Swarnamahal Financial Services PLC Annual Report 2013/14
PLC Contents About Us Swarnamahal Financial Services PLC is a Public Limited Financial Highlights ...... 01 Liability Company incorporated in Sri Lanka on 14th Board of Directors ...... 02 January 2004, under the Companies Act No.17 of 1982, and re-registered on 16th September 2008 Senior Management Team ...... 03 under the Companies Act No.7 of 2007. The Company is licensed by the Monetary Board of the Central Bank Risk Management...... 04 of Sri Lanka under the Finance Business Act No.42 of Corporate Governance...... 07 2011 and listed on the Colombo Stock Exchange.
Annual Report of the Board of Directors on the Affairs of the Company...... 11 Vision Directors’ Statement on Internal Control ...... 14 To be the Premier Financial Services Provider in the LFC Statement of Directors’ Responsibilities in market. Relation to Financial Statements...... 15
Chief Executive Officer’s and Senior Finance Manager’s Statement of Responsibility...... 16 Mission Board Audit Committee Report ...... 17 To create superior long - term value to our shareholders, customers and employees above the Board Integrated Risk Management Committee industry standard. Report ...... 19
Board Remuneration Committee Report...... 20
Independent Auditors’ Report ...... 22 Values Highest standards of ethics and integrity Statement of Comprehensive Income ...... 23
Statement of Financial Position ...... 24 • Always do the right thing and keep commitments. Statement of Changes in Equity ...... 25 • Engage others to build trust and encourage strong communication Statement of Cash Flow ...... 26 • Listen and share as a team Significant Accounting Policies ...... 27 Respect Respect all through trust, courtesy and open Notes to the Financial Statements ...... 43 communication Eight Years at a Glance...... 62 Innovation and continuous improvements
Share Information...... 64 Anticipate customer needs and work to exceed their expectations Our Network ...... 66 Service Excellence Notice of Meeting ...... 67 Commitment to achieve the highest standard of services quality with personalized services. Form of Proxy...... 69 Learning focused Search new knowledge for innovations. Swarnamahal Financial Services PLC Annual Report 2013/2014
Financial Highlights
2013/14 2012/13
Financial Performance for the year (Rs. Mn) Gross Income 216 1,340 Net Profit before Tax (PBT) (1,228) 220 Income Tax Expense 17 98 Net Profit after Tax (PAT) (1,245) 122
Financial Position at the year end (Rs. Mn) Total Assets 4,494 6,103 Pawning Advances 2,261 4,610 Other loans and advances 1,121 498 Deposits 5,133 5,400 Shareholders’ Funds (805) 432
Information per Ordinary Share (Rs.) Earnings -2.49 0.24 Net Asset Value -1.61 0.86
Key Indicators Return on Average Shareholders’ Funds (%) -200 33.2 Return on Average Assets(%) -23.5 2.2 Cost to Income Ratio (%) 458.6 60.6
Capital Adequacy Ratios Core Capital Ratio-Tier I (%) -42.99 22.07 Total Risk weighted Capital Ratio -Tier II (%) -40.86 25.13
Statutory Ratios Shareholders’ Funds to Deposits (%) -15.69 8.00 Liquid Assets Ratio (%) 13.3 9.0
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Board of Directors
1. Mr. J.H. Edirisinghe - Chairman 6. Mr. S.D.Jayawardhana - Non - Executive Director
Managing Director of EAP Group of Companies. He counts Director Finance of EAP Holdings Limited and he holds over 25 years of extensive experience in the fields of Gold, directorships with Swarna Mahal Jewellers (Pvt.) Ltd, EAP Jewellery, Finance, Electronic Media and Management. Broadcasting Company Ltd, EAP Films & Theaters (Pvt) Ltd and Swarna Solutions Limited. 2. Mrs. A.D. Edirisinghe - Executive Director He counts over 25 years of experience in finance & Director of EAP Group of Companies, she counts over management (12 years overseas) in the fields of in 20 years of experience in the fields of Management and manufacturing, constructions, trading and finance. He is an Finance. Associate Member of the Institute of Chartered Accountants of Sri Lanka (ACA) and a Fellow Member of the Society of 3. Mr. N.P. Edirisinghe - Executive Director Certified Management Accountants of Sri Lanka (FSCMA).
Director of EAP Group of Companies, he has an expert He has worked as a Management Consultant (2007-2011), knowledge in Gold and other precious metals and stones Finance Director / Head Finance to Hemas FMCG (2006- and counts over 20 years of extensive experience in 2007), Rasasi Perfume Industry LLC, UAE (1998-2006), The the fields of Gold, Information Technology, Finance and Blantyre Netting Co. Ltd. Malawi (1995-1998) & CDE Group Management. (1990-1994) and trained at KPMG (1985 -1990).
4. Mr. A.S. Edirisinghe - Executive Director 7. Mr. B.G. Wimalarathna Banda - Independent Director of EAP Group of Companies, he is a Finalist of the Non-Executive Director Chartered Institute of Management Accountants (UK) and He counts over 37 years of experience in the banking field a Member of the Film Association. and holds the Bachelor of Science (Business Administration)
He counts over 20 years of experience in the fields of Film Sp. Degree, Vidyodaya University of Sri Lanka, Master of Industry, Gold, Information Technology and Finance. Arts (Buddhist Studies), University of Kelaniya and Diploma in Credit Management. He is an associate of the Institute of 5. Mr. S. Kariyawasam - Non- Executive Director Bankers of Sri Lanka and a Fellow of the Institute of Credit Management of Sri Lanka. Executive Director/CEO of EAP Holdings Limited and he holds Directorships with Swarna Mahal Jewellers (Pvt.) Ltd, EAP He is a professional banker, primarily served at People’s Broadcasting Company Ltd, EAP Films & Theaters (Pvt) Ltd Bank and retired as the Assistant General Manager- and Swarna Solutions Limited. Operation Coordinator- Core Banking Project and was the Operation Manager from 2005 to May 2007, at PABC Bank. He counts over 32 years of experience in the Banking He was the Advisor-Banking from May 2007 to November and Financial sector and holds the Bachelor of Arts 2012, at National Savings Bank. Degree, University of Ceylon, Peradeniya, LLB Degree, Open University of Sri Lanka, Post Graduate Diploma in 8. Mr. S.M. Ganegoda - Non- Executive Director Management, University of Sri Jayawardanapura. He is a He is the Chief Executive Officer of ETI Finance Limited and member of Association of Bankers of Sri Lanka (A.I.B.) and was the Director/Chief Executive Officer of the Company FBA (Sri Lanka) Professional Banker’s Association of Sri from January 2009 to September 2013. He counts over Lanka. 15 years of experience in the fields of Finance and Audit He is a professional banker, primarily served at People’s and holds the Business Management Degree from the Bank and retired as the Deputy General Manager-Branch University of Kelaniya. He is an Associate Member of the Operations and was the CEO/General Manager-CFL-TAFE Institute of Chartered Accountants of Sri Lanka and Institute Sri Lanka from May 2007 to May 2010. of Certified Management Accountants of Sri Lanka.
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Senior Management Team
1. Mr. Sanjaya Fernando 4. Mr. R.M.G. Ratnayake Chief Executive Officer Senior Manager – Finance
He counts over 09 years of experience in the field of He counts over 10 years of experience in Financial Banking of which over 5 years in UK banking sector. He Sector and holds the Degree of B.Sc. Accountancy & holds a MBA from the University of Wales Institute, Cardiff, Financial Management (Special), from the University of a Post Graduate Diploma in Business Management, from Sri Jayawardenapura. He holds a Diploma in Treasury London School of Commerce, London and a Diploma Management, Institute of Bankers of Sri Lanka. in Information Technology from Australian College for Business and Technology. 5. Mr. Newton Fernando Manager – Credit 2. Mr. George Samantha He counts over 15 years of experience in the field of Credit Senior Manager – Corporate Relations and holds the B.Sc Business Administration (Special) Degree He counts over 10 years of experience in the fields of from the University of Sri Jayawardenapura. Banking and Finance and holds the B.Sc Marketing Management (Special) Hons. Degree, from the University 6. Mrs. Subhani Edirisinghe of Sri Jayawardenapura. He is a Member of the Chartered Manager – Kollupitiya Branch Institute of Marketing (MCIM) and Sri Lanka Institute of She counts over 13 years of experience in the field of deposit Marketing (MSLIM). mobilization. She holds the B.Sc Business Administration (Marketing Special) Degree from the University of Sri 3. Mr. Dhanuka Perera Jayawardenapura. Senior Manager - Pawning & Gold Sales
He counts over 13 years of experience in the fields of Pawning and Gold Sales and holds a Diploma in Business Management.
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Risk Management
Overview The established policies, procedures and decision making process are integrated into the daily operations of SFS and Risk is a possibility that the outcome of an action or event the internal auditors conducts independent and regular could either result in a direct loss of earnings and/or capital inspections in order to ensure the effectiveness of the risk or create constraints on the Company’s ability to meet its management strategies. business objectives. Such constraints pose a risk as these could hinder a company’s ability to conduct its ongoing business or More details are given in the BIRMC Report in page 19. to take benefit of opportunities to enhance its business. Board Audit Committee Our Risk Management policies and procedures are designed to analyze and address all types of risks, set appropriate The Committee monitors the effectiveness of Internal risk limits, take apt measures on continuous basis in line Audit Function by reviewing and examining the adequacy, with the evolving business requirements and regulatory efficiency, effectiveness of the system of internal controls guidelines to ensure risks are within the tolerance levels. and procedures that are in place to mitigate risks in financial reporting. Our risk management strategy is based on identification, measurement, monitoring and managing risks of the It also reviews the accounting policies, procedures, Company to ensure that; financial reporting and compliance with other regulatory requirements. a) the individuals who take or manage risks clearly understand them. More details are given in the Board Audit Committee report in pages 17 to 18. b) the organization’s risk exposure is within the limits established by Board of Directors. Executive Credit Committee c) risk taking decisions are in line with the business The Committee evaluates the Credit portfolio of the strategies and objectives set by the Board. Company and directs appropriate actions to control and d) risk taking decisions are explicit and clear. mitigate the Credit Risk. The Committee approves Credit Risk Governance and Integrated Risk Management Facilities which are above delegated authority levels of CEO. Framework The Committee also counter recommends credit facilities recommended by the CEO for the approval of the Board The Board of Directors has the authority to determine as per the defined delegated levels of authority of the the overall risk management framework for the Company Company. and has the responsibility to oversee the effective implementation of risk management strategies. Accordingly, Key Risks and its Mitigation Strategies the Board approves the risk management policies and formulates goals and limits for risk appetite and strategy. Credit risk
The Board has established the following committees to Credit risk is the likelihood that a debtor or financial effectively manage all types of risks faced by the Company. instrument issuer is unwilling or unable to pay interest and/ or repay the principal according to the terms specified in a Integrated Risk Management Committee credit agreement resulting in financial loss to the Company.
The Board Integrated Risk Management Committee Credit risk means that payments of loan installments may be (BIRMC) is responsible to provide directions on the risk delayed or ultimately not paid at all, which can in turn cause management process and formulations of policies and cash flow problems and affect the company’s liquidity. procedures for the ratification by the Board of Directors The objective of credit risk management is to minimize the and the implementation of such policies and procedures risk and maximize Company’s risk adjusted rate of return and ensuring that all operations are within the guidelines by assuming and maintaining credit exposure within the and policies set by the Board. acceptable parameters.
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Credit Risk Mitigation managing the lending and the borrowing rates, statement of financial position items including assets and liabilities, Credit Origination capital structure, business operations and liquidity. The Company has established a sound credit evaluation Internal Controls process for approving credit in a safe and sound manner. The criteria laid down sets out the eligibility, quantum, The Internal Auditors conduct ongoing assessment of the types, terms and conditions for the granting of credit. credit risk management process. All facilities granted are subjected to individual risk review at least once a month. Credit process The results of such reviews were properly documented The Credit Committee reviews the credit evaluation process and reported directly to Board Audit Committee with periodically to avoid weaknesses in granting of credit and recommendations to take corrective actions. The purpose to ensure an effective monitoring process. of such reviews is to assess the credit administration process, the accuracy of credit rating including adequacy of Exposure Ceilings: provisions for losses and overall quality of credit portfolio.
The Credit Committee has clearly defined exposure limits Liquidity Risk for each category of customers and strictly adheres to the Liquidity risk is the potential for loss to the Company limits approved by the Board. The Credit exposure limit for arising from either its inability to meet its obligations as Gold Loans was reduced from 75% to 50% with a view of they fall due or to fund increases in assets without incurring mitigating the risk of declining gold prices. unacceptable costs or losses (funding liquidity risk).
Delegation of Authority Liquidity risk management strategy involves not only During the year, the delegation of authority structure of analyzing the Company’s on and off-financial positions the Company was reviewed by the Board of Directors and to forecast future cash flows, but also how the funding these authority levels have been properly communicated requirement would be met. The latter involves identifying to the relevant personnel in the senior management and the funding market the Company can have access to, the credit committee. The lending authority assigned to understanding the nature of those markets, evaluating officers is commensurate with their experience, ability and institution’s current and future use of such markets. personal character. Risk Mitigations Strategies Credit Manual and Policy Composition of Assets and Liabilities The Credit Manual and the Credit Policy framework of the The strategy is outlined concentrating the mix of assets Company were reviewed and implemented by the Board. and liabilities to maintain the required liquid assets. Over Our risk mitigation strategy is to strictly adhere to the 67% of the interest earning assets comprised of Gold Loan approved credit manual and credit policy of the Company. advances with short maturity periods enable the Company Credit Administration to maintain robust liquidity positions at all times. A sound credit administration function is in place to Diversification and Stability of Liabilities maintain and ensure that the credit portfolio is properly maintained. This includes keeping the credit files up to The deposits portfolio of the Company is diversified date, obtaining current financial information, sending out geographically and among large number of customers, with notices etc. no dependence on one or few customers to ensure that there will be no significant risk in a sudden withdrawal of Asset and Liability Committee funds. The Board of Directors and the senior management The Assets and Liability Committee (ALCO) is headed by provide guidance relating to funding sources and ensure the CEO and comprises of selected members of the senior that the Company has diversified sources of funding for management of the key business units. day-to-day liquidity requirements. The committee is set up to analyze, review and mitigate the Interest Rate Risk asset-liability mismatch risk. Asset-liability mismatch risk arises due to a mismatch in the maturity pattern of assets Interest Rate Risk is the potential negative impact on the and liabilities of the Company. ALCO is responsible for Net Interest Income and it refers to the vulnerability of
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Company’s financial condition to the movement in interest Management unit of the Company reviews the emerging rates. Changes in interest rates affect earnings, value of trends in risk and involves in the implementation of the assets, liabilities off-financial position items and cash flows. company’s strategic plan. Hence, the objective of interest rate risk management is to maintain earnings, improve the ability to absorb potential Compliance Risk loss and to ensure the adequacy of the compensation Compliance Risk is the risk of legal or regulatory sanctions, received for the risk taken and risk return trade-off. material financial loss or damage to reputation that an institution may suffer as a result of failure to comply Operational Risk with laws, regulations, rules, self-regulatory organization The Company always lives with the risks arising out of standards and codes of conduct applicable to its activities. human error, financial fraud and natural disasters. In order to mitigate the Compliance Risk, a compliance Operational risk is the risk of loss arising from inadequate officer has been appointed to maintain a better relationship or failed internal processes, people and systems or from with such regulatory authorities. The compliance officer external events. maintains a pre-planned schedule of compliance activities to ensure the compliance with regulatory authorities is in a Risk Mitigation timely manner. Key aspects of our operational risk management lie in the Legal Risk Company’s ability to assess its process for vulnerability and establish controls to safeguard its assets. Legal Risk is the risk that the Company will conduct activities or carry out transactions in which they are inadequately A well implemented sound internal control mechanism covered or are left exposed to potential litigation. The legal and internal audit systems of the Company are used as the risk management framework provides an outline of the primary means of Operational Risk Mitigation. important issues that Directors and/or Senior Management Further, we extended our operational risk mitigation of the Company may need to consider in ensuring due strategies to obtain comprehensive insurance covers for diligence in the operations of the Company as well as an our all Branches and Pawning Centres on 24 hours basis. overview of liability of exposure against this risk. The Company is committed to secure its information by Reputational Risk developing, implementing and monitoring comprehensive system procedures to ensure the integrity, confidentiality Reputational Risk is the potential for negative publicity and availability of such information. regarding an institution’s business practices, whether true or not, that will cause a decline in the customer base, costly Strategic Risk litigation, or revenue reductions. This risk may result from Strategic risk is the possibility of being unable to implement an institution’s failure to effectively manage any or all of the appropriate business plans, strategies, or take proper other risk types. decisions or allocate adequate resources and its inability to adapt to changes in its business environment. The Risk
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Corporate Governance
The Board of Directors of the Company places the Accordingly, the Board is assisted by 04 Board Sub highest emphasis on good governance in every aspect Committees to ensure that the business is carried on in of the Company’s operations. The necessary policies and compliance with the Corporate Governance Direction No. procedures have been formulated by the Board in order to 3 of 2008 issued by the Central Bank of Sri Lanka including implement an adequate internal control mechanism in a amendments thereto and the Listing Rules of the Colombo manner that would enhance stakeholders’ confidence. Stock Exchange relating to the Corporate Governance.
Corporate Governance Framework
Board of Directors
Board Audit Board Integrated Risk Board Remuneration Board Credit Committe Committee Management Committee Committee
Minimum disclosures in terms of the Finance Companies (Corporate Governance) Direction No. 3 of 2008 issued by the Central Bank of Sri Lanka (CBSL).
CBSL DESCRIPTION COMPLIANCE STATUS SECTION 10. DISCLOSURES
10 (1) The Board shall ensure that:
a). Annual Audited Financial Statements and periodical The Annual and Interim Financial Statements have been Financial Statements are prepared and published prepared and published in accordance with the formats in accordance with the formats prescribed by the prescribed by the supervisory and regulatory authorities supervisory and regulatory authorities and applicable and applicable Accounting Standards. accounting standards, and that
b) Such statements are published in the newspapers in an Further, arrangements are in place to publish financial abridged form, in Sinhala, Tamil and English. statements in all three languages in the national newspapers of Sinhala, English and Tamil in the ensuing Financial Year.
10 (2) (a) A statement to the effect that the Annual Audited Complied with Financial Statements have been prepared in line A statement to this effect has been included in the with applicable accounting standards and regulatory “Statement of Directors’ Responsibility” in page 15. requirements, inclusive of specific disclosures.
(b) A report by the Board on the finance company’s internal Complied with control mechanism that confirms that the financial reporting system has been designed to provide a This report is contained in the “Directors’ statement on reasonable assurance regarding the reliability of financial Internal Control over Financial Reporting” in page 14. reporting, and that the preparation of financial statements for external purposes has been done in accordance with relevant accounting principles and regulatory requirements.
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CBSL DESCRIPTION COMPLIANCE STATUS SECTION
10 2 (c) The External Auditor’s certification on the The Board will ensure to comply with these requirements effectiveness of the internal control mechanism in in the ensuing financial year. respect of any statements prepared or published after 31st March 2010.
(d) Details of Directors, including names, transactions Complied with 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 11 to 13
(e) Fees and remuneration paid by the finance company Complied with to the Directors in aggregate in the annual reports The fees & remuneration paid to the Directors has been published after January 1, 2010. disclosed in Note No. 11 to the Financial Statements as given in page 43.
(f) Total net accommodation as defined in 9(4) Complied with outstanding in respect of each category of related The total net accommodations granted to related parties and the net accommodation outstanding parties are disclosed in Note No 34.4 to the Financial in respect of each category of related parties as a Statements in page 58 & 11. percentage of the finance Company’s capital funds.
(g) The aggregate values of remuneration paid by the Complied with finance company to its key management personnel Disclosed in Note No. 34.2 to the Financial Statements in and the aggregate values of the transactions of the page 56. 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.
(h) A report setting out details of compliance with Complied with prudential requirements, regulations, laws and Status of compliance with prudential requirements, internal controls and measures taken to rectify any regulations and laws are set out in the Annual Report of material non-compliance. the Board of Directors on the Affairs of the Company in page 13.
(i) A statement of the regulatory and supervisory There were a few supervisory concerns reported. The concerns on lapses in the finance company’s Company is now in a process of rectifying such concerns risk management, or non-compliance with the in line with financial consolidation process of the Central Act, and the rules and directions that have been Bank of Sri Lanka. The details of such concerns are given communicated by the Director of Supervision of in the Indipendent Auditors’ Report in page 22. 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.
(j) The External Auditor’s certification of the compliance An arrangement is in place to comply with this with the Act and rules and direction issued by the requirement in the ensuing Financial Year. monetary board in the annual corporate governance report published after January 1, 2011.
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Compliance with the section 7.10 of continuing listing requirements of the Colombo Stock Exchange.
CSE DESCRIPTION COMPLIANCE STATUS SECTION
7.10.1 Executive Directors 7.10.1 (a) The Board of Directors of a Listed Entity shall include at Complied with least, two Non-Executive Directors, or such number of The Board comprised with 8 Directors of whom 5 Non-Executive Directors equivalent to one third of the Directors are Non-Executive. total number of directors whichever is higher.
7.10.2 Independent Directors
7.10.2 (a) Where the constitution of the Board of Directors includes The Board will ensure to comply with these requirements only two Non-Executive Directors in terms of Rule 7.10.1.a in the ensuing Financial Year. 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’.
7.10.2 (b) The Board shall require each Non-Executive Director to Complied with submit a signed and dated declaration annually of his/ her The Board has determined the independence of each Non- independence or non independence against the specified Executive Director based on the declarations submitted by criteria. them and will continue to evaluate them on annual basis.
7.10.3 Disclosures relating to Directors
7.10.3 (a) The Board shall make a determination annually as to Complied with 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’.
7.10.3 (c) The Board shall publish in its Annual Report a brief resume Complied with of each director on its board which includes information The brief profile of each Director has been set out in on the nature of his/her expertise in relevant functional page 02. areas.
7.10.3 (d) Upon appointment of a new Director to its Board, the Complied with 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 The Board will ensure to comply with these requirements minimum of two Independent Non-Executive Directors in the ensuing Financial Year. (in instances where an Entity has only two Directors on its Board) or Non-Executive Directors, a majority of whom shall be independent, whichever shall be higher.
7.10.5 (b) The Remuneration Committee shall recommend the The Board remuneration committee was formed inorder to remuneration payable to the executive directors and Chief ensure formal and transparent procedures in developing Executive Officer of the Listed Entity and/or equivalent an effective remuneration policy for all Executive position thereof, to the board of the Listed Entity which Directors including the CEO and the Senior Management will make the final determination upon consideration of personnel. No Director was involved in deciding his or such recommendations. her remuneration in order to avoid potential conflict of interest. However, no meetings were held during the Financial Year and the Board will ensure to hold committee meetings during the ensuing Financial Year.
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7.10.5 (c) The Annual Report should set out the names of directors Complied with comprising the remuneration committee, contain a statement of the remuneration policy and set out the The names of directors of remuneration committee, aggregate remuneration paid to Executive and Non- Statement of remuneration policy and the aggregate of Executive Directors. remuneration paid to the Executive and Non- Executive Directors are given in page 20.
7.10.6 Audit Committee
7.10.6 (a) The Audit Committee shall comprise of a minimum of The Board will ensure to comply with these requirements two Independent Non-Executive Directors (in Instances in the ensuing Financial Year. where an Entity has only two directors on its board) or Non-Executive Directors a majority of whom shall be independent, whichever shall be higher.
7.10.6 (b) Functions of the Committee shall include, Complied with (i) Overseeing of the preparation, presentation and adequacy of disclosures in the financial statements Functions of the Board Audit Committee are given in the of a Listed Entity, in accordance with Sri Lanka Board Audit Committee Report in pages 17 to 18. Accounting Standards. (ii) Overseeing of the Entity’s compliance with financial reporting requirements, information requirements of the Companies Act and other relevant financial reporting related regulations and requirements. (iii) Overseeing the processes to ensure that the Entity’s internal controls and risk management are adequate, to meet the requirements of the Sri Lanka Auditing Standards. (iv) Assessment of the independence and performance of the Entity’s external auditors. (v) To make recommendations to the Board pertaining to appointment, re-appointment and removal of external auditors and to approve the remuneration and terms of engagement of the External Auditors.
7.10.6 (c) The names of the Directors comprising the Audit Complied with 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 17.
DIRECTORS’ ATTENDANCE AT MEETINGS DURING THE FINANCIAL YEAR 2013/14
INTEGRATED AUDIT REMUNERATION CLASSIFICATION RISK CREDIT NAMES BOARD COMMITTEE COMMITTEE OF DIRECTORSHIP MANAGEMENT COMMITTEE COMMITTEE
No. of Meetings held 12 1 4 0 0
Mr. J.H. Edirisinghe* Non- Executive 11/12 N/A N/A N/A N/A
Mr. N.P. Edirisinghe Executive 12/12 N/A N/A N/A N/A
Mrs. A.D. Edirisinghe Executive 12/12 N/A N/A N/A N/A
Mr. A.S. Edirisinghe Executive 11/12 N/A N/A N/A N/A
Mr. S. Kariyawasam Non- Executive 9/12 0/1 0/4 0 0
Mr.S.D.Jayawardana Non- Executive 8/12 1/1 2/4 0 0
Mr. B.G. Wimalaratna Banda Independent-Non- 12/12 1/1 4/4 0 0 Executive Mr. S.M. Ganegoda Non-Executive 11/12 N/A 3/4 N/A 0
* Mr. J.H. Edirisinghe is the Chairman of the Board
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Annual Report of the Board of Directors on the Affairs of the Company
General Stated Capital
The Directors have pleasure in presenting the Annual The stated capital of the company consists of 500,000,140 Report together with the Audited Financial Statements of Ordinary Voting Shares amounting to Rs. 250,000,070/- as the Company for the financial year ended 31st March 2014. at 31st March 2014. Swarnamahal Financial Services PLC (“SFS”) is a Public Information relating to earnings, net assets and market Limited Liability Company, incorporated on 14th January value per share is given in page 01 and 64. 2004 in Colombo, under the Companies Act No. 17 of 1982 and re-registered under the Companies Act No.7 of 2007, Shareholders on 16th September 2008. The company is registered as a There were 2,285 shareholders registered as at 31st March Finance Company under the Finance Business Act No. 42 2014, the details are given in pages 64 to 65. of 2011, the Finance Leasing Act No. 56 of 2000 and has quoted its shares on the Colombo Stock Exchange since Related Party Transactions May 2011. In terms of the Sri Lanka Accounting Standards comprising The Annual Report together with the Audited Financial the Sri Lanka Financial Reporting Standard (LKAS 24), Statements was approved by the Board of Directors on 01st Related Party Transactions, including write off balances and September 2014. provisioning for doubtful receivables, have been disclosed in notes to the financial statements as given in page 58 Registered Office and Business Office forming the part of the Annual Report of the Board of The registered office of the Company is situated at No. Directors while details of the significant transactions are 676, Galle Road, Colombo 03 and the business office is at given below. No.654, Galle Road, Colombo 03. Lending/ Outstanding Amount as a Principal Activities Name of Borrowings amount as at percentage Related party / Other 31st of During the Financial year 2013/14, the Company continued transactions March 2014. capital fund with Gold Loan services, Leasing, Hire Purchase, Personal Swarnamahal Loans and mobilization of Fixed and Savings deposits as Jewellers (Pvt) Term Loan 774,634,936 - Ltd its main lines of business. There were no material changes EAP Pre-paid in the nature of the principle business activities of the Holdings Ltd Shared 26,378,565 - company. Services
Directors’ Meetings Directors’ Remuneration
The meetings of the Board of Directors were held once The aggregate sum of Directors’ fees and emoluments paid a month or more frequently when ever necessary. The during the year was Rs. 10,831,238/- and is disclosed in Directors’ attendance at the Board Meetings is given in Note No. 11 to the Financial Statements in page 43. page 10. Financial Statements
Directors’ Shareholdings Financial Statements of the Company are given in pages The Directors’ interests in Ordinary Shares were as follows 23 to 61.
No. of Shares held as at Significant Accounting Policies Name of the No st st Director 31 March 31 March The significant accounting policies adopted in preparation 2014 2013 of the Financial Statements are given in pages 27 to 42. There 1 Mr. S.M. Ganegoda 20,020 200,020 have been no changes in the accounting policies adopted
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by the Company during the year except as disclosed in Remuneration Committee Note No. 2.5 in page 27 to Financial Statements. Mr. S. Kariyawasam Non-Executive Director – Chairman
Auditor’s Report Mr.S.D.Jayawardhana Non-Executive Director
The Auditor’s report on the Financial Statements is given Mr. B.G. Wimalarathna Independent Non-Executive in page 22. Banda Director
Statement of Compliance on the Contents of the The report of the Board Remuneration Committee is given Annual Report in page 20.
The Audited Financial Statements included in this Annual Integrated Risk Management Committee Report have been prepared and presented with the relevant disclosures in accordance with the Sri Lanka Accounting Mr. S. Kariyawasam Non-Executive Director – Chairman
Standards and other applicable regulatory requirements. Mr.S.D.Jayawardhana Non-Executive Director
Corporate Governance Mr. B.G. Wimalarathna Independent Non-Executive Banda Director The report on Corporate Governance is given in pages 07 to 10. Mr. S.M. Ganegoda Non-Executive Director
Internal Controls The report of the Board Integrated Risk Management The Board has formed an effective and comprehensive Committee is given in pages 19. system of Internal Controls covering financial reporting, compliance with rules and regulations of relevant Credit Committee authorities and risk management to carry on the business in an orderly manner to safeguard its assets and to ensure Mr. S. Kariyawasam Non-Executive Director – Chairman as far as possible the accuracy and reliability of the financial Mr.S.D.Jayawardhana Non-Executive Director records. Mr. B.G. Wimalarathna Independent Non-Executive Internal Control mechanism of the Company is reviewed Banda Director and improved on a continuous basis, based on the Mr. S.M. Ganegoda Non-Executive Director recommendations of the Internal Auditor and on site observations of the Central Bank of Sri Lanka and the Directorate External Auditor during their inspections and audit. The Board of Swarnamahal Financial Services PLC consists Directors’ Statement of Internal Control of 8 directors with a wide array of experience in financial & commercial sectors as at 31st March 2014. The brief profiles The Directors’ report on Internal Control is given in page of the directors are given in page 02. 14. The names of the Directors who are on the board are given Board Sub Committees below.
The Board of Directors of the Company has formed the Executive Directors following Board Sub Committees. 1. Mr. N.P. Edirisinghe Audit Committee 2. Mrs. A.D. Edirisinghe Mr.S.D.Jayawardhana Non-Executive Director - Chairman 3. Mr. A.S. Edirisinghe Mr. S. Kariyawasam Non-Executive Director Non- Executive Directors Mr. B.G. Wimalarathna Independent Non-Executive Banda Director 1. Mr. J.H. Edirisinghe 2. Mr. S. Kariyawasam The report of the Board Audit Committee is given in pages 17 to 18. 3. Mr. S.D.Jayawardhana
12 Swarnamahal Financial Services PLC Annual Report 2013/2014
4. Mr. B.G. Wimalarathna Banda* Going Concern
5. Mr. S.M. Ganegoda The Company incurred a net loss of Rs.1,245,183,376/ during the Financial Year ended 31st March 2014 and as of * Independent Non-Executive Directors as per the List- that date the Company’s total liabilities exceeded its total ing Rules of Colombo Stock Exchange assets by Rs.804,817,268/-. The Board of Directors of the Re-designation of Directors Company has assessed its ability to continue as a going concern and is satisfied that it has adequate resources to The Board has re-designated Mr. S.M. Ganegoda, as Non continue in operations into the foreseeable future and Executive Director upon receiving of his resignation from continue to adopt a going concern in preparing Financial the post of Chief Executive Officer with effect from 01st Statements on the basis as disclosed in Note No. 38 in page September 2013. 59 to the Financial Statements. Secretary Events after the reporting date M/s SSP Corporate Services (Pvt) Ltd engaged as the There have not been any material events that occurred Secretary and Registrar to the Company subsequent to the date of statement of financial position Directors’ Responsibility of Financial Reporting that require adjustments to the Financial Statements.
The statement of directors’ responsibility for financial Auditor statements is given in page 15 and forms an integral part Messrs KPMG, Chartered Accountants served as the auditor of the annual report of the Board of Directors. during the year under review.
Human Resources During the Financial Year 2013/14, a sum of Rs. 875,000/- The Company recruits the best talented people and provides (2012/13 - Rs. 1,105,360) was provided as audit and audit equal employment opportunities with no discrimination. related fees to the Auditor, Messrs KPMG, Chartered Accountants. The Human Resources Policies of the Company includes comprehensive training and developments programs to The Board has accepted the recommendation of the enhance skills of new recruits and the existing staff for Board Audit Committee and has recommended the greater efficiency. As at 31st March 2014, 108 employees reappointment of Messrs KPMG, Chartered Accountants as were in the company. Auditors to the Company for the Financial Year 2014/15 as they have expressed their willingness to continue in office. Report on Compliance with Prudential Requirements, A resolution to re-appoint the auditors and to authorize the Regulations and Laws Directors to determine their remuneration will be proposed th The Company has complied with the regulatory and at the Annual General Meeting to be held 30 September prudential and internal control requirements arising from 2014. the provisions in the statutes applicable to the Company, Annual General Meeting such as the Finance Business Act No. 42 of 2011, Directions issued by the Central Bank of Sri Lanka, Companies Act No.7 The 09th Annual General Meeting of the Company will be of 2007, Inland Revenue Act No. 10 of 2006, Value Added held at Hotel Sapphire, No. 371, Galle Road, Colombo 06, Tax Act No. 14 of 2002, Financial Transaction reporting on 30th September 2014 at 10.30 a.m. Act No. 06 of 2006, Sri Lanka Accounting and Auditing Standards Act No. 15 of 1995, Listing Rules of Colombo Stock Exchange etc. except as disclosed in the Independent Auditors’ Report in page 22. J.H. Edirisinghe Chairman 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 SSP Corporate Services (Pvt) Ltd Government and employees have been made in full, on time. Company Secretaries 01st September 2014
13 Swarnamahal Financial Services PLC Annual Report 2013/2014
Directors’ Statement on Internal Control
In line with the Finance Companies (Corporate Governance) • The Internal Audit checks for compliance with policies Direction No.3 of 2008, the Board of Directors presents this and procedures and the effectiveness of the internal report on Internal Control. control systems on an ongoing basis and highlights The Board of Directors (“Board”) is responsible for the significant findings in respect of any non-compliance. adequacy and effectiveness of Swarnamahal Financial Audits are carried out on all units, Branches and Services PLC’s (“the Company”) system of internal controls. Pawning Centres, the frequency of which is determined Such a system is designed to manage the Company’s key by the level of risk assessed, to provide an independent areas of risk within an acceptable risk profile by highlighting and objective report. The Annual Audit plan is reviewed any deviation from the limits, rather than eliminate the risk and approved by the Audit Committee. Findings of of failure to achieve the policies and business objectives of the Internal Audit are submitted to the Board Audit the Company. Committee for review at their meetings. Accordingly, the system of internal controls can only provide reasonable but not absolute assurance against material • The Audit Committee reviews internal control issues misstatements of management, financial information and identified by the Internal Audit, regulatory authorities records or against financial losses or fraud. and management, and evaluates the adequacy and
The Board has established an ongoing process for effectiveness of the risk management and internal identifying, evaluating and managing the significant risks control systems. It also reviews the Internal Audit faced by the Company and this process includes enhancing functions with particular emphasis on the scope of the system of internal controls as and when there are audits and quality of Internal Audits. The minutes of the changes in business environment or regulatory guidelines. Audit Committee meetings are tabled to the Board of The Board is in the view that the system of internal controls the Company. in place is sound and adequate to provide a reasonable assurance regarding the reliability of financial reporting and Confirmation preparation of financial statements for external purposes, Based on the above processes, the Board confirms that and is in accordance with relevant accounting principles the financial reporting system of the Company has been and regulatory requirements. designed to provide reasonable assurance regarding the The management assists the Board in the implementation reliability of financial reporting and that the preparation of the Board’s policies and procedures on risk and control by of Financial Statements for external purposes has been identifying and assessing the risks faced, and in the design, done in accordance with Sri Lanka Accounting Standards operation and monitoring of suitable internal controls to mitigate and control these risks (SLAS) and regulatory requirements of the Central Bank of Sri Lanka. The key processes that have been established in reviewing the adequacy and integrity of the system of internal controls For and on behalf of the Board with respect to financial reporting include the following:
• Sub Board Committees were established by the Board J.H. Edirisinghe to assist the Board in ensuring the effectiveness of Chairman Company’s daily operations and that the Company’s operations are in accordance with the corporate objectives, strategies and the annual budget as well S.D. Jayawardhana as the policies and business directions that have been Chairman - Board Audit Committee approved. 01st September 2014
14 Swarnamahal Financial Services PLC Annual Report 2013/2014
Statement of Directors’ Responsibilities in Relation to Financial Statements
The responsibility of the Directors of the Company, in The Directors are responsible for ensuring that the Company relation to the preparation and presentation of the Financial keeps sufficient accounting records, which disclose the Statements of the Company in accordance with the relevant financial position of the Company with reasonable accuracy provisions of the Companies Act No. 07 of 2007, Finance and enable them to ensure that the financial statements Business Act No. 42 of 2011 and other statutes which are have been prepared and presented as aforementioned. applicable in the preparation of Financial Statements are The Directors of the Company have instituted an set out in the following statement. effective and comprehensive system of Internal Control The responsibilities of the External Auditors, in relation to for identifying, recording, evaluating and managing the the Financial Statements are set out in the report of the significant risks faced by the company throughout the year Auditors given in page 22. and it is under regular review of the Board of Directors. This comprises internal reviews, internal audit and the whole In accordance with the Companies Act No. 07 of 2007, the system of financial and other controls required to carry Directors of the Company are responsible for ensuring, on the business of the Company in an orderly manner, the Company keeps proper books of account of all the safeguard its assets, prevent and detect frauds and secure transactions and prepare Financial Statements for each as far as practicable, the accuracy and the reliability of the financial year. The Financial Statements of the Company records. are comprised of the Statement of Financial Position as at The Directors of the Company are responsible for preparing 31st March 2014, the Statement of Comprehensive Income, and presenting the Financial Statements and have provided Statement of Changes in Equity, Statement of Cash Flow for the Company’s External Auditor, KPMG, Chartered the year ended 31st March 2014 and notes thereto. Accountants with every opportunity to undertake the Accordingly, the Directors confirm that the Financial inspections they considered appropriate and necessary. Statements of the Company give a true and fair view of the KPMG, Chartered Accountants carried out sample checks state of affairs of the Company as at 31st March 2014. on the effectiveness of the system of internal controls as they considered appropriate and necessary in expressing The Directors are responsible to ensure that: their independent audit opinion on the Financial Statements i The appropriate accounting policies have been selected and maintenance of accounting records. KPMG, Chartered and applied in a consistent manner and material Accountants has examined the Financial Statements of deviations, if any, have been disclosed, the Company together with all other financial records and ii Judgments and estimates made are reasonable and minutes of the meetings of the Board of Directors and prudent and all applicable Accounting Standards have expressed their opinion which appears on page 22. been complied with. Compliance Report The Directors accept responsibility to ensure that the The Directors of the Company confirm that to the best company has adequate resources to continue in operation of their knowledge and belief, all statutory payments in to justify applying the going concern basis in preparing relation to all relevant regulatory and statutory dues, as these Financial Statements. were due and payable by the Company as at the reporting The Financial Statements of the Company for the year ended date, have been paid or where relevant, provided for. The 31st March 2014 are prepared and presented, consistent with Directors are of the view that they have discharged their the underlying books of accounts, in accordance with the responsibilities as set out in this above statement. requirements of the Sri Lanka Accounting Standards issued By order of the Board 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 J.H. Edirisinghe Act No. 42 of 2011 and the Listing Rules of the Colombo Chairman Stock Exchange inclusive of specific disclosures. 01st September 2014
15 Swarnamahal Financial Services PLC Annual Report 2013/2014
Chief Executive Officer’s and Senior Finance Manager’s Statement of Responsibility
The Financial Statements of Swarnamahal Financial Services Internal Controls and accounting records, for safeguarding PLC for the financial year ended 31st March 2014 have been assets and for preventing and detecting frauds as well prepared and presented, consistent with the underlying as other irregularities, which is reviewed, evaluated and books of accounts, in accordance with the requirements of updated on an ongoing basis. Our Internal Auditors have the Sri Lanka Accounting Standards issued by the Institute conducted periodic audits to ensure that the policies and of Chartered Accountants of Sri Lanka, the Companies Act procedures of the Company were consistently followed. No.07 of 2007, Sri Lanka Accounting and Auditing Standards However, there are inherent limitations that should be Act No. 15 of 1995, Finance Business Act No. 42 of 2011 recognized in weighing the assurances provided by any and the Listing Rules of the Colombo Stock Exchange. system of Internal Controls and Accounting. The formats used in the presentation of the Financial The Company’s External Auditor, Messrs KPMG, Chartered Statements and the disclosures are complied with Accountants, has audited the Financial Statements of the the formats prescribed by the Institute of Chartered Company and their report is given in page 22. Accountants of Sri Lanka. The Board Audit Committee reviewed all the Internal Audit The significant accounting policies and estimates that inspections, audit plans, the efficiency of Internal Control involved a high degree of judgment and complexity were Systems and procedures and also reviewed the quality discussed with the Company’s External Auditor and the of the significant Accounting Policies and their adhering Board Audit Committee. Comparative information has to the Statutory and Regulatory requirements. To ensure been reclassified whenever necessary to comply with the complete independence, the Internal and External Auditors current presentation and material deviations, if any, have had full and free access to the members of the Board Audit been disclosed and explained in the notes to the Financial Committee to discuss any matter of substance. Statements. We further confirm that the Company has complied with all We confirm, to the best of our knowledge and belief, that the guidelines for the audit services. the Financial Statements of the Company give a true and fair view of the assets, liabilities, financial position and profit The Company has also complied with all applicable of the Company, its cash flows and liquidity position. We laws, regulations and prudential requirements except as also confirm that the Company has adequate resources to disclosed in the Independent Auditors’ Report in page 22. continue in operation and have applied the going concern There are/ were no litigations or proceedings against the basis in preparing Financial Statements. Company in the recent past. 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 W.M.D.S. Fernando relating to the Financial Statements were made on a Chief Executive Officer 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 R.M.G. Ratnayake affairs is well presented. To ensure this, the Company has Senior Manager-Finance taken proper and sufficient care in installing a system of 01st September 2014
16 Swarnamahal Financial Services PLC Annual Report 2013/2014
Board Audit Committee Report
The Composition • Review the Audited Financial Statements with the External Auditors in order to monitor the integrity of The Board Audit Committee consisted of three Non- the Financial Statements and its conformity with the Sri Executive Directors as detailed below. Lankan Accounting Standards, prior to submission to Mr. S.D. Jayawardhana Non - Executive Director - the Board. Committee Chairman • Review Accounting Policies, emerging accounting Mr. S. Kariyawasam Non-Executive Director. issues and disclosures according to LKAS/SLFRS Mr. B.G. Wimalarathna Independent Non-Executive • Review the External Auditor’s Management Letter Banda Director. together with the management response thereto.
The Chairman of the Committee, Mr. S.D. Jayawardhana • Discuss with the External Auditor regarding the issues, counts over 25 years of experience in the fields of Finance problems and reservations arising from the Interim and & Management and is an associate Member of Chartered Final Audits of the Company. Accountants of Sri Lanka (ACA) and fellow member of Society of Certified Management Accountants of Sri Lanka • Ensure that a sound reporting system is in place to (FSCMA). provide timely information to the Board of Directors, Regulatory Authorities, Management and Stakeholders. The CEO and the Senior Manager-Finance were present at all the meetings on invitation. • Review the performance of the Internal Audit Function, adequacy of the scope, resources and the authority of Secretary to the Board Audit Committee the Internal Auditors. SSP Corporate Services (Pvt) Ltd • Review internal audit programs and its results and Meetings of the Committee ensure that appropriate actions are taken on the recommendations of Board Audit Committee. The No. of meeting held and the members’ attendance at meetings are given in page 10. • Ensure that the internal audit function is independent of the Company’s other activities and that it is performed Role of the Audit Committee with impartially, proficiency and due professional care.
The Audit Committee assists the Board of Directors in • Evaluate and discuss the major findings and fulfilling effectively its oversight responsibilities in the observations of Internal Auditor and the management financial reporting process and other related affairs of the responses thereon, periodically. Company. The Committee has been empowered to: Financial Reporting
• Analyze and review risks and examine the adequacy, The Committee assists the Board of Directors in discharging efficiency, effectiveness of the system of internal their responsibilities for the preparation of financial controls and procedures that are in force to mitigate statements that indicates a true and fair view of the risks. affairs of the Company in accordance with the Company’s Accounting Records and in conformity with the Sri Lanka • Monitor and evaluate the External Auditor’s Accounting Standards, the Company’s Act No. 07 of 2007 independence, objectivity and effectiveness of the and the Directions issued by the Central Bank of Sri Lanka. Audit Process.
• Meet External Auditor during the year to discuss and The Committee liaised with the other Board members, finalize the Audit approach, procedures, nature and the reviewed the Company’s annual and interim financial scope, including the matters relating to the company’s statements and recommended the issue of such financial compliance with directions, internal control over statements to the shareholders. The Committee analyzed financial reporting and auditor’s independence. and examined the adequacy, efficiency, effectiveness of
17 Swarnamahal Financial Services PLC Annual Report 2013/2014
the system of internal controls and procedures in place to The Committee is also empowered to recommend ensure the reliability of information provided to the Board the re-appointment and fees of the External Auditor. and other stakeholders. Accordingly, the Committee has recommended the re- appointment of Messrs KPMG, Chartered Accountants as Internal Audit auditors to the Company for the ensuing financial year During the financial year 2013/14, E&Y, Chartered 2014/15, subject to the approval of the shareholders at the Accountants engaged as the Internal Auditor of the Annual General Meeting. Company who is responsible for reviewing and reporting Committee Evaluation on the efficiency of the system of internal controls mechanism, procedures and compliance with other The evaluation of the Committee was carried out by regulatory requirements. The weaknesses highlighted by the other members of the Board in order to assess the the Internal Auditors in relation to such control procedures effectiveness of the Committee and its performance, which were critically analyzed and recommendations suggested was found to be satisfactory. 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. S.D. Jayawardana External Audit Chairman-Board Audit Committee 01st September 2014 The Committee actively monitored the implementation of the recommendations of the External Auditor. Prior to commencement of the audit of the financial year 2013/14, the Auditor’s approach, procedures, nature and the scope of the Audit, including the matters relating to the company’s compliance with directions were discussed and finalized.
18 Swarnamahal Financial Services PLC Annual Report 2013/2014
Board Integrated Risk Management Committee Report
The Composition of the Committee is given below • Taking appropriate actions reported against officers responsible for any failure in risk management to Mr. S. Kariyawasam Non-Executive Director - improve the overall effectiveness of risk management Chairman at SFS. Mr. S.D. Jayawardhana Non-Executive Director • Taking prompt corrective actions to mitigate the effects Mr. B.G. Wimalarathna Independent Non-Executive of specific risks in the event such risks are beyond the Banda Director prudent levels on the basis of the company’s policies, procedures and regulatory criteria. Compliance with Mr. S.M. Ganegoda Non-Executive Director laws, regulations, regulatory guidelines, internal controls and approved policies in all areas of business Management Representatives who attended the meet- ings were, operations. • Reviewing and updating the business continuity plan, Mr. Sanjaya Fernando Chief Executive Officer for approval of the Board.
Mr. Dhanuka Tharanga Senior Manager- Pawning & • Review specific quantitative and qualitative risk limits Gold Sales for all management level committees viz Credit, Asset Mr. R.M.G. Ratnayake Senior Manager-Finance Liability and report any risk indicators periodically to the Board. Mr. George Samantha Senior Manager-Corporate Relations • The Committee shall meet at least quarterly
Mr. Newton Fernando Manager-Credit • The Committee shall submit a risk management report to the first Board Meeting which will be held soon Ms.Nishani Nissanka Group Compliance Officer after each BIRMC meeting, seeking the board’s view, Mr. R.Harendran Group Risk Officer concurrence and /or specific directions.
Brief profiles of the Directors and management Meetings representatives of the Company are given in pages 02 to During the Financial Year 2013/14, four meetings were 03 other than Group Compliance Officer and Group Risk held and the proceedings of the committee meetings Officer. were recorded and circulated to the Board of Directors for information and advice. Terms of Reference The members’ attendance at the committee meeting is The committee gives directions to ensure that the Company given on page 10. fulfills its statutory, fiduciary and regulatory responsibilities on risk management.
The main functions of the committee include S. Kariyawasam • Assessing all risks, including credit, market, liquidity, Chairman - Board Integrated Risk Management Committee st operational and strategic risks on a regular basis using 01 September 2014 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.
19 Swarnamahal Financial Services PLC Annual Report 2013/2014
Board Remuneration Committee Report
The Composition Policy
The Composition of the Board Remuneration Committee is The set of remuneration policies of the Company is given below, formulated to ensure that the Executive Directors including
Mr. S. Kariyawasam Non-Executive Director – the Chief Executive Officer and senior management are Chairman adequately rewarded for their individual contribution to the success of the Company. Mr. S.D. Jayawardhana Non-Executive Director The primary objective of the remuneration policy aims to Mr. B.G. Wimalarathna Independent Non-Executive ensure that the remuneration levels are sufficient to attract, Banda Director motivate, and retain talent with the appropriate professional, managerial and operational expertise necessary to achieve The Functions of the Committee the objectives of the Company to enhance the long term • Determining and formulating a set of remuneration value for all stakeholders of the Company. policies and criteria pertaining to the compensation and benefits of the Executive Directors including the Committee Meetings Chief Executive Officer while ensuring that no director The Committee meets when necessary and makes is involved in setting his/her own remuneration and recommendation on bonuses, annual increments salaries and the Committee also determines the salaries and performance incentives to ensure that all level of and benefits of the corporate management and senior employees are sufficiently rewarded on their performance management. and commitments. • Recommending the objectives and targets to be set for Chief Executive Officer and key managerial personnel The Chief Executive Officer who is responsible for the and evaluating the performance of the Chief Executive overall management of the Company attends meetings by Officer and key managerial personnel against the invitation. established goals and objectives in order to suggest The total remuneration paid to the Directors during the suitable recommendations to the Board. period under review is set out in the Note No. 11 of page • Implementing a framework for regular performance 43. appraisal of the staff under various performance parameters in order to obtain feedback of their work performance. S. Kariyawasam • Making independent judgments on the level of payments Chairman - Board Remuneration Committee to the individuals according to their performance. 01st September 2014
20 Financial Report
Independent Auditor’s Report ...... 22
Statement of Comprehensive Income ...... 23
Statement of Financial Position ...... 24
Statement of Changes in Equity...... 25
Statement of Cash Flow ...... 26
Significant Accounting Policies...... 27
Notes to the Financial Statements...... 43
Eight Years at a Glance...... 62
Share Information...... 64
Our Network...... 66
Notice of Meeting...... 67
Form of Proxy...... 69 Independent Auditors’ Report
TO THE SHAREHOLDERS OF SWARNAMAHAL FINAN- Opinion CIAL SERVICES PLC In our opinion, so far as appears from our examination, the Report on the Financial Statements Company maintained proper accounting records for the year ended 31 March, 2014 and the financial statements give a true and We have audited the accompanying financial statements of fair view of the financial position of the Company as at 31 March Swarnamahal Financial Services PLC (The “Company”), which 2014, and of its financial performance and its cash flow for the year comprise the statement of financial position as at 31 March 2014, then ended in accordance with Sri Lanka Accounting Standards. and the statement of comprehensive income, statement of changes Without qualifying our opinion, we draw attention to Note 38 in equity and cash flow statement for the year then ended, and a of the financial statements which describes that the Company summary of significant accounting policies and other explanatory incurred a net loss of Rs 1,245,183,376/-. During the year ended notes, set out on pages 23 to 61. 31 March 2014 and as of that date has a net liability position of Rs Management’s Responsibility for the Financial Statements 804,817,268/-. Due to the above it does not meet the regulatory requirements for capital. These conditions may cast significant Management is responsible for the preparation and fair doubt on the Company’s ability to continue as a going concern presentation of these financial statements in accordance with and therefore its abilities to realise assets and discharge liabilities Sri Lanka Accounting Standards. This responsibility includes: in the normal course of business. However, as disclosed in the designing, implementing and maintaining internal control relevant said note the Company is under the Central Bank of Sri Lanka’s to the preparation and fair presentation of financial statements Financial Consolidation Restructuring program and the directors that are free from material misstatement, whether due to fraud plan to divest/merge it with an adequate capital injection to regain or error; selecting and applying appropriate accounting policies; compliance and therefore continue as a going concern. and making accounting estimates that are reasonable in the circumstances. Report on Other Legal and Regulatory Requirements
These financial statements also comply with the requirements of Scope of Audit and Basis of Opinion Section 151(2) of the Companies Act No. 07 of 2007. However, the Our responsibility is to express an opinion on these financial Company’s net assets are less than half of its stated capital and statements based on our audit. We conducted our audit in face a serious loss of capital situation in terms of Section 220 of accordance with Sri Lanka Auditing Standards. Those standards the same Act for which the actions prescribed by the said Act are require that we plan and perform the audit to obtain reasonable pending. assurance whether the financial statements are free from material misstatement. Other matters The Company also does not fulfil the requirements of the Directions An audit includes examining, on a test basis, evidence supporting issued by the Central Bank of Sri Lanka to finance companies for the amounts and disclosures in the financial statements. An audit risk weighted capital adequacy ratio (Note 6.6) and Single borrower also includes assessing the accounting policies used and significant Limit (Note 34.5) 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 CHARTERED ACCOUNTANTS purposes of our audit. We therefore believe that out audit provides Colombo. a reasonable basis for our opinion 1 September 2014
22 Swarnamahal Financial Services PLC Annual Report 2013/2014
Statement of Comprehensive Income
For the year ended 31 March Note 2014 2013 All amounts in Sri Lanka Rupees
Interest income 1,057,979,109 1,330,745,688 Interest expense (813,740,984) (794,578,117) Net interest income 8 244,238,125 536,167,571 Net loss from financial instruments at fair value through profit or loss 9 (179,455) (103,223) Other income/(Loss) 10 (842,216,123) 9,432,267 Total operating income / (Loss) (598,157,453) 545,496,615
Operating expenses Personnel expenses 11 (69,372,318) (81,457,272) Other expenses 12 (207,478,523) (243,209,509) Impairment charges for loans and other advances 13 (353,468,031) (805,099) Operating profit/ (Loss) before value added tax and income tax expenses (1,228,476,325) 220,024,735 Value added tax on financial services (14,148,786) (22,102,759) Profit/(Loss) before income tax (1,242,625,111) 197,921,976 Income tax expense 14 (2,558,265) (76,162,987) Profit/(Loss) for the year (1,245,183,376) 121,758,989
Profit/(Loss) for the year (1,245,183,376) 121,758,989 Other comprehensive income, net of income tax Actuarial gain (Loss) on employee benefits 29 893,963 (1,280,794) Deferred tax on actuarial gain/(loss) on Employee Benefits (250,310) 358,622 Net change in fair value on available-for-sale financial assets 8,749,075 7,431,194 Net change in fair value on available-for-sale financial assets reclassified to profit or loss (1,519,337) (4,784,023)
Other comprehensive income for the year, net of tax 7,873,391 1,724,999 Total comprehensive income for the year (1,237,309,985) 123,483,988
Earnings/ (Loss) per share Basic earnings/ (Loss) per share 15 (2.49) 0.24
The notes to the financial statements form an integral part of these financial statements.
23 Swarnamahal Financial Services PLC Annual Report 2013/2014
Statement of Financial Position
As at 31 March Note 2014 2013 All amounts in Sri Lanka Rupees
Assets Cash and cash equivalents 16 308,384,433 104,075,371 Deposits with financial institutions 17 - 2,598,498 Financial assets held at fair value through profit or loss 18 3,813,915 3,993,370 Financial assets available-for-sale 19 440,810,155 448,530,265 Loans and advances to customers 20 2,709,308,049 5,107,171,119 Loan to Swarna Mahal Jewellers (Private) Limited 21 673,147,416 1,063,358 Investment property 22 35,675,000 73,000,000 Property, plant and equipment 23 53,202,231 72,266,717 Other assets 24 269,779,038 289,996,624 Total assets 4,494,120,237 6,102,695,322
Liabilities Deposits from customers 25 5,132,740,669 5,399,512,653 Bank overdrafts 16 23,845,768 43,306,040 Interest bearing borrowings 26 102,000,727 161,788,587 Current tax liabilities 27 (2,633,537) 34,804,703 Deferred tax liabilities 28 3,863,677 1,250,395 Employee benefits 29 5,401,681 5,259,000 Other liabilities 30 33,718,520 24,281,227 Total liabilities 5,298,937,505 5,670,202,605
Equity Stated capital 31 250,000,070 250,000,070 Reserves 32 (1,054,817,338) 182,492,647 Total equity (804,817,268) 432,492,717 Total liabilities and equity 4,494,120,237 6,102,695,322
The notes to the financial statements form an integral part of these financial statements.
It is certified that the financial statements comply with the requirements of the Companies Act No. 07 of 2007.
...... R.M.G. Ratnayake Senior Manager - Finance
The Board of Directors is responsible for the preparation and presentation of these financial statements. These financial statements were approved by the Board of Directors and signed on their behalf.
...... Chairman Director J. H. Edirisinghe N.P.Edirisinghe
Colombo,Sri Lanka 01-September-2014 24 Swarnamahal Financial Services PLC Annual Report 2013/2014
Statement of Changes in Equity
Stated Statutory Investment Retained Earn- Available for Total All amounts in Sri Lanka Rupees Capital Reserve Fund ings sale reserve
Balance as at 31 March 2012 250,000,070 45,093,956 22,882,378 (1,756,275) (7,211,400) 309,008,729
Profit for the Period - - - 121,758,989 - 121,758,989 Other comprehensive income, net of tax ------Net change in fair value - - - - 7,431,194 7,431,194 - Net amount reclassified to profit and loss - - - - (4,784,023) (4,784,023) - Actuarial Gain or( loss) - - - (922,172) - (922,172) Total comprehensive income for the Period - - - 120,836,817 2,647,171 123,483,988
Transfers from/to retained earnings - 60,878,100 27,822,599 (88,700,699) - - Balance as at 31 March 2013 250,000,070 105,972,056 50,704,977 30,379,843 (4,564,229) 432,492,717
Balance as at 31 March 2013 250,000,070 105,972,056 50,704,977 30,379,843 (4,564,229) 432,492,717
Profit/(Loss) for the Period - - - (1,245,183,376) - (1,245,183,376) Other comprehensive income, net of tax ------Net change in fair value - - - - 8,749,075 8,749,075 - Net amount reclassified to profit and loss - - - - (1,519,337) (1,519,337) - Actuarial gain/(loss) - - - 643,653 - 643,653 Total comprehensive income for the Period - - - (1,244,539,723) 7,229,738 (1,237,309,985)
Transfers from/to retained earnings ------Balance as at 31 March 2014 250,000,070 105,972,056 50,704,977 (1,214,159,880) 2,665,509 (804,817,268)
The notes to the financial statements form an integral part of these financial statements.
25 Swarnamahal Financial Services PLC Annual Report 2013/2014
Statement of Cash Flow
For the year ended 31 March 2014 2013 All amounts in Sri Lanka Rupees
Profit/(Loss) before taxation (1,242,625,111) 197,921,976
Adjustment for; Depreciation 20,005,200 26,611,309 Impairment for loan losses 348,273,648 (1,400,358) Impairment for gold stock 5,194,383 2,205,457 Impairment / (reversal) of real estate stock - (19,293,981) Profit from disposal of property, plant and equipment - (12,026) Other provisions 17,800,000 6,063,161 Fair value gain/ (Loss) on investment property 46,900,000 (11,000,000) Provision for gratuity 1,450,894 1,433,184 Loss on change in carrying value of Loans & Receivable 101,487,520 - Fair value Change in AFS 7,229,738 2,647,171 Fair value (gain) / loss on investments 179,455 103,223 (694,104,273) 205,279,116 Changes in; - loans and advances to customers 1,276,017,844 (962,662,002) - other assets (1,426,797) 71,261,433 - deposit from customers (266,771,984) 893,127,966 - other liabilities 3,053,846 4,869,547 Cash generated from operating activities 316,768,636 211,876,060
Tax paid (37,633,533) (83,302,239) Employee benefit paid (414,250) (236,250) Net Cash from operating activities 278,720,853 128,337,571
Cash flows from investment activities Investment in government securities 7,720,110 (109,951,915) Proceeds from disposal of property, plant and equipment - 62,074 Investment securities - - Additions to property, plant and equipment (940,714) (12,448,212) Additions to investment Property (9,575,000) - Withdrawal of Fixed Deposit 8,661,658 - Net cash used in investment activities 5,866,054 (122,338,053)
Cash flow from financing activities Net proceeds/(repayments) of borrowings (59,787,860) (53,180,463) Net Proceeds/(Repayment) of Lease Rentals (1,029,713) Net cash used in financing activities (60,817,573) (53,180,463)
Net increase in cash and cash equivalents 223,769,334 (47,180,945) Cash and cash equivalents at the beginning of the year 60,769,331 107,950,276 Cash and cash equivalent at the end of the year 284,538,665 60,769,331
Reconciliation of cash and cash equivalents Cash in hand and bank balances 308,384,433 104,075,371 Bank overdrafts (23,845,768) (43,306,040) 284,538,665 60,769,331
The notes to the financial statements form an integral part of these financial statements.
26 Swarnamahal Financial Services PLC Annual Report 2013/2014
Significant Accounting Policies
1. Reporting entity • The liability for defined benefit obligations is recognised at the present value of the defined benefit obligation Swarnamahal Financial Services PLC (the “Company”) is a public limited company incorporated and domiciled in The financial statements have been prepared on a going Sri Lanka and listed on the Colombo Stock Exchange. The concern basis. address of the Company’s registered office is No.676, Galle 2.3 Functional and presentation currency Road Colombo 03 and the principal place of business is situated at No 654, Galle Road, Colombo 03. The financial statements are presented in Sri Lankan Rupees, which is the functional currency of the Company. The principal activities of the Company are pawn brokering, All financial information presented in Sri Lankan Rupees granting leases, hire purchases & loan facilities and has been rounded to the nearest rupee. accepting fixed & savings deposits.
The Company is a registered finance company under the 2.4 Use of estimates and judgement Finance Business Act No. 42 of 2011. The preparation of financial statements in conformity with The staff strength of the Company as at 31st March 2014 is Sri Lanka Accounting Standards requires management to 108 (2013-140). make judgments, estimates and assumptions that affect the application of accounting policies and the reported 2. Basis of preparation amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. 2.1 Statement of compliance Estimates and underlying assumptions are reviewed on The Financial Statements of the Company which an ongoing basis. Revisions to accounting estimates are comprise the Statement of Financial Position, Statement recognised in the period in which the estimates are revised of Comprehensive Income, Statement of Changes in and in any future periods affected. Equity, Statement of Cash Flows and Notes thereto have been prepared in accordance with Sri Lanka Accounting Information about assumptions and estimation Standards (SLAS) laid down by the Institute of Chartered uncertainties that have a significant risk of resulting in a Accountants of Sri Lanka, and comply with the requirements material adjustment within the next financial year are of Companies Act No 7 of 2007 and Finance Business Act included in the following notes: No 42 of 2011. • Note 29 – Measurement of retirement benefit obligation
The financial statements for the year ended 31 March 2014 • Note 28 – Deferred tax liabilities were authorized for issue by the Directors on 01 September • Note 20 – Impairment allowance on loans and 2014. receivables
2.2 Basis of measurement • Note-22- Investment property
The financial statements have been prepared on the • Note 18 & 19- Recognition and measurement of historical cost basis except for the following material items financial instruments in the statement of financial position and no adjustments have been made for inflationary effects. 2.5 Change in accounting policy
• non derivative financial instruments at fair value through Defined Benefit plans profit or loss are measured at fair value The Company adopted LKAS 19 Employee Benefits (2013) • available for sale financial assets are measured at fair with effect from 1 April 2013 as part of its mandatory value application and changed its basis for determining the • investment property is measured at fair value income or expense related to defined benefit plan.
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Significant Accounting Policies (Contd.)
As a result of the change, the Company now recognises • Loans and receivables actuarial gains or losses in other comprehensive income as • Available for sale or and when they arise as opposed to following the corridor method. • At fair value through profit or loss and within the category as The impact of change in accounting policy is fully described in note 37.1. ▪▪ Held for trading
3. Materiality and aggregation ▪▪ Designated at fair value through profit or loss
Each material class of similar item is presented separately 4.1.2.1 Financial assets at fair value through profit in the financial statements. Items of dissimilar nature or loss or function are presented separately, unless they are A financial asset is classified as at fair value through immaterial. profit or loss if it is classified as held-for-trading oris designated as such on initial recognition. Financial assets 4. Significant accounting policies are designated as at fair value through profit or loss if the The accounting policies set out below have been applied Company manages such investments and makes purchase consistently to all periods presented in these financial and sale decisions based on their fair value in accordance statements except for change in accounting policy as with the Company’s documented risk management or explained in note 2.5. investment strategy. Attributable transaction costs are recognised in profit or loss as incurred. Financial assets at 4.1 Financial assets and financial liabilities fair value through profit or loss are measured at fair value 4.1.1 Recognition and changes therein, which takes into account any dividend income, are recognised in profit or loss. The Company initially recognises loans and receivables and deposits on the date that they are originated. All other 4.1.2.2 Loans and receivables financial instruments (including regular way purchases and Loans and receivables are non-derivative financial assets sales of financial assets) are recognised on the trade date, with fixed or determinable payments that are not quoted at which is the date on which the Company becomes a in an active market. Such assets are recognised initially at party to the contractual provisions of the instrument. fair value plus any directly attributable transaction costs. For financial assets and liabilities held at fair value through Subsequent to initial recognition loans and receivables are profit and loss any changes in fair value from the trade measured at amortised cost using the effective interest date to settlement date is accounted in the statement of method, less any impairment losses. comprehensive income while for available for sale financial Loans and other receivables comprise total loans and assets any changes in fair value from the trade date to advances. settlement date is accounted in the statement of other comprehensive income. 4.1.2.3 Available-for-sale financial assets
A financial asset or financial liability is measured initially at Available-for-sale financial assets are non-derivative fair value plus, for an item not at fair value through profit financial assets that are designated as available-for-sale or or loss, transaction costs that are directly attributable to its are not classified in any of the categories of financial assets. acquisition or issue. Available-for-sale financial assets are recognised initially at fair value plus any directly attributable transaction costs. 4.1.2 Classification Subsequent to initial recognition, they are measured at fair Financial assets value and changes therein, other than impairment losses are The Company classifies its financial assets in one ofthe recognised in other comprehensive income and presented following categories in the fair value reserve in equity. When an investment is
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Significant Accounting Policies (Contd.)
derecognised, the gain or loss accumulated in equity is Income and expenses are presented on a net basis only reclassified to profit or loss. when permitted under Sri Lanka Accounting Standards, or for gains and losses arising from a group of similar Unquoted equity securities whose fair value cannot reliably transactions such as in the company trading activity. be measured are carried at cost. All other available for sale investments are carried at fair value. 4.1.5 Amortised cost measurement
Financial liabilities The amortised cost of a financial asset or financial liability is the amount at which the financial asset or liability is The Company classifies its financial liabilities, other measured at initial recognition, minus principal repayments, than guarantees and loan commitments as measured at plus or minus the cumulative amortisation using the amortised cost or fair value through profit or loss effective interest method of any difference between the 4.1.3 Derecognition initial amount recognised and the maturity amount, minus any reduction for impairment. Financial assets 4.1.6 Fair value measurement The Company derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or Fair value is the amount for which an asset could be it transfers the rights to receive the contractual cash flows exchanged, or a liability settled, between knowledgeable, on the financial asset in a transaction in which substantially willing parties in an arm’s length transaction on the all the risks and rewards of ownership of the financial asset measurement date. are transferred or which the company neither transfers nor When available, the Company measures the fair value of an retains substantially all of the risks and rewards of ownership instrument using quoted prices in an active market for that and it does not retain control of the financial asset. instrument. A market is regarded as active if quoted prices
On derecognition of a financial asset, the difference are readily and regularly available and represent actual and between the carrying amount of the asset (or the carrying regularly occurring market transactions on an arm’s length amount allocated to the portion of the asset transferred), basis. and the sum of (i) the consideration received (including any If a market for a financial instrument is not active, then new asset obtained less any new liability assumed) and (ii) the Company establishes fair value using a valuation any cumulative gain or loss that had been recognised in technique. Valuation techniques include using recent other comprehensive income is recognised in profit or loss. arm’s length transactions between knowledgeable, willing Any interest in transferred financial assets that is created or parties (if available), reference to the current fair value retained by the Company is recognised as a separate asset of other instruments that are substantially the same, or liability. discounted cash flow analysis and option pricing models. The chosen valuation technique makes maximum use Financial liabilities of market inputs, relies as little as possible on estimates The Company derecognises a financial liability when its specific to the company and incorporates all factors that contractual obligations are discharged, cancelled or expire. market participants would consider in setting a price, and is consistent with accepted economic methodologies for 4.1.4 Offsetting pricing financial instruments.
Financial assets and financial liabilities are offset and the The best evidence of the fair value of a financial instrument net amount presented in the statement of financial position at initial recognition is the transaction price, i.e. the fair when, and only when, the Company has a legal right to value of the consideration given or received, unless the offset the amounts and intends either to settle on a net basis fair value of that instrument is evidenced by comparison or to realise the asset and settle the liability simultaneously. with other observable current market transactions in the
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Significant Accounting Policies (Contd.)
same instrument, i.e. without modification or repackaging, The Company considers evidence of impairment for loans or based on a valuation technique whose variables include and advances at both a specific asset and collective level. only data from observable markets. When transaction All individually significant loans and advances are assessed price provides the best evidence of fair value at initial for specific impairment. All individually significant loans recognition, the financial instrument is initially measured at and advances found not to be specifically impaired are the transaction price and any difference between this price then collectively assessed for any impairment that has been and the value initially obtained from a valuation model is incurred but not yet identified. Loans and advances that subsequently recognised in profit or loss on an appropriate are not individually significant are collectively assessed for basis over the life of the instrument but not later than when impairment by grouping together loans and advances with the valuation is supported wholly by observable market similar risk characteristics. data or the transaction is closed out. In assessing collective impairment the Company uses Any difference between the fair value at initial recognition statistical modelling of historical trends of the probability and the amount that would be determined at that date of default, timing of recoveries and the amount of loss using a valuation technique in a situation in which the incurred, adjusted for management’s judgement as to valuation is dependent on unobservable parameters is not whether current economic and credit conditions are such recognised in profit or loss immediately but is recognised that the actual losses are likely to be greater or less than over the life of the instrument on an appropriate basis or suggested by historical modelling. Default rates, loss rates when the instrument is redeemed, transferred or sold, or and the expected timing of future recoveries are regularly the fair value becomes observable. benchmarked against actual outcomes to ensure that they remain appropriate. 4.1.7 Identification and measurement of impairment Impairment losses on assets carried at amortised cost are At each reporting date the company assesses whether there measured as the difference between the carrying amount is objective evidence that financial assets not carried at fair of the financial asset and the present value of estimated value through profit or loss are impaired. A financial asset future cash flows discounted at the asset’s original effective or a group of financial assets are impaired when objective interest rate. Impairment losses are recognised in profit or evidence demonstrates that a loss event has occurred after loss and reflected in an allowance account against loans the initial recognition of the asset(s), and that the loss event and advances. has an impact on the future cash flows of the asset(s) that Impairment losses on available-for-sale investment can be estimated reliably. securities are recognised by transferring the cumulative loss Objective evidence that financial assets are impaired that has been recognised in other comprehensive income includes, to profit or loss as a reclassification adjustment.
• Default or delinquency by a debtor If, in a subsequent period, the fair value of an impaired • Indications that a debtor or issuer will enter bankruptcy available-for-sale debt security increases and the increase can be related objectively to an event occurring after the • Adverse changes in the payment status of borrowers or impairment loss was recognised in profit or loss, then the issuers impairment loss is reversed, with the amount of the reversal • The disappearance of an active market for a security or recognised in profit or loss. However, any subsequent recovery in the fair value of an impaired available-for- • Observable data indicating that there is measurable sale equity security is recognised in other comprehensive decrease in expected cash flows from a group of income. financial assets 4.2 Cash and cash equivalents In addition, for an investment in an equity security, a significant or prolonged decline in its fair value below its Cash and cash equivalents comprise cash balances and cost is objective evidence of impairment. deposits with maturities of three months or less from the
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Significant Accounting Policies (Contd.)
acquisition date that are subject to an insignificant risk of 4.4.3 Depreciation changes in their fair value, and are used by the Company in Depreciation is calculated over the depreciable amount, the management of its short-term commitments. which is the cost of an asset, or other amount substituted 4.3 Stated capital for cost, less its residual value.
Ordinary shares Depreciation is recognised in profit or loss on a straight- Ordinary shares are classified as equity. Incremental costs line basis over the estimated useful lives of each part of directly attributable to the issue of ordinary shares are an item of property, plant and equipment, since this most recognised as a deduction from equity, net of any tax closely reflects the expected pattern of consumption of the effects. future economic benefits embodied in the asset.
4.4 Property plant and equipment Items of property, plant and equipment are depreciated from the date that they are installed and are ready for use, 4.4.1 Recognition and measurement or in respect of internally constructed assets, from the date Items of property, plant and equipment are measured that the asset is completed and ready for use. at cost less accumulated depreciation and accumulated The estimated useful lives for the current and comparative impairment losses. years of significant items of property, plant and equipment Cost includes expenditure that is directly attributable to the are as follows: acquisition of the asset. The cost of self constructed assets Years of includes the following: Category depreciation • the cost of materials and direct labour; Buildings improvements (Includes 10 years • any other costs directly attributable to bringing the partitions and other permanent fixtures) assets to a working condition for their intended use; Computer and software 04 years
Purchased software that is integral to the functionality of the Office equipment 03 years related equipment is capitalised as part of the equipment. Motor vehicles 04 years
When parts of an item of property, plant and equipment Furniture and fittings 03 years have different useful lives, they are accounted for as separate Leased assets 04 years items (major components) of property, plant and equipment. Depreciation methods, useful lives and residual values Gains and losses on disposal of an item of property, plant are reassessed at each reporting date and adjusted if and equipment are determined by comparing the proceeds appropriate. from disposal with the carrying amount of property, plant and equipment, and are recognised net within other income 4.5 Investment property in profit or loss. Investment property is property held either to earn rental 4.4.2 Subsequent costs income or for capital appreciation or both but not for sale in the ordinary course of business, used in the production or The cost of replacing a part of an item of property, plant supply of goods or services or for administrative purposes. and equipment is recognised in the carrying amount of the item if it is probable that the future economic benefits 4.5.1 Basis of recognition embodied within the part will flow to the Company, and its cost can be measured reliably. The carrying amount of the Investment property is recognised if it is probable that replaced part is derecognised. The costs of the day-to-day future economic benefits that are associated with the servicing of property, plant and equipment are recognised investment property will flow to the Company and cost of in profit or loss as incurred. the investment property can be reliably measured.
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4.5.2 Measurement 4.7 Impairment of non-financial assets
An investment property is measured initially at its cost. The The carrying amounts of the Company’s non-financial cost of a purchased investment property comprises of its assets, other than deferred tax assets are reviewed at each purchase price and any directly attributable expenditure. reporting date to determine whether there is any indication The cost of a self-constructed investment property is its of impairment. If any such indication exists, then the asset’s cost at the date when the construction or development is recoverable amount is estimated. complete. The recoverable amount of an asset or cash-generating unit The Company applies the fair value model for subsequent is the greater of its value in use and its fair value less costs measurement of investment properties in accordance with to sell. In assessing value in use, the estimated future cash Sri Lanka Accounting Standard (LKAS 40) “Investment flows are discounted to their present value using apre- Property”. Accordingly, investment properties are stated tax discount rate that reflects current market assessments at fair value and an external independent valuer having an of the time value of money and the risks specific to the appropriate recognized professional qualification values asset. For the purpose of impairment testing, assets that the properties every year. Any gain or loss arising from a cannot be tested individually are grouped together into change in fair value is recognized in income statement. the smallest group of assets that generates cash inflows from continuing use that are largely independent of the 4.5.3 Derecognition cash inflows of other assets or group of assets (the “cash- Investment properties are derecognized when disposed generating unit, or CGU”). of or permanently withdrawn from use because no future An impairment loss is recognised if the carrying amount economic benefits are expected. Transfers are made to and of an asset or its CGU exceeds its estimated recoverable from investment properties only when there is change in use. amount. Impairment losses are recognised in profit or loss.
4.6 Inventory An impairment loss is reversed if there has been a change
Inventory mainly consists of real estate stock and gold. in the estimates used to determine the recoverable The Company’s policy for the accounting of inventory is as amount. An impairment loss is reversed only to the extent follows. that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net 4.6.1 Real estate of depreciation or amortisation, if no impairment loss had Investments in real estate are carried at cost or net been recognised. realisable value whichever is lower. Cost of purchase, costs of conversion and other costs including selling and 4.8 Employee benefits distribution expenses that are necessary to bring the asset 4.8.1 Defined contribution plans to the saleable condition are included in the carrying value A defined contribution plan is a post-employment benefit of the property. Net realisable value is the price at which plan under which an entity pays fixed contributions into inventories can be sold in the ordinary course of business, less the estimated cost of completion and the estimated a separate entity and will have no legal or constructive cost necessary to make the sale. Net Realisable Value is obligation to pay further amounts. Obligations for determined based on independent, external valuations contributions to defined contribution plans are made by a qualified valuer. recognised as an employee benefit expense in profit or loss in the periods during which services are rendered by 4.6.2 Gold stock employees.
Cost or Market value whichever is lower at the year-end. The Company contributes 12% and 3% of gross emoluments Market value is determined in relation to the gold prices of employees as provident fund (EPF), and trust fund (ETF) quoted in the international market as at 31 March 2014. contribution respectively.
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Significant Accounting Policies (Contd.)
4.8.2 Defined benefit plan rate, the Company estimates future cash flows considering all contractual terms of the financial instrument, but not A defined benefit plan is a post-employment benefit plan future credit losses. other than a defined contribution plan. The defined benefit is calculated by an independent actuary using Projected The calculation of the effective interest rate includes all Unit Credit method as recommended by LKAS 19 “Employee transaction costs and fees that are an integral part of the Benefits” The present value of the defined benefit obligation effective interest rate. Transaction costs include incremental is determined by discounting the estimated future cash costs that are directly attributable to the acquisition or outflows using the yield on government bonds at the issue of a financial asset or liability. reporting date and have maturity dates approximating to Interest income and expense presented in the income the terms of the Company’s obligations. statement include interest on financial assets and liabilities The Company recognises actuarial gains and losses that measured at amortised cost calculated on an effective arise in calculating the Company’s obligation in respect of a interest basis and interest income on available for sale plan in other comprehensive income. investment securities calculated on an effective interest basis.
The present value of the defined benefit obligation depends 4.10.2 Finance lease income on a number of factors that are determined on an actuarial basis using a number of assumptions. Key assumptions used Assets leased to customers who transfer substantially all in determining the defined retirement benefit obligations the risk and rewards associated with ownership other than are given in Note 27. Any changes in these assumptions will the legal title are classified as finance leases. Amounts impact the carrying amount of defined benefit obligations. receivable under finance leases are included under “Lease rental receivable”. Leasing balances are stated in the Provision has been made for retirement gratuities from the statement of financial position after deduction of initial first year of service for all employees, in conformity with rental received. LKAS 19 “Employee Benefits”. However, under the Payment The excess of aggregate rentals receivable over the cost of of Gratuity Act No.12 of 1983, the liability to an employee the leased assets constitutes the total unearned income. arises only on completion of 5 years of continued service. The unearned income is taken into revenue over the term The gratuity liability is not externally funded. of the lease, commencing from the month in which the lease is executed in proportion to the remaining receivable 4.9 Provisions balance of the lease. A provision is recognized if, as a result of a past event, the Company has a present legal or constructive obligation 4.10.3 Dividend income that can be estimated reliably, and it is probable that an Dividend income is recognised in the statement of outflow of economic benefits will be required to settle the comprehensive income on an accrual basis when the obligation. Company’s right to receive the dividend is established.
4.10 Revenue 4.10.4 Overdue interest
4.10.1 Interest Overdue interest income from leasing and other loans have Interest income and expense are recognized in profit been accounted for on a cash basis. or loss using the effective interest method. The effective 4.10.5 Real estate income interest rate is the rate that exactly discounts the estimated future cash payments and receipts through the expected Revenue is recognized when properties are sold and the life of the financial asset or liability (or, where appropriate, buyer has taken possession of such properties. However, a shorter period) to the carrying amount of the financial when there is insufficient assurance as to the receipt of the asset or liability. When calculating the effective interest total consideration, income is accounted for on a cash basis.
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Significant Accounting Policies (Contd.)
4.10.6 Gains or losses on disposal of property, plant & enacted or substantively enacted at the reporting date, and equipment any adjustment to tax payable in respect of previous years. Current tax payable also includes any tax liability arising Profit/loss from sale of property plant and equipment is from the declaration of dividends. recognized in the period in which the sale occurs. The provision for income tax is based on the elements 4.10.7 Profit from gold sale of income and expenditure as reported in the financial Profit/loss from gold sale is recognized in the period on a statements and computed in accordance with the provisions cash basis. of the Inland Revenue Act No 10 of 2006 and subsequent amendments thereon. 4.10.8 Other income
Other income is recognized on an accrual basis. 4.11.4.2 Deferred tax Deferred tax is recognized in respect of temporary 4.11 Expenses differences between the carrying amounts of assets and Expenses are recognized in profit or loss as they are liabilities for financial reporting purposes and the amounts incurred, in the period to which they relate. used for taxation purposes.
4.11.1 Operating leases Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, Leases where the Lessor effectively retains substantially using tax rates enacted or substantively enacted at the all the risks and rewards of ownership over the lease term reporting date. are classified as operating leases. Payments made under operating leases are recognised in profit and loss on a Deferred tax assets and liabilities are offset if there is a straight-line basis over the term of the lease. legally enforceable right to offset current tax liabilities and assets, and they relate to taxes levied by the same tax 4.11.2 Operating expenses authority on the same taxable entity, or on different tax All expenses incurred in day to day operations of the entities, but they intend to settle current tax liabilities and business and in maintaining the property, plant and assets on a net basis or their tax assets and liabilities will be equipment in a state of efficiency has been charged to the realised simultaneously. Income Statements in arriving at the profit for the year. A deferred tax asset is recognised to the extent that it is Provision has also been made for bad and doubtful debts, probable that future taxable profits will be available against all known liabilities and depreciation on property, plant and which they can be utilised. Deferred tax assets are reviewed equipment. at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be 4.11.3 Finance expense realised. Finance costs comprise interest expense on short and long term borrowing and bank charges. 4.11.5 Value added tax on financial services
4.11.4 Income tax expenses The value base for value added tax for the Company is the adjusted accounting profit before tax and emoluments of Income tax expenses comprise current and deferred tax. employees. The adjustment to the accounting profit before Current tax and deferred tax is recognized in profit or loss tax is for economic depreciation computed on prescribed except to the extent that it relates to items recognized rates instead of the rates adopted in the financial statements. directly in equity or in other comprehensive income. 4.11.6 Economic Service Charges (ESC) 4.11.4.1 Current tax ESC is payable on the liable turnover at specified rates. As Current tax is the expected tax payable or receivable on per the provision of the Economic Service Charge Act No. the taxable income or loss for the year, using tax rates 13 of 2006 and subsequent amendments thereto, ESC is 34 Swarnamahal Financial Services PLC Annual Report 2013/2014
Significant Accounting Policies (Contd.)
deductible from the income tax liability. Any unclaimed Statements has not been determined as at 31 March 2014. payment can be carried forward and set off against the None of these are expected to have a significant impact on income tax payable as per the relevant provision in the Act. the company’s financial statements
4.12 Earnings per share SLFRS 9 - Financial Instruments: Classification and Measurement The Company presents basic earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing SLFRS 9, as issued, reflects the first phase of work on the profit attributable to ordinary shareholders of the replacement of LKAS 39 and applies to classification and Company by the weighted average number of ordinary measurement of financial assets and liabilities. shares outstanding during the year. The effective date for SLFRS 9 is yet to be announced by the Institute of Chartered Accountants of Sri Lanka. 4.13 Commitments and contingencies SLFRS 13 - Fair Value Measurement Contingencies are possible assets or obligations that arise from a past event and would be confirmed only on the SLFRS 13 establishes a single source of guidance under occurrence or non-occurrence of uncertain future events, SLFRS for all fair value measurements. SLFRS 13 provides which are beyond the Company’s control. guidance on all fair value measurements under SLFRS.
SLFRS 13 will be effective for financial periods beginning on 4.14 Events occurring after the reporting date or after 1 January 2014. All material events occurring after the reporting date have 5. Regulatory provisions been considered and where necessary, adjustments to or disclosure have been made in the financial statements. 5.1 Deposit insurance scheme
In terms of the Finance Companies (Insurance of deposit 4.15 Comparative information liabilities) Direction No. 2 of 2010, “Sri Lanka Deposit The comparative information is re-classified wherever Insurance Scheme Regulations”, issued on 27th September necessary to conform with the current year’s presentation 2010 and subsequent amendments thereto all Registered in order to provide a better presentation. Finance Companies are required to insure their deposit liabilities in the Deposit Insurance Scheme operated by the 4.16 Directors’ responsibility statement Monetary Board in terms of Sri Lanka Deposit Insurance The Board of Directors of the Company is responsible for the Scheme Regulations No. 1 of 2010 issued under Sections preparation and presentation of these financial statements. 32A to 32E of the Monetary Law Act with effect from 1st October 2010. Deposits to be insured include time and 4.17 Cash flow statement savings deposit liabilities and exclude the following:
The cash flow statement has been prepared using the • Deposit liabilities to member institutions. indirect method in accordance with Sri Lanka Accounting • Deposit liabilities to the Government of Sri Lanka Standard 7 - Statement of Cash Flows. inclusive of Ministries, Departments and Local 4.18 New Accounting Standards issued but not Governments. effective as at reporting date • Deposit liabilities to shareholders, directors, key management personnel and other related parties The Institute of Chartered Accountants of Sri Lanka has issued the following new Sri Lanka Accounting Standards • Deposit liabilities held as collateral against any which will become applicable for financial periods accommodation granted. beginning on or after 1st January 2014/ 2015. • Deposits falling within the meaning of dormant The extent of the impact of these Standards to the Financial deposits in terms of the Finance Companies Act, funds
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Significant Accounting Policies (Contd.)
of which have been transferred to the Central Bank of annual turnover less than Rs. 300 million and Sri Lanka in terms of the relevant Directions issued by employees less than 400. the Monetary Board. d. Information Technology related activities and A premium of 0.15 per centum per annum is payable Business Process Outsourcing. monthly, calculated on total amount of all eligible deposits as at end of the month. e. Infrastructure development.
5.2 Investment Fund Account (IFA) f. Education - vocational training and tertiary education.
As proposed in the budget proposals of 2011 every g. Restructuring of loans extended for the above person or partnership who is in the business of banking purposes. or financial services is required to establish and operate an Investment Fund Account. As and when taxes are paid 5.3 Statutory reserve after 1st January 2011, Registered Finance Companies Reserve fund is a capital reserve which contains profit are required to transfer the following funds to the transferred as required by Section 3(b)(ii) of Central Bank Investment Fund Account and build a permanent fund Direction No. 1 of 2003. in the Company. As per the said Direction, every Licensed Finance Company • 8% of the profits calculated for the payment of Value shall maintain a Reserve Fund and transfer to such reserve Added Tax (VAT) on financial services on dates as fund out of the net profits of each year after due provisions specified in the VAT Act for payment of VAT. have been made for taxation and bad and doubtful debts • 5% of the profit before tax calculated for payment of on the following basis: income tax purposes on dates specified in Section 113 % of transfer to of the Inland Revenue Act and amendments thereto for Capital funds to Deposit Liabilities Reserve Fund the self-assessment payments of tax. Not less than 25% 5% RFCs shall commence utilization of funds in the IFA in the Less than 25% and not less than 10% 20% following manner within three months from the date of transfer to the IFA; Less than 10% 50%
(i.) Invest in long-term Government securities and/or 6. Financial risk management bonds with maturities not less than seven years. 6.1 Introduction and overview (ii.) Lend on maturities not less than five years at interest rates not exceeding 5-year Treasury bond rates plus 2 The Company has exposure to the following risks from per cent. financial instruments:
(iii.) Facilities granted only for the following purposes a) credit risk
a. Long-term loans for cultivation of plantation crops/ b) liquidity risk agriculture crops including, fruits, vegetables, cocoa c) market risks and spices and for livestock and fisheries.
b. Factory / mills modernization / establishment/ d) operational risks. expansion. This note presents information about the Company’s
c. Small and medium enterprises: exposure to each of the above risks (except market risk), the Company’s objectives, policies and processes for measuring i. loans up to Rs. 30 million or; and managing risk, and the Company’s management of ii. loans over Rs. 10 million to enterprises with capital
36 Swarnamahal Financial Services PLC Annual Report 2013/2014
Significant Accounting Policies (Contd.)
Risk management framework and investment in debt/equity securities. For risk management reporting purposes the Company considers The Board of Directors has overall responsibility for and consolidates all elements of credit risk exposure (such the establishment and oversight of the Company’s risk as individual obligor default risk, industry risk etc.) management framework. In discharging its governance responsibility it operates through two key committees the Management of credit risk Board Integrated Risk Management Committee and the Audit Committee. The Company has developed a policy which defines the principles encompassing client selection, due diligence, The BIRMC provides the Board the assurance that risk early alert reporting, tolerable levels of concentration management strategies, policies and processes are in place risk and portfolio monitoring in line with Company’s risk to manage events / outcomes that have the potential to appetite. The policy is reviewed at least annually ensuring impact significantly on earnings performance, reputation consistency with the Company’s business strategy. A monthly and capital. The approach entails active monitoring of the Credit Policy Meeting chaired by the Chief Executive Officer, level of risk exposure against the parameters set in the risk drives policy decisions and implementation plans. appetite. The BIRMC also assists the Board by assessing and approving significant credit and other transactions beyond Allowances for impairment the discretion of executive management. The Company established an allowance for impairment The following Executive Management Sub - Committees, losses on assets carried at amortised cost/available for sale each with specialized focus, support the BIRMC and are that represents its estimate of incurred losses in its loan and responsible for the co-ordination of risk matters for each of investment debt/equity security portfolio. the areas of risk management: The main components of this allowance are a specific • Asset and Liability Committee (ALCO) loss component that relates to individually significant • Credit Committee exposures, and, for assets measured at amortised cost, a • Remuneration Committee collective loan loss allowance established for groups of homogeneous assets as well as for individually significant Internal audit undertakes both regular and ad-hoc reviews exposures that were subject to individual assessment for of risk management controls and procedures, the results impairment but not found to be individually impaired. of which are reported to the Audit Committee. The Audit Committee provides its assessment on the effectiveness of Assets carried at fair value through profit or loss are not internal audit and external disclosure of accounting policies subject to impairment testing as the measure of fair value and financial reporting to the Board. Risk management reflects the credit quality of each asset. policies and systems are reviewed regularly to reflect changes Collateral held and other credit enhancement and the in market conditions, products and services offered. financial effect
6.2 Credit risk The Company holds collateral and other credit Credit risk is the risk of financial loss to the Company if enhancements against certain of its credit exposure. The a customer or counterparty to a financial instrument fails table below sets out principal types of collateral and their to meet its contractual obligations, and arises principally approximate collateral percentages that are held against from the Company’s loans and advances to customers, different types of financial assets.
37 Swarnamahal Financial Services PLC Annual Report 2013/2014
Significant Accounting Policies (Contd.)
Type of credit exposure Principal type of collateral held for Percentage of exposure that is subject to an secured lending arrangement that requires collateralization 31-Mar-14 31-Mar-13 Loans and advances to retail customers Finance leases Property and equipment 100% 100% Hire purchase Property and equipment 100% 100% Loans against FD Fixed Deposit 100% 100% Personal loans None - - Loans and advances to corporate customers Finance leases Property and equipment 100% 100% Hire Purchase Property and equipment 100% 100% Loans against FD Fixed Deposit 100% 100% Loan to Swarna Mahal Jewellers (Pvt.) Ltd. None - N/A
Fair value of collateral held from the market. The Company also maintains a portfolio of readily marketable securities to further strengthen its An estimate made at the time of borrowing of the fair value liquidity position. The treasury and liquidity policies and of collateral and other security enhancements held against compliance there under are reviewed and approved by the loans and receivables to customers is not available in the ALCO. A summary report, including any exceptions and Company. remedial action taken, is submitted quarterly to ALCO. 6.3 Liquidity risk Exposure to liquidity risk Liquidity risk is the risk that the Company will encounter Liquid assets include cash and short term funds, bills difficulty in meeting obligations associated with its financial purchased and short term investments. Short term liabilities liabilities that are settled by delivering cash or another include savings deposits, repo borrowings and current financial asset. taxation. Management of liquidity risk The Company also monitors the maturity profile of its The Company’s approach to managing liquidity is to ensure, assets and liabilities. Maturity analysis of assets and that funds available are adequate to meet credit demands liabilities which is based on the remaining period as at the of its customers and to enable deposits to be repaid on date of the statement of financial position to the respective demand or upon maturity as appropriate. contractual maturity date is given in Note 39 to the financial The main sources of the Company’s funding are capital, core statements. The maturity analysis of company liabilities for deposits from customers and access to borrowed funds 2014 are depicted below;
Total Less than 3 3 Months to 1 1-5 Years More than 5 2013/14 (Rs.000) Months (Rs.000) Year (Rs.000) (Rs.000) Years (Rs.000) Non Derivative Liabilities Deposits 1,987,574 2,128,058 1,017,109 - 5,132,741 Bank over draft 23,846 - - - 23,846 Interest bearing borrowings - 102,001 - - 102,001 Other liabilities 282 847 1,418 37,803 40,350
38 Swarnamahal Financial Services PLC Annual Report 2013/2014
Significant Accounting Policies (Contd.)
Less than 3 Months to 1 1-5 Years More than 5 Total 2012/13 3 Months Year (Rs.000) (Rs.000) Years (Rs.000) (Rs.000) (Rs.000) Non Derivative Liabilities Deposits 1,879,622 2,398,410 1,105,078 16,403 5,399,513 Bank over draft 43,306 43,306 Interest bearing borrowings 39,099 20,388 102,302 161,789 Other liabilities 37,332 24,281 3,982 65,595
6.4 Market Risk
Market risk is the risk that changes in market prices such as interest rates, equity prices, foreign exchange rates that will affect the Company’s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposure within acceptable parameters, while optimising the return on risk.
The following assets of the Company are subject to market risk.
Assets subject to market risk Carrying Amount as at 31 Trading portfolio(Rs) Non trading portfolio (Rs) March 2014 (Rs.) FVTPL Assets 3,813,915 3,813,915 - Financial assets through AFS 440,810,155 - 440,810,155 Loans and receivables 3,382,455,465 - 3,382,455,465
Liabilities subject to market risk Amount as at 31 March Trading portfolio(Rs) Non trading portfolio (Rs) 2014(Rs.) Deposits 5,132,740,669 - 5,132,740,669 Bank over draft 23,845,768 - 23,845,768 Interest bearing borrowings 102,000,727 - 102,000,727
Assets subject to market risk Carrying Amount as at 31 Trading portfolio(Rs) Non trading portfolio (Rs) March 2013 (Rs.) FVTPL Assets 3,933,370 3,933,370 - Financial assets through AFS 448,530,265 - 448,530,265 Loans and receivables 5,108,234,477 - 5,108,234,477
Liabilities subject to market risk Amount as at 31 Trading portfolio(Rs) Non trading portfolio (Rs) March 2013(Rs.) Deposits 5,399,512,653 - 5,399,512,653 Bank over draft 43,306,040 - 43,306,040 Interest bearing borrowings 161,788,587 - 161,788,587
39 Swarnamahal Financial Services PLC Annual Report 2013/2014
Significant Accounting Policies (Contd.)
Management of market risk to the Company’s reputation with overall cost effectiveness and to avoid control procedures that restrict initiative and The Company separates its exposure to market risk between creativity. trading and non-trading portfolios. Overall authority of market risk is vested with the ALCO. The head of the risk Compliance with Company’s standards is supported by a management committee is responsible for the development program of periodic reviews undertaken by Internal Audit. of detailed risk management policy overseen by the ALCO The results of Internal Audit reviews are discussed with the and for the day to day review of their implementation management of the business unit to which they relate, with summaries submitted to the Audit Committee and senior Equity Price Risk management of the Company. A sensitivity analysis of the share trading portfolio is shown below at shock level of 10% 15% and 20% 6.6 Capital management risk
2013/14 Capital Adequacy is a measure of a finance company’s At shock levels of Impact on income Effect on portfolio ability to withstand the associated risks of its business. statement(Rs) (Rs) Regulators find it necessary that every finance company 10% 381,392 3,432,524 to hold adequate capital to absorb unexpected losses as a 15% 572,087 3,241,828 going concern, while they price their products and services 20% 762,783 3,051,132 to take care of expected risks.
2012/13 For the purpose of computing the capital adequacy ratio At shock levels of Impact on income Effect on portfolio of finance companies, the constituent of capital shall be:- statement(Rs) (Rs) 10% 399,337 3,594,033 I. Tier 1 15% 599,006 3,394,365 Core capital: representing permanent shareholder’s 20% 798,674 3,194,696 equity (paid-up shares/common stock) and reserves Exposure to interest rate risk-Non trading portfolio created or increased by appropriation of retained earnings or other surpluses, i.e. share premia, retained principal risk to which non-trading portfolios are exposed profits and other reserves; and is the risk of loss from fluctuations in the future cash flows or fair values of financial instruments because of a change II. Tier 2 in market interest rates. Interest rate risk is managed principally through monitoring interest rate gaps and by Supplementary capital: representing revaluation having pre-approved limits for re pricing bands. ALCO is reserves, general provisions and other capital the monitoring body for compliance with these limits. instruments which combine certain characteristics of equity and debt, such as, hybrid capital instruments and 6.5 Operational risks unsecured subordinated term debts.
Operational risk is the risk of direct or indirect loss arising Every finance company shall, subject to the provisions of from a wide variety of causes associated with the Company’s the Finance Companies (Minimum Core Capital) Direction involvement with financial instruments, including processes, No. 1 of 2006, at all times, maintain its capital (adjusted for personnel, technology and infrastructure, and from external the items that may be specified by the Director) at a level factors other than credit, market and liquidity risks such as not less than 10 per cent of its risk weighted assets with those arising from legal and regulatory requirements and the core capital constituting not less than 5 per cent of its generally accepted standards of corporate behaviour. risk weighted assets, computed as per instructions issued by the CBSL. The Company’s objective is to manage operational risk so as to balance the avoidance of financial losses and damage
40 Swarnamahal Financial Services PLC Annual Report 2013/2014
Significant Accounting Policies (Contd.)
Description 2014 2013 assets, but the individual impaired items cannot yet be Total tier 1 capital (808,126) 433,412 identified. Total tier 2 capital 40,000 60,000 In assessing the need for collective loss allowances, Total risk weighted assets 1,879,810 1,963,680 management considers factors such as credit quality, Off balance sheet exposure - - portfolio size, concentrations and economic factors. In Capital adequacy ratio order to estimate the required allowance, assumptions -Tier 1 (%)- Stipulated limit 5% (42.99%) 22.07% are made to define the way inherent losses are modelled -Tier 1 &2 (%)Stipulated limit 10% (40.86%) 25.13% and to determine the required input parameters, based The Company is not compliant with these directions, as at on historical experience and current economic conditions. 31 March 2014. The accuracy of the allowances depends on the estimates of future cash flows for specific counterparty allowances 6.7 Use of estimates and judgement and the model assumptions and parameters used in Management discusses with the Company’s Audit determining collective allowances. Committee the development, selection and disclosure Determining fair values of the Company’s critical accounting policies and their application, and assumptions made relating to major The determination of fair value for financial assets and estimation uncertainties. liabilities for which there is no observable market price requires the use of valuation techniques as described in Key sources of estimation uncertainty accounting policy Note 4.1.2.3 for financial instruments that trade infrequently and have little price transparency, Allowance for credit losses fair value is less objective, and requires varying degrees Assets accounted for at amortised cost are evaluated for of judgement depending on liquidity, concentration, impairment on a basis described in Note 4.17 uncertainty of market factors, pricing assumptions and The specific counterparty component of the total other risks affecting the specific instrument. allowances for impairment applies to financial assets Level 1 – fair value measurements using quoted prices evaluated individually for impairment and is based upon (unadjusted) in active markets for identical assets or management’s best estimate of the present value of the liabilities; cash flows that are expected to be received. Level 2 – fair value measurements using inputs other than In estimating these cash flows, management makes quoted prices included within Level 1 that are observable judgements about a counterparty’s financial situation and for the asset or liability, either directly (i.e. as prices) or the net realisable value of any underlying collateral. Each indirectly (i.e. derived from prices); and impaired asset is assessed on its merits, and the workout strategy and estimate of cash flows considered recoverable Level 3 – fair value measurements using inputs for the asset are independently approved by ALCO or liability that are not based on observable market data (i.e. unobservable inputs). Collectively assessed impairment allowances cover credit losses inherent in portfolios of loans and advances and The table below analyses financial instruments measured investment securities measured at amortised cost with at fair value at the end of the reporting period, by the similar credit risk characteristics when there is objective level in the fair value hierarchy into which the fair value evidence to suggest that they contain impaired financial measurement is categorised:
41 Swarnamahal Financial Services PLC Annual Report 2013/2014
Significant Accounting Policies (Contd.)
2014 2013 All Amounts in Sri Lanka Rupees Level 1 Level 2 Level 3 Level 1 Level 2 Level 3 Trading & AFS assets Financial Assets held for trading 3,814 - - 3,993 - - Financial Investments - Available-for-Sale 440,808 0.25 448,528 0.25
The following table shows a reconciliation from the beginning balances to the ending balances for fair value measurements in Level 3 of the fair value hierarchy:
All Amounts in Sri Lanka Rupees 2014 2013 maturity of less than one year. Therefore it’s assumed that Financial Investments - Available-for-Sale fair value equals the carrying value. Balance as at 1 April 0.25 0.25 Deposits
Total gain in other comprehensive - - More than 80.18% of the customer deposits are either income repayable on demand or have a remaining contractual Balance as at 31 March 0.25 0.25 maturity of less than one year. Customer deposits with a contractual maturity of more than one year are subject to 6.8 Fair value of financial instruments carried at pre-mature upliftment. Amounts paid to the customer in amortised cost the event of premature upliftment would not be materially The below table shows a comparison of the carrying different to its carrying value as at the date. Therefore fair amounts, as reported on the statement of financial position, value of customer deposits approximate to their carrying value as at the reporting and fair values of financial assets and liabilities carried at amortised cost. Debentures Carrying Fair value(Rs) value(Rs) Debentures include fixed rate debentures. The Company’s Financial Asset fixed rate debentures mature with in a period of one year Loans and receivables 3,382,455,465 3,382,455,465 (31 March 2015). Therefore it is assumed that fair value will equal market value Financial Liabilities 7. Segment Reporting Deposits 5,132,740,669 5,132,740,669
Debentures 102,000,727 102,000,727 An operating segment is a component of the Company that engages in business activities from which it may There are various limitations inherent in this fair value earn revenues and incur expenses, including revenues disclosure particularly where prices may not represent the and expenses that relate to transactions with any of the underlying value due to dislocation in the market. Not all Company’s other components, whose operating results of the Company’s financial instruments can be exchanged are reviewed regularly by the Company’s Management to in an active market. make decisions about resources allocated to each segment and assess its performance, and for which discrete financial Given below are the methodologies and assumptions used information is available. For each of the strategic divisions, in fair value estimation the Company’s management monitors the operating results separately for the purpose of making decisions Loans and receivable about resource allocation and performance assessment. Approximately 83.21% of the total portfolio of loans and The company has two reportable segments, as described receivables to customers have a remaining contractual in the Note No. 40.
42 Swarnamahal Financial Services PLC Annual Report 2013/2014
Notes to the Financial Statements
For the year ended 31st March 2014 2013 All Amounts in Sri Lanka Rupees
8. Net interest income Interest income Placements with financial institutions 964,341 204,000 Financial investments - loans and receivables 1,003,710,066 1,281,641,632 Financial investments - available for sale 53,304,702 48,900,056 Total interest income 1,057,979,109 1,330,745,688
Interest expense Interest on deposits from customers 783,981,679 762,377,106 Interest on interest bearing borrowings 29,458,043 31,794,570 Other interest expenses 301,262 406,441 Total interest expense 813,740,984 794,578,117 Net interest income 244,238,125 536,167,571
9. Net loss from financial instruments at fair value through profit or loss
Equity shares (179,455) (103,223) (179,455) (103,223)
10. Other income/(Loss) Service income 1,241,909 1,506,744 Sundry income 939,763 3,023,809 (Loss)/Profit on gold sales (694,151,214) (15,394,120) Gain on sale of property, plant & equipment - 12,026 Change in fair value of investment property (46,900,000) 11,000,000 Rent income from Lavinia Breeze Sea Food Restaurent (Pvt.) Ltd. 600,000 600,000 Loss on change in carrying value of Loans & Receivable (101,487,520) - Other income (2,459,061) 8,683,808 (842,216,123) 9,432,267
11. Personnel expenses Salaries and wages 31,354,148 45,408,343 Directors’ emoluments 10,831,238 10,100,000 Contributions to defined contribution plans 4,812,822 6,882,272 Contributions to defined benefit plans 1,450,894 1,433,184 Over time payment 3,285,177 5,295,727 Fuel expense 5,340,026 5,374,820 Staff welfare 2,058,067 2,815,601 Others 10,239,946 4,147,325 69,372,318 81,457,272
12. Other expenses Audit fee and expenses 875,000 550,360 Audit related fee and expenses - 555,000 Professional and legal expenses 2,711,229 3,126,505 Depreciation of property, plant & equipment 20,005,200 26,611,309 Office administration and establishment expenses 183,887,094 212,366,335 207,478,523 243,209,509
43 Swarnamahal Financial Services PLC Annual Report 2013/2014
Notes to the Financial Statements (Contd.)
For the year ended 31st March 2014 2013 All Amounts in Sri Lanka Rupees
13. Impairment charges/(reversals) for loans and other losses Impairment on collective impairment (Note 13.1) 348,273,648 (1,400,358) Impairment of gold stock (Note 24.1) 5,194,383 2,205,457 353,468,031 805,099
13.1 Impairment charge/(reversal) on collective impairment Impairment charge on gold loans 336,047,665 20,766,577 Impairment charge on lease rentals receivables 5,084,200 178,991 Impairment charge/(reversal) on hire purchase receivables 4,473,109 (23,681,540) Impairment charge/(reversal) on other term loans 2,668,674 1,335,614 348,273,648 (1,400,358)
14. Income tax expense Current income tax 2,722,035 72,083,993 Deemed dividend tax for undistributed profit - 5,864,330 Over provision (2,526,742) (424,168) Deferred tax expense (Note 28) 2,362,972 (1,361,168) Total income tax expense 2,558,265 76,162,987
2014 2013 Reconciliation of the Total Tax charge Other Other Leasing Leasing Business Business
14.1 Net profit before tax (11,317,832) (1,231,307,279) 1,908,738 196,009,365 Adjustments: Non-taxable income - - (83,747) (19,612,087) Disallowable expenses 40,696,174 443,718,507 27,484,704 99,856,571 Allowable expenses (19,656,787) (25,506,037) (19,751,496) (28,369,218) Total statutory income 9,721,555 (813,094,809) 9,558,199 247,884,631 Less : Qualifying payments - - - Taxable income/(loss) 9,721,555 (813,094,809) 9,558,199 247,884,631 Income tax rate 28% 28% 28% 28% Income tax 2,722,035 - 2,676,296 69,407,697 Deemed Dividend Tax for undistributed profit - - - 5,864,330 Over provision - (2,526,742) - (424,168) Deferred tax expense (Note 28) - 2,362,972 - (1,361,168) Income tax on profit for the year 2,722,035 (163,770) 2,676,296 73,486,691
Tax losses carry forward 813,094,809
15. Basic earnings/ (Loss) per share (EPS) Basic earnings per share has been calculated by dividing the profit for the year attributable to equity holders of the Company by the weighted average number of ordinary shares on issue during the year, as per the requirements of the Sri Lanka Accounting Standard (LKAS 33) - “Earnings per share”.
44 Swarnamahal Financial Services PLC Annual Report 2013/2014
Notes to the Financial Statements (Contd.)
As at 31st March 2014 2013 All Amounts in Sri Lanka Rupees
Profit/ (Loss) (for the year attributable to equity holders of the Company (1,245,183,376) 121,758,989 Weighted average number of ordinary shares 500,000,140 500,000,140 Basic earnings/ (Loss) per share (Rs.) (2.49) 0.24
16. Cash and cash equivalents Cash in hand 61,608,682 67,673,709 Cash at bank 245,973,008 36,203,987 Stamps on hand 802,743 197,675 308,384,433 104,075,371 Bank overdrafts (23,845,768) (43,306,040) 284,538,665 60,769,331
17. Deposits with financial institutions Fixed deposits with financial institutions 2,598,498 8,661,659 Interest on settlement 913,341 - Provision-(Charge)/Reversal 6,063,161 (6,063,161) Settlement (* Note) (9,575,000) - - 2,598,498
(* Note) Standard Credit Finance Limited was unable to pay the deposit, therefore as a settlement three commercial parcels in Reality Plaza Ja-Ela, were transferred to the Company as settlement of the deposit. The transferred commercial parcels are reflected under investment property in Note - 22
18. Financial assets held at fair value through profit or loss Equity shares (Note 18.1) 3,813,915 3,993,370 3,813,915 3,993,370
18.1 Equity shares
2014 2013
Cost/Market No. of Cost/Market value at the Market Quoted shares: value at the Market value shares beginning of the year value beginning of the year
Commercial Bank of Ceylon 2,228 247,696 274,043 215,400 247,696 PLC-Voting Commercial Bank of Ceylon 4,509 428,395 437,373 346,400 428,395 PLC-Non Voting John Keels Holdings PLC 1,333 329,251 302,591 274,598 329,251 Seylan Bank PLC 1,015 65,200 64,656 66,900 65,200 LB Finance PLC 2,000 265,400 200,200 269,800 265,400 Pan Asia Bank PLC 4,000 76,000 64,800 94,000 76,000 Sampath Bank PLC 1,077 235,245 196,121 183,935 235,245 Distilleries Lanka PLC 1,000 166,500 203,000 145,000 166,500 Lanka Century Investment PLC 500 7,800 6,150 8,400 7,800
45 Swarnamahal Financial Services PLC Annual Report 2013/2014
Notes to the Financial Statements (Contd.)
As at 31st March 2014 2013 All Amounts in Sri Lanka Rupees
Hatton National Bank PLC 3,085 406,603 370,200 283,500 406,603 Aitken Spence PLC 1,000 119,600 97,900 112,700 119,600 Cargills PLC 1,000 151,800 136,500 174,000 151,800 Ceylon Theatres PLC 1,000 126,200 135,000 150,100 126,200 Laughs Lanka PLC 1,600 28,480 42,080 24,960 28,480 Vallible One PLC 51,700 827,200 878,900 982,300 827,200 Renuka Shaw Wallace PLC 4,000 72,000 64,400 104,600 72,000 Sierra Cables PLC 200,000 440,000 340,001 660,000 440,000 3,993,370 3,813,915 4,096,593 3,993,370 Mark to market losses (179,455) - (103,223) - 3,813,915 3,813,915 3,993,370 3,993,370
19. Financial assets available-for-sale Treasury bills (Note 19.1) 386,343,404 399,959,313 Treasury bonds (Note 19.2) 54,464,251 48,568,452 Share investment - unquoted company (Note 19.3) 2,500 2,500 440,810,155 448,530,265 19.1 Treasury bills
2014 2013 Year of Carrying Cost of Market Cost of Face value Market value Maturity value investment value investment
Rs. 40.130 Mn 2014 39,914,099 36,049,943 39,914,099 - - Rs. 80.435 Mn 2014 79,558,561 72,549,187 79,558,561 - - Rs. 21.190 Mn 2014 20,959,524 19,124,998 20,959,524 - - Rs. 38.681 Mn 2014 38,043,731 35,000,000 38,043,731 - - Rs. 78.700 Mn 2014 77,401,450 75,010,387 77,401,450 - - Rs. 14.781 Mn 2014 14,107,780 13,915,942 14,107,780 - - Rs. 50.000 Mn 2014 47,435,000 46,890,300 47,435,000 - - Rs. 48.385 Mn 2015 45,322,462 45,186,064 45,322,462 - - Rs. 23.996 Mn 2014 23,600,797 23,615,785 23,600,797 - - Rs. 36.050 Mn 2013 35,781,156 - - 35,838,489 35,781,156 Rs. 19.125 Mn 2013 18,836,214 - - 18,836,341 18,836,214 Rs. 72.549 Mn 2013 71,453,708 - - 71,136,522 71,453,708 Rs. 35.000 Mn 2013 34,191,644 - - 33,984,290 34,191,644 Rs. 60.771 Mn 2014 55,293,083 - - 55,809,715 55,293,083 Rs. 46.200 Mn 2014 42,035,544 - - 42,319,401 42,035,544
46 Swarnamahal Financial Services PLC Annual Report 2013/2014
Notes to the Financial Statements (Contd.)
As at 31st March 2014 2013 All Amounts in Sri Lanka Rupees
Rs. 45.121 Mn 2014 40,601,168 - - 41,129,942 40,601,168 Rs. 48.655 Mn 2014 43,780,595 - - 44,350,776 43,780,595 Rs. 38.575 Mn 2013 36,248,305 - - 36,251,181 36,248,305 Rs. 22.252 Mn 2013 21,737,896 - - 21,821,991 21,737,896 367,342,606 386,343,404 401,478,648 399,959,313
19.2 Treasury bonds 2014 2013 Year of Carrying Cost of Cost of Face value Market value Market value Maturity value investment investment
Rs. 34.100 Mn 2022 30,441,070 27,768,346 30,441,070 28,519,440 27,040,941 Rs. 6.000 Mn 2019 5,802,000 5,027,598 5,802,000 5,332,548 5,210,928 Rs. 10.000 Mn 2016 9,727,000 9,148,260 9,727,000 9,462,011 8,710,270 Rs. 8.733 Mn 2016 8,494,181 8,014,954 8,494,181 8,299,347 7,606,313
20. Loans and advances to customers
2014 2013 Gross Impairment Carrying Gross Impairment Carrying Amount allowance amount Amount allowance amount
Gold loans (Note 20.2) 2,680,920,954 (420,310,807) 2,260,610,147 4,694,362,855 (84,263,142) 4,610,099,713 Finance lease receivable 37,856,908 (6,710,443) 31,146,465 55,320,831 (1,626,243) 53,694,588 (Note 20.3) Hire purchase receivables 151,599,833 (11,519,276) 140,080,557 234,405,746 (7,046,166) 227,359,580 (Note 20.4) Other term loans (Note 20.5) 290,646,655 (13,175,775) 277,470,880 226,524,340 (10,507,102) 216,017,238 3,161,024,350 (451,716,301) 2,709,308,049 5,210,613,772 (103,442,653) 5,107,171,119
49,959,158 54,464,251 51,613,346 48,568,452
19.3 Share investment - unquoted company 2014 2013 Cost of Market Cost of Market No of shares investment value Investment value
Credit Information Bureau of Sri Lanka Ltd 25 2,500 2,500 2,500 2,500 2,500 2,500 2,500 2,500 2014 2013
20.1 Allowance for impairment Collective Allowance for impairment Balance as at 1 April 103,442,653 104,843,011 Impairment loss for the year -Charge/(Reversal) for the year 348,273,648 (1,400,358) Balance as at 31 March 451,716,301 103,442,653
Total Allowance for impairment 451,716,301 103,442,653
47 Swarnamahal Financial Services PLC Annual Report 2013/2014
Notes to the Financial Statements (Contd.)
As at 31st March 2014 2013 All Amounts in Sri Lanka Rupees
20.2 Gold loans Gold loans - 1 month 373,922,747 - Gold loans - 3 months 105,867,358 352,866,596 Gold loans - 6 months 72,907,560 148,394,455 Gold loans - 12 months 894,121,397 3,675,938,551 Gold stock for auction (Note*) 1,234,101,892 517,163,253 Gross gold loans 2,680,920,954 4,694,362,855
* Note This relates to gold held against non-performing gold loans which are to be auctioned. Further, Rs. 724,458,384/- has been recovered from auctions up to 31 August 2014 with a loss of Rs. 438,635,802/-. Whereas, impairment provisions made for total gold loans as at 31 March 2014 was Rs 420,310,807/-
20.3 Finance lease receivable Gross investment in finance leases, receivable - less than one year 4,996,644 40,717,331 - between one and five years 42,544,386 35,223,209 47,541,030 75,940,540
unearned finance income (9,684,122) (20,619,709) Net investment in finance lease 37,856,908 55,320,831
Net investment in finance leases, receivable -less than one year 3,978,826 29,814,781 -between one and five years 33,878,082 25,506,050 37,856,908 55,320,831
There were no lease receivables beyond five years.
20.4 Hire purchase receivables
Gross investment in hire purchase, receivable - less than one year 29,094,810 186,323,613 - between one and five years 168,721,450 128,885,350 197,816,260 315,208,963
unearned finance income (46,216,427) (80,803,217) Net investment in hire purchase 151,599,833 234,405,746
Net investment in hire purchase, receivable - less than one year 22,499,818 139,122,354 - between one and five years 129,100,015 95,283,392 151,599,833 234,405,746
20.5 Other term loans Medium term loans 78,453,784 68,700,916 Wedaduru loans 9,999,808 16,486,031 Revolving loans 1,767,645 14,445,487 Wisdom loans 132,410 132,410 Staff loans 3,675,279 2,425,174 On-time loans 196,617,729 124,334,322 290,646,655 226,524,340
48 Swarnamahal Financial Services PLC Annual Report 2013/2014
Notes to the Financial Statements (Contd.)
As at 31st March 2014 2013 All Amounts in Sri Lanka Rupees
21. Loan to Swarna Mahal Jewellers (Private) Limited Medium term loan to Swarna Mahal Jewellers (Pvt) Ltd 1,063,358 1,063,358 Gold loan to Swarna Mahal Jewellers (Pvt) Ltd 773,571,578 - Loss on change in carrying value of Loans & Receivable (101,487,520) - 673,147,416 1,063,358
The gold loan granted to Swarna Mahal Jewellers (Private) Limited is unsecured and was rescheduled in March 2014 effective from 1 April 2014 by the Board. Its stated at amortised cost based on the original EIR in accordance with LKAS 39.
22. Investment property Opening balance 73,000,000 62,000,000 Additions during the year 9,575,000 - Change in fair value (46,900,000) 11,000,000 Closing balance 35,675,000 73,000,000
22.1 Valuation of investment properties
Date of Location Extent Market value valuation
No 10, De Alwis Avenue, Mount Lavinia - Land &Building 0A - 0R - 40.42 20.03.2014 26,100,000
03 commercial parcels in Reality Plaza - Unit A/F1/U17 301 Sq. Ft 4,000,000 23.03.2014 - Unit A/F1/U18 150 Sq. Ft 2,150,000 - Unit A/F3/U13 269 Sq. Ft 3,425,000
Rental Income from the Mount Lavinia Property is depicted in Note 10, the Company is yet to rent out commercial parcels in reality plaza as such property was received close to the year end. No direct operating expenses were incurred by the Company for the above investment properties Fair value of the Company’s investment property as at 31 March 2014 has been arrived on the basis of a valuation carried out by Mr. G.J. Sumanasena incorporated valuer and having recent experience in the location and the category of the investment property being valued. He has used the investment method in arriving at the valuations for both properties
49 - - - - Rs. 940,714 (69,000) (18,952) Total 12,448,212 83,450,178 26,611,309 20,005,200 72,266,717 (1,446,091) (1,446,091) 53,202,231 169,930,040 182,309,252 182,309,252 110,042,535 110,042,535 128,601,644 181,803,875 - - 20,160 Rs. (69,000) (18,952) 1,490,185 1,707,005 2,723,891 1,707,005 3,916,567 7,956,117 4,059,710 Software 28,331,082 31,459,272 31,459,272 19,091,211 23,503,155 23,503,155 25,973,631 (1,446,091) (1,446,091) 30,033,341 Computers & ------Rs. 426,751 612,430 612,430 737,745 1,707,005 2,950,982 2,950,982 2,950,982 1,892,684 1,350,175 2,338,552 2,950,982 1,600,807 (1,707,005) (1,707,005) Leased Assets ------Rs. Motor 3,424,691 4,731,648 8,156,339 8,156,339 4,649,277 6,518,771 Vehicles 19,324,387 19,324,387 19,324,387 12,805,616 11,168,048 19,324,387 ------Rs. 291,548 882,872 3,487,108 1,807,730 2,690,602 Fittings 17,300,602 17,592,150 17,592,150 11,414,440 14,901,548 14,901,548 16,709,278 17,592,150 Furniture & Furniture ------Rs. 352,550 Office 1,328,075 7,128,572 2,001,866 5,628,570 3,979,254 40,993,380 42,321,455 42,321,455 29,564,313 36,692,885 36,692,885 38,694,751 42,674,005 Equipment ------(Contd.) Rs. 568,004 6,387,422 6,647,406 6,892,015 Building 62,273,584 68,661,006 68,661,006 19,528,772 26,176,178 26,176,178 33,068,193 42,484,828 69,229,010 36,160,818 Improvements In Rupees Cost Balance as at 1April 2012 Property, plant & equipment Property, Additions Disposals Balance as at 31 March 2013 Balance as at 31 March Transfers Balance as at 1 April 2013 Disposals Additions Write-off during the year Write-off Transfers Balance as at 31 March 2014 Balance as at 31 March Accumulated depreciation Accumulated Balance as at 1April 2012 Depreciation for the year Depreciation Disposals Balance as at 31 March 2013 Balance as at 31 March Transfers Balance as at 1st April 2013 Charge for the year Charge Write-off during the year Write-off Disposals during the year Balance as at 31 March 2014 Balance as at 31 March Balance as at 31 March 2014 Balance as at 31 March Balance as at 31 March 2013 Balance as at 31 March Lease Commitments on buildings improvements are disclosed in Note 33 disclosed in Note are Lease Commitments on buildings improvements 23. Notes to the Financial Statements the Financial Statements to Notes
50 Swarnamahal Financial Services PLC Annual Report 2013/2014
Notes to the Financial Statements (Contd.)
As at 31st March 2014 2013 All Amounts in Sri Lanka Rupees
23.1 Fully depreciated property, plant & equipment
The cost of fully-depreciated property, plant & equipment of the Company which are still in use as at the statement of financial position date is as follows:
Office equipment 36,184,797 25,119,088 Furniture and fittings 9,076,237 9,076,237 Computer equipment 12,624,761 15,628,595 Motor Vehicles 490,340 490,340 58,376,135 50,314,260
23.2 Leased assets Leased assets for the year 2013/14 consists solely of 15 units of Motorbikes leased under a 3 year agreement. All leases are classified as finance leases and corresponding liability to the asset is accounted for in accordance with the accounting policy applicable to that leased asset as disclosed in note 30.1.
24. Other assets Deposits & prepayments 66,914,933 70,211,008 Gold stock (Note 24.1) 48,635,177 53,829,560 Real estate stock (Note 24.2) 154,228,928 165,956,056 Rent receivable from Lavinia Breeze Sea Food Restaurant (Pvt) Ltd (Note 24.3) - - 269,779,038 289,996,624
24.1 Gold Stock Gold stock 56,035,017 56,035,017 Impairment for gold stock (7,399,840) (2,205,457) 48,635,177 53,829,560
The Gold stock was pledged for the overdraft facility obtained by the Sampath Bank PLC amounting to Rs. 28 Mn. An impairment test was carried out as at year end and Rs. 7.4 Mn was made to compensate for the decline in prevailing market prices for gold.
24.2 Real estate stock
As at 31st March 2013 Thalawathugoda Nawala Boralesgamuwa Kandy Total
Balance at the beginning of the year 55,525,000 119,000,000 4,725,000 38,276,056 217,526,056 Additions/Transfers during the year - - - - Disposals during the year (31,348,014) - (4,725,000) - (36,073,014) Impairment during the year (2,896,986) (12,600,000) - - (15,496,986) Balance at the end of the year 21,280,000 106,400,000 - 38,276,056 165,956,056
As at 31 March 2014 Balance at the beginning of the year 21,280,000 106,400,000 - 38,276,056 165,956,056 Additions/Transfers during the year - - - - - Disposals during the year (9,473,972) - - (2,253,156) (11,727,128) Impairment during the year - - - - - Balance at the end of the year 11,806,028 106,400,000 - 36,022,900 154,228,928
51 Swarnamahal Financial Services PLC Annual Report 2013/2014
Notes to the Financial Statements (Contd.)
As at 31st March All Amounts in Sri Lanka Rupees
In order to ascertain the Net Realizable Value of the real estate stock, the company valued them as at 31 March 2014 by a profes- sionally qualified independent valuer. The valuation was carried out by taking into account the observable prices in active market or recent market transactions on arm’s length term. The Net Realizable Value was compared with the Net book value and have been accounted for in accordance with LKAS 2.
24.3 Rent receivable from Lavinia Breeze 2014 2013
Rent receivable from Lavinia Breeze 6,800,000 6,350,000 Provision for rent receivable from Lavinia Breeze (6,800,000) (6,350,000) - -
25. Deposits from customers Fixed deposits (Note 25.1) 5,068,260,986 5,344,855,081 Other deposits (Note 25.2) 64,479,683 54,657,572 5,132,740,669 5,399,512,653
25.1 Fixed deposits Fixed deposits - General 1,101,929,265 1,345,449,782 SFS - Abhimana 3,945,433,754 3,999,191,899 Staff fixed deposits 198,513 213,400 Ranwasi Deposits 20,699,454 - 5,068,260,986 5,344,855,081
25.2 Other deposits Savings - General 30,120,193 32,255,621 SFS Kumara Kumari 16,550,829 16,403,595 Staff savings 615,021 413,640 Dhanajaya savings 415,156 391,041 SFS saver 4,425,591 3,245,572 Dhana Pragathi 3,820 3,597 Miscellaneous savings 12,349,073 1,944,506 64,479,683 54,657,572
26. Interest bearing borrowings Debentures (Note 26.1) 102,000,727 102,301,798 Borrowings from securitization - 20,388,397 Temporary borrowings from banks & financial institutions - 39,098,392 102,000,727 161,788,587
26.1 Debentures Number of debentures 1,000,000 1,000,000 Value of debentures 102,000,727 102,301,798
The Rs. 100,000,000/- Unsecured redeemable subordinated debentures issued in 2010 at following rates will mature on 31 March 2015.
52 Swarnamahal Financial Services PLC Annual Report 2013/2014
Notes to the Financial Statements (Contd.)
As at 31st March 2014 2013 All Amounts in Sri Lanka Rupees
Value as at Value as Category Amount Interest rate 2014 at 2013
Type A 11,565,000 15.00% 11,712,878 11,767,166 Type B 500,000 15.50% 506,446 506,450 Type C 72,275,000 16.00% 73,413,396 73,524,212 Type D 15,660,000 16.50% 16,368,007 16,503,970 100,000,000 102,000,727 102,301,798
27. Current tax liabilities Balance at the beginning of the year 34,804,703 40,582,784 Current tax charge for the year 2,722,035 77,524,155 Current tax payment (34,830,569) (63,158,619) VAT receivable - (11,882,327) Economic Service Charge receivable - (3,366,761) WHT receivable on Treasury Bill and Treasury Bonds interest (4,950,292) (4,638,066) WHT receivable on FD interest income (379,414) (256,463) (2,633,537) 34,804,703
Net deferred tax asset/ 28. Deferred tax liabilities Deferred tax asset Deferred tax liability liability
Recognised deferred tax asset 2014 2013 2014 2013 2014 2013 and liabilities Leased property plant and (250,262) (423,429) - - (250,262) (423,429) equipment Provision for gratuity (1,512,471) (1,472,520) - - (1,512,471) (1,472,520) Property plant and equip- - - 4,430,803 2,492,525 4,430,803 2,492,525 ment Lease rentals - - 1,195,607 653,819 1,195,607 653,819 Total (1,762,733) (1,895,949) 5,626,410 3,146,344 3,863,677 1,250,395
Movement in deferred tax Balance as Recognised Balance as Recognised Balance as Recognised Recognised during the year at 1 April in profit or at 31 March in profit or at 31 March in OCI in OCI 2012 loss 2013 loss 2014 Leased property plant and - (423,429) - (423,429) 173,167 - (250,262) equipment Provision for gratuity (778,756) (335,142) (358,622) (1,472,520) (290,261) 250,310 (1,512,471) Property plant and equip- 4,842,641 (2,350,116) - 2,492,525 1,938,278 - 4,430,803 ment Lease rentals - 653,819 - 653,819 541,788 - 1,195,607 Bad debt provison (1,037,992) 1,037,992 - - - - - Lease rentals (55,708) 55,708 - - - - - 2,970,185 (1,361,168) (358,622) 1,250,395 2,362,972 250,310 3,863,677
The Company has provided for the above deferred tax liability without considering the impact of the following deductible temporary difference, as it is not probable that future taxable profit will be available against which the Company can utilize the benefits, in the foreseeable future considering the pending restructuring/consolidation plans by the directors.
53 Swarnamahal Financial Services PLC Annual Report 2013/2014
Notes to the Financial Statements (Contd.)
As at 31st March 2014 2013 All Amounts in Sri Lanka Rupees
Unrecognised deferred tax asset - Collective and significant impairment on loans 126,480,564 - Tax lossess carried forward 227,666,547 354,147,111
29 Employee Benefit 29.1 Amount recognized in balance sheet - Present value of defined benefit obligation 5,401,681 5,259,000
29.2 Movement in the present value of defined benefit obligation Defined benefit obligation as at 1 April 5,259,000 3,111,813 Actuarial (Gain)/Loss (893,963) 950,252 Benefits paid during the year (414,250) (236,250) Current service costs and interest 1,450,894 1,433,185 Defined benefit obligation as at 31 March 5,401,681 5,259,000
29.3 Expense recognized in profit or loss Current service cost 578,490 1,059,767 Interest cost 872,404 373,418 1,450,894 1,433,185
29.4 Amounts recognized in other comprehensive income Actuarial (gain)/loss (893,963) 1,280,794
29.5 Actuarial assumptions
An actuarial valuation of the gratuity liability was carried out as at 31st March 2014 by Mr. M. Poopalanathan, AIA, of Messrs Actuarial and Management Consultants (Pvt) Ltd, a firm of professional actuaries.
The valuation method used by the actuaries to value the Fund is the “Projected Unit Credit Method”, the method recommended by the Sri Lanka Accounting Standard (LKAS 19) “Employee Benefits”.
Retirement age 55 Years 55 Years Discount rate 10% 11% Salary increment 10% 10%
29.6 Sensitivity analysis
The following table demonstrates the sensitivity to a reasonably possible change in the key assumptions employed with all other variables held constant in the employment benefit liability measurement.
Effect on Effect on employee benefit Discount Rate Salary escalation rate charge to OCI obligation
1% Increase As given in the report (271,683) (271,683) 1% Decrease As given in the report 301,423 301,423 As given in the report 1% Increase 273,418 273,418 As given in the report 1% Decrease (251,088) (251,088)
54 Swarnamahal Financial Services PLC Annual Report 2013/2014
Notes to the Financial Statements (Contd.)
As at 31st March 2014 2013 All Amounts in Sri Lanka Rupees
30. Other liabilities Accounts payable 30,543,655 31,804,992 Other tax payables 1,857,187 (9,871,156) Lease creditors (Note 30.1) 1,317,678 2,347,391 33,718,520 24,281,227
30.1 Lease creditors Less than one year 1,115,954 943,890 One to five years 201,724 1,403,501 1,317,678 2,347,391
31. Stated capital Stated capital. 250,000,070 250,000,070 250,000,070 250,000,070
No of shares 500,000,140 500,000,140
As per the Special Resolution passed at the Extraordinary General Meeting (EGM) held on 27th March, 2012, it was resolved that each of the issued and subscribed 25,000,007 Voting Ordinary shares be sub - divided in to 20 (Twenty) Ordinary shares (Voting) fully paid up. Therefore, the number of ordinary shares outstanding was increased without an increase in resources.
32. Reserves Statutory reserve fund (Note 32.1) 105,972,056 105,972,056 Investment fund (Note 32.2) 50,704,977 50,704,977 Available for sale reserve (Note 32.3) 2,665,509 (4,564,229) Retained earnings (1,214,159,880) 30,379,843 (1,054,817,338) 182,492,647
32.1 Statutory reserve Balance at the beginning of the year 105,972,056 45,093,956 Transfers during the year - 60,878,100 Balance at the end of the year 105,972,056 105,972,056
Statutory reserve is a capital reserve which contains profit transferred as required by Section 3(b)(ii) of Central Bank Direction No. 1 of 2003, issued to Finance Companies.
As per the said Direction, every Licensed Finance Company shall maintain a Reserve Fund and transfer to such reserve fund out of the net profits of each year after due provisions have been made for taxation and bad and doubtful debts on the following basis: Capital funds to Deposit Liabilities % of transfer to Reserve Fund Not less than 25% 5% Less than 25% and not less than 10% 20% Less than 10% 50%
No transfers have been made as at 31 March 2014 as the Company is incurring losses
32.2 Investment fund Balance at the beginning of the year 50,704,977 22,882,378 Transfers during the year - 27,822,599 Balance at the end of the year 50,704,977 50,704,977
55 Swarnamahal Financial Services PLC Annual Report 2013/2014
Notes to the Financial Statements (Contd.)
As proposed in the budget proposals of 2011 every person or partnership who is in the business of banking or financial services is required to established to operate an Investment fund account.
As and when taxes are paid after 1 January 2011, Registered Finance Companies (RFCs) shall transfer the following funds to the IFA and build a permanent fund in the RFC.
- 8% of the profits calculated for the payment of value Added Tax (VAT) on financial services on dates as specified in the VAT Act for payment of VAT.
- 5% of the profit before tax calculated for payment of income tax on dates specified in Section 113 of the Inland Revenue Act and amendments thereto for the self-assessment payment of tax.
As per the requirements specified by the Central Bank guidelines on the operations of the Investment Fund Account, the funds are invested in government treasury bonds purchased from Wealth Trust securities Ltd, with a maturity of greater than 7 years.
ISIN Code Interest rate Maturity Amount (Rs) LKB01022A018 8.00% 1-Jan-22 27,768,346 LKB01019E016 8.50% 1-May-19 5,027,598 32,795,944
No transfers were made to the investment fund as the Company incurred losses in the current year.
32.3 Available for sale reserve Balance at the beginning of the year (4,564,229) (7,211,400) Gain/(Loss) during the year 8,749,075 7,431,194 Matured T-bills and T-bonds (1,519,337) (4,784,023) Balance at the end of the year 2,665,509 (4,564,229)
33. Commitments and contingencies There were no commitments and contingencies as at reporting date, which require adjustments to or disclosures in the financial statements other than the below mentioned lease commitments
Lease commitments Minimum lease payments Not later than one year 33,088,858 31,585,358 Later than one year & less then five years 124,541,160 133,774,610 Later than five years 88,989,444 112,844,852 246,619,462 278,204,820
34. Related party disclosures
The Company carries out transactions in the ordinary course of its business with parties who are defined as related parties as per the Sri Lanka Accounting Standard - LKAS 24 “Related Party Disclosures”, the details of which are reported below.
34.1 Parent and ultimate controlling party The Company’s parent company is ETI Finance Ltd which is the ultimate controlling party with 90% shareholding.
34.2 Transactions with Key Management Personnel (KMP)
According to Sri Lanka Accounting Standard - LKAS 24 “Related Party Disclosures”, Key Management Personnel are those having authority and responsibility for planning, directing and controlling the activities of the entity directly or indirectly including any director(whether executive or otherwise of that entity). The Company considered the members of its Board and their close family members as Key Management Personnel (KMP) of the Company. Close family members are defined as spouse or dependent. Dependent is defined as any one who depends on the respective director for more than 50% of his/her financial needs. Since they have the authority and responsibility for planning, directing and controlling the activities of the Company.
56 Swarnamahal Financial Services PLC Annual Report 2013/2014
Notes to the Financial Statements (Contd.)
As at 31st March All Amounts in Sri Lanka Rupees
Compensation to KMP 2014 2013
Short term employment benefits (including CEO) 15,114,571 17,300,000
There were no post employment benefits or long term benefits provided to key management personnel.
34.3 Mr. Jeewaka Edirisinghe, Ms. Deepa Edirisinghe, Mr. Nalaka Edirisinghe, Mr. Asanka Edirisinghe, Mr. Sumathipala Kariyawasam, and Mr. Sujith D. Jayawardena are the Directors of the Company and Key Management Personnel of the following companies and have had transactions as disclosed below.
Company names Mr. J. H. Edirisinghe J. Mr. Edirisinghe Mrs. A. D. Edirisinghe N. P. Mr. A. S. Edirisinghe Mr. Kariyawasam Sumathipala Mr. Jayawardena Sujith D. Mr.
EAP Holdings Ltd √ √ √ √ √ √ ETI Finance Ltd √ √ √ √ * * Swarnamahal Jewellers (Pvt) Ltd √ √ √ √ √ EAP Network (Pvt) Ltd √ √ √ √ √ √ Lavinia Breeze Sea Food Restaurant (Pvt) Ltd √ √ √ √ EAP Security Services (Pvt) Ltd √ √ √ √ EAP Films & Theatres (Pvt) Ltd √ √ √ √ √ √ Hotel Sapphire (Pvt) Ltd √ √ √ √ EAP RMS Insurance Brokers (Pvt) Ltd √ √ √ √ √ √ Hotel Concord (Pvt) Ltd √ √ √ √ √ √
Mr. B. G. Wimalarathna Banda is an Iindipendent Non Executive Director and Mr. Sameera Ganegoda is a Non - Executive Director and CEO of ETI Finance Ltd.
* Mr. Sumathipala Kariyawasam and Mr. Sujith D. Jayawardana had tendered their resignation to resign from the Directorship of ETI Finance Ltd. w.e.f 1 November 2013
57 Swarnamahal Financial Services PLC Annual Report 2013/2014
Notes to the Financial Statements (Contd.)
34.4 Transactions with entities that are controlled, jointly controlled or significantly influenced by Key Management Personnel or their close member of family, or shareholders who have either control, significant influences or joint control over entity are as follows;
Transactions with related parties
Amounts Balance as at Name of the Company Description of Transaction (paid)/received Rs. 31st March 2014 Rs. Swarnamahal Jewellers (Pvt) Ltd. Settlement of loan (122,115,500) - Loan Granted during the year (Note 34.5) 824,893,679 - Loan balance due from the company - 774,634,936
Gold sales 532,254,422 - Amount recovered during the year (532,254,422) Balance due from gold sales - -
EAP Security Services (Pvt) Ltd Security expenses 4,207,177 (971,444)
EAP Holdings Ltd Shared services expense 4,689,031 - Prepaid balance - 26,378,565 Lavinia Breeze Sea Food Restaurant Rent income (600,000) (Pvt) Ltd Provision for rent not recevied 600,000 EAP Broadcasting Company Limited Advertising Expense 889,668 -
34.5 Related party lending to Swarna Mahal Jewellers (Private) Limited
This accommodation was unsecured and exceeded the Single Borrower Limit set by the CBSL Directions. It was rescheduled in March 2014 effective from 1 April 2014, by reducing the rate of interest from 24% to 16% and waiver of penal interest. However, the outstanding amount has reduced to Rs. 661,559,961/- as at 31 August 2014.
35. Events after the reporting date There have been no other material events occurred between the reporting date and the date on which the financial statements are authorised for issue which require adjustments to or disclosure in the financial statements
36 Litigation and Claims There were no litigation claims against the company as at the reporting date
58 Swarnamahal Financial Services PLC Annual Report 2013/2014
Notes to the Financial Statements (Contd.)
37 Comparative Information
37.1 Restatement
The following comparative figures have been restated in the 2013 Financial Statement due to the adoption of LKAS 19 (Revised)- Employee Benefits to maintain comparability of Financial Statements in order to provide a better presentation as required by LKAS 8-Accounting policies, Changes in Accounting Estimates and Errors;
As Disclosed in Restated Defined Benefit Obligation Adjustment 2012/13 balance
Employee Benefits 3,982,079 5,259,000 1,276,921 Personal Expenses 81,461,145 81,457,272 (3,873)
Other comprehensive income - Actuarial loss - 1,280,794 1,280,794 - Deferred tax impact - (358,622) (358,622) 922,172
Income Tax expense 76,161,903 76,162,987 1,084
Reconciliation of retained earnings
As per 2012/13 annual report 31,299,226 Defined benefit obligation 3,873 Actuarial gain (922,172) Deferred tax impact (1,084) As per 2013/14 annual report 30,379,843
37.2 Re-Classification
The following comparative figures have been reclassified in the financial statements for the year ended 31 March 2014 in order to provide a better presentation. Comparative information in the financial statements have been reclassified as follows
Interest income has been reclassified as follows;
2013 Interest income previously reported 1,339,429,496 Transferred to other income (8,683,808) Reclassified balance 1,330,745,688
Other income has been reclassified as follows
Other income previously reported 748,459 Transferred from interest income 8,683,808 Reclassified balance 9,432,267
38 Going Concern
The Company incurred a loss of Rs.1,245,183,376/- during the year ended 31 March 2014 and as of that date the Company’s total liabilities exceeded its total assets by Rs.804,817,268/-. The financial statements of the Company have been prepared on a going concern basis without making adjustments that may be required to the recorded assets and the classification of liabilities if the Company is unable to continue as a going concern. The validity of the above going concern assumption is justified by a 5 year cash flow projection of the company.
The significant and sudden drop in Gold Prices has significantly affected the Company’s performance and the provisions made in this regard is the main reason for the loss during the year and the resultant negative net liability. The Company is under the Central Bank of Sri Lanka’s Financial Consolidation Restructuring program and the directors plan to divest/merge it with an adequate capital injection to regain compliance and therefore continue as a going concern.
59 Swarnamahal Financial Services PLC Annual Report 2013/2014
Notes to the Financial Statements (Contd.)
39 Maturity of assets and liabilities An analysis of the total assets employed and total liabilities as at the year end ,based on the remaining period at the reporting date to the respective contractual maturity dates is given below.
Maturity period Up to 1-3 3-12 1-5 Over 5 Assets/Liabilities Total 1 month Months Months Years Years Rs. Rs. Rs. Rs. Rs. Rs. Interest earning assets Cash at bank 245,973,008 - - - - 245,973,008 Deposits with financial ------institutions Financial assets available for sale - Treasury Bills 39,914,099 239,564,063 106,865,242 - - 386,343,404 - Treasury Bonds - - - 18,221,181 36,243,070 54,464,251 - CRIB - - - - 2,500 2,500 Loans & receivables * - Pawning 972,102,785 535,897,619 752,609,743 - - 2,260,610,147 - Leasing 1,964,572 3,929,144 17,681,148 7,571,601 - 31,146,465 - HP 8,790,689 17,581,378 79,116,200 34,592,290 - 140,080,557 - Term Loans 28,142,056 53,648,248 343,176,773 525,651,219 - 950,618,296 1,296,887,209 850,620,452 1,299,449,106 586,036,291 36,245,570 4,069,238,628 Non interest earning assets Cash in hand 62,411,425 - - - - 62,411,425 Financial assets held at fair value 3,813,915 - - - - 3,813,915 through profit and loss Real estate stock - - 11,806,027 142,422,901 - 154,228,928 Gold stock - 48,635,177 - - 48,635,177 Property, plant & equipment - - - - 53,202,231 53,202,231 Investment property - - - - 35,675,000 35,675,000 Other assets - - - 61,767,395 5,147,538 66,914,933 66,225,340 - 60,441,204 204,190,296 94,024,769 424,881,609 Total assets 1,363,112,549 850,620,452 1,359,890,310 790,226,587 130,270,339 4,494,120,237 Percentage - 31st March 2014 32.05 19.87 28.11 17.21 2.76 100 Percentage - 31st March 2013 2.44 7.97 71.28 15.40 2.91 100
Bank overdrafts - 23,845,768 - - - 23,845,768 Deposits from customers 720,229,652 1,267,344,635 2,128,057,822 1,017,108,560 - 5,132,740,669 Interest bearing borrowings - - 102,000,727 - - 102,000,727 720,229,652 1,291,190,403 2,230,058,549 1,017,108,560 - 5,258,587,164 Non interest bearing assets Other liabilities 94,118 188,240 847,080 1,418,380 37,802,523 40,350,341 Equity - - - - (804,817,268) (804,817,268) 94,118 188,240 847,080 1,418,380 (767,014,745) (764,466,927) Total liabilities 720,323,770 1,291,378,643 2,230,905,629 1,018,526,940 (767,014,745) 4,494,120,237 Percentage - 31st March 2014 16.03 28.73 49.64 22.66 (17.07) 100 Percentage - 31st March 2013 13.48 17.96 40.61 18.84 9.11 100
* Loans and receivables are reported net of impairment
60 Swarnamahal Financial Services PLC Annual Report 2013/2014
Notes to the Financial Statements (Contd.)
40. Segmental information
As at 31st March Pawning Other Total All Amounts in Sri Lanka Rupees
Income Interest income 812,900,813 245,078,296 1,057,979,109 Other income (694,151,214) (148,244,364) (842,395,578) Total income 118,749,599 96,833,932 215,583,531 Percentage 76.84% 23.16% 100%
Less : Interest 625,239,858 188,501,126 813,740,984 Other expenses 495,178,287 149,289,371 644,467,658 Total expenses 1,120,418,145 337,790,497 1,458,208,642 Profit before taxation (1,001,668,547) (240,956,565) (1,242,625,111) Less : income tax - (2,558,265) (2,558,265) Profit after taxation (1,001,668,547) (243,514,829) (1,245,183,376)
Segment assets 2,309,245,326 2,184,874,910 4,494,120,237 Percentage 51.38% 48.62% 100% Segment liabilities 2,722,790,228 2,563,800,909 5,298,937,505
For the year ended 31st March 2013
Income Interest income 1,168,702,500 162,043,188 1,330,745,688 Other income (15,373,693) 24,702,737 9,329,044 Total income 1,153,328,807 186,745,925 1,340,074,732 Percentage 87.82% 12.18% 100%
Less : Interest 697,823,363 96,754,754 794,578,117 Other expenses 305,250,924 42,323,716 347,574,640 Total expenses 1,003,074,287 139,078,470 1,142,152,757 Profit before taxation 150,254,520 47,667,456 197,921,976 Less : income tax (66,888,718) (9,274,269) (76,162,987) Profit after taxation 83,365,802 38,393,187 121,758,989
Segment assets 4,663,929,273 1,438,766,049 6,102,695,322 Percentage 76.42% 23.58% 100% Segment liabilities 4,332,698,026 1,336,585,196 5,669,283,222
61 Swarnamahal Financial Services PLC Annual Report 2013/2014
Eight Years at a Glance
Year Ended 31st March 2007 2008 2009 2010 2011 2012 2013 2014 (Audited)
Profit performance
Gross Income 155 190 309 425 714 1,078 1,340 216 Interest Income 164 256 417 706 1,061 1,332 1,058 Interest Expenses 1 151 228 274 383 529 794 814 Interest on customers deposits 102 151 228 274 363 502 762 784 Interest on other borrowings - - - - 20 27 32 30 Net Interest Income 40 13 28 143 323 532 537 244 Other Income 13 26 53 8 8 17 9 (842) Operating Expenses * 48 78 93 121 230 315 325 277 Impairment charges/ (reversals) for loans and other losses - - - 4 16 (27) 1 353
Profit before tax (PBT) 5 (39) (12) 26 (25) 261 220 (1,228)
Income Tax & Other Tax expenses ** 2 - - 9 49 102 98 17
Profit after tax (PAT) 3 (39) (12) 17 (74) 159 122 (1,245) Other comprehensive income for the year, net of tax - - - - (1) (6) 1 8
Total comprehensive income for the year 3 (39) (12) 17 (75) 153 123 (1,237)
Assets
Cash and cash equivalents 5 88 55 122 130 205 104 308
Investments In Government Securities 104 124 148 126 183 339 449 441
Other Investments 114 153 156 130 68 75 80 40
Pawning Gold Jewellery - 6 84 864 2,714 3,694 4,610 2,261
Hire Purchase Receivable - 53 87 211 192 219 227 140
Lease rentals receivable 4 20 21 23 31 42 54 31
Other Loans & Advances 545 569 505 304 233 189 217 950
Value of non performing Advances - - - 9 11 13 530 1,280
Other Trading Stock 49 172 263 272 243 274 220 203
Other Receivables 40 104 256 245 80 71 70 67
Fixed assets 72 82 89 122 74 86 72 53
Total Assets 933 1,371 1,664 2,419 3,948 5,194 6,103 4,494
Liabilities
Fixed Deposits 682 1,120 1,285 1,896 3,502 4,456 5,345 5,068
Savings 11 18 65 48 50 50 55 65
Borrowings (Refinance) - - - 100 102 215 162 102
Other Liabilities 32 64 157 144 138 164 109 64
62 Swarnamahal Financial Services PLC Annual Report 2013/2014
Total Liabilities 725 1,202 1,507 2,188 3,792 4,885 5,671 5,299 Shareholders’ Funds
Stated Capital 200 200 200 250 250 250 250 250
Reserves 8 (31) (43) (19) (94) 59 182 (1,055)
Total Shareholders’ Fund 208 169 1 5 7 231 156 309 432 (805)
Total Equity and Liabilities 933 1371 1664 2419 3 , 9 4 8 5,194 6,103 4,494
Other Information
Number of Staff as at 31st March 42 69 83 131 196 198 135 112
Number of Branches & Pawning Centers 4 4 9 11 15 17 17 17 Ratios
Growth of Income -9.4% 22.6% 62.6% 37.5% 68.0% 51.0% 24.2% -83.9%
Cost to Income Ratio 90.6% 200.0% 114.8% 80.1% 69.5% 57.4% 60.6% 458.6%
Growth of Deposits -27.4% 64.2% 18.6% 44.0% 82.7% 26.9% 19.8% -4.9%
Growth of Advances -45.6% 18.0% 7.6% 101.1% 126.1% 30.7% 23.3% -33.8%
ROA (before Tax) 0.5% -3.4% -0.8% 1.3% -0.8% 5.7% 3.9% -23.2%
ROA (After Tax) - -3.8% -0.8% 0.8% -2.3% 3.5% 2.2% -23.5%
ROE (after Tax) 1.6% -20.7% -7.4% 8.8% 38.8% 65.8% 33.2% -200.0%
Advances to Deposits & Borrowings 80.5% 57.9% 54.2% 70.2% 88.0% 88.7% 92.8% 65.4%
Total Assets to Shareholders funds (times) 4.5 8.1 10.6 10.5 25.3 16.8 14.1 -5.6
EPS (after Tax) (Rs.){considered Subdivision} 0.01 -0.10 -0.03 0.03 0.15 0.32 0.24 -2.49
Net Asset Value P.S. (Rs.) {considered Subdivision} 0.52 0.42 0.39 0.46 0.31 0.62 0.87 -1.61
Interest Cover (times) 1.4 1.1 1.1 1.5 1.8 2.0 1.7 1.3
Net Interest Margin 4.8% 1.8% 3.5% 12.1% 13.2% 13.6% 10.7% 5.2%
Net Interest Spread *** 3.6% 2.9% 8.3% 15.2% 14.4% 14.0% 10.7% 7.2%
Liquid Assets Ratio 15.7% 18.6% 13.6% 11.9% 8.4% 11.2% 9.0% 13.0%
Government Security / TB Ratio 11.9% 12.6% 12.4% 8.6% 10.0% 11.1% 10.1% 7.1%
NPL Ratio 0% 0% 0% 0.64% 0.35% 0.31% 10.2% 30.95%
Core Capital Ratio 28.8% 16.8% 12.9% 16.0% 10.3% 17.4% 22.3% -43.0%
Total Risk Weighted Capital Ratio 28.8% 16.8% 12.9% 23.7% 16.9% 21.8% 25.3% -40.9%
* Ratios for the FY’s before 2011 have been calculated based on the Financial Statement prepared in accordance with the SLAS.
63 Swarnamahal Financial Services PLC Annual Report 2013/2014
Share Information
1. Colombo Stock Exchange
The Company’s Ordinary Voting shares were listed on the “DiriSavi” Board of the Colombo Stock Exchange with effect from 26th May 2011.
The interim financial statements of the Company were submitted to the Colombo Stock Exchange within two months from the reporting date.
2. Twenty largest Ordinary Shareholders as at 31st March 2014
No. of Percent- Names Shares age (%) M/s ETI Finance Ltd 450,000,100 90.00 Mr. W.A.S.P. De Saram 8,054,009 1.61 M/s Awis Holdings (Private) Ltd. 4,173,133 0.83 Mrs. N. Muljie 2,148,580 0.43 Mrs. T.H. Fernando 2,144,615 0.43 Mr. P.A. Anil 1,334,300 0.27 Mr. W.A.K.D. Saparamadu 670,608 0.13 Mrs. F.R. Rafaideen 575,000 0.11 Mr. K.L. Udayananda 536,843 0.11 Mr. R.E. Rambukwelle 505,000 0.10 Mr. J.M.I. Jayaweera 500,682 0.10 M/s Seylan Bank PLC/Mr.S.N.C.W.M.Bandara Chandrasekera Kandegedara 484,000 0.10 Mrs. S.S.Navaratnam 456,235 0.09 Mr.R.M.I. Rajapaksa 451,964 0.09 Mr. A.Y. Gunawardane 450,000 0.09 Mr. H.A. Van Starrex 400,000 0.08 Mr. H.W.M. Woodward 390,400 0.08 Mr. T. Rajasekaran 375,000 0.07 Mr. S.N.C.W.M.B.C. Kandegedara 350,000 0.07 Mrs. F.F. Hamid 318,377 0.06 Others 25,681,294 5.15 Total Shares 500,000,140 100.00
The stated Capital of the company consisting solely issued and fully paid up Ordinary Voting Shares of 500,000,140 as at 31st March 2014.
3. Market Price of an Ordinary Share
31st March 2014 31st March 2013 Highest 2.80 4.00 Lowest 2.00 3.10 Closing 2.10 3.20
No. of Ordinary Voting Shares 500,000,140 500,000,140
64 Swarnamahal Financial Services PLC Annual Report 2013/2014
4. Number of Ordinary Shareholders as at 31st March 2014
Resident Non Resident Total Share Number of Percent- Holdings Number of No of Percentage Number of No of Percentage Sharehold- No of Shares age Shareholders Shares (%) Shareholders Shares (%) ers (%) 1 to 1000 844 334,172 0.07 1 100 0.00 845 334,272 0.07 1001 to 10,000 912 4,034,331 0.81 4 34,800 0.01 916 4,069,131 0.82 10,001 to 100,000 460 14,593,863 2.92 2 102,719 0.02 462 14,696,582 2.94 100,001 to1000,000 53 12,065,293 2.41 3 980,125 0.20 56 13,045,418 2.61 Over 1,000,000 5 465,710,122 93.13 1 2,144,615 0.43 6 467,854,737 93.56 Total 2,274 496,737,781 99.34 11 3,262,359 0.66 2,285 500,000,140 100
Categories of shareholders No. of Shareholders No. of Shares Percentage (%)
Individuals 2,236 43,846,887 8.77 Institutional 49 456,153,253 91.23 Total 2,285 500,000,140 100
Public holding as a percentage of Issued Share Capital as at 31st March 2014 10.00%
65 Swarnamahal Financial Services PLC Annual Report 2013/2014
Our Network
FULLY FLEDGED BRANCHES No Branch Address Tele No. 01 Batticaloa No. 190, 065-2222880 Trincomalee Road, Batticaloa 02 Chilaw No.24A, Bazaar Street, 032-2224888 Chilaw Jaffna 03 Hatton No.15, Main Street, 051-2224466 Hatton 04 Jaffna No.338, Hospital 021-2220245 Road, Jaffna 05 Kandy No.156, Kotugodella 081-2226126 Street, Kandy 06 Kollupitiya No.654, Galle Road, 011-2556160-4 Colombo 03 Vavuniya 07 Negombo No.93, Rajapaksha, 031-2222619 Broadway, Negombo Trincomalee 08 Nugegoda No.31, St. Thilakarat- 011-2810666 na Mw, Nugegoda 09 Ratnapura No.15, Main Street, 045-2226270 Ratnapura 10 Trincomalee No.31, Central Road, 026-2226677 Trincomalee 11 Vavuniya No.141, Kandy Road, 0242226233 Vavuniya Batticaloa PAWNING CENTRES Chilaw No Branch Address Tele No. 12 Aluthgama No.164, Galle Road, 034-2271775 Aluthgama Kandy Negombo 13 Gampaha No.16, Market Street, 033-2248444 Ja-ela Gampaha Gampaha Ragama Hatton Wattala 14 Ja-Ela No.120, 011-2249085 Sea Street Kollupitiya Negombo Road, Ja- Ela Nugegoda 15 Ragama No.62A, 011-2957053 Ratnapura Tewatte Road, Ragama 16 Sea Street No. 05, Jampettah Street, 011-2452245 Aluthgama Colombo 13 17 Wattala No.416, 011-3193340 Negombo Road, Wattala
66 Swarnamahal Financial Services PLC Annual Report 2013/2014
Notice of Meeting
Notice is hereby given that the Nineth (09th) Annual General Meeting of Swarnamahal Financial Services PLC will be held at Hotel Sapphire, No. 371, Galle Road, Colombo 06 on Tuesday, the Thirtieth (30th) day of September 2014 at 10.30 a.m. for the following purposes.
1 To consider and adopt the Annual Report of the Board of Directors on the Affairs of the Company and the Statements of Accounts for the year ended 31st March 2014 with the Report of the Auditors thereon.
Jaffna 2. To re-elect Mr. B. G. Wimalarathna Banda who in terms of Article 20(5)of the Articles of Association of the Company retires by rotation at the Annual General Meeting as a Director.
3. To re-elect Mr. S. M. Ganegoda who in terms of Article 20(5)of the Articles of Association of the Company retires by rotation at the Annual General Meeting as a Director.
4. To re-appoint Messrs KPMG, Chartered Accountants as the Auditors for the ensuing year and authorize the Directors to determine their remuneration. Vavuniya 5. To authorize the Directors to determine contributions to charities for the Financial Year ending 31st March 2015. Trincomalee
BY ORDER OF THE BOARD S S P CORPORATE SERVICES (PRIVATE) LIMITED
Secretaries Batticaloa No.101, Inner Flower Road, Colombo 03. Chilaw 01st September 2014
Kandy Note:- Negombo Ja-ela Gampaha A member is entitled to appoint a proxy to attend and vote instead of himself/herself and a Proxy need not be a member Ragama Hatton WattalaSea Street of the Company. Kollupitiya Nugegoda A Form of Proxy is enclosed for this purpose. The instrument appointing a proxy must be deposited at the Registered Office Ratnapura of the Secretaries, S S P Corporate Services (Pvt) Ltd .101, Inner Flower Road, Colombo 03.
Aluthgama 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.
67
Swarnamahal Financial Services PLC Annual Report 2013/2014
Form of Proxy
I/We...... ……………………………………………………………………………………….…………………………………………...... …of …………………………………………………………………...... being a member/members of Swarnamahal Financial Services PLC hereby appoint :
Mr. J.H. Edirisinghe or failing him Mr. N. P. Edirisinghe or failing him Mrs. A.D. Edirisinghe or failing her Mr. A.S. Edirisinghe or failing him Mr. S. Kariyawasam or failing him Mr. S.D. Jayawardhana or failing him Mr. B.G. Wimalaratna Banda or failing him Mr. S.M. Ganegoda or failing him
...... of...... , holder of ...... (National Identity Card Number) as* my/our proxy, to represent *me/us and to vote as indicated hereunder for *me/us on *my/our behalf at the Annual Meeting of the Company to be held at Hotel Sapphire No.371, Galle Road, Colombo 6 on Tuesday, the Thirtieth (30) day of September 2014 at 10.30 a.m. and at any adjournment thereof and at every poll which may be taken in consequence thereof:
For Against 01. To consider and adopt the Annual Report of the Board of Directors on the Affairs of the Company and the Statements of Accounts for the year ended 31st March 2014 with the Report of the Auditors thereon.
02. To re-elect Mr. B. G. Wimalarathna Banda who in terms of Article 20(5) of the Articles of Association of the Company retires by rotation at the Annual General Meeting as a Director.
03. To re-elect Mr. S. M. Ganegoda who in terms of Article 20(5) of the Articles of Association of the Company retires by rotation at the Annual General Meeting as a Director.
04. To re-appoint Messrs KPMG, Chartered Accountants as the Auditors for the ensuing year and authorize the Directors to determine their remuneration.
05. To authorize the Directors to determine contributions to charities for the Financial Year ending 31st March 2015.
Signed this ...... day of ...... Two Thousand and Fourteen.
Signature of the shareholder: …………………………….
Note :
(a) *Please delete the inappropriate words. (b) Instructions are noted on the reverse hereof.
69 Swarnamahal Financial Services PLC Annual Report 2013/2014
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 an ‘X’ in the cages provided how your proxy is to vote on the Resolutions. If no indication is given, the proxy in his/her discretion may vote as he/she thinks fit.
3. A Proxy for a Shareholder is entitled to attend and be heard at a meeting of shareholders as if the proxy was the shareholder.
4. In case of a Company or corporate body, the form of Proxy must be completed and signed under its Common Seal, which should be affixed and attested in accordance with the Articles of Association or the Constitution of that Company or corporate body.
5. In case of a proxy signed by an Attorney, the original or a certified copy of the Power of Attorney should also accompany the completed Form of Proxy, in the manner prescribed in the Articles of Association.
6. Every alteration or addition to the Proxy must be duly authenticated by the shareholders with the full signature. Such signature should as far as possible be placed in proximity to the alteration.
7. The completed Proxy should be deposited at the registered office of the Secretaries, at No. 101, Inner Flower Road, Colombo 03, not less than 24 hours before the time appointed for holding of the Meeting.
Note:
If the shareholder is a Company or body corporate, Section 138 of Companies Act No.7 of 2007 applies to Corporate Shareholders of Swarnamahal Financial Services PLC. Section 138 provides for representation of Companies at meetings of Companies. A Corporation, whether a Company within the meaning of this Act or not, may - where it is a member of another Corporation, being a Company within the meaning of this Act, by resolution of its Directors or other governing body authorized as aforesaid - shall be entitled to exercise the same power on behalf of the Corporation which it represents, as that Corporation could exercise if it were an individual shareholder.
70 Corporate Information
Name of the Company Company Secretary Swarnamahal Financial Services PLC SSP Corporate Services (Pvt) Ltd No. 101, Inner Flower Road, Colombo 03 Legal Form A Public Limited liability Company incorporated 14th Auditors January 2004, under the Companies Act No.17 of Messrs KPMG 1982 and re-registered 16th September 2008 under the Chartered Accountants Companies Act No.7 of 2007, registered as a Finance 32A, Sir Mohamed Macan Markar Mawatha, Company under the Finance Business Act No. 42 of Colombo 3. 2011 by the Monetary Board of the Central Bank of Sri Lanka. Bankers Commercial Bank of Ceylon PLC Registered Office Sampath Bank PLC No.676, Galle Road, Colombo 03. Seylan Bank PLC Hatton National Bank PLC Business Office No. 654, Galle Road, Colombo 03 Principal Activities Tel : 011 2556160-4 Fax: 011 2595062 Fixed Deposits E-mail : [email protected] web: www.sfs.lk Savings and Minors’ Savings Accounts Gold Loan services Board of Directors Finance Leases Mr. J.H. Edirisinghe Hire Purchase and Mr. N.P. Edirisinghe Term Loan facilities Mrs. A.D. Edirisinghe Mr. A.S. Edirisinghe Mr. S. Kariyawasam Mr. S.D. Jayawardhana Mr. B.G. Wimalaratna Banda Mr. S.M. Ganegoda
Company Registration No. PB 594 PQ
VAT Registration No. 114363510 – 7000
Credit Ratings B-/NP RAM Ratings (Lanka) Limited
Number of employees 108 PLC A trust etched in gold An E A P Group of Company
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