and the
Chief Executive Officer.
2(3)
There shall be a procedure determined by the Board
to enable Directors upon reasonable request to seek
independent professional advice in appropriate
circumstances at the company’s expense.
The Board shall resolve to provide separate
independent professional advice to Directors to assist
them to discharge their duties to the Company.
Compliance status
The Chairman and the Chief Executive Officer have been
appointed by the Board and the positions of Chairman and
Chief Executive Officer are held by two separate individuals.
The Chairman provides leadership to the Board and the Chief
Executive Officer carries out day to day operations of the
Company.
A procedure is in place for the Directors to obtain separate
independent professional advice ,upon reasonable request and
when appropriate, at Company’s expense.
2(4)
A Director shall abstain from voting on any Board
resolution in relation to a matter in which he/she or any
of his/her relatives or a concern in which he/she has
substantial interest, is interested and he/she shall not
be counted in the quorum for the relevant agenda item
at the Board meeting.
The Directors abstain from voting on matters in which they or their
relatives have a substantial interest and they are not counted in the
quorum in relation to such board agenda items.
2(5)
The Board shall have a formal schedule of matters
specifically reserved to it for decision to ensure that
the direction and control of the Finance Company is
firmly under its authority.
Complied with
2(6)
The Board shall, if it considers that the finance
company is, or is likely to be, unable to meet its
obligations or is about to become insolvent or is
about to suspend payments due to depositors and
other creditors, forthwith inform the Director of the
Department of Supervision of Non-Bank Financial
Institutions of the situation of the finance company
prior to taking any decision or action.
No such circumstances have arisen during the year 2011/2012
and the Board shall comply with this requirement if such a
situation arises.
2(7)
The Board shall include in the Finance Company’s
Annual Report, an Annual Corporate Governance
Report setting out the compliance with this Directions.
Complied with.
41
CBSL
Section
2(8)
Description
The Board shall adopt a scheme of self-assessment
to be undertaken by each Director annually, and
maintain records of such assessments.
Compliance status
The Board of Directors will introduce an appropriate scheme of self
assessment to be undertaken by each Director annually, to fulfill
this requirement.
3. MEETINGS OF THE BOARD
3(1)
The Board shall meet at least twelve times a financial
year at approximately monthly intervals. Obtaining the
Board’s consent through the circulation of written or
electronic resolutions/papers shall be avoided as far
as possible.
The Board Meetings are held regularly on monthly basis and
sometimes more frequently when necessary. Instances of obtaining
Board approval by circulation have been very rare and no
approvals have been obtained electronically.
3(2)
The Board shall ensure that arrangements are in
place to enable all Directors to include matters and
proposals in the agenda for regular Board meetings
where such matters and proposals relate to the
promotion of business and the management of risks of
the finance company.
The Company has given an equal opportunity for every Director
to include matters and proposals related to the promotion of
business and management of risk of the Company in the Agenda
for regular Board Meetings.
3(3)
A notice of at least 7 days shall be given of a regular
Board meeting to provide all Directors an opportunity
to attend. For all other Board meetings, a reasonable
notice shall be given.
Complied with.
3(4)
A Director, who has not attended at least two-thirds of
the meetings in the period of 12 months immediately
preceding or has not attended the immediately
preceding three consecutive meetings held, shall
cease to be a Director. Provided that participation at
the Directors’ meetings through an alternate Director
shall, however, be acceptable as attendance.
There have been instances, where some Directors have failed
to meet this attendance requirement. The Board having been
informed of such instances, had inquired from such Directors and
accepted their explanations.
3(5)
Board shall appoint a Company Secretary, whose
primary responsibilities shall be to handle the
secretarial services to the Board and shareholder
meetings and to carry out other functions specified in
the statutes and other regulations.
M/s Cyrus Corporate Services (Pvt) Limited, engaged as the Secretary
and Registrar to Company during the Financial Year 2011/12, ended its
services when its contract expired on 15th May 2012.
The Board has appointed SSP Corporate Services (Pvt) Ltd as the
new Secretaries and Registrar to the Company which is satisfies
the provisions of the Companies Act No. 07 of 2007 and the
Finance Business Act No. 42 of 2011 and the directions issued
therein, effective from 16th May 2012.
42
CBSL
Section
Description
Compliance status
3(6)
If the Chairman has delegated to the Company
Secretary the function of preparing the agenda for
a Board meeting, the Company Secretary shall be
responsible for carrying out such function.
The Agenda is prepared by the Company Secretary in
consultation with the Chairman of the Company.
3(7)
All Directors shall have access to advice and services
of the Company Secretary with a view to ensuring that
Board procedures and all applicable laws, directions
rules and regulations are followed.
All the Directors have access to obtain advice and services of the
Company Secretary in order to ensure that Board procedures and
all applicable laws, directions, rules and regulations are followed.
3(8)
The Company Secretary shall maintain the minutes
of Board meetings and such minutes shall be open
for inspection at any reasonable time, on reasonable
notice by any Director.
The minutes of the Board meetings are maintained by the
Company Secretary and are open for inspection by any Director at
any reasonable time.
3(9)
Minutes of Board meetings shall be recorded in
sufficient detail so that it is possible to gather from the
minutes, as to whether the Board acted with due care
and prudence in performing its duties. The minutes
of a Board meeting shall clearly contain or refer to the
following:
(a) A summary of data and information used by the
Board in its deliberations;
The minutes of the Board Meetings have been recorded by the
Company Secretary in a manner that these requirements have
been complied with.
(b) The matters considered by the Board;
(c) The fact-finding discussions and the issues of
contention or dissent which may illustrate whether the
Board was carrying out its duties with due care and
prudence;
(d) The explanations and confirmations of relevant
executives which indicate compliance with the Board’s
strategies and policies and adherence to relevant laws
and regulations;
(e) The Board’s knowledge and understanding of
the risks to which the Finance Company is exposed
and an overview of the risk management measures
adopted; and
(f) The decisions and Board resolutions.
43
CBSL
Section
Description
Compliance status
4. COMPOSITION OF THE BOARD
4(1)
The number of Directors on the Board shall not be less
than 5 and not more than 13.
The number of Directors on the Board is 9 which is within the
statutory limits.
4(2)
The total period of service of a Director other than a
Director who holds the position of Chief Executive Officer
or Executive Director shall not exceed nine years. The
total period in office of a Non-Executive Director shall be
inclusive of the total period of service served by such a
Director up to the date of this direction.
No Director of the Company has served for more than 9 years
since the Company was incorporated in the year 2004.
4(3)
An employee of a finance company may be
appointed, elected or nominated as a Director of
the finance company (hereinafter referred to as an
‘Executive Director’) provided that the number of
Executive Directors shall not exceed one-half of the
number of Directors of the Board. In such an event,
one of the Executive Directors shall be the Chief
Executive Officer of the Company.
The only employee Director on the Board is the Chief Executive
Officer and hence this direction has been complied with.
4(4)
The number of Independent Non- Executive Directors, The Board consisted of 09 directors, of whom three Directors are
of the Board shall be at least one fourth of the total
Independent Non-Executive Directors.
number of Directors.
A Non-Executive Director shall not be considered
independent if such director:
(a) has shares exceeding 2% of the paid up capital of
the finance company or 10% of the paid up capital
of another finance Company.
(b) has or had during the period of two years
immediately preceding his/her appointment
as Director, any business transactions with the
finance Company as described in Direction
hereof, aggregate value outstanding of which at
any particular time exceeds 10% of the capital
funds of the Finance Company as shown in its last
audited balance sheet.
(c) has been employed by the Finance Company
during the two-year period immediately preceding
the appointment as Director;
44
CBSL
Section
4(4)
Description
Compliance status
(d) has a relative, who is a Director or Chief Executive
Officer or a key member of the Management
personnel, or holds shares exceeding 10% of
the paid up capital of the Finance Company or
exceeding 12.5% of the paid up capital of another
finance company.
(e) represents a shareholder, debtor, or such other
similar stakeholder of the Finance Company;
(f) is an employee or a Director or has a share
holding of 10% or more of the paid up capital in a
company or business organization.
(i) which currently has a transaction with the finance
Company as defined in 9 of this direction,
aggregate value outstanding of which at any
particular time exceeds 10% of the capital funds
as shown in its last audited balance sheet of the
finance company or
(ii) in which any of the other Directors of the finance
Company is employed or is a director or holds
shares exceeding 10% of the capital funds as
shown in its last audited balance sheet of the
Finance Company ; or
(iii) in which any of the other Directors of the finance
Company has a transaction as defined in
paragraph 09 of the Directions, aggregate value
outstanding of which at any particular time
exceeds 10% of capital funds as shown in its last
audited balance sheet of the Finance Company.
4(5)
In the event an alternative Director is appointed to
represent an Independent Non-Executive Director, the
person so appointed shall also meet the criteria that
apply to the Independent Non-Executive Director.
No such situation arose during the financial year 2011/12.
45
CBSL
Section
Description
Compliance status
4(6)
Non-Executive Directors shall have necessary skills
and experience to bring an objective judgment to bear
on issues of strategy, performance and resources.
All Non- Executive Directors are having necessary skills and
experience to bring objective judgments.
4(7)
With effect from three years from the date of this
Direction, a meeting of the Board shall not be duly
constituted, although the number of Directors required to
constitute the quorum at such meeting is present, unless
at least one half of the number of directors that constitute
the quorum meeting are Non-Executive Directors.
The Board comprised only of one Executive Director during the
financial year 2011/12. The Board meetings held during the
year had fully complied with this direction since quorum of such
meetings consisted over one half of Non- Executive Directors.
4(8)
The Independent Non-Executive Directors shall
be expressly identified as such in all corporate
communications that disclose the names of Directors
of the Finance Company. The Finance Company shall
disclose the composition of the Board, by category
of Directors, including the names of the Chairman,
Executive Directors, Non-Executive Directors and
Independent Non- Executive Directors in the Annual
Corporate Governance Report which shall be an
integral part of the Annual Report.
This direction has been fully complied with in all Corporate
communications that disclose the directors’ names.
4(9)
There shall be a formal, considered and transparent
procedure for the appointment of new Directors to the
Board. There shall also be procedures in place for the
orderly succession of appointments to the Board.
New appointments to the Board are based on these well-defined
procedures and there are procedures in place for orderly
succession.
4(10)
All Directors appointed to fill a casual vacancy shall
be subject to election by shareholders at the first
General Meeting after their appointment.
If a director is appointed to fill a casual vacancy in the Board, it
shall be subject to election by shareholders at the first General
Meeting thereafter.
4(11)
If a Director resigns or is removed from office , the
Board shall announce to the Shareholders and notify
the Director of the Department of Supervision of Non
Bank Financial Institutions of the Central Bank of
Sri Lanka ,regarding the resignation of the director
or removal and the reasons for such resignation
or removal including but not limited to information
relating to the relevant Director’s disagreement with
the Board, if any.
The Director of Supervision of Non Bank Financial Institutions of
the Central Bank of Sri Lanka has been duly informed regarding
resignations of the Directors and in future the Company will take
necessary arrangements to disclose to the shareholders as well
as indicating the reasons for such removal or resignation including
but not limited to information relating to the relevant Director’s
disagreement with the Company if any.
Profiles of all the Directors are disclosed in pages11 to 15.
46
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Section
Description
Compliance status
5. CRITERIA TO ASSESS THE FITNESS AND PROPRIETY OF DIRECTORS
5(1)
Subject to the transitional provisioning contained in
the directions, a person over the age of 70 years shall
not serve as a director of a finance company.
The director who was over 70 years of age resigned from the
Board with effect from 31st January 2012 in order to comply with
this direction.
5(2)
A director of a finance company shall not hold office
as a Director or any other equivalent position in
more than 20 companies/societies/ bodies corporate
including Subsidiaries or Associate Companies of
the Finance Company. Provided that such director
shall not hold office of a director or any other
equivalent position in more than 10 companies that
are classified as Specific Business Entities in terms
of the Sri Lanka Accounting and Auditing Standards
Act No. 15 of 1995.
No director holds directorships or any other equivalent positions
in more than 20 companies/societies/ bodies corporate including
Subsidiaries or Associate Companies of the Finance Company
or in more than 10 companies that are classified as Specific
Business Entities in terms of the Sri Lanka Accounting and Auditing
Standards Act No. 15 of 1995.
6. DELEGATION OF FUNCTION BY THE BOARD
6(1)
The Board shall not delegate any matters to a Board
Sub Committees, Chief Executive Officer, Executive
Directors or Key Management Personnel, to an extent
that such delegation would significantly hinder or
reduce the ability of the Board as a whole to discharge
its functions.
The Board has not delegated any of its functions to Board
Sub Committees, Chief Executive Officer or Key Management
personnel to an extent that such delegation would significantly
reduce the ability of the Board to discharge its functions.
6(2)
The Board shall review the delegation processes in
place on a periodic basis to ensure that they remain
relevant to the needs of the Finance Company.
The Board reviews the delegation process regularly.
7. THE CHAIRMAN AND CHIEF EXECUTIVE OFFICER
7(1)
The roles of Chairman and Chief Executive Officer
shall be separated and shall not be performed by a
same person.
The posts of Chairman and Chief Executive Officer are held by
different persons and their roles have been separated.
7(2)
The Chairman shall be a Non-Executive Director In
the case where the Chairman is not an Independent
Non - Executive Director; the Board shall designate
an Independent Non-Executive Director as the Senior
Director with suitably documented terms of reference
to ensure a greater independent element. The
designation of the Senior Director shall be disclosed in
the Finance Company Annual Report.
The Chairman is a Non-Executive Director, though not
independent.
The Board intends to appoint an Independent Non- Executive
Director as the Senior Director with suitably documented terms of
reference during the financial year 2012/13.
47
CBSL
Section
7(3)
7(4)
Description
Compliance status
The Board shall disclose in its Corporate Governance
Report, which shall be an integral part of its Annual
Report, the name of the Chairman and the Chief
Executive Officer and the nature of any relationship
[including financial, business, family or other material/
relevant relationship(s)], if any, between the Chairman
and the Chief Executive Officer and the relationships
among members of the Board.
There is no relationship between Mr. J .H. Edirisinghe, the
Chairman and Mr. S. M. Ganegoda, the Chief Executive Officer.
The Chairman shall:
(a) provide leadership to the Board;
The Chairman provides the leadership to the Board, and ensures
that the Board works effectively, discharges its responsibilities and
key issues are discussed by the Board in a timely manner.
Directors, Mr. J. H. Edirisinghe, Mrs. A.D. Edirisinghe, Mr. N.P.
Edirisinghe and Mr. A. S. Edirisinghe are siblings. Director,Mr.
N.G.M. De Silva is the CEO of ETI Finance Limited, in which the
same siblings and their mother Dr. (Mrs.) S. Edirisinghe are having
substantial interest and all the siblings are Directors.
(b) ensure that the Board works effectively and
discharges its responsibilities; and
(c) ensure that all key issues are discussed by the
Board in a timely manner.
7(5)
The Chairman shall be primarily responsible for
preparation of the agenda for each Board meeting;
The Chairman may delegate the function of preparing
the agenda to the Company Secretary.
The agenda is prepared by the Company Secretary after
consultations with the Chairman.
7(6)
The Chairman shall ensure that all Directors are
informed adequately and in a timely manner of the
issues arising at each Board meetings.
The Chairman ensures that the Directors are properly and in a
timely manner briefed of issues arising at each Board meeting and
the agenda and board papers are circulated among the Directors
with adequate time prior to each Board Meeting.
7(7)
The Chairman shall encourage each Director to make
a full and active contribution to the Board’s affairs and
take the lead to ensure that the Board acts in the best
interests of the Finance Company.
The Chairman ensures that full and active contributions are
made by each of the Directors and act in the best interest of the
Company.
7(8)
The Chairman shall facilitate the effective contribution
of Non-Executive Directors in particular and ensure
constructive relationships between Executive and
Non-Executive Directors.
Complied with.
7(9)
Subject to the transitional provisions contained herein,
the Chairman, shall not engage in activities involving
direct supervision of Key Management Personnel or
any other executive duties whatsoever.
The Chairman is a Non-Executive Director and does directly
involve in the supervision of key management personnel or in any
other executive duties whatsoever.
48
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Section
Description
Compliance status
7 (10)
The Chairman shall ensure that appropriate steps
are taken to maintain effective communication with
shareholders and that the views of shareholders are
communicated to the Board.
Such effective steps have been taken and shareholders views
have been communicated to the Board. Further during the last
year, the AGM and the Extraordinary General Meeting were good
occasions for the shareholders to share their views and they
were encouraged to do so directly with the Chairman, whenever
necessary.
7 (11)
The Chief Executive Officer shall function as the apex
executive-in-charge of the day-to-day-management of
the Finance Company’s operations and business.
The Chief Executive Officer functions as the apex executive
in-charge of the day-to-day management of the Company’s
operations and business.
8. BOARD APPOINTED COMMITTEES
8 (1)
8 (2)
Every Finance Company shall have at least the two
Board committees set out in paragraphs 8(2) and
8(3) hereof. Each committee shall report directly to
the Board. Each committee shall appoint a secretary
to arrange its meetings, maintain minutes, records
and carry out such other secretarial functions under
the supervision of the chairman of the committee.
The Board shall present a report on the performance,
duties and functions of each committee, at a Annual
General Meeting of the Company.
The Board has formed five Sub Board Committees namely:
Audit Committee, Integrated Risk Management Committee,
Remuneration Committee, Credit Committee and Executive
Operation Committee.
The stipulated procedures have been followed and reports on
performance, duties and functions of Board Audit Committee,
Integrated Risk Management Committee and Remuneration
Committee are included in this Annual Report which will be in the
hands of shareholders prior to the AGM.
AUDIT COMMITTEE
The following rules shall apply in relation to the Audit
Committee.
(a)
The Chairman of the Committee shall be a NonExecutive Director who possesses qualifications and
experience in accountancy and/or audit.
The Chairman of the Audit Committee is a Non-Executive,
Independent Director and a fellow member of Chartered
Accountants of Sri Lanka and possesses qualifications and
related experience. His brief profile is given in page 14.
(b)
The Board members appointed to the Committee
shall be Non-Executive Directors.
All directors appointed to the Audit Committee are Non-Executive
Directors.
(c)
The Committee shall make recommendations on
matters in connection with:
(i) The appointment of the External Auditor for audit
services to be provided in compliance with the
relevant statutes;
The Board Audit Committee makes recommendations to the Board
in compliance with this direction.
49
CBSL
Section
8(2)(c)
Description
Compliance status
(ii) the implementation of the Central Bank guidelines
issued to Auditors from time to time;
(iii) the application of the relevant accounting
standards; and
(iv) the service period, audit fee and any resignation
or dismissal of the Auditor; provided that the
engagement of the Audit Partner shall not exceed
five years, and that the particular Audit Partner is
not re-engaged for the audit before the expiry of
three years from the date of the completion of the
previous term.
(d)
The committee shall review and monitor the External
Auditor’s independence and objectivity and the
effectiveness of the audit processes in accordance
with applicable standards and best practices.
The Committee reviews and monitors the auditor’s independence
and objectivity and the effectiveness of the audit process.
(e)
The Committee shall develop and implement a policy
with the approval of Board on the engagement of
an External Auditor to provide non-audit services
that are permitted under the relevant statutes,
regulations, requirements and guidelines. In doing so,
the Committee shall ensure that the provision by an
External Auditor of non- audit services does not impair
the External Auditor’s independence or objectivity.
When assessing the external auditor’s independence
or objectivity in relation to the provision of non- audit
services, the Committee shall consider:
(i) whether the skills and experience of the auditor
make it a suitable provider of the non-audit services
Complied with
(ii) whether there are safeguards in place to ensure
that there is no threat to the objectivity and/or
independence in the conduct of the audit resulting
from the provision of such services by the External
Auditor; and
(iii) whether the nature of the non-audit services, the
related fee levels individually and in aggregate
relative to the auditor, pose any threat to the
objectivity and/or independence of the External
Auditor.
50
CBSL
Section
8(2)(f)
Description
The Committee shall, before the audit commences,
discuss and finalize with the External Auditors the
nature and scope of the audit, including:
(i) an assessment of the Finance Company’s
compliance with the relevant Directions issued
under the Act and the management’s internal
controls over financial reporting;
Compliance status
Company has only one External Auditor.
Before commencing and finalizing the audit. The Audit Committee
discusses with the External Auditor, with regard to the nature
and the scope of the audit and an assessment of the Finance
Company’s compliance with the relevant Directions, guidelines,
applying of relevant accounting principles and the company’s
internal controls over financial reporting.
(ii) the preparation of financial statements in
accordance with relevant accounting principles
and reporting obligations; and
(iii) the co-ordination between auditors where more
than one auditor is involved.
(g)
(h)
The Committee shall review the financial information of
the Finance Company, in order to monitor the integrity
of the financial statements of the Finance Company,
its Annual Report, accounts and periodical reports
prepared for disclosure, and the significant financial
reporting judgments,, contained therein. In reviewing
the Finance Company’s Annual Report and accounts
and periodical reports before submission to the Board,
the Committee shall focus particularly on:
(i) major judgmental areas;
(ii) any changes in accounting policies and practices;
(iii) significant adjustments arising from the audit;
(iv) the going concern assumption; and
(v) the compliance with relevant accounting standards
and other legal requirements.
The Committee shall discuss, issues, problems
and reservations arising from the interim and final
audits, and any matters the Auditor may wish to
discuss including those matters that may need to
be discussed in the absence of Key Management
Personnel, if necessary.
The audited financial statements of the company were reviewed
and examined by the Board Audit Committee, in line with this
direction, before submitting for the approval of the Board.
The Committee is in the process of preparing a documented
procedure to comply under this section to improve financial
reporting standard.
The Audit Committee meets the External Auditor in the absence of
key management personnel as and when necessary.
51
CBSL
Section
Description
Compliance status
8(2)(i)
The Committee shall review the External Auditor’s
management letter and the management’s response
thereto.
The Audit Committee has reviewed the External Auditor’s
management letter and the management responses thereto.
(j)
The Committee shall take the following steps with
regard to the internal audit function of the Finance
Company;
(i) Review the adequacy of the scope, functions
and resources of the Internal Audit Department,
and satisfy itself that the department has the
necessary authority to carry out its work.
All stipulations under this direction have been fully complied with.
(ii) Review the internal audit program and results of
the internal audit process and, where necessary,
ensure that appropriate actions are taken on the
recommendations of the Internal Audit Department.
(iii) Review any appraisal or assessment of the
performance of the head and senior staff
members of the Internal Audit Department.
(iv) Recommend any appointment or termination of
the head, senior staff members and outsourced
service providers to the internal audit function.
(v) Ensure that the Committee is appraised of
resignations of senior staff members of the Internal
Audit Department including the Chief Internal
Auditor and any outsourced service providers, and
to provide an opportunity to the resigning senior
staff members and outsourced service providers
to submit reasons for resigning.
(vi) Ensure that the internal audit function is
independent of the activities it audits and that it is
performed with impartiality, proficiency and due
professional care.
(k)
The Committee shall consider the major findings of
internal investigations and management’s responses
thereto.
Complied with.
52
CBSL
Section
8(2)(l)
Description
Compliance status
The Chief Finance Officer, the Chief Internal Auditor
and a representative of the External Auditors may
normally attend meetings. Other Board Members and
the Chief Executive Officer may also attend meetings
upon the invitation of the Committee. However, at least
once in six months, the Committee shall meet with
the External Auditors without the Executive Directors
being present.
The Senior Manager - Finance and Manager - Internal Audit
normally attend the meetings and the Chief Executive Officer
attends meetings by invitation.
(m)
The Committee shall have:
(i) explicit authority to investigate into any matter
within its terms of reference;
(ii) the resources which it needs to do so;
(iii) full access to information; and
(iv) authority to obtain external professional advice
and to invite outsiders with relevant experience to
attend, if necessary
Terms of Reference of the Committee are being reviewed, to be
submitted to the Board for approval during the ensuing year.
(n)
The Committee shall meet regularly, with due
notice of issues to be discussed and shall record
its conclusions in discharging its duties and
responsibilities.
The Committee Meetings were held regularly with the Agenda and
papers circulated in a timely manner. Internal audit reports were
discussed, decisions recorded and appropriate actions taken
thereon.
(o)
The Board Shall, in the Annual Report, disclose in an
informative way;
(i) details of the activities of the audit committee.
(ii) the number of audit committee meetings held in
the year and
(iii) details of attendance of each individual member
at such meeting
Details of the activities of the Audit Committee have been
disclosed in page 75.
The Secretary of the Committee (who may be the
Company Secretary or the head of the internal audit
function) shall record and keep detailed minutes of the
committee meetings.
During the financial year 2011/12, the Manager - Internal Audit
was the Secretary to the Audit Committee.
(p)
The Audit Committee has met the external auditor without the
Executive Directors being present, twice last year.
Representatives of the External Auditor also attended one
meeting.
The number of Committee Meetings held during the year and the
members’ attendance thereto is given in page 62.
53
CBSL
Section
8(2)(q)
Description
Compliance status
The Committee shall review arrangements by
which employees of the Finance Company may,
in confidence, raise concerns about possible
improprieties in financial reporting, internal control
or other matters. Accordingly, the Committee shall
ensure that proper arrangements are in place for the
fair and independent investigation of such matters
and for appropriate follow-up action and to act as the
key representative body for overseeing the Finance
Company’s relations with the External Auditor.
The Committee will take appropriate measures to comply with this
direction in the ensuing year.
8.3 INTEGRATED RISK MANAGEMENT COMMITTEE
(a)
The Committee shall consist of at least one NonExecutive Director, the Chief Executive Officer and
key management personnel supervising broad risk
categories, i.e., credit, market, liquidity, operational
and strategic risks. The Committee shall work with
key management personnel very closely and make
decisions on behalf of the Board within the framework
of the authority and responsibility assigned to the
Committee.
The Integrated Risk Management Committee comprises of five
Non-Executive Directors (out of whom three were independent),
the Chief Executive Officer and other key managerial personnel
handling the Company’s credit, market, liquidity, operational and
strategic risks.
(b)
The Committee shall assess all risks, i.e., credit,
market, liquidity, operational and strategic risks to
the Finance Company on a monthly basis through
appropriate risk indicators and management
information. In the case of Subsidiary Companies
and Associate Companies, risk management shall be
done, both on the finance company basis and group
basis.
Assessment and management of all such risks are done on a
monthly basis by the committee which has taken appropriate
measures to further strengthen the risk assessment and
management of the company during the ensuing year
The Committee shall review the adequacy and
effectiveness of all management level Committees
such as the Credit Committee and the Asset-Liability
Committee to address specific risks and to manage
those risks within quantitative and qualitative risk limits
as specified by the Committee.
The Committee currently assesses the effectiveness of Credit
Committee and Assets and Liability Management Committee
(ALCO) to further strengthen the risk assessment indicators of the
Company to manage risk categories.
(c)
The Company does not have any subsidiary or associate
companies.
54
CBSL
Section
8(3)(d)
Description
Compliance status
The Committee shall take prompt corrective action
to mitigate the effects of specific risks in the case
such risks are at levels beyond the prudent levels
decided by the Committee on the basis of the Finance
Company’s policies and regulatory and supervisory
requirements.
The Committee is in the process of formulating benchmark and
tolerance levels for each category of risk indicators to effectively
monitor risks and to take corrective actions accordingly.
(e)
The Committee shall meet at least quarterly to assess
all aspects of risk management including updated
business continuity plans.
During the Financial Year, Four Risk Management Committee
meetings were held to assess and improve the risk management
area of the Company.
The Business Continuity Plan is being formulated.
(f)
The Committee shall take appropriate actions
against the officers responsible for failure to identify
specific risks and take prompt corrective actions as
recommended by the Committee, and/or as directed
by the Director of the Department of Supervision of
Non-Bank Financial Institutions of the Central Bank of
Sri Lanka.
Such instances had occurred a few times during the year and
detected by the Line Management or Internal Audit. Corrective
action had been taken and reported to the Board.
(g)
The Committee shall submit a risk assessment report
within a week of each meeting to the Board seeking
the Board’s views, concurrence and/or specific
directions.
This has been done whenever such instances have occurred.
However the reporting to the Board, at its first meeting following
the committee meeting will be through a written report of the
committee itself in the future.
(h)
The Committee shall establish a compliance function
to assess the Finance Company’s compliance with
laws, regulations, Directions , rules ,regulatory
guidelines, internal controls and approved policies
on all areas of business operations. A dedicated
compliance officer selected from Key Management
Personnel shall carry out the compliance function and
report to the Committee periodically.
The Company’s compliance function is in place and the
Company is in the process of appointing a dedicated
independent compliance officer in place of the present Officer,
who is not fully dedicated or independent to further strengthen
the process.
The Committee is currently is in the process of preparing codified
procedures for disciplinary actions.
55
CBSL
Section
Description
Compliance status
9. RELATED PARTY TRANSACTIONS
9(2)
The Board shall take the necessary steps to avoid any
conflicts of interest that may arise from any transaction
of the Finance Company with any person, and
particularly with the following categories of persons
who shall be considered as “related parties” for the
purposes of this Direction:
(a) Any of the Finance Company’s subsidiary
companies;
(b) Any of the Finance Company’s associate
companies;
(c) A Directors of the Finance Company;
(d) A Key Management Personnel of the Finance
Company
(e) A relative of a director or a Key Management
Personnel of the Finance Company;
(f) A shareholder owns shares exceeding 10% of the
paid up capital of the Finance Company;
(g) A concern in which a director of the finance
company or relative of a director or a shareholder
who owns shares exceeding 10% of the paid up
capital of the finance company, has substantial
interest.
The Board had taken appropriate measures to avoid any conflicts
of interest that may arise from related party transactions of the
company.
9(3)
The transactions with a related party that are covered
in this Direction shall be the following
(a) Granting accommodation
(b) Creating liabilities to the finance company in the
form of deposits, borrowings and investments
(c) Providing financial or non-financial services to the
finance company or obtaining those services from
the finance company
(d) Creating or maintaining reporting lines and
information flows between the finance company
and any related party which may lead to share
proprietary, confidential or otherwise sensitive
information that may give benefits to such related
party.
During the Financial Year 2011/12, the Company has engaged
only in such transactions that occurred in the normal course of
business with no preferential treatment meted out.
56
CBSL
Section
9(4)
Description
Compliance status
The Board shall ensure that the finance company
does not engage in transactions with a related party,
in a manner that would grant such parties “more
favourable treatment” than that is accorded to other
similar constituents of the finance company. In this
context, “more favourable treatment” shall mean
The Board has taken appropriate measures to ensure that “more
favourable treatment” is not granted to related parties than that is
accorded to other similar constituents of the Company.
(a) Granting of “total net accommodation” to a
related party, exceeding a prudent percentage
of the finance company’s regulatory capital, as
determined by the Board.
The “total net accommodation” shall be computed
by deducting from the total accommodation, the
cash collateral and investments made by such
related party in the Finance Company’s share
capital and debt instruments with a remaining
maturity of 5 years or more
(b) Charging of a lower rate of interest than the
finance company’s best lending rate or paying
a rate of interest exceeding the rate paid for
a comparable transaction with an unrelated
comparable counterparty
(c) Providing preferential treatment, such as
favourable terms, covering trade losses and/or
waiving fees commissions, that extend beyond the
terms granted in the normal course of business
with unrelated parties;
(d) Providing or obtaining services to/from a relatedparty without a proper evaluation procedure;
e) Maintaining reporting lines and information flows
between the finance company and any related
party which may lead to share proprietary,
confidential or otherwise sensitive information that
may give benefits to such related party except, as
required for the performance of legitimate duties
and functions.
57
CBSL
Section
Description
Compliance status
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. Further, such financial statements have been
published in all three languages in the national newspapers of
Sinhala, English and Tamil.
1O. DISCLOSURES
10(1)
(b) such statements are published in the newspapers
in an abridged form, in Sinhala, Tamil and English.
10(2)
The Board shall ensure that the following minimum
disclosures are made in the Annual Report:
(a)
A statement to the effect that the Annual Audited
Financial Statements have been prepared in line
with applicable accounting standards and regulatory
requirements, inclusive of specific disclosures.
A statement to this effect has been included in the “Statement of
Directors’ Responsibility” in page 72.
(b)
A report by the Board on the Finance Company’s
internal control mechanism that confirms that the
financial reporting system has been designed
to provide a reasonable assurance regarding
the reliability of financial reporting, and that the
preparation of Financial Statements has been done in
accordance with relevant accounting principles and
regulatory requirements.
This report is contained in the “Directors’ statement on Internal
Control over Financial Reporting” in page 69.
(c)
The External Auditor’s certification on the effectiveness
of the internal control mechanism in respect of any
statements prepared or published after March 31,
2010.
The External Auditors’ certification on the effectiveness of the
internal control mechanism appears in page 71.
(d)
Details of Directors, including names, transactions
with the Finance company.
This has been included in the “Annual Report of the Board of
Directors on the affairs of the Company” in pages 63 to 68.
(e)
Fees and remuneration paid by the finance company
to the Directors in aggregate in the annual reports
published after January 1, 2010.
The fees & remuneration paid to the Directors has been disclosed
in note No. 7 to the Financial Statements as given in page 94.
58
CBSL
Section
Description
Compliance status
(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 each category of related parties as a
percentage of the finance Company’s capital funds.
The total net accommodations granted to related parties are
disclosed in note No.34.5 to the Financial Statements in page 110.
(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.
Disclosed in note No. 34.2to the Financial Statements in page
108.
(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.
There were no instances of material “non compliance” by the
Company, but minor lapses were reported and addressed by the
Company and communicated to the Director of Supervision of non
bank financial institutions.
(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.
No such situation had arisen.
(j)
The External Auditor’s certification of the compliance
with the act and rules and direction issued by the
monitory board in the annual corporate governance
report published after January 1, 2011.
Complied with.
59
SECTION 02
Compliance with the section 7.10 of continuing listing requirements of the Colombo Stock Exchange.
CSE Code
No
Description
7.10.1
Non-Executive Directors
7.10.1 (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.
7.10.2
Independent Directors
Compliance status
Complied with as 08 out of 09 Directors of the Board are
Non- Executive Directors. The Chief Executive officer is the sole
Executive Director of the Company as at 31st March 2012.
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’.
Complied with as 03 out of 08 Non-Executive Directors are
independent.
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 nonindependence against the specified criteria.
Complied with as 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
7.10.2 (a)
7.10.3 (a)
7.10.3 (c)
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.
The following Directors have been determined as Independent
Non-Executive Directors of the Board
Mr. D. S. Abeyratna
Mr. J. F. G De Silva
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 with
The brief profile of each Director has been set out in pages 11 to 15
60
CSE Code
No
Description
Compliance status
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.
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.
During the financial year the Committee was comprised of the
following four Non-Executive Directors
Mr. N. P. Edirisinghe - Chairman-Non-Executive Director
Mr. J. F. G. De Silva - Independent Non-Executive Director
Mr. S. A. Weerasinha - Independent Non-Executive Director
Mr. D. S. Abeyratna - Independent Non-Executive Director
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.
Complied with.
The Board remuneration committee was formed in order to ensure
formal and transparent procedures in developing an effective
remuneration policy for all Executive Directors including the
Director/CEO (Executive Director) and the Senior Management
personnel. No Director was involved in deciding his or her
remuneration in order to avoid potential conflict of interest.
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 with.
7.10.5 (b)
7.10.5 (c)
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.
Complied with
No new Director had been appointed during the year.
The aggregate of remuneration paid to the Executive and NonExecutive Directors are given in page 94.
Complied with.
The Audit Committee of SFS comprises of 05 Non-Executive
Directors, three of whom including the Chairman are Independent
Directors.
61
CSE Code
No
7.10.6 (b)
Description
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.
Compliance status
Complied with.
Functions of the Board Audit Committee are given in the Board
Audit Committee Report in page 75.
(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.
7.10.6 (c)
The names of the Directors comprising the Audit
Committee should be disclosed in the annual
report.
Names of the Directors of the Board Audit Committee are given in
the Board Audit Committee Report in page 75.
62
Directors’ Attendance At Meetings During The Financial Year 2011/12
Names
Directorship
No. of meetings held
Board
16
Audit
Committee
Integrated
Risk Management
Committee
Remuneration
Committee
4
4
1
4/4
1
3/4
1
Dr.(Mrs.) S. Edirisinghe
(resigned with effect from
31/01/2012
Chairperson
8/12
Chairman
16/16
16/16
4/4
11/16
1/4
Mr. A .S. Edirisinghe
11/16
Mr. D. S. Abeyratna
Independent
8/16
Mr. S. M. Ganegoda
Director/
Chief Executive Officer
16/16
Independent
15/16
2/4
4/4
1
Mr. S. A .Weerasinghe
Independent
16/16
4/4
4/4
1
8/16
3/4
4/4
63
Annual Report of the Board of Directors
on the Affairs of the Company
General
Directors’ Shareholdings
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 2012.
The Directors’ interests in Ordinary Shares were as follows:
Swarnamahal Financial Services PLC (“SFS”) is a public limited
liability Company, incorporated 14th January 2004 in Colombo,
under the Companies Act No. 17 of 1982 and re-registered
under the Companies Act No.7 of 2007, 16th September 2008. It
is quoted on the Colombo Stock Exchange from May 2011 and
has been registered as a Finance Company under the Finance
Business Act No. 42 of 2011 and under the Finance Leasing
Act No. 56 of 2000.
The Annual Report together with the Audited Financial
Statements was approved by the Board of Directors, 05th June
2012.
Registered Office and Business Office
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.
Principle Activities
During the Financial year 2011/12, 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 at least once
a month or more frequently when ever necessary. The Directors’
attendance at the Board Meetings is given in page 62.
No.
No. of Shares held as at
Name of the Director
31st March
31st March
2012
2011
1
Dr. (Mrs.) S.Edirisinghe
(resigned with effect
from 31/1/2012)
82,000,020
4,100,001
2
Mr.J. H. Edirisinghe
82,000,020
4,100,001
3
82,000,020
4,100,001
4
82,000,020
4,100,001
5
82,000,020
4,100,001
6
Mr. S. M. Ganegoda
200,020
1
7
Mr. N. G M. De Silva
20
1
Mr. S. M. Ganegoda had purchased 10,000 shares in May 2011
and it was duly disclosed to the Colombo Stock Exchange.
The increase in the number of Ordinary shares is due to the
subdivision of each such Share into twenty shares 27th March
2012.
Stated Capital
The stated capital of the Company as at 31st March 2011 was
Rs.250, 000,070/= consisting of 25,000,007 Ordinary Voting
Shares. Each such share was subdivided into twenty shares on
27th March 2012 resulting in 500,000,140 Ordinary Voting shares
without affecting the stated capital of the Company. As a result,
the stated capital of the company consists of 500,000,140
Ordinary Voting Shares amounting to Rs.250, 000,070/= as at
31st March 2012.
Share Information
Information relating to earnings, net assets and market value
per share is given in pages 116 to 117.
64
on the Affairs of the Company Contd.
Major Shareholders
The details of the top twenty shareholders together with
percentages are given in page 116.
During the Financial Year, donations of Rs. 1.3 million were
made in terms of the resolution passed at the Annual General
Meeting held in September 2011.
The significant accounting policies adopted in preparation
of the Financial Statements are given in page 86. There have
been no changes in the accounting policies adopted by
the Company during the year and are consistent with those
adopted in the previous financial year as required by the Sri
Lanka Accounting Standards (SLAS-3) on “presentation of
Financial Statements”.
Related Party Transactions
Auditor’s Report
In terms of the Sri Lanka Accounting Standards 30 (Revised
2005), Related Party Transactions, including write off balances
and provisioning for doubtful receivables, have been disclosed
in notes to the financial statements as given in pages 108
to 110 forming the part of the Annual Report of the Board of
Directors while details of the significant transactions are given
below.
Statement of Compliance on the Contents of the Annual
Donations
Name of Related
party
Lending/
Borrowings/
Other
transactions
Outstanding
amount as
at 31st March
2012.
Rs.
Outstanding
amount as a
percentage of
capital fund
Swarnamahal
Jewelers (Pvt)
Ltd
Term loan
9,282,266/-
2.1%
Colombo
Communication
Hire
purchase
837,142/-
0.2%
Lavinia Breeze
Sea Food
Restaurant (Pvt)
Ltd
Rent
Receivables
5,750,000/-
1.3%
Directors’ Remuneration
The aggregate sum of Directors’ fees and emoluments paid
during the year was Rs. 8,990,000 and is disclosed in note No.
7 to the Financial Statements in page 94.
Financial Statements
Financial Statements of the Company are given in pages 82 to 113.
The Auditor’s report on the financial statements is given in
page 81.
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.
The Company has placed a very high degree of attention to
conforming to the best corporate governance practices and
procedures. Accordingly, systems and procedures are revised
and improved from time to time. A separate report on Corporate
Governance is given in pages 37 to 62.
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.
65
Directors’ Statement of Internal Control
Integrated Risk Management Committee
In line with the Finance Companies (Corporate Governance)
Direction No.3 of 2008, the Board of Directors has issued
a report on the system of Internal Control of the Company
confirming that the financial reporting system of the company
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. The Directors’ report on Internal
Control is given in page 69. The assurance report given by the
External Auditor on the Directors’ statement of Internal Control is
given in page 71.
Mr. N. P. Edirisinghe Mrs. A. D. Edirisinghe Mr. J. F. G. De Silva
Mr. D. S. Abeyratna Mr. S. A. Weerasinha Mr. S. M. Ganegoda Board appointed Sub Committees
The Board of Directors of the Company has formed the
following Board Sub Committees
Audit Committee
Mr. D. S. Abeyratna
(Chairman)
Mr. N. P. Edirisinghe Mrs. A. D. Edirisinghe Mr. J. F. G. De Silva Mr. S. A. Weerasingha Independent Non-Executive Director
The report of the Audit Committee is given in pages 75 to 76.
Remuneration Committee
Mr. N. P. Edirisinghe Mr. J. F. G. De Silva Mr. S. A. Weerasingha Mr. D. S. Abeyratna Chairman- Non-Executive Director
The report of the Remuneration Committee is given in page 78.
Chairman Non-Executive Director
Non Executive Director
Director Chief Executive Officer
Management Representatives who attended the meetings of the
Integrated Risk Management Committee were:
Mr. Dhanuka Tharanga Mr. R M G Ratnayake Mr. George Samantha
Mr. Samith Ganepola Mr. Newton Fernando Senior Manager- Pawning & Gold Sales
Senior Manager-Finance
Senior Manager-Corporate Relations
Manager-IT
Manager-Credit
The report of Integrated Risk Management Committee is given
in page 77.
Directorate
The Board of Swarnamahal Financial Services PLC consists
of 9 directors with a wide array of experience in financial &
commercial sectors as at 31st March 2012. The brief profiles of
the directors are given in pages 11 to 15.
Mr. J. H. Edirisinge
Chairman - Non-Executive Director
Mr. N. P. Edirisinghe Non-Executive Director
Mrs. A. D. Edirisinghe Non-Executive Director
Mr. A. S. Edirisinghe Non-Executive Director
Mr. D. S. Abeyratna Independent Non-Executive Director
Mr. S. A. Weerasinha Independent Non-Executive Director
Mr. S. M. Ganegoda Director/Chief Executive Officer
Resignation of Chairperson/appointment of new Chairman
Dr. (Mrs.) Soma Edirisinghe, the chairperson of the Company
tendered her resignation with effect from 31st January 2012
66
in terms of the Finance companies (Corporate Governance)
Direction No 03 of 2008 and Mr. J. H. Edirisinghe was elected
as the Chairman of the Company with effect from 01st of
February 2012.
Re-designation of Directors
The following Non-Executive Directors of the Company were
re-designated as Executive Directors with effect from 1st of April
2012.
Mrs. A. D. Edirisinghe and
the Company to reflect a true and fair view of the state of
affairs of the Company. The Directors are of the view that the
Financial Statements of the Company for the year ended 31st
March 2012, are prepared and presented, consistent with
the underlying books of accounts and in conformity 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, the Listing Rules of the Colombo Stock
Exchange and the Code of Best Practice on Corporate
Governance.
Human Resources
Hence Mr. N. P. Edirisinghe and Mrs. A.D. Edirisinghe will not
be members of the Board Audit and Remuneration Committees
with effect from 1st April 2012.
Secretary
M/s Cyrus Corporate Services (Pvt) Limited, engaged as the
Secretary and Registrar to Company during the Financial Year
2011/12, ended its services when its contract expired 15th May
2012.
M/s SSP Corporate Services (Pvt) Ltd was appointed as the
new Secretary and Registrar to the Company with effect from
16th May 2012 and such changes were duly disclosed to the
Colombo Stock Exchange.
Fair Value of Real Estate Stock
The Fair Value of Real Estate Stock recorded was
Rs. 229,416,822 as at 31st March 2012, based on the Directors’
valuation that resulted in the company creating a provisioning of
Rs. 10,303,789 as an impairment that has occurred during the
financial year 2011/12. The value of the real estate stock as at
31st March 2011 was Rs. 242,657,497.
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.
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.
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.
Directors’ Responsibility of Financial Reporting
The Directors of the Company are responsible for the
preparation and presentation of the financial statements of
Going Concern
The Board of Directors is satisfied, to the best of their
knowledge and belief, that the Financial Statements of the
67
Company give a true and fair view of the assets, liabilities,
financial position and profit of the Company and is satisfied that
the Company has adequate resources to continue in operation
into the foreseeable future and continue to adopt the going
concern basis in preparing Financial Statements.
Events after the Balance Sheet date
There have not been any material events that occurred
subsequent to the date of balance sheet that require
adjustments to the Financial Statements.
Convergence with SLFRS/LKAS
The new volumes of Accounting Standards (SLFRS/LKAS),
issued by the Institute of Chartered Accountants of Sri Lanka,
are effective from the financial period commencing on or after
01st January 2012. These standards are applicable to the
High
Medium
SLFRS/LKAS
company from 01st April 2012. Accordingly, the Company, with
the assistance of external professional consultants, is in the
process of evaluating the potential effects on financial reporting
and accounting policies in readiness for the transition. Since the
financial year of the Company ended 31st March, the opening
balances of the financial statement as at 01st of April 2012 will
be prepared in accordance with the new set of Accounting
Standards. The Company will prepare and present its first
financial reports under the SLFRS/LKAS compliance, for the
financial year ending 31st March 2013.
The following table summarizes the financial statement impact
on convergence to SLFRS/LKAS with their corresponding
significance, with the colour code indicating the impact being
Title
Number
SLFRS 1
First-time Adoption of SLFRSs
SLFRS 5
Non-Current Assets Held for Sale and Discontinued operations
SLFRS 7
Financial Instruments: Disclosure
SLFRS 8
Operating Segments
LKAS 1
Presentation of Financial Statements
LKAS 2
Inventories
LKAS 16
Property, Plant & Equipment
LKAS 17
Leases
LKAS 18
Revenue
LKAS 24
Related Party Disclosures
LKAS 32
Financial Instruments: Presentation
LKAS 34
Interim Financial Reporting
LKAS 39
Financial Instruments: Recognition and Measurement
LKAS 40
Investment Property
Impact
68
Auditor
During the Financial Year 2011/12, a sum of Rs. 396,750 was
paid as audit fees to the Auditor, M/s BDO Partners.
The Board has accepted the recommendation of the Board
Audit Committee and has recommended the appointment
of Messrs KPMG Ford, Rhodes, Thornton & Co. as Auditors
to the Company for the financial year 2012/13, subject to
Shareholders’ approval, at the Annual General Meeting to
be held 03rd September 2012, as Messrs BDO Partners have
tendered their resignation.
The resolution to be adopted to appoint Messrs KPMG Ford,
Rhodes, Thornton & Co. as the Auditors for the year 2012/13
and fix their remuneration will be proposed at the Annual
General Meeting 03rd September 2012.
Annual General Meeting
The 07th Annual General Meeting of the Company will be
held at Hotel Sapphire, No.371, Galle Road, Colombo 6, 03rd
September 2012 at 10.30 a.m.
J. H. Edirisinghe
Chairman
S. M. Ganegoda
Company Secretaries
05th June 2012
69
In line with the Finance Companies (Corporate Governance)
Direction No.3 of 2008, the Board of Directors presents this
report on Internal Control.
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:
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.
•• Various 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 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 process is regularly reviewed by the Board and accords
with the Guidance for Directors of the Company on the
Directors’ Statement on Internal Control issued by the
Institute of Chartered Accountants of Sri Lanka. The Board
has assessed the internal control system taking accounting
principles, for the assessment of internal control system, as
given in that guidance.
The Board is of 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 Internal Audit Division of the Company 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 Audit Committee for
review at their meetings held quarterly.
•• The Audit Committee of the Company reviews internal
control issues identified by the respective Internal Audit
Division, 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 on a periodic basis.
••
In assessing the internal control system, identified officers
of the Company collated all procedures and controls that
were connected with significant accounts and disclosures
of the Financial Statements of the Company. These in
turn were observed and checked by the Internal Audit
Department for suitability of design and effectiveness on an
ongoing basis.
70
Directors’ Statement on Internal Control contd.
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 and regulatory
requirements of the Central Bank of Sri Lanka.
Review of the Statement by External Auditors
The external auditor has reviewed the Directors’ Statement on
Internal Control included in the annual report of the Company
for the year ended 31st March 2012 and reported to the
Board that nothing has come to their attention that causes
them to believe that the statement is inconsistent with their
understanding of the process adopted by the Board in the
review of the design and effectiveness of the internal control
system of the Company.
For and on behalf of the Board
J. H. Edirisinghe
Chairman
D. S. Abeyratna
Chairman Board Audit Committee
S. M. Ganegoda
05th June 2012
71
TO THE BOARD OF THE SWARNAMAHAL FINANCIAL
Summary of work performed
SERVICES PLC
Our engagement has been conducted to assess whether the
Statement is both supported by the documentation prepared
by or for directors and appropriately reflects the process the
directors have adopted in reviewing the system of internal
control for the company.
Introduction
We were engaged by the Board of Directors of Swarnamahal
Financial Services PLC (“Swarnamahal Finance”) to provide
assurance on the Directors’ Statement on Internal Control (“the
Statement”) included in the annual report for the year ended
31st March 2012.
Management’s responsibility
Management is responsible for the preparation and
presentation of the Statement as required by the section 10 (2)
(c) of Finance Companies (Corporate Governance) Direction,
N0. 3 of 2008. In the absence of specific detail guideline with
respect of preparation and presentation of the Statement for
finance companies, in preparing and presenting the statement,
the company has considered “Guidance for Directors of
Banks on the Directors’ Statement on Internal Control” issued
in compliance with the section 3(8) (ii) (b) of the Banking
Act Direction No. 11 of 2007, by the Institute of Chartered
Accountants of Sri Lanka.
Our responsibilities and compliance with SLSAE 3050
Our responsibility is to issue a report to the board on the
Statement based on the work performed. In the absence of
specific detail guideline with respect of providing assurance
report for finance companies on the Director’s Statement on
Internal control, we conducted our engagement in accordance
with Sri Lanka Standard on Assurance Engagements SLSAE
3050 – Assurance Report for Banks on Directors’ Statement
on Internal Control issued by the Institute of Chartered
Accountants of Sri Lanka.
The procedures performed were limited mainly to inquiries
of the Swarnamahal Finance personnel and existence of the
documentation on a sample basis that supports the basis
adopted by the board of directors. SLSAE 3050 does not
require us to consider whether the Statement covers all risks
and controls, or to form an opinion on the effectiveness of the
company’s risk and control procedures. It also does not require
us to consider whether the processes described to deal with
material internal control aspects of any significant problems
disclosed in the annual report will, in fact, remedy the problems.
Our conclusion
Based on the procedures performed, nothing has come to our
attention that causes us to believe that the Statement included
in the annual report is inconsistent with our understanding
of the process the Board of Directors have adopted in the
review of the design and effectiveness of Internal controls of
Swarnamahal Finance.
CHARTERED ACCOUNTANTS
Colombo 02
05th June, 2012
SSR/cc
72
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 81.
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
Balance Sheet as at 31st March 2012, the Income Statement,
Statement of Changes in Equity, Cash Flow for the year ended
31st March 2012 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 2012.
The Directors are responsible to ensure that:
•• the appropriate accounting policies have been selected and
applied in a consistent manner and material deviations, if any, have been disclosed,
•• 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 2012 are prepared and presented, consistent with
the underlying books of accounts and in conformity 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, the Listing Rules of the Colombo Stock
Exchange and the Code of Best Practice on Corporate
Governance.
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 systems 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, Messrs. BDO Partners with
every opportunity to undertake the inspections they considered
appropriate and necessary. Messrs. BDO Partners carried
out reviews and 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. Messrs. BDO Partners has examined the Financial
73
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 81.
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 Balance Sheet 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. Edirisinghe
Chairman
S. M. Ganegoda
05th June 2012
74
The Financial Statements of Swarnamahal Financial Services
PLC for the financial year ended 31st March 2012 have been
prepared and presented, consistent with the underlying books
of accounts and in conformity 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 comply 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, M/s BDO Partners, Chartered
Accountants, has audited the Financial Statements of the
Company and their report is given in page 81.
The Board Audit Committee of the Company 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. There are no
material non-compliances and there are/ were no litigations or
proceedings against the Company in the recent past.
S. M. Ganegoda
Director/ Chief Executive Officer
R. M. G. Ratnayake
Senior Manager-Finance
05th June 2012
75
The Composition of the Committee
Role of the Audit Committee
During the year under review, the Board appointed Audit
Committee comprised of the following five (5) Non - Executive
Directors, three of whom are Independent Directors.
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:
Mr. D. S. Abeyratna (Chairman) Independent Director
Mr. J. F. G. De Silva - Independent Director
Mr. S. A. Weerasinha - Independent Director
Secretary to the Board Audit Committee
Mr. R Harendren - Manager-Internal Audit
The Chairman, Mr. D. S. Abeyratna (a Fellow Member of the
Institute of Chartered Accountants of Sri Lanka, Fellow Member
of the Institute of Management Accountants of UK, Member
of Certified Management Accountants of Australia and Fellow
Member of Certified Management Accountants of Sri Lanka)
counts over 40 years’ experience in the fields of Finance and
Audit.
The Director/CEO and the Senior Manager- Finance were
present at all the meetings on invitation.
Meetings of the Committee
During the Financial year 2011/12, four meetings of the
Committee were held, one per quarter. The proceedings of the
committee meetings were recorded and circulated to the Board
of Directors regularly for information and advice. The members’
attendance at the committee meetings are tabled below.
Name of the Director Executive/Non Executive/Indepen-
•• 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 SLAS/SLFRS
•• Review the External Auditor’s Management Letter together
with the management response thereto.
Attendance
dent-Non Executive Director
Mr. D. S. Abeyratna
3/4
4/4
1/4
2/4
4/4
•• 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.
76
Board Audit Committee Report Contd.
•• Review the performance of the Internal Audit Function,
adequacy of the scope, resources and the authority of the
Internal Audit division.
•• 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.
•• Review and assess the Internal Audit department’s
resources requirements including succession plan.
•• 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 the system of internal
controls and procedures in place to ensure the reliability of
information provided to the Board and other stakeholders.
regulatory requirements. The weaknesses highlighted by the
Internal Audit Division 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
During the year under review, the Committee met the External
Auditor, M/s BDO Partners to discuss the issues reported
in relation to the Management Letter of the previous year
and the action plan of the Company to implement such
recommendations.
The Committee actively monitored the implementation
of the recommendations of the External Auditor. Prior to
commencement of the audit of the financial year 2011/12,
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
appointment and fees of the External Auditor. Accordingly,
the Committee has recommended the appointment of Messrs
KPMG Ford, Rhodes, Thornton & Co. as auditors to the
Company for the financial year ending 31st March 2013, 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
highly satisfactory.
Internal Audit
The Internal Audit division of the Company is responsible for
review and report on the efficiency of the system of internal
controls mechanism, procedures and compliance with other
D. S. Abeyratna
Chairman-Board Audit Committee
05th June 2012
77
The Board Integrated Risk Management Committee comprised of
the following five Directors:
Mr. N. P. Edirisinghe Mrs. A D Edirisinghe Mr. J. F. G. De Silva
Mr. D. S. Abeyratna Mr. S. A. Weerasingha Mr. S. M. Ganegoda Chairman-Non- Executive Director
Director - Chief Executive Officer
Management Representatives who attended the meetings were
Mr. Dhanuka Tharanga Senior Manager- Pawning & Gold Sales
Mr. R M G Ratnayake Senior Manager-Finance
Mr. George Samantha
Senior Manager-Corporate Relations
Mr. Samith Ganepola Manager- IT
Mr. Newton Fernando
Manager-Credit
Brief profiles of the Directors and management representatives are
given in pages 11 to 17.
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.
•• Establishing a compliance function to assess the Company’s
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 2011/12, four meetings of the Committee
were held one per quarter.
The proceedings of the committee meetings were recorded and
circulated to the Board of Directors regularly for information and
advice.
The members’ attendance at the committee meetings is given on
page 62.
Committee Evaluation
The Committee reviewed risk polices, risk management strategies
and key risk indicators and discussed possible remedial action
at the meetings. Exposures of the risk of the company are being
appropriately managed and the Committee is satisfied with the
effectiveness of the risk management of the Company.
•• 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.
N. P. Edirisinghe
Chairman - Board Integrated Risk Management Committee
05th June 2012
78
Board Human Resources and
Remuneration Committee Report
The Board Human Resources and Remuneration Committee
comprises of four Non-Executive Directors, three of whom are
Independent:
During the year under review, the Committee evaluated the
performance of the Director/ CEO and Senior Management personnel against the established goals and objectives and
found it to be highly satisfactory.
Composition
Mr. N.P. Edirisinghe Mr. J. F. G. De Silva
Mr. D. S. Abeyratna
Chairman 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 determining the salaries and benefits of the corporate
management and senior management.
••
Recommending the objectives and targets to be set for
Director/CEO and key managerial personnel and evaluating
the performance of the Director/CEO and key managerial
personnel against the established goals and objectives in
order to suggest suitable recommendations to the Board.
•• Ensuring that 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.
••
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.
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 Director/Chief Executive Officer who is responsible for
the overall management of the Company attends meetings by
invitation and participates in the deliberations except when his
own performance and remuneration packages are discussed.
The total remuneration paid to the Directors during the period
under review is set out in the Note No. 7 of page 94.
N. P. Edirisinghe
Chairman - Board Human Resources and Remuneration
Committee
05th June 2012
Financial
report
Income Statement
Balance Sheet
Cash Flow Statement
Share Information
Our Network
Notice of Meeting
Form of Proxy 81
82
83
84
85
86
93
114
116
118
121
122
123
80
81
TO THE SHAREHOLDERS OF SWARNAMAHAL
Report on the Financial Statements
We have audited the accompanying financial statements of
Swarnamahal Financial Services PLC, which comprise the balance
sheet as at 31st March, 2012, the income statement, statement
of changes in equity and cash flow statement for the year then
ended, and a summary of significant accounting policies and other
explanatory notes as set out on pages 86 to 113.
An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation.
We have obtained all the information and explanations which to the
best of our knowledge and belief were necessary for the purposes of
our audit. We therefore believe that our audit provides a reasonable
basis for our opinion.
Management’s Responsibility for the Financial Statements
Opinion
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.
In our opinion, so far as appears from our examination, the Company
maintained proper accounting records for the year ended 31st March,
2012 and the financial statements give a true and fair view of the
Company’s state of affairs as at 31st March, 2012 and its profit and
cash flows for the year then ended in accordance with Sri Lanka
Accounting Standards,
Report on Other Legal and Regulatory Requirements
a) These financial statements also comply with the requirements
of Section 151(2) of the Companies Act No. 07 of 2007.
b) These financial statements present the information required by
the Finance Business Act No.42 of 2011.
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.
CHARTERED ACCOUNTANTS
Colombo
05th June, 2012
SSR/af
82
Income Statement
For the year ended 31st March
2012
2011
Note
Rs.
Rs.
Income
3
Interest Income
4
Interest Expense
5
Net Interest Income
Other Operating Income
6
Profit from Operations
Less: Operating Expenses
Staff Costs
Provision for Staff Retirement Benefits
Premises, Equipment and Establishment Expenses
Provision for Loan Losses
Administration Expenses
Other Expenses
Profit from Operations
7
Value Added Tax on Financial Services
Profit before Taxation
Provision for Income Taxation
8
Profit for the year
Earnings Per Share
1,068,578,140
1,058,661,625
(528,873,188)
529,788,436
9,916,515
539,704,951
713,159,059
703,847,788
(383,425,628)
320,422,160
9,311,271
329,733,431
(87,337,607)
(1,024,791)
(32,279,084)
755,302
(125,884,069)
(46,838,771)
247,095,930
(28,153,127)
218,942,803
(78,196,771)
140,746,031
(63,050,777)
(739,159)
(22,041,847)
(3,045,022)
(77,561,778)
(51,378,393)
111,916,455
(15,000,000)
96,916,455
(34,122,268)
62,794,187
9
The Accounting Policies and notes on pages 86 through 113 form an integral part of the Financial Statements.
Colombo,
05th June 2012
0.28
0.13
83
Balance Sheet
As at 31st March
2012
2011
Note
Rs.
Rs.
ASSETS
Cash in Hand and at Banks
10
Investment in Government Securities
Investments in Banks/Other Institutions
11
Investment in Securities
12
Pawning Advances
13
Loans and Advances
14
Lease Rentals Receivables
15
Hire Purchase Receivables
16
Interest Receivables
17
Gold Stock
18
Real Estate Stock
19
Other Debtors, Deposits and Prepayments
Group Loans & Advances
20
Investments on Properties
21
Property, Plant and Equipment
22
Total Assets
205,787,319
336,117,284
8,661,665
3,948,898
3,155,398,616
173,626,503
41,304,284
249,018,753
403,027,988
271,601,960
229,416,822
75,710,958
9,282,266
54,800,000
97,313,584
5,315,016,900
129,901,452
180,212,295
9,322,981
3,817,670
2,433,638,104
200,923,788
30,509,895
278,041,525
323,980,283
785,920
242,657,497
80,702,202
27,773,444
54,800,000
83,601,698
4,080,668,754
LIABILITIES
Bank Overdraft
23
Customer Deposits
24
Other Liabilities
Interest Payable
Other Taxes Payable
Income Tax Payable
25
Deferred Tax
26
Retirement Benefit Obligation
27
Unsecured, Unlisted, Subordinated Redeemable Debentures
28
Loans and Borrowings
29
Lease Creditor
30
Total Liabilities
97,837,043
4,399,005,830
6,984,149
109,484,320
2,572,718
44,712,470
2,970,185
2,781,271
100,000,000
112,863,586
1,280,254
4,880,491,827
110,393,728
3,469,979,521
8,928,846
83,989,263
3,362,289
5,571,471
2,908,114
1,756,480
100,000,000
3,786,889,712
250,000,070
250,000,070
45,093,957
22,882,378
116,548,668
434,525,073
5,315,016,900
16,944,750
26,834,221
293,779,041
4,080,668,754
SHAREHOLDERS’ FUNDS
Stated Capital
31
Reserves
Statutory Reserve
32
Investment Fund
Retained Earnings
Total Equity and Liabilities
These Financial Statements are in compliance 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 & presentation of these financial statements signed for and on behalf of the Board by
N. P. Edirisinghe
Director
S. M. Ganegoda
The Accounting Policies and notes on pages 86 through 113 form an integral part of the Financial Statements.
Colombo,
05th June 2012
84
For the year ended 31st March 2012
Stated
Capital
Rs.
Balance as at 01.04.2010 250,000,070
Statutory Investment
Reserve
Retained RevaluationTotal
FundEarnings
Rs.
Reserve
Rs.
4,385,913
-
(32,101,129)
Rs.
Rs.
8,700,000 230,984,854
Net Profit for the Year
-
-
-
62,794,187
-
62,794,187
Transfer to Statutory Reserve
-
12,558,837
-
(12,558,837)
-
-
Transfer from Revaluation Reserve
-
-
-
8,700,000
(8,700,000)
Balance as at 31.03.2011 250,000,070
16,944,750
- 26,834,221
- 293,779,041
Net Profit for the Year
-
-
-
Transfer to Investment Fund
-
-
22,882,378
140,746,031
-
140,746,031
(22,882,378)
-
-
Transfer to Statutory Reserve
-
28,149,206
- (28,149,206)
-
Balance as at 31.03.2012 250,000,070 45,093,957 22,882,378 116,548,668
- 434,525,073
The Accounting Policies and notes on pages 86 through 113 form an integral part of the financial statements.
Colombo,
05th June 2012
85
Cash Flow Statement
For the year ended 31st March
2012
2011
Rs.
Rs.
Cash Flow from/(used in) Operating Activities
Adjustment for :
Provision for Impairment - Real Estate
Provision for Impairment - Investment in Securities
Provision for Doubtful Rent Receivables
Unrecoverable Other Receivable Written-off
Unrecoverable Interest Receivable on Fixed Deposit Written-off
Unrecoverable Interest Receivable on Fixed Deposit Written-off
Loan loss Provision
Depreciation
Provision for Staff Retirement Benefit
Operating Profit Before Changes in Operating Assets & Operating Liabilities
218,942,803
96,916,455
10,303,789
1,763,958
5,750,000
3,825,043
257,194
661,316
(755,302)
24,686,827
1,024,791
266,460,420
86,580
3,045,022
15,479,607
739,159
116,226,823
Increase / Decrease in Operating Assets
Investments in Call Deposits
Investments in Government Securities
Funds Advance to Customers
Inventories
Gold Stocks
Other Debtors, Deposits and Prepayments
Interest Receivable
-
(155,904,989)
(677,272,954)
2,936,886
(270,816,040)
(4,583,799)
(79,304,899)
118,460,869
(54,543,161)
(1,584,527,811)
57,192,932
5,094,483
(204,911,369)
(Increase) / Decrease in Operating Liabilities
Deposit from Customers
Creditors & Accruals
Cash Generated from/(used in) Operating Activities
Gratuity Paid
Net Cash from/(used in) Operating Activities Before Income Taxation
929,026,309
22,760,789
33,301,722
-
33,301,722
1,525,529,483
(10,877,338)
(32,401,669)
(435,000)
(32,836,669)
Tax Paid
ESC Paid
WHT Paid
Net Cash from/(used in) Operating Activities
(28,478,134)
(10,454,036)
(208,828)
(5,839,275)
(5,097,690)
(6,665,014)
(2,028,974)
(46,628,347)
Cash Flow from Investing Activities
Purchase of Property Plant and Equipment
Purchase of Investments
Loan Repayment by Related Parties
Net Cash from Investing Activities
(36,691,708)
(1,632,731)
18,491,178
(19,833,261)
(31,291,990)
(3,815,170)
13,615,926
(21,491,234)
Cash Flow from Financing Activities
Loans and Borrowings Obtained
Repayment of Loans and Borrowings
Lease Rentals Paid
Net Cash Used in Financing Activities
390,962,214
(276,391,623)
(455,503)
114,115,088
Net Increase /(Decrease) in Cash and Cash Equivalents
Cash and Cash Equivalents at the Beginning of the Year (Note A)
Cash and Cash Equivalents at the End of the Year (Note B)
88,442,552
19,507,724
107,950,276
(68,119,581)
87,627,305
19,507,724
Analysis of Cash and Cash Equivalents
Cash in Hand & Cash at Bank
Bank Overdraft
Note B
205,787,319
(97,837,043)
107,950,276
Note A
129,901,452
(110,393,728)
19,507,724
The Accounting Policies and notes on pages 86 through 113 form an integral part of the financial statements.
Colombo,
05th June 2012
-
86
1.
1.1General
Swarnamahal Financial Services PLC is a limited liability company
incorporated and domiciled in Sri Lanka. On 26th May 2011, the
Company listed 25,000,007 of its Ordinary Voting Shares on
the DiriSavi Board of the Colombo Stock Exchange (CSE) and
commenced trading activities on the CSE. The registered office of
the Company is situated at No.676, Galle Road Colombo 03, and
the principal place of business is situated at No 654, Galle Road,
Colombo 03.
1.2
Principal Activities and Nature of Operations
During the year the principal activities of the company were
acceptance of Deposits, granting Lease facilities, Hire Purchase,
loans and other credit facilities, Real Estate Developments and Pawn
Brokering. The company has been granted a license in accordance
with section 7 of the finance companies Act No. 78 of 1988 to carry
out finance business with effect from 01st August, 2006 and it is being
renewed annually.
1.3
Parent Enterprise and Ultimate Parent Enterprise
The Company does not have an identifiable parent of its own.
1.4
Date of Authorization for Issue
The Financial Statements of Swarnamahal Financial Services PLC
for the year ended 31st March 2012 were authorized for issue in
accordance with a resolution of the Board of Directors on 05th June,
2012.
2.
2.1.2 Going Concern
The Directors have made an assessment of the Company’s ability
to continue as a going concern and they do not intend either to
liquidate or to cease trading.
2.1.3 Comparative Information
The accounting policies have been consistently applied by the
Company consistent with those used in the previous year.
2.1.4 Materiality and Aggregation
Each material class of similar items is presented separately in the
financial statements. Items of a dissimilar nature or function are
presented separately unless they are immaterial.
2.1.5 Changes in Accounting Policies
The accounting policies adopted are consistent with those of the
previous financial year.
2.2
Significant Accounting Judgments, Estimates And
Assumptions
Judgements
In the process of applying the Company’s Accounting Policies,
the management is required to make judgments, apart from those
involving estimation, which may have a significant effect on the
amounts recognized in the Financial Statements.
BASIS OF PREPARATION
These Financial Statements have been prepared on a historical cost
basis, except for investment properties and real estate stocks that
have been measured at fair value. The Financial Statements are
presented in Sri Lankan Rupees. The preparation and presentation
of these Financial Statements is in compliance with the Companies
Act. No. 07 of 2007 and Finance Business Act No. 42 of 2011.
2.1
These Financial Statements are presented in accordance with
Sri Lanka Accounting Standard No.33 Revenue Recognition and
Disclosures in Financial Statements of Finance Companies.
Statement Of Compliance
The Financial Statements of Swarnamahal Financial Services
PLC have been prepared in accordance with Sri Lanka Accounting
Standards (SLAS).
Impairment Losses on Loans and Advances
In addition to the provision made for possible loan losses based on
the parameters and directives for specific provisions on Loans and
Advances issued by the Central Bank of Sri Lanka, the Company
reviews its Loans and Advances Portfolio at each reporting date or
more frequently, if events or changes in circumstances necessitate to
assess whether a further provision for impairment against exposure
which although not specifically identified as requiring specific
provisions have a greater risk of default than when originally granted.
The judgments by the management are required in the estimation of
these amounts and such estimation is based on assumptions about
87
number of factors and actual results may differ, resulting in future
changes to the allowance.
2.3 Summary Of Significant Accounting Policies
2.3.1 Property, Plant and Equipment
Review of Impairment Losses on Non-Financial Assets
The Company assesses whether there are any indicators of
impairment for all non-financial assets at each reporting date or
more frequently if events or changes in circumstances require doing
so. This requires the estimation of the ‘value in use’ of the cash
generating units. Estimating value in use requires management to
make an estimate of the expected future cash flows from the cash
generating unit and also to select a suitable discount rate in order to
calculate the present value of the relevant cash flows. This valuation
requires the Company to make estimates about expected future cash
flows and discount rates and hence, they are subject to uncertainty.
Useful lives of Property, Plant and Equipment
The Company reviews the asset’s residual values, useful lives and
methods of depreciation at each reporting date. Judgment by the
management is required in the estimation of these values, rates and
methods, and hence, they are subject to uncertainty.
Estimates and Assumptions
The key assumptions concerning the future and other key sources
of estimation uncertainty at the balance sheet date , that have a
significant risk of causing a material adjustments to the carrying
amounts of assets and liabilities within the next financial year are
discussed below.
Value of Unquoted Equity Investments
The unquoted equity investments have been accounted at cost &
were valued by Directors by considering the recoverability of the
investment.
Defined Benefit Plans
The defined benefit obligation and the related charge for the year is
determined using actuarial valuation. The actuarial valuations involve
making assumptions about discount rates, future salary increases
and mortality rates etc. Due to the long-term nature of such
obligations, these estimates are subject to significant uncertainty.
Property, Plant and Equipment is stated at cost, excluding the
costs of day to day servicing, less accumulated depreciation and
accumulated impairment in value. Such cost includes the cost of
replacing part of the Property, Plant and Equipment when that cost is
incurred, if the recognition criteria are met.
Depreciation is calculated on a straight line basis over the useful life
of the assets are as follows.
Buildings Integrals
(Includes partitions and other permanent fixtures)
Computer Hardware & Software
Office Equipment
Motor Vehicles
Furniture & Fittings
Air Conditioners
10 years
04 years
03 years
04 years
03 years
04 years
We determine the depreciation charge separately for each significant
part of an item of property, plant & equipment and begin to
depreciate when it is available for use.
Restoration Costs of Property, Plant & Equipment
Expenditure incurred on repairs or maintenance of property, plant
& equipment in order to restore or maintain the future economic
benefits expected from originally assessed standard of performance,
is recognized as an expense in the Income Statement, when
incurred.
Derecognition
Derecognition of an item of property, plant & equipment upon
disposal or when no future economic benefits are expected from
its use or disposal. Any gain or loss arising on derecognition of
the asset (calculated as the difference between the net disposal
proceeds and the carrying amount of the asset) is included in the
Income Statement in the year the asset is derecognized.
88
Significant Accounting Policies Contd.
Gains or losses on Disposal of Property, Plant & Equipment
We account for net gains and losses resulting from the disposal of
property, plant & equipment on an accrual basis.
determined, net of depreciation, had no impairment loss been
recognized for the asset in prior years. Such reversal is recognized in
the income statement unless the asset is carried at revalued amount,
in which case the reversal is treated as a revaluation increase.
2.3.2 Impairment of Non Financial Assets
The Company assesses at each reporting date whether there is
an indication that an asset may be impaired. If any such indication
exists, or when annual impairment testing for an asset is required,
the Company makes an estimate of the asset’s recoverable
amount. An asset’s recoverable amount is the higher of an asset’s
or cash-generating unit’s fair value less costs to sell and its value
in use and is determined for an individual asset, unless the asset
does not generate cash inflows that are largely independent of
those from other assets or groups of assets. Where the carrying
amount of an asset exceeds its recoverable amount, the asset is
considered impaired and is written down to its recoverable amount.
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. In determining fair value less costs
to sell, an appropriate valuation model is used. These calculations
are corroborated by valuation multiples or other available fair value
indicators.
Impairment losses of continuing operations are recognised in the
income statement in those expense categories consistent with
the function of the impaired asset, except for property previously
revalued where the revaluation was taken to equity. In this case the
impairment is also recognised in equity up to the amount of any
previous revaluation.
For assets, an assessment is made at each reporting date as
to whether there is any indication that previously recognized
impairment losses may no longer exist or may have decreased.
If such indication exists, the Company makes an estimate of
recoverable amount. A previously recognized impairment loss is
reversed only if there has been a change in the estimates used to
determine the asset’s recoverable amount since the last impairment
loss was recognized. If that is the case the carrying amount of
the asset is increased to its recoverable amount. That increased
amount cannot exceed the carrying amount that would have been
2.3.3 Real Estate Stock
Investments in real estate are carried at cost or net realizable 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 realizable value is 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.
2.3.4 Valuation of Assets and their Basis of Measurement
Rentals Receivable on Leased Assets
Assets leased to customers, which is transfers substantially all the
risks and rewards associated with the ownership other than legal
title, are accounted as finance lease in accordance with the Sri
Lanka Accounting Standard No. 19 (Revised 2005) on ‘Leases’,
and are reflected in the balance sheets after eliminating unearned
interest income and provision for doubtful debts.
Hire Purchase Agreements
Assets hired to customers under hire purchase agreements, which
transfer all the risks and rewards incidental to ownership as well as
the legal title at the end of such contractual period, are classified as
hire purchase receivables. Such assets are accounted for in a similar
manner as those of finance leases.
Loans and Advances
Loans and advances to customers are stated net of provision for bad
and doubtful loans and interest not accrued to revenue.
Provision for Loan Losses
Provision for possible loan losses is made on the basis of a
continuous review of all advances to customers in accordance
with the Finance Companies Direction No. 3 of 2006 (Provision for
bad and doubtful debts) issued by the Central Bank of Sri Lanka.
Accordingly, specific provisions have been made as follows:
89
Period Outstanding
6-12 months
12 months and over
Minimum Provision Made Net of
Realizable Value of Security
50%
100%
In addition, wherever it is considered prudent, further provisions are
made on specifically identified loans and advances.
2.3.5 Investments
Dealing Securities
Investments in quoted shares are acquired and held with the
intention of resale over a short period of time. Such quoted shares
are initially measured at cost and subsequently measured at lower
of cost or market value as at the Balance Sheet date.
Subsequent to initial recognition, investment properties are stated at
fair value, which reflects market conditions at the balance sheet date.
Gains or losses arising from changes in the fair values of investment
properties are included in the income statement in the year in which
they arise.
Investment properties are derecognised when either they have
been disposed of or when the investment property is permanently
withdrawn from use and no future economic benefit is expected from
its disposal. Any gains or losses on the retirement or disposal of
an investment property are recognised in the income statement in
the year of retirement or disposal. The Company has a policy to fair
value the investments property once in 3 years.
Currently, investment properties are held for capital appreciation.
Investment Securities
2.3.7 Cash and Cash Equivalents
Investment securities are stated at cost.
Cash and cash equivalents are defined as cash in hand, demand
deposits and short-term highly liquid investments, readily convertible
to known amounts of cash and subject to insignificant risk of
changes in value.
The carrying amounts are reduced to recognize a decline other
than temporary, determined for each investment individually. These
reductions for other than temporary declines in carrying amounts
are charged to the Income Statement.
Investment in Treasury Bills and Treasury Bonds are stated at cost
plus a portion of discount or premium.
For the purpose of cash flow statement, cash and cash equivalents
consist of cash in hand and deposits in banks net of outstanding
bank overdrafts. Investments with short maturities i.e. three months
or less from the date of acquisition are also treated as cash
equivalents.
Disposal of Investment
2.3.8 Foreign Currency Translation
On disposal of an investment, the different between net disposals
proceed and the carrying amount is recognized as income or
expense.
Company’s functional and presentation currency is Sri Lankan
Rupees. Transactions in foreign currencies are initially recorded at
the functional currency rate ruling at the date of the transaction.
Monetary assets and liabilities denominated in foreign currencies
are retranslated at the functional currency rate of exchange ruling at
the period end date. All differences are taken to profit or loss. Non
monetary items that are measured in terms of historical cost in a
foreign currency are translated using the exchange rates as at the
dates of the initial transactions. Non monetary items measured at fair
value in a foreign currency are translated using the exchange rates at
the date when the fair value was determined.
Investments in Treasury Bills and Bonds
2.3.6 Investment Properties
Investment properties are measured initially at cost, including
transaction costs. The carrying amount includes the cost of
replacing part of an existing investment property at the time that
cost is incurred if the recognition criteria are met; and excludes the
costs of day to day servicing of an investment property.
90
2.4 Liabilities And Provisions
2.4.1 Deposits from Customers
Deposits include term deposits, savings deposits etc. These deposits
are accounted at the gross value of the outstanding balance. Interest
paid is charged to the Income Statement.
the Projected Unit credit Method (PUC) as required by Sri Lanka
Accounting Standards No.16, Employee Benefit (Revised 2006).
The item is stated under Retirement Benefit Liability in the Balance
Sheet.
The gains/losses are recognized over the expected average
remaining working lives of the employees participating in the plan.
2.4.2 Deposit Insurance Scheme
In terms of Finance Companies (Insurance of deposit liabilities)
directions No 2 of 2010, all Registered Finance Companies shall
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.
The company is required to pay a premium of 0.15% on eligible
deposits. Deposits to be insured include demand, time and savings
deposit liabilities and exclude the following.
-
-
-
-
Deposit liabilities to Member banks and finance companies
Deposit liabilities to Government of Sri Lanka
Deposit liabilities to Shareholders, directors, key management personnel, other related parties
Deposits held as collateral against any accommodation granted and deposits falling within the meaning of abandoned property in terms of the Banking Act and dormant accounts in terms of the Finance Companies Act.
2.4.3 Provisions
When the Company has a present obligation (legal or constructive)
as a result of a past event, where it is probable that an outflow of
resources embodying economic benefits will be required to settle
the obligation and the Company can reliably estimate the amount
of the obligation, recognize it as a provision in accordance with the
Sri Lanka Accounting Standard No. 36 on Provisions, Contingent
Liabilities and Contingent Assets.
2.4.4 Retirement Benefit Liability
a Defined Benefit Plan – Gratuity
The Company measures the present value of the promised
retirement benefits for gratuity, which is a defined benefit plan
with the advice of an independent professional actuary using
Recognition of Past Service Cost
Past Service Cost are recognized as an expense on a straight line
basis over the average period until the benefits become vested.
If the benefits have already been vested, immediately following
the instruction of, or changes to the plan, past service costs are
recognized immediately.
Funding Arrangement
The Gratuity liability is not externally funded.
b) Defined Contribution Plans – Employees’ Provident Fund &
Employees’ Trust Fund
Employees are eligible for Employees’ Provident Fund Contributions
and Employees’ Trust Fund Contributions in line with respective
Statutes and Regulations. The Company contributes 12% and 3% of
gross emoluments of employees to Employees’ Provident Fund and
Employees’ Trust Fund respectively.
2.5Taxation
a) Current Taxes
Income tax assets and liabilities for the current and prior periods
are measured at the amount expected to be recovered from or paid
to the Commissioner General of Inland Revenue. The tax rates and
tax laws used to compute the amount are those that are enacted or
substantively enacted by the balance sheet date.
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.
b) Deferred Taxation
Deferred income tax is provided, using the liability method, on
temporary differences at the balance sheet date between the tax
bases of assets and liabilities and their carrying amounts for financial
reporting purposes.
91
Deferred income tax liabilities are recognised for all taxable
temporary differences except where the deferred income tax
liability arises from the initial recognition of an asset or liability in a
transaction that is not a business combination and, at the time of the
transaction, affects neither the accounting profit nor taxable profit or
loss.
Deferred income tax assets are recognised for all deductible
temporary differences, carry-forward of unused tax assets and
unused tax losses, to the extent that it is probable that taxable
profit will be available against which the deductible temporary
differences, and the carry-forward of unused tax assets and unused
tax losses can be utilised except where the deferred income tax
asset relating to the deductible temporary difference arises from the
initial recognition of an asset or liability in a transaction that is not
a business combination and, at the time of the transaction, affects
neither the accounting profit nor taxable profit or loss; and
Revenue is measured at the fair value of the consideration received
or receivable net of trade discounts and sales taxes. The following
specific criteria are used for the purpose of recognition of revenue.
a) Interest Income from Leasing activities and Hire Purchase
agreements
Income from Finance leases is recognized on the basis of the
financing method. The excess of aggregate rental receivable over
the cost of the leased assets constitute the total unearned income at
the commencement of the contract. The earned 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 declining receivable
balance of the lease.
Income arising from the residual interest in hire purchase
agreements is credited to the profit and loss account as it accrues in
proportion to the declining receivable balance of the agreement.
The carrying amount of deferred income tax assets is reviewed
at each balance sheet date and reduced to the extent that it is no
longer probable that sufficient taxable profit will be available to allow
all or part of the deferred income tax asset to be utilised.
However, accrual of income both from leases and hire purchase
agreements ceases when the account is overdue for more than
six months in compliance with Direction No. 15 of 1991 (Accrued
Interest) and thereafter recognized on a cash basis.
Deferred income tax assets and liabilities are measured at the
tax rates that are expected to apply to the year when the asset is
realised or the liability is settled, based on tax rates (and tax laws)
that have been enacted or substantively enacted at the balance
sheet date.
b) Interest Income from Loans and Advances
The base for the computation of Value Added Tax on Financial
Services is the accounting profit before income tax adjusted for the
economic depreciation and emoluments of employees computed on
prescribed rate.
c) Interest Income from Other Sources
2.6 Income Statement
2.6.1 Revenue Recognition
Revenue is recognized to the extent that it is probable that the
economic benefits will flow to the Company and the revenue and
associated costs incurred or to be incurred can be reliably measured.
Interest income from loans and advances is recognized on an
accrual basis. However, income from loans and advances ceases
when the account is overdue for more than six months in compliance
with Direction No. 15 of 1991 (Accrued Interest) issued by the
Central Bank of Sri Lanka and thereafter recognized on a cash basis.
Interest income from Government of Sri Lanka Treasury Bills on a
time proportion basis as discounts on purchase are amortized to
income on a straight line basis over periods of maturity.
Income from all other interest bearing investments is recognized as
revenue on an accrual basis.
d) Dividend Income
Dividend income is recognized on a cash received basis.
e) Commission Income
We recognize commission income on insurance on a cash basis.
92
f) Overdue Interest
2.6.4 Cash Flow Statement
Overdue interest income from leasing and other loans have been
accounted for on a cash received basis.
The cash flow statement has been prepared using the indirect
method in accordance with Sri Lanka Accounting Standard 9 - Cash
Flow Statements.
g) 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 received basis.
h) 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.
i) Profit or loss on sale of securities
Profit or loss arising from the sale of marketable securities is
accounted for on the date of the transaction in the income statement.
j) Profit from Gold Sale
2.6.5 Segment Reporting
A segment is a distinguishable component of the Company that
is engaged in providing an individual product or service (Business
segment) or in providing services within a particular economic
environment (Geographical segment) which is subject to risks
and rewards that are different from those of other segments.
In accordance with the Sri Lanka Accounting Standard 28 –
Segmental Reporting, segmental information is presented in
respect of the company. The business segments comprise of
leasing, hire purchase, pawning, loans, factoring, real estate
and investments in government securities in excess of statutory
requirements. Segment results, assets and liabilities include items
directly attributable to a segment as well as those that can be
allocated on a reasonable basis.
Profit/loss from gold sale is recognized in the period on a cash basis.
k) Other Income
2.7Effect Of Sri Lanka Accounting Standards Issued
But Not Yet Effective
Other income is recognized on an accrual basis
2.6.2 Expenses Recognition
All expenditure incurred in the running of our business and in
maintaining the property, plant & equipment in a state of efficiency
has been charged to income in arriving at the profit for the year.
Expenses in the Income Statement recognize on the basis of a direct
association between the cost incurred and the earning of specific
items of income.
Interest and other expenses payable are recognized on an accrual
basis.
The Institute of Chartered Accountants of Sri Lanka has issued
the new volume of Sri Lanka Accounting Standards which will be
applicable for financial periods beginning on or after 01 January
2012. Accordingly these Standards have not been applied in
preparing these Financial Statements as they were not effective for
the year ended 31 March 2012.
These Sri Lanka Accounting Standards comprise Accounting
Standards prefixed both SLFRS (Corresponding to IFRS) and
LKAS (Corresponding to IAS). Application of Sri Lanka Accounting
Standards prefixed SLFRS and LKAS for the first time shall be
deemed to be an adoption of SLFRS.
2.6.3 Borrowing Costs
Borrowing costs are recognized as an expense in the period in
which they are incurred, except to the extent that they are directly
attributable to the acquisition, construction or production of a
qualifying asset, in which case they are capitalized as part of the
cost of that asset.
The Company is currently in the process of evaluating the potential
effects of these standards on its Financial Statements and the impact
on the adoption of these Standards has not been quantified as at
Balance Sheet date.
93
3.
INCOME
2011/12
2010/11
Rs.
Rs.
Interest Income (Note 4)
Other Income (Note 6)
1,058,661,625
9,916,515
1,068,578,140
703,847,788
9,311,271
713,159,059
6,694,116
58,369,879
37,880,154
917,357,641
-
-
6,522,219
2,104,434
21,697,939
3,755,855
988,032
791,747
2,499,610
1,058,661,625
6,699,184
69,855,739
52,345,180
542,298,882
5,033,717
4,303,149
8,328,731
674,828
14,068,991
218,921
20,466
703,847,788
4.
INTEREST INCOME
Interest on Leases
Interest on Hire Purchase
Interest on Term Loans
Interest on Pawn Broking
Interest on Fixed Deposits
Income on Factoring
Overdue Interest
Income on Money Market Investments
Interest on Treasury Bills
Interest on Commercial Papers
Interest on Repo Investments
Interest on Treasury Bonds
Interest Income on Group Loans
Notional tax credit for withholding tax on Government securities on secondary market transactions
The Inland Revenue Act No 10 of 2006 provides that a company which derives interest income from secondary market transactions
in Government securities would be entitled to a notional tax credit (being one ninth of the net interest income), provided such interest
income forms part of the statutory income of the company for that year of assessment.
Accordingly, the net interest income earned from secondary market transactions in Government securities for the year has been
grossed up in the financial statements for the year 2011/2012. The resulting notional tax credit amounts to Rs.2.3 Million for the
company.
5.
INTEREST EXPENSE
2011/12
2010/11
Rs.
Rs.
Interest on Deposits
Interest on Debentures
Interest on other borrowings
Interest on Securitization
Interest on Leases
502,172,309
17,473,701
6,479,059
2,719,368
28,751
528,873,188
363,594,476
17,255,029
2,576,123
383,425,628
94
Notes to the Financial Statements Contd.
6.
OTHER INCOME
2011/12
2010/11
Rs.
Rs.
Service Income
Sundry Income
Profit on Gold Sales
1,479,819
4,235,085
4,201,611
9,916,515
2,621,030
4,450,599
2,239,642
9,311,271
8,990,000
396,750
24,686,827
1,024,791
893,192
5,349,744
1,334,851
(755,302)
10,303,789
5,750,000
3,825,043
918,513
7,241,509
350,000
15,479,607
739,159
433,369
4,057,483
1,018,216
3,045,022
-
Income Statement
Current Income Tax
Current Income Tax charge
78,134,701
31,228,847
Deferred Income Tax
Deferred Taxation Charge (Note 26)
Income tax expense reported in the Income Statement
62,070
78,196,771
2,893,421
34,122,268
7.
PROFIT BEFORE TAX IS STATED AFTER DEDUCTING
ALL EXPENSES INCLUDING THE FOLLOWING
Directors’ Emoluments
Auditors’ Remuneration
Depreciation - Property, Plant & Equipment
Gratuity
Legal Expenses
Employees’ Provident Fund contributions
Employees’ Trust Fund contributions
Provision for Bad Debts
Provision for impairment of Real Estate Provision for Doubtful Rent Receivables Unrecoverable Other Receivable written - off
Unrecoverable interest receivable on fixed Deposit written off
8.
Income Tax Expense
The major components of income tax expense for the years ended 31st March are as follows:
95
8.1
Reconciliation Of Accounting Profit To Income Tax Expense
31st March 2012
Other
31st March 2011
Other
Businesses
Leases
Businesses
Leases
Rs.
Rs.
Rs.
Rs.
Profit Before Tax
Add: Aggregate Disallowed Items
Less: Aggregate Allowable Expense
Assessable Income
Tax Loss Utilized
Taxable Profit/(Loss)
216,753,375
83,666,185
300,419,560
(29,245,653)
271,173,907
-
271,173,907
2,189,428
15,153,245
17,342,673
(15,953,899)
1,388,774
-
1,388,774
95,624,758
45,319,198
140,943,956
(21,253,507)
119,690,449
(37,218,384)
82,472,065
1,291,697
13,491,503
14,783,200
(9,348,589)
5,434,611
5,434,611
Statutory Tax Rate
28%
28%
35%
35%
Liability to Income Tax 28%
Deemed Dividend Tax
SRL
Taxation for the Year
75,928,694
1,817,150
-
77,745,844
388,857
28,865,223
1,902,114
-
388,857
432,978
29,298,201
28,532
1,930,646
2011/12
2010/11
8.2 Tax Loss Brought Forward
Tax Loss for the Year
Tax Loss utilised (Attributable to 35% of the Statutory Income)
Tax Loss Carried Forward
-
-
-
-
37,218,384
(37,218,384)
-
96
9.EARNINGS PER SHARE
2011/12
2010/11
Rs.
Rs.
The calculation of Basic Earnings per share is based on profit attributable to ordinary shareholders for the year divided by the weighted
average number of ordinary shares outstanding during the year.
Profit Attributable to Ordinary Shareholders - Voting
Weighted Average Number of Ordinary Shares - Voting
Basic Earnings per Ordinary Shares - Voting
140,746,031
500,000,140
0.28
62,794,187
500,000,140
0.13
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 Twenty Ordinary Shares fully paid up. Therefore, the
number of ordinary shares outstanding is increased without an increase in resources.
10.
CASH AND CASH EQUIVALENTS
Cash in Hand
Cash at Bank
Stamps on Hand
11.
66,657,831
138,945,874
183,614
205,787,319
43,890,432
85,933,719
77,301
129,901,452
INVESTMENT IN BANKS / OTHER INSTITUTIONS
Fixed Deposits
Less : Unrecoverable Interest Receivable Write-off
9,322,981
(661,316)
8,661,665
9,322,981
9,322,981
97
12.
INVESTMENT SECURITIES
2011/12
2010/11
No. of
Cost
Market ValueNo. of shares
Cost
Market Value
shares
Rs.
Rs.
Rs.
Rs.
25
2,500
2,500
3,946,398
3,948,898
-
3,815,170
3,817,670
3,815,170
3,817,670
588,300
297,100
100,500
278,000
104,800
292,000
172,000
41,650
438,000
187,000
184,900
189,000
1,000,000
28,500
-
-
-
3,901,750
(86,580)
3,815,170
597,000
285,600
75,200
175,100
102,60
288,300
180,000
38,650
426,600
162,300
228,300
200,000
1,000,000
55,520
3,815,170
Unquoted Companies
Credit Information Bureau
of Sri Lanka Ltd
25
2,500
Quoted Companies (12.1)
3,946,398
3,948,898
12.1
2,500
Quoted Companies
Commercial Bank of Ceylon PLC 6,430
John Keels Holdings PLC
1,333
Seylan Bank PLC
1,000
LB Finance PLC
2,000
Pan Asia Bank PLC
2,000
Sampath Bank PLC
1,000
Distilleries Lanka PLC
1,000
Environmental Resources PLC
500
2,000
Aitken Spence PLC
1,000
Cargill’s PLC
1,000
Ceylon Theaters PLC
1,000
SMB Leasing PLC
-
Laughs Lanka PLC
1,600
Vallible One PLC
51700
Coco Lanka PLC
2000
Sierra Cables PLC
200000
Less: Fall in Value of Investments
Total
628,636
557,240
3,000
285,600
274,598
1,000
75,200
66,900
1,000
175,100
269,800
2,000
102,600
47,000
2,000
288,300
179,800
1,000
180,000
145,000
1,000
38,650
8,400
500
426,600
189,000
2,000
162,300
112,700
1,000
228,300
174,000
1,000
200,000
150,100
1,000
-
-
500,000
55,520
24,960
1,600
1,590,750
982,300
-
143,000
104,600
-
1,129,800
660,000
-
5,710,356
3,946,398
(1,763,958)
3,946,398
3,946,398
3,815,170
98
13.
PAWNING ADVANCES
2011/12
2010/11
Rs.
Rs.
Pawning Capital
3,155,398,616
3,155,398,616
2,433,638,104
2,433,638,104
14.
LOANS AND ADVANCEs
Term Loans/Short Term Loans (Note 14.1)
Advances for Factoring
173,626,503
-
173,626,503
201,146,821
(223,033)
200,923,788
Medium Term Loans
Wedaduru Loans
Revolving Loans
Wisdom Loans
Staff Loans
On-time Loans
49,275,788
24,190,453
18,397,293
-
2,585,549
87,427,539
181,876,622
62,408,506
42,637,473
24,642,792
3,000,000
2,564,359
73,189,033
208,442,163
Less:
Interest in suspense Medium Term Loan
Interest in Suspense Wedaduru
Interest in Suspense Staff Loans
Interest in Suspense On-time Loans
Interest in Suspense PPS Loans
(1,521,267)
(969,909)
(121,016)
(219,380)
(2,260)
(5,416,288)
173,626,503
(1,264,639)
(158,717)
(78,410)
(379,200)
(2,260)
(5,412,116)
201,146,821
Receivable within one year
Receivable after one year
106,754,449
66,872,054
173,626,503
104,061,788
97,085,033
201,146,821
14.1Term Loans/Short Term Loans
99
15.
LEASE RENTAL RECEIVABLE
Gross Rentals Receivables
Less: Unearned Interest Income
Pre-paid Rentals
Earned income Non Performing
VAT Suspense of Lease
Early Settlement of Lease
2011/12
Rs.
2010/11
Rs.
65,924,879
(20,789,551)
(1,726,758)
(916,468)
(170,721)
430,156
(1,447,252)
41,304,284
47,598,196
(12,671,097)
(2,341,435)
(679,209)
(141,724)
8,926
(1,263,762)
30,509,895
331,078,738
(76,823,592)
(4,194,704)
525,691
(1,567,380)
249,018,753
380,534,318
(94,330,707)
(6,213,248)
561,506
(2,510,344)
278,041,525
16.HIRE PURCHASE RECEIVABLES
Gross Rentals Receivables
Less :Unearned Interest Income
Pre-paid Rentals
Earned Income Non Performing
Within 1 Year
2012
2011
Rs.
Rs.
Gross Investment
Lease Rentals
Hire Purchase Receivables
Less : Unearned Income
Less : Provision for Bad
& Doubtful Debts
Net Investment
17.
37,128,892
177,160,233
214,289,125
(56,122,820)
19,042,849
186,407,469
205,450,318
(34,744,774)
1-5 Years
2012
2011
Rs.
Rs.
28,795,987
153,918,505
182,714,492
(47,543,128)
28,564,273
194,126,849
222,691,122
(81,071,140)
(140,989) (3,774,106) (2,873,644)
-
158,025,316 166,931,438 132,297,720 141,619,982
Over 5 YearsTotal
2012
2011
2012
2011
Rs.
Rs.
Rs.
Rs.
-
-
-
-
- 65,924,879
47,607,122
- 331,078,738 380,534,318
- 397,003,617 428,141,440
- (103,665,948) (115,815,914)
-
-
-
(3,014,633) (3,774,106)
- 290,323,036 308,551,420
2011/12
Rs.
2010/11
Rs.
Less
Unrecoverable interest receivable write off
403,285,182
323,980,283
(257,194)
403,027,988
323,980,283
100
18.Gold Stock
2011/12
2010/11
Rs.
Rs.
Gold Stock
Old Gold Purchased Stock
Gold Reserve Stock
56,035,018
-
215,566,942
271,601,960
50,920
715,000
20,000
785,920
19.
Real Estate Stock
Investments in LandsThalawathugoda BoralesgamuwaNawala
Balance at the beginning of the year
Additions/transfers during the year
Disposals during the year
Impairment during the year
Balance at the end of the year
65,448,130
-
-
(1,231,308)
64,216,822
10,100,000
-
(4,905,715)
(1,394,285)
3,800,000
130,795,140
7,000
-
(6,860,140)
123,942,000
KandyTotal
36,314,227
1,961,829
-
(818,056)
37,458,000
242,657,497
1,968,829
(4,905,715)
(10,303,789)
229,416,822
The fair value of real estate stocks as at 31.03.2012 was decided by the Directors of the Company .
20.Group Loans & Advances
2011/12
2010/11
Rs.
Rs.
Swarnamahal Jewellers (Pvt) Ltd.
9,282,266
9,282,266
27,773,444
27,773,444
Gold stock balance amounting to Rs.27,773,444/- carried forward from previous year, and physically retained by Swarnamahal
Jewellers (Pvt) Ltd, has been converted to a term loan with effect from 01st of March, 2011 with the consent of the directors. The
Company has entered into a repayment agreement on 01st of March, 2011 with Swarnamahal Jewellers (Pvt) Ltd (Related Party) to
recover the balance due along with the interest repayment, terms and conditions are as follows.
Loan Amount
Date Commencement of Repayment
Loan Settlement Period
Monthly Installment
Interest Rate
No .of installments due as at 31.03.2012
:
:
:
:
:
:
Rs.27,773,444/11th April, 2011
12 months - (25th April, 2011 to 25th March, 2012)
Rs.2,314,454/18%
4
101
21.
INVESTMENT ON PROPERTIES
AdditionsTransfers
Balance as at
during the
during the Balance as at
01.04.2011
Year
Year
31.03.2012
Rs.
Rs.
Rs.
Rs.
Land
Building
46,020,000
8,780,000
54,800,000
-
-
-
-
-
-
46,020,000
8,780,000
54,800,000
Cost
Directors
Valuation
21.1
List of Investment Property
Description
Location
Rs.
Rs.
34,515,000
12,035,000
46,550,000
46,020,000
8,780,000
54,800,000
Balance
Balance
Land (46.2 P)
No. 10, De Alwis Avenue, Mount Lavinia.
Building (6,505 Sq. ft)
Do-
The fair value of investment property as at 31.03.2012 was decided by the Directors of the Company .
22.
PROPERTY, PLANT & EQUIPMENT
22.1Gross Carrying Amounts
At Cost
Freehold Assets
Building Partitions
Office Equipment
Air Conditioner
Motor Vehicle
Computers & Software
Leasehold Assets
Computer Hardware
as at
01.04.2011
AdditionsTransfers
as at
Disposals
31.03.2012
Rs.
Rs.
Rs.
Rs.
Rs.
54,309,678
32,130,618
14,325,451
4,461,718
1,164,325
25,139,537
7,963,906
3,703,518
2,975,151
697,526
18,160,062
3,191,545
-
-
.
-
-
-
-
-
-
-
-
-
62,273,584
35,834,136
17,300,602
5,159,244
19,324,387
28,331,082
-
131,531,327
1,707,005
38,398,713
-
-
-
-
1,707,005
169,930,040
102
22.2
Depreciation
Balance
Charge
Balance
as at
for the
as at
01.04.2011
Disposals
31.03.2012
Rs.
Rs.
Rs.
Rs.
Rs.
Free Hold Assets
Building Partitions
Office Equipment
Air Conditioner
Motor Vehicle
11,705,661
16,347,985
7,495,897
1,708,230
531,128
10,140,728
5,753,907
7,943,488
3,726,587
1,016,062
2,321,187
3,850,768
-
-
-
-
-
-
-
-
-
-
-
-
17,459,568
24,291,473
11,222,484
2,724,292
2,852,315
13,991,496
Leasehold Assets
Computer Hardware
-
47,929,629
74,828
24,686,827
-
-
-
-
74,828
72,616,456
At cost
PeriodTransfers
22.3Net Book Values
2011/12
2010/11
Rs.
Rs.
Free Hold Assets
Building Partitions
Office Equipment
Air Conditioner
Motor Vehicle
44,814,016
11,542,663
6,078,118
2,434,952
16,472,072
14,339,586
42,604,017
15,782,633
6,829,554
2,753,488
633,197
14,998,809
Leasehold Assets
Computer Hardware
Total Carrying Amount of Property, Plant & Equipment
1,632,177
97,313,584
83,601,698
103
23.
BANK OVERDRAFT
2011/12
2010/11
Rs.
Rs.
Bank Overdraft
97,837,043
97,837,043
110,393,728
110,393,728
4,349,146,510
49,859,320
4,399,005,830
3,419,388,871
50,590,650
3,469,979,521
1,354,356,311
2,993,919,170
871,030
4,349,146,510
1,491,938,745
1,924,109,844
3,340,282
3,419,388,871
29,292,485
15,787,260
560,306
899,392
386,623
131,999
-
2,721,405
79,851
-
49,859,320
30,841,850
14,586,542
329,864
1,539,766
383,104
217,150
(68)
2,620,273
69,669
2,500
50,590,650
24.
CUSTOMER DEPOSITS
Fixed Deposits (Note 24.1)
Other Deposits (Note 24.2)
24.1
Fixed Deposits
Fixed Deposts - General
SFS - Abhimana
Staff Fixed Deposits
24.2
Other Deposits
Savings - General
SFS Kumara Kumari
Staff Savings
Misellanceous Savings
Dhanajaya Savings
Capital Suspence Savings
Savings Intermediate Account
SFS Saver
Dhana Pragathi
Savings Suspence Punchipanchi
104
25.
Income Tax Payable/(Recoverable) for the year
2011/12
2010/11
Rs.
Rs.
Balance as at the beginning of the year
Charge for the year
SRL Paid during the year
Income tax paid during the year
WHT deducted at source - interest
ESC Payments
Deemed Dividend Tax for 2010/2011
Balance as at the end of the year
5,571,471
78,134,701
(439,222)
(23,726,694)
(2,556,600)
(10,454,036)
(1,817,150)
44,712,470
(11,865,698)
31,228,847
(97,690)
(5,000,000)
(2,028,974)
(6,665,014)
5,571,471
17,295,148
(198,957)
(2,781,271)
(3,707,116)
10,607,804
2,970,185
12,379,245
3,540,983
(1,756,480)
(3,777,625)
10,386,123
2,908,114
Capital Allowances for Tax Purposes
4,786,934
4,786,934
4,457,664
4,457,664
Deferred Tax Assets
Defined Benefit Plans
Bad Debts Provision
Deferred Tax Income / (Expense)
Net Deferred Tax Liability
(778,756)
(1,037,992)
(1,816,748)
2,970,185
(491,814)
(1,057,735)
(1,549,549)
2,908,114
26.
Deferred Taxation
The Deferred tax assets/liabilities on each temporary differences which were recognized
in the financial statements are disclosed below.
Temporary Difference on Property, Plant & Equipment
Temporary Difference on Lease Receivables
Temporary Difference on Retirement Benefit Obligation
Temporary Difference on Bad Debts Provision
Total Temporary Difference
Tax effect
26.1
Deferred tax assets, liabilities and income tax relate to the following:
Deferred Tax Liability
105
27.
RETIREMENT BENEFIT OBLIGATIONS
2011/12
2010/11
Rs.
Rs.
Retirement Benefit Obligations - Gratuity
Amount Charged/(Reversed) for the year (Note 27.1)
Payments made during the year
Balance at the end of the year
1,756,480
1,024,791
-
2,781,271
1,452,321
739,159
(435,000)
1,756,480
664,276
329,243
31,272
1,024,791
493,594
216,219
29,346
739,159
An actuarial valuation of the gratuity was carried out as at 31st March 2012 by Piyal S. Goonetilleke and
Associates, a firm of professional actuaries. The valuation method used by the actuaries to value the
Fund is the “Projected Unit Credit Method”, recommended by SLAS No.16.
27.1The Principal assumptions used in determining the cost of employee benefits were;
Expenses on Defined Benefit Plan
Current Service cost for the year
Interest cost for the year Recognition of Transition Liability (Note 27.2)
27.2
Recognition of Transitional Assets/Liability
Transitional liability Recognized
Amortization for the year
Unamortized Transitional Liability as at the end of the year
88,038
31,272
56,766
117,384
(29,346)
88,038
27.3The Principal assumptions used in determining the cost of employee benefits were;
Discount Rate
Salary Scale
Staff Turnover
Retirement Age - Normal Retirement Age, or Age on Valuation date, if Greater.
12%
10%
0.01% to 8%
12%
10%
0.01% to 8%
106
28.Unsecured, Unlisted, Subordinated Redeemable Debentures
2011/12
2010/11
Rs.
Rs.
Number of Debentures
Value of Debentures
1,000,000
100,000,000
1,000,000
100,000,000
The Rs.100,000,000/- Unsecured Redeemable Subordinated Unlisted Debentures were issued at following rates and will mature on
31st March 2015 .
Catergory
Interest payable Amount (Rs. )
Type “A”
Type “B”
Type “C”
Type “D”
29.
147,335/-
6,458/-
1,186,203/-
257,017/-
Interest rate
11,565,000/-
500,000/-
72,275,000/-
15,660,000
15%
15.50%
16%
16.50%
LOANS AND BORROWINGS
BalanceNew
Payments
Balance
Balance
Loans Made during
as at
as at
as at
01.04.2011
Obtained
-
-
-
-
55,000,000
167,000,000
167,255,209
389,255,209
Commercial Papers
Securitization
Re - purchase Agreement
the Year
(55,000,000)
(67,105,360)
(154,286,263)
(276,391,623)
31.03.2012
31.03.2011 Interest Rate
-
99,894,640
12,968,946
112,863,586
-
-
-
-
2011/2012
2010/2011
12.25% -14%
11.50%
7% -9.9%
-
29.1
Amount
Amount
Payable Within Payable After
Balance
Amount
Amount
as at Payable Within Payable After
Balance
as at
One Year
One Year
31.03.2012
OneYear
One Year
31.03.2011
Rs.
Rs.
Rs.
Rs.
Rs.
Rs.
-
79,492,298
12,968,946
33,371,288
-
20,402,342
-
79,492,298
-
99,894,640
12,968,946
112,863,586
-
-
-
-
-
-
-
-
-
Commercial Paper
Securitization
Re - purchase Agreement
107
30.
LEASE CREDITOR
2011/2012
2010/2011
Rs.
Rs.
Balance as at beginning of the year
Add : New Lease obtained
Less: Payments
Balance as at end of the year
-
1,822,012
(455,503)
1,366,509
-
Interest In Suspense
Balance as at beginning of the year
Add: Interest of New Lease
Less: Transferred to Income A/C
Balance as at end of the year
Payable Within one year
Payable After one year
-
115,006
(28,751)
(86,255)
1,280,254
1,280,254
-
-
31.
STATED CAPITAL
2011/12
2010/11
Number
Rs.Number
Rs.
Fully paid ordinary shares
500,000,140
250,000,070
25,000,007
250,000,070
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 is increased without an increase in resources.
108
32.
STATUTORY RESERVES
2011/12
2010/11
Rs.
Rs.
Transfer during the year
Balance at the End of the Year
16,944,750
28,149,206
45,093,957
4,385,913
12,558,837
16,944,750
Reserve Fund is a capital reserve which contains profits transferred as required by Section 3(b)(ii) of Central Bank Direction No. 1 of
2003.
33.EVENTS OCCURRING AFTER THE BALANCE SHEET DATE
There have been no other material events that occurred between the balance sheet date and the date on which the financial
statements are authorized for issue which require adjustments to or disclosure in the financial statements.
34.
Related Party Disclosures
34.1
Key Management Personnel Information
Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of
the company as well as its related parties, directly or indirectly, including any director (whether executive or otherwise) of the company.
34.2
Compensation to Key Managerial Personnel
2011/12
2010/11
Rs.
Rs.
Short Term Employment Benefits Paid
8,990,000
8,990,000
8,134,309
8,134,309
There were no post employment benefits or long term benefits provided to key management personnel.
34.3
Parent and Ultimate Parent Party
The Company does not have an identifiable parent of its own.
109
34.4 Dr. (Mrs.) Soma Edirisinghe, Mr. Jeewaka Edirisinghe, Ms. Deepa Edirisinghe, Mr. Nalaka Edirisinghe, Mr. Asanka Edirishighe,
Mr. D. Sunil Aberathne, Mr. N.G Mahendra Silva; the Directors of the company are also Key Management Personnel of the following
companies and have had transactions as disclosed below.
Edirisinghe Trust Investment Ltd
X
X
X
X
X
Swarnamahal Jewelers (Pvt) Ltd
X
X
X
X
X
PLMTT Muthukaruppan Chettiar (Pvt) Ltd
X
X
X
X
X
Swarnamahal Property Developers (Pvt) Ltd
X
X
X
X
X
EAP Network (Pvt) Ltd
X
X
X
X
X
Intermedia Productions (Pvt) Ltd
X
X
X
X
X
Colombo Communications (Pvt) Ltd
X
X
X
X
X
Lavinia Breeze Sea Food Restaurant (Pvt) Ltd
X
X
X
X
X
EAP Security Services (Pvt) Ltd
X
X
X
X
X
EAP Films & Theaters (Pvt) Ltd
X
X
X
X
X
Hotel Sapphire (Pvt) Ltd
X
X
X
X
X
Mr N.G. Mahendra Silva
Mr. D.S.Abeyratna
Mr.A.S.Edirisinghe
Mr.N.P.Edirisinghe
Mrs.A.D.Edirisinghe
Mr.J.H.Edirisinghe
Dr. (Mrs.) S.Edirisinghe
Dr. (Mrs.) Soma Edirisinghe has resigned from her directorship and Chairpersonship positions with effect from 31st January 2012, and
Mr. Jeewaka Edirisinghe was appointed as the Chairman.
X
X
110
34.5 Transactions with entities that are controlled, jointly controlled or significantly influenced by Key Managerial Personnel or their
close member of family, or shareholders who have either control, significant influences or joint control over entity.
Transactions with Related Parties
2011/12
2010/11
Rs.
Rs.
Name of the Company
Description of Transaction
Swarnamahal Jewellers (Pvt) Ltd
Loan capital recovered
Interest Received
Lavinia Breeze Sea Food Restaurant (Pvt) Ltd
Rent Income Received
Provision for doubtful rent receivable
500,000
5,750,000
EAP Films & Theaters (Pvt) Ltd
Borrowings - Commercial Papers
Interest paid for Commercial papers
55,000,000
3,972,571
18,491,178
2,187,159
EAP Network (Pvt) Ltd
Lease Rentals Received
-
Interest Received
-
Advertising Expenses
15,000,000
1,145,458
751,123
-
EAP Security Services (Pvt) Ltd
Security Expenses
6,818,665
10,497,328
Edirisinghe Trust Investment Ltd
Vehicle Hire Rentals Paid
Unrecoverable Other Receivable Write-off
1,200,000
5,342,134
60,000
35.
COMMITMENTS & CONTINGENCIES
There were no commitment and contingencies existing as at the Balance Sheet date.
111
36.
SEGMENTAL INFORMATION
Pawning
Leasing
Hire
Loans Factoring
Real
Purchase
Estate
Rs.
Rs.
Rs.
Rs.
Rs.
Interest Income 542,298,882
Treasury
Bills
Bonds
Other
Total
Rs.
Rs.
Rs.
Rs.
For the Year ended 31st March, 2011
Income
6,699,184
69,855,739
52,345,180
4,303,149
-
14,068,991
14,276,663
703,847,788
2,239,642
293,595
1,258,500
886,177
710,444
-
-
3,922,913
9,311,271
Total Income 544,538,524
6,992,779
71,114,239
53,231,357
5,013,593
-
14,068,991
77%
1%
10%
7%
1%
-
2%
Interest 293,435,973
3,624,904
37,798,689
28,323,789
2,328,418
-
7,612,680
7,725,051 380,849,505
Other Expenses
2,076,178
21,649,344
16,222,558
1,333,611
17,260,088
4,360,192
4,424,552 235,393,099
11,972,872
12,149,603 616,242,604
Other Income
Percentage
18,199,576 713,159,059
2%
100%
Less :
168,066,576
Total Expenses 461,502,549
5,701,082
59,448,033
44,546,347
3,662,029
17,260,088
83,035,975
1,291,697
11,666,206
8,685,010
1,351,564
(17,260,088)
Less : Income Tax
(26,290,439)
(324,774)
(3,386,579)
(2,537,674)
56,745,535
966,923
8,279,627
6,147,336
30,509,895 278,041,525
Segment Assets 2,747,821,787
(208,615)
1,142,949
-
(17,260,088)
2,096,119
(682,059)
1,414,059
6,049,973
96,916,455
(692,127) (34,122,268)
5,357,846
62,794,187
235,177,072
-
255,523,134
67%
1%
7%
6%
-
6%
5%
Segment Liabilities 2,551,245,233
28,327,247
258,150,708
218,352,735
-
237,243,260
170,557,762
323,012,767 3,786,889,712
12,382,507 1,058,661,625
Percentage
183,699,439 349,895,902 4,080,668,754
9%
100%
For the Year ended 31st March, 2012
Income
Interest Income
917,357,641
6,694,116
58,369,879
40,379,764
-
-
23,477,718
Other Income
4,796,725
606,139
796,905
530,889
-
-
-
Total Income
922,154,366
7,300,255
59,166,784
40,910,653
-
-
23,477,718
Percentage
87%
1%
6%
4%
-
-
2%
1%
100%
Interest 458,282,277
3,344,164
29,159,708
20,172,427
-
-
11,728,710
6,185,901
528,873,188
Other Expenses
274,870,887
2,005,780
17,489,559
12,099,122
-
3,551,883
7,034,706
3,710,211
320,762,148
Total Expenses 733,153,165
5,349,944
46,649,267
32,271,549
-
3,551,883
18,763,416
1,950,311
(3,551,883)
3,185,857
9,916,515
15,568,364 1,068,578,140
Less :
189,001,201
Less : Income Tax
(67,759,522)
121,241,679
Segment Assets 3,813,228,241
12,517,517
8,639,104
-
(4,311,421)
(2,982,603)
-
1,455,858
8,206,096
5,656,501
-
(494,453)
41,304,284
249,018,752
180,249,271
-
72%
1%
5%
3%
-
Segment Liabilities 3,501,480,731
37,927,484
228,660,418
165,513,132
-
Percentage
-
(3,551,883)
4,714,302
(1,734,153)
2,980,148
229,416,822 345,983,038
4%
210,661,028
7%
317,697,465
9,896,112 849,635,336
5,672,252
218,942,804
(914,619) (78,196,771)
4,757,633
140,746,032
455,816,492 5,315,016,900
9%
100%
418,551,569 4,880,491,827
112
37.
CONCENTRATION OF ASSETS, LIABILITIES AND OFF BALANCE SHEET EVENTS
37.1
The following disclosures of Assets and Liabilities pertain to the Financial Statements of Swarnamahal Financial Services PLC
as required under Sri Lanka Accounting Standards SLAS 33 Revenue Recognition and Disclosures in the Financial Statements of
Finance Companies.
Pawning Leasing & HP
Loans
Real Estate
Rs.
Rs.
Rs.
Rs.
3,813,228,241
3,501,480,731
290,323,036
266,587,902
180,249,271
165,513,132
229,416,822
210,661,028
Segement Assets
Segement Liabilities
37.2
OFF BALANCE SHEET EVENTS
There were no off balance sheet events existing as at the balance sheet date.
OthersTotal
Rs.
Rs.
801,799,530 5,315,016,900
736,249,033 4,880,491,827
113
37.3
MATURITY ANALYSIS OF ASSETS AND LIABILITIES
Assets/Liabilities
Maturity period
Less than
1-3
3-12
1-5
1 month
Months
Months
Years
Years
Rs.000
Rs.000
Rs.000
Rs.000
Rs.000
Rs.000
Total Assets
Cash
Due from Banks
Investments- Treasury Bills
- Fixed Deposits
- Commercial Papers
- CRIB
- Public Shares
Loans & Advances
- Pawning
- Leasing
- HP
- Term Loans
Interest Receivable
Real Estate Stock
Gold Stock
Property, Plant & Equipment
Investment Property
Other Assets
656,262
66,257
139,531
313,309
-
-
-
3,946
88,837
1,909
11,147
20,718
10,608
-
-
-
-
-
566,419
-
-
-
-
-
-
-
3,411,608
-
-
-
8,662
-
-
-
527,538
-
-
22,808
-
-
-
-
153,190
-
-
-
-
-
2
-
5,315,017
66,257
139,531
336,117
8,662
2
3,946
231,565
3,883
22,202
18,063
19,104
-
271,602
-
-
-
2,834,997
17,469
99,909
77,255
373,316
-
-
-
-
-
-
18,043
115,760
65,798
-
229,417
-
-
-
75,712
-
-
-
1,074
-
-
-
97,314
54,800
-
3,155,399
41,304
249,018
182,908
403,028
229,417
271,602
97,314
54,800
75,712
Total Liabilities
Due to Banks
Deposits - Fixed
Deposits - Savings
Debentures
Accrued Interest
Other Liabilities
Share Holders’ Funds
532,562
-
462,910
34,072
-
14,869
20,711
-
1,081,408
-
1,007,976
-
-
17,327
56,105
-
2,198,620
97,837
2,016,355
-
-
48,309
36,119
-
1,041,141
-
861,906
-
100,000
28,979
50,256
-
461,286
-
-
15,787
-
-
10,974
434,525
5,315,017
97,837
4,349,147
49,859
100,000
109,484
174,165
434,525
Maturity Gap
123,700
(514,989)
1,212,988
Cumulative Gap
123,700
(391,289)
821,699
(513,603)
308,096
Over 5Total
(308,096)
-
-
114
Rs.Mn.
Year ended 31 March (Audited)
2007
2008
2009
2010
2011
2012
Profit Performance
Gross Income
Interest Income
Interest Expenses
Interest on Customers Deposits
Interest on Other Borrowings
Net Interest Income
Other Income
Operating Expenses *
Loan Losses Provisioning
Profit Before tax (PBT)
Income Tax & Other Tax Expenses **
Profit After Tax (PAT)
155
142
102
102
-
40
13
48
-
5
2
3
190
164
151
151
-
13
26
78
-
(39)
-
(39)
309
256
228
228
-
28
53
93
-
(12)
-
(12)
425
417
274
274
-
143
8
121
4
26
9
17
713
704
381
364
17
323
9
217
3
112
49
63
1,069
1,059
529
502
27
530
10
293
247
106
141
Assets
Cash and Cash Equivalents
Investments In Government Securities
Other Investments
Pawning Gold Jewellery
Hire Purchase Receivable
Lease Rentals Receivable
Other Loans & Advances
Value of Non Performing Advances
Other Trading Stock
Other Receivables
Fixed Assets
TOTAL ASSETS
5
104
114
-
-
4
545
-
49
40
72
933
88
124
153
6
53
20
569
-
172
104
82
1,371
55
148
156
84
87
21
505
-
263
256
89
1,664
122
126
130
864
211
23
304
9
272
245
122
2,419
130
180
13
2,434
278
31
229
11
243
403
138
4,079
206
336
13
3,155
249
41
183
13
501
479
152
5,315
Liabilities
Fixed Deposits
Savings
Borrowings (Refinance)
Other Liabilities
TOTAL LIABILITIES
682
11
-
32
725
1,120
18
-
64
1,202
1,285
65
-
157
1,507
1,896
48
100
144
2,188
3,419
51
100
215
3,785
4,349
50
214
267
4,880
Shareholders’ Funds
Stated Capital
Reserves
TOTAL SHAREHOLDERS’ FUND
TOTAL EQUITY & LIABILITIES
200
8
208
933
200
(31)
169
1371
200
(43)
157
1664
250
(19)
231
2419
250
44
294
4,079
250
185
435
5,315
Other Information
Number of Staff as at 31st March
Number of Branches & Pawning Centers
42
4
69
4
83
9
131
11
198
15
207
17
st
115
Year ended 31st March (Audited)
2007
2008
2009
2010
2011
2012
Ratios
Growth of Income
Cost to Income Ratio
Growth of Deposits
Growth of Advances
ROA (Before Tax)
ROE (After Tax)
Advances to Deposits & Borrowings
Total Assets to Shareholders Funds (times)
EPS (after Tax) (Rs.){considered Subdivision}
Net Asset Value P.S. (Rs.) {considered Subdivision}
Interest Cover (times)
Net Interest Margin
Net Interest Spread ***
Liquid Assets Ratio
Government Security / TB Ratio
NPL Ratio
Core Capital Ratio
Total Risk Weighted Capital Ratio
-9.4%
90.6%
-27.4%
-45.6%
0.5%
1.6%
80.5%
4.5
0.01
0.52
1.4
4.8%
3.6%
15.7%
11.9%
0.0%
28.8%
28.8%
22.6%
200.0%
64.2%
18.0%
-3.4%
-20.7%
57.9%
8.1
-0.10
0.42
1.1
1.8%
2.9%
18.6%
12.6%
0.0%
16.8%
16.8%
62.6%
114.8%
18.6%
7.6%
-0.8%
-7.4%
54.2%
10.6
-0.03
0.39
1.1
3.5%
8.3%
13.6%
12.4%
0.0%
12.9%
12.9%
37.5%
80.1%
44.0%
101.1%
1.3%
8.8%
70.2%
10.5
0.03
0.46
1.5
12.1%
15.2%
11.9%
8.6%
0.6%
16.0%
23.7%
67.8%
65.4%
78.5%
112.0%
3.5%
24.0%
84.5%
13.9
0.13
0.59
1.8
13.8%
15.6%
8.5%
9.9%
0.4%
15.7%
21.6%
49.9%
54.3%
26.8%
22.1%
5.3%
38.7%
79.5%
12.2
0.28
0.87
2.0
14.9%
16.7%
11.4%
10.9%
0.36%
21.1%
25.1%
Year ended 31st March (Audited)
2007
2008
2009
2010
2011
2012
*
Operation Expenses
Staff Cost
Administration Expenses
Selling,Financial & Other Expenses
18
22
8
48
26
33
19
78
34
42
17
93
37
65
19
121
64
99
54
217
88
158
47
293
** Income Tax & Other Tax expenses
Provision for Income Tax
0
2
2
0
0
0
0
0
0
2
7
9
15
34
49
28
78
106
*** Interest Spread
Interest Income
AVG Earning Assets
Interest Income Ratio
142
889
16.0%
164
846
19.4%
256
963
26.6%
417
1,330
31.4%
704
2,412
29.2%
1,059
3,571
29.7%
Interest Expenses
AVG Deposits & Borroeings
Interest Cost Ratio
Interest Spread
102
824
12.4%
3.6%
151
916
16.5%
2.9%
228
1,244
18.3%
8.3%
274
1,697
16.1%
15.2%
381
2,807
13.6%
15.6%
529
4,092
12.9%
16.7%
116
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 three months from the Balance
Sheet date.
2.Twenty largest Ordinary Shareholders as at 31st March 2012
Name of the ShareholderNo. of SharesPercentage (%)
1 Mrs. A.D. Edirisinghe
2 Mr. A.S. Edirisinghe
3 Mr. J. H. Edirisinghe
4 Mr. N. P. Edirisinghe
5 Dr. S. Edirisinghe
6 Edirisinghe Trust Investments Ltd
7 Mr. K. M. D. R. Kulathunga
8 Mr. N. Dinapala
9 Mr. A. B. Athukorala
10 Mrs. R. A. Hathiramani
11 Mr. N. H. Godahewa
12 Mr. R.R.F.Ferdinando
13 Mr. K. A. N. H. Kasturiratna
14 Mr. P. H. P. Jayalath
15 Mr. S. M. Wijesinghe
16 Mr. K. S. D. Senaweera
17 Mr. B. D. D. L. Ariyasinghe
18 Mr. C. M. Mannapperuma
19 Mr. J. M. R. P.Jayasekara
20 Mr. H.H.Kalum Sanjeewa
Others
Total
82,000,020
82,000,020
82,000,020
82,000,020
82,000,020
40,000,000
1,850,000
1,815,600
1,760,000
1,565,000
1,563,200
1,258,800
1,155,360
1,147,120
1,044,000
970,880
846,800
820,000
802,000
762,000
32,639,280
500,000,140
16.40
16.40
16.40
16.40
16.40
8.00
0.37
0.36
0.35
0.31
0.31
0.25
0.23
0.23
0.21
0.19
0.17
0.16
0.16
0.15
6.53
100
The stated Capital of the company consisting solely issued and fully paid up Ordinary Voting Shares of 500,000,140 as at 31st March 2012.
117
3.
Market price of an Ordinary Share
31st March
31st March
2012 (Rs.)
2011 (Rs.)
Highest
Lowest
Closing
181.50
80.60
158.80
-
No. of Ordinary Voting Shares 500,000,140**
25,000,007
** In accordance with the Special Resolution passed at the Extraordinary General Meeting held on 27th March 2012, each of the issued and
fully paid up Voting Ordinary Shares of the Company subdivided into twenty (20) issued and fully paid up Ordinary Voting Shares consequent
to which the Ordinary Voting Shares of the Company increased from 25,000,007 to 500,000,140. The said subdivision was effected on 27th
March 2012 and subsequent to the subdivision, the trading of the shares commenced on 02nd April 2012.
4. Number of Ordinary shareholders as at 31st March 2012
SHARE HOLDINGS
1 to 1000
RESIDENT
NON RESIDENT
TOTAL
Number of
No of
Percentage
No of
No of
Percentage
Number of
No of
Percentage
Shareholders
Shares
(%)
Shareholders
Shares
(%)
Shareholders
Shares
(%)
89
21,240
0
0
0
0
89
21,240
0
1001 to 10,000
259
1,137,080
0.23
2
10,000
0
261
1,147,080
0.23
10,001 to 100,000
216
7,968,140
1.59
1
14,000
0
217
7,982,140
1.59
100,001 to 1000,000
91
27,100,500
5.42
2
590,000
0.12
93
27,690,500
5.54
Over 1,000,000
14
461,594,180
92.32
1
1,565,000
0.31
15
463,159,180
92.63
669
497,821,140
99.57
6
2,179,000
0.43
675
500,000,140
100
Total
Public holding as a percentage of Issued Share Capital as at 31st March 2012 9.96%
Categories of shareholders
No. of shareholdersNo. of shares
Individuals
Institutional
Total
653
22
675
457,988,280
42,011,860
500,000,140
Percentage (%)
91.60
8.4
100
118
Accounting Policies
The specific principles, bases, conventions, rules and practices
adopted by an entity in preparing and presenting Financial
Statements.
The process by which corporate entities are governed. It is
concerned with the way in which power is exercised over the
management and direction of entity, the supervision of executive
actions and accountability to owners and others.
Accrual Basis
Recognition of the effects of transactions and other events when
they occur without waiting for receipt or payment of cash or its
equivalents.
Cost Income Ratio
Operating expenses as a percentage of net income.
Credit Risk
Amortization
The systematic allocation of the depreciable amount of an intangible
asset over its useful life.
Credit risk is the risk of financial loss to the Bank if a customer or
counter party to a financial instrument fails to meet its contractual
obligations, and arises principally from the loans and advances to
customers and other banks and investment debt securities.
Capital Adequacy
The percentage of risk-adjusted assets supported by capital as
defined under the framework of risk based capital standards
developed by the Bank for International Settlement (BIS) and as
modified to suit local requirements by the Central Bank of Sri Lanka.
Credit Ratings
Capital Reserves
Dealing Securities
Capital Reserves consist of revaluation reserves arising from
revaluation of properties owned by the Company and Reserve Fund
set aside for specific purposes defined under the Finance Business
Act No. 42 of 2011 and shall not be reduced or impaired without the
approval of the Monetary Board.
These are marketable securities acquired and held with the intention
to resale over a short period of time.
An evaluation of a corporate entity to assess its ability to repay
its obligations or likelihood of not defaulting, carried out by an
independent rating agency.
Deferred Tax
Sum set aside in the financial statements for taxation that may become
payable in a financial year other than the current financial year.
Cash Equivalents
Short-term highly liquid investments that are readily convertible to
known amounts of cash and which are subject to an insignificant
risk of changes in value.
Depreciation
Commitments
Earnings Per Share (EPS)
Credit facilities approved but not yet utilized by the clients as at the
Balance Sheet date.
Profit attributable to ordinary shareholders, divided by the number of
ordinary shares in issue.
Contingent Liabilities
Effective Tax Rate
Conditions or situations at the Balance Sheet date, the financial
effect of which are to be determined by the future events which may
or may not occur.
Provision for taxation, excluding deferred taxation, divided by the
profit before tax.
The systematic allocation of the depreciable amount of an asset
over its useful life.
119
Equity
Interest Earning Assets
Total of shareholders’ fund; share capital + statutory reserves+ other
reserves
Assets which earn interest; Loans and Advances, Bills, Leases, Call
money, etc.
Equity Method
Interest in Suspense
The equity method is a method of accounting whereby the
investment is initially recognized at cost and adjusted thereafter.
Interest suspended on non-performing loans and advances.
Investment Properties
Fair Value
Fair value is the amount for which an asset could be exchanged
between a knowledgeable, willing buyer and a knowledgeable,
willing seller in an arm’s length transaction.
Investment property is property (land or a building – or part of a
building - or both) held (by the owner or by the lessee under a
finance lease) to earn rentals or for capital appreciation or both,
rather than for use or sale.
Finance Lease
Investment Securities
A lease in which the lessee acquires all the financial benefits and
risks attaching to ownership of whatever is being leased.
Securities acquired and held for yield or capital growth purposes
and are usually held to maturity.
General Provisions
Key Management Personnel
General provisions are established for loans and advances for
anticipated losses on aggregate exposures where credit losses
cannot yet be determined on individual facility basis.
Key Management Personnel are those persons 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.
Impairment
This occurs when recoverable amount of an asset is less that its
carrying amount.
Interest Margin
Liquid Assets
Assets that are held in cash or in a form that can be converted to
cash readily, such as deposits with other banks, bills of exchange
and treasury bills.
Net interest income as a percentage of average interest earning
assets.
Loan Losses and Provisions
Interest Spread
Amounts set aside against possible losses on loans, advances and
other credit facilities as a result of such facilities becoming partly or
wholly uncollectible.
This represents the difference between the average interest rate
earned and the average interest rate paid on funds.
Interest Cover
A ratio showing the number of times interest charges is covered by
earnings before interest and tax.
Market Risk
This refers to the possibility of loss arising from changes in the value
of a financial instrument as a result of changes in market variables
such as interest rates, exchange rates, credit spreads and other
asset prices.
120
Glossary of Financial Terms Contd.
Net Asset Value per Share
Revenue Reserve
Shareholders’ funds divided by the number of ordinary shares in
issue.
Reserves set aside for future distribution and investment.
Return on Equity (ROE)
Net-Interest Income (NII)
The difference between what a Company earns on assets such as
loans and securities and what it pays on liabilities such as deposits
refinance funds and other borrowings.
Non-Performing Loans (NPL)
All loans are classified as non-performing when a payment is 180
days’ in arrears.
Net income, less preferred share dividends if any, expressed as a
percentage of average ordinary shareholders’ equity.
Related Parties
Parties where one party has ability to control the other party or
exercise significant influence over the other party in making financial
and operating decisions, directly or indirectly.
Revenue Reserves
NPL Ratio
Reserves set aside for future distribution and investment.
Total non-performing advances (net of Interest in Suspense) divided
by total advances portfolio (net of Interest in Suspense).
Return on shareholders’ fund
Off Balance Sheet Transactions
An accounting ratio, expressing the profit for the financial year as a
percentage of average shareholders’ funds.
Transactions that are not recognized as assets or liabilities in
the Balance Sheet, but which give rise to contingencies and
commitments in the balance sheet as at Balance Sheet date.
Segmental Analysis
Operational Risk
Analysis of financial information by segments of an enterprise
specifically, the different industries and the different geographical
areas in which it operates.
This refers to the risk of loss resulting from inadequate or failed
internal processes, people and systems or from external events.
Shareholders’ Funds
Total of issued and fully paid share capital and revenue reserves.
Price Earnings Ratio (P/E Ratio)
Market price of an ordinary share divided by earnings per share
(EPS).
Statutory Reserve Fund
A capital reserve created as per the provisions of the Finance
Business Act No. 42 of 2011.
Provision for Bad and Doubtful Debts
A charge to income which is added to the allowance for loan losses.
Specific provisions are established to reduce the book value of
specific assets (primarily loans) to estimated realizable values.
Return on Average Assets (ROA)
Net income expressed as a percentage of average total assets,
used along with ROE, as a measure of profitability and as a basis of
intra-industry performance comparison.
Core Capital (Tier I)
Core Capital includes selected items of capital funds. Major core
capital items are share capital, share premium, statutory reserve
funds, retained profits, general reserves, surpluses/losses after tax
arising from the sale of fixed and long-term investments.
Supplementary Capital (Tier II)
Supplementary Capital includes, approved revaluation reserves,
general provisions, hybrid (debt/equity) capital items and approved
subordinated term debts.
121
Our Network
FULLY FLEDGED BRANCHES
Jaffna Kollupitiya Negombo Nugegoda Ratnapura Trincomalee Vavuniya No.338, Hospital Road, Jaffna No. 654, Galle Road, Colombo 03 No. 18, Greens Road, Negombo No. 31, St. Thilakaratna Mw, Nugegoda No.15, Main Street, Ratnapura No.31, Central Road, Trincomalee No.141, Kandy Road, Vavuniya PAWNING CENTRES
Aluthgama Batticaloa
Chilaw Gampaha Hatton Ja-Ela Kandy Ragama Sea Street Wattala 021 2220245
011 2556160-4
031 2222619
011 2810666
045 2226270
026 2226677
024 2226233
Jaffna
No. 164, Galle Road, Aluthgama No. 190, Trincomalee Road, Batticaloa No. 24A, Bazaar Street, Chilaw No. 14, Baudhaloka Mawatha, Gampaha No.15, Main Street, Hatton No.120, Negombo Road, Ja-Ela No.156, Kotugodella Street, Kandy No. 62A, Tewatte Road, Ragama No. 147, Sea Street, Colombo 11 No. 416, Negombo Road, Wattala Vavunia
034 2226233
065 2222880
032 2224888
033 2248444
051 2224466
011 2249085
081 2226126
Trincomalee
011 2957053
011 2452245
011 3193340
Batticoloa
Chilaw
Kandy
Negambo
Je-Ela
Wattala
Sea Street
Kollupitiya
Gampaha
Ragama
Nugegoda
Hatton
Rathnapura
Aluthgama
122
Notice of Meeting
Notice is hereby given that the seventh (07th) Annual General Meeting of Swarnamahal Financial Services PLC will be held at Hotel Sapphire,
No. 371, Galle Road, Colombo 06 on Monday, the Third (3rd) day of September 2012 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 2012 with the Report of the Auditors thereon.
2.
To appoint Messrs KPMG Ford, Rhodes, Thornton & Co., Chartered Accountants as Auditors and authorize the Directors to determine their remuneration.
3.
To authorize the Directors to determine contributions to charities for the financial year ending 31st March 2013.
BY ORDER OF THE BOARD
S S P CORPORATE SERVICES (PRIVATE) LIMITED
Secretaries
No.101, Inner Flower Road,
Colombo 03
2nd August 2012
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.
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Form of Proxy
I/We........……………………………………………………………………………………….……of ………………………………………………………
………………………………………………….........................................................................................................................................................
being a member/members of Swarnamahal Financial Services PLC hereby appoint :
Mr.N. P. Edirisinghe
Mrs.A.D. Edirisinghe
Mr.A. S. Edirisinghe
Mr.D.S. Abayaratne
Mr.S. M .Ganegoda
Mr.J.F.G. De Silva
Mr. S.A. Weerasinha
Mr.N.G.M. De Silva
or failing him
or failing him
or failing him
or failing him
or failing him
or failing him
or failing him
or failing him
or failing him
------------------------------------ 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 Monday, the Third (3rd) day of September 2012 at 10.30 a.m. and at any adjournment thereof and at every poll
which may be taken in consequence thereof :
For
Against
1.
To consider and adopt the Annual Report of the Board of Directors together
with the Financial Statements of the Company for the year ended 31st March 2012
2.
To appoint Messrs KPMG Ford, Rhodes, Thornton & Co., Chartered Accountants as
the External Auditor of the Company for the ensuring year and to authorize the Directors
to fix their remuneration.
3.
To Authorize the Directors to determine contributions to charities for the ensuring year
Signed this ......................................... day of ...........................Two Thousand and Twelve.
Signature: …………………………….
Note :
(a)
(b)
*Please delete the inappropriate words.
Instructions are noted on the reverse hereof.
124
INSTRUCTIONS TO COMPLETE PROXY
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 a ‘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.
ABOUT US
Contents
Swarnamahal Financial Services PLC is a Public Limited Liability Company
Board of Directors
Management Discussion and Analysis Financial Review
Risk Management
Annual Report of the Board of Directors on the Affairs of the Company
Statement of Directors’ Responsibilities in Relation to Financial Statements
Board Human Resources and Remuneration Committee Report
Income Statement
Balance Sheet
Cash Flow Statement
Share Information
Our Network
Notice of Meeting
Form of Proxy 2
4
8
11
16
18
22
27
32
37
63
69
71
72
74
75
Incorporated in Sri Lanka 14th January 2004, under the Companies
Name of the Company
VAT Registration No.
Act No.17 of 1982, and re-registered 16th September 2008 under the
114363510 – 7000
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
Legal Form
No.42 of 2011.
A Public limited liability Company incorporated 14 January
VISION
To be the Premier Financial Services Provider in LFC market.
MISSION
To create superior long - term value to our shareholders, customers and
78
81
82
83
84
85
86
93
114
116
118
121
122
123
BB+/NP RAM Ratings (Lanka) Limited
2004, under the Companies Act No.17 of 1982 and
re-registered 16th September 2008 under the Companies Act
Number of employees
No.7 of 2007, registered as a finance Company under the
207
Finance Business Act No. 42 of 2011 by the Monetary Board of
the Central Bank of Sri Lanka.
Company Secretary
Registered Office
No. 101, Inner Flower Road, Colombo 03
employees above the industry standard.
No.676, Galle Road, Colombo 03.
VALUES
Business Office
Messrs BDO Partners
No. 654, Galle Road, Colombo 03
Chartered Accountants
Highest standards of ethics and integrity
Te.l. 011 2556160-4 Fax: 011 2595062
65/2, Sir Chiththampalam A Gardiner
Auditors to the Company - Financial Year 2011/12
Always do the right thing and keep commitments.
77
Credit Ratings
th
Mawatha,
Engage others to build trust and encourage strong communication.
Board of Directors
Listen and share as a team
Colombo 02.
Bankers to the Company
Sampath Bank PLC
Innovation and continuous improvements
Mr. D. S. Abayaratne
Seylan Bank PLC
Anticipate customer needs and work to exceed their expectations
Mr. S. M. Ganegoda
Respect
Respect all through trust, courtesy and open communication
Service Excellence
Commitment to achieve the highest standard of services quality with
personalized services.
Learning focused
Company Registration No.
Search new knowledge for innovations
PB 594 PQ
Swarnamahal Financial Services PLC I Annual Report 2011/12
No 654, Galle Road, Colombo 03, Sri Lanka.
Tel.011 2556160-4, 2595061
Fax: 011 2589823, 2595062
E-mail:[email protected] Web.www.sfs.lk
Together in
Growth

Swarnamahal Financial Services PLC Annual Report 2011/12

Transcription

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