Swarnamahal Financial Services PLC | Annual Report 2012/2013 Swarnamahal
creating SYNERGY
No 654, Galle Road, Colombo 03, Sri Lanka. Tel.011 2556160-4, 2595061 Fax: 011 2589823, 2595062 Swarnamahal Financial Services PLC E-mail:[email protected] Web.www.sfs.lk Annual Report 2012/13 About us Swarnamahal Financial Services PLC is a Public Limited Liability Company Incorporated in Sri Lanka on 14th January 2004, under the Companies Act No.17 of 1982, and re-registered on 16th September 2008 under the Companies Act No.7 of 2007. The Company is licensed by the Monetary Board of the Central Bank of Sri Lanka under the Finance Business Act No.42 of 2011 and listed on the Corporate Information Colombo Stock Exchange.
Name of the Company Number of employees Contents. . . Vision Swarnamahal Financial Services PLC 137 To be the Premier Financial Services Provider in the LFC market. Legal Form Company Secretary Financial Highlights 2 A Public Limited liability Company SSP Corporate Services (Pvt) Ltd th Chairman’s Message 4 incorporated 14 January 2004, under No. 101, Inner Flower Road, Colombo 03 the Companies Act No.17 of 1982 and Director/Chief Executive Officer’s Message8 re-registered 16th September 2008 under Auditors Board of Directors 12 Mission the Companies Act No.7 of 2007, registered Messrs KPMG Senior Management Team 14 To create superior long - term value to our shareholders, as a finance Company under the Finance Chartered Accountants Management Discussion and Analysis 16 customers and employees above the industry standard. Business Act No. 42 of 2011 by the 32A, Sir Mohamed Macan Markar Mawatha, Sustainability Report 19 Monetary Board of the Central Bank of Sri Colombo 3. Risk Management 21 Lanka. Corporate Governance 26 Bankers Annual Report of the Board of Directors 52 Registered Office Commercial Bank of Ceylon PLC Directors’ Statement on Internal Control 57 Values No.676, Galle Road, Colombo 03. Sampath Bank PLC Seylan Bank PLC Statement of Directors’ Responsibilities in Relation Highest standards of ethics and integrity Business Office Hatton National Bank PLC to Financial Statements 58 • Always do the right thing and keep commitments. No. 654, Galle Road, Colombo 03 Chief Executive Officer’s and Senior Finance • Engage others to build trust and encourage strong Tel : 011 2556160-4 Fax: 011 2595062 Manager’s Statement of Responsibility 60 E-mail : [email protected] web: www.sfs.lk communication. Board Audit Committee Report 61 • Listen and share as a team Board Integrated Risk Management Committee Board of Directors Report 63 Respect Mr. J.H. Edirisinghe Board Human Resources and Remuneration Mr. N.P. Edirisinghe • Respect all through trust, courtesy and open communication Committee Report 65 Mrs. A.D. Edirisinghe Mr. A.S. Edirisinghe Independent Auditor’s Report 67 Innovation and continuous improvements Statement of Comprehensive Income 68 Mr. S. Kariyawasam • Anticipate customer needs and work to exceed their Mr. S.D.Jayawardhana Statement of Financial Position 69 expectations Mr. B.G. Wimalaratna Banda Statement of Cash Flow 70 Mr. S.M. Ganegoda Statement of Changes in Equity 71 Service Excellence Notes to the Financial Statements 72 • Commitment to achieve the highest standard of services Company Registration No. Seven Years at a Glance 116 quality with personalized services. PB 594 PQ Share Information 117 Glossary of Financial Terms 119 Learning focused VAT Registration No. Our Network 122 • Search new knowledge for innovations. 114363510 – 7000 Notice of Meeting 123 Credit Ratings Form of Proxy 127 BB+/NP RAM Ratings (Lanka) Limited creating SYNERGY
Teamwork is equal parts commitment, a shared vision and the enthusiasm to reach goals as one unit and this year we are celebrating the unity we have created within the company and the group in achieving our objectives. With a team that is dedicated to delivering value and the right leadership to steer its course we are creating synergies that are guaranteed to lead to our future success. Swarnamahal Financial Services PLC Annual Report 2012/13 2
Financial Highlights
2012/13 2011/12 Change %
Financial Performance for the year (Rs. Mn) Gross Income 1,340 1,079 24.2 Net Profit before Tax (PBT) 220 262 (16.0) Income Tax Expense 98 102 (3.9) Net Profit after Tax (PAT) 122 159 (23.3)
Financial Position at the year end (Rs. Mn) Total Assets 6,103 5,194 17.5 Pawning Advances 4,610 3,694 24.8 Other loans and advances 498 450 10.7 Deposits 5,400 4,506 19.8 Shareholders’ Funds 433 309 40.3
Information per Ordinary Share (Rs.) Earnings 0.24 0.32 (25.0) Net Asset Value 0.87 0.62 40.3
Key Indicators Return on Average Shareholders’ Funds (%) 33.5 65.7 (49.0) Return on Average Assets(%) 2.2 3.3 (33.3) Cost to Income Ratio (%) 59.3 49.8 19.1
Capital Adequacy Ratios Core Capital Ratio-Tier I (%) 22.3 17.4 28.2 Total Risk weighted Capital Ratio -Tier II (%) 25.3 21.8 16.1
Statutory Ratios Shareholders’ Funds to Deposits (%) 8.01 6.9 15.9 Liquid Assets Ratio (%) 9.0 11.2 (19.6) Swarnamahal Financial Services plc 3 Annual Report 2012/13
Gross Income Total Assets Rs. mn Rs. Mn. 1,340 7,000
6,000
5,000 6,103 Rs. mn Net Profit (PAT) 4,000 5,194 3,000
122 3,948
2,000
1,000
0 Rs. mn Total Assets 11 12 13 6,103 Year
Profit Before Taxation Profit After Taxation Cost to Income Ratio Rs. Mn. Rs. Mn. % 300 200 80
70 250 150 262 160
60 69.5 200 220 100 122
50 59.5 150 57.3 50 40 100 30 0 50 20 -50 0 10 -74 -25 -50 -100 0 11 12 13 11 12 13 11 12 13 Year Year Year
Total Deposits Pawning Advance Shareholder’s Funds Rs. Mn. Rs. Mn. Rs. Mn. 6,000 5,000 500
4,500 450 5,000 400 4,000 4,610 433 5,400 350 4,000 3,500
4,506 300 3,000 3,694
3,000 250 309
3,552 2,500 200 2,714 2,000 2,000 150 1,000
100 156 1,000 500 50 0 0 0 11 12 13 11 12 13 11 12 13 Year Year Year Swarnamahal Financial Services PLC Annual Report 2012/13 4
Chairman’s Message
Supported by the synergies of the group’s restructuring, we would be able to secure a significant cost advantage for the company, while ensuring a higher standard of oversight and controls, in relation to all aspects of the company’s operations.
J.H. Edirisinghe Chairman Swarnamahal Financial Services plc 5 Annual Report 2012/13
A new phase of growth Dear Shareholders, It gives me a great pleasure to welcome you to the 08th Annual General Meeting has been mapped out of Swarnamahal Financial Services PLC and to present you the Audited Financial Statements and the Annual Report for the year ended 31st March 2013. for the company in line I am happy to announce that we were able to achieve a commendable with the far reaching profit for the year, as a result of taking prompt actions in line with a sudden, vision of the sharp downturn in gold prices in the global market and the hard work of the management team and of the Board. I also take this opportunity to announce EAP Group, to ensure structural changes have been placed in the company, in line with overall Group strategy, and a diversification plan aimed at ensuring strong and sustainable greater value for all growth into the future. Therefore, the new financial year is named as the “Year of Consolidation” for the Group and the Company, where the Company will also stakeholders of the realign its operational strategies and strengthen its presence in new and existing Company. This includes markets. structural changes Global developments The most significant global development that affected our operations was the in encompassing the continuous drop in gold prices during the financial year 2012/13, after years of strong gains, gold prices started decreasing towards the end of 2012 and entire Group that will continued to remain on a declining trend at the end of the current financial modernise internal year, by March 31, 2013. This downward trend in gold prices was due to a number of reasons. During the global commodity bubble, gold prices peaked at operations and the around US$ 1,900 per ounce, in international markets in 2011. The uncertainty surrounding the global economic situation after the global financial crisis in 2008, Group synergies will and the sovereign debt problems in the Eurozone, fuelled this strong increase in gold prices, as Investors turned to gold as a safe haven. At the same time, the enhance the growth slowdown in the global economy, prompted central banks across the world to opportunities of the lower interest rates in an attempt to boost economic growth. Last year,according to the World Gold Council, central banks’ gold purchases rose to 48 percent and Company through a represented 12% of global demand. This situation too, increased the demand for gold, as a higher return investment, which also contributed towards pushing clear strategic direction. up gold prices. However, this situation reversed at the end of the year 2012, when the US economy indicating slow but steady signs of recovery and the policy change by the US Federal Reserve. The risks surrounding the Euro zone too, started to abate, increasing investor confidence in these two major markets. These developments lifted pressure on international gold prices and the impact was felt in the form of tumbling gold prices as investors started to shed their gold holdings.
Local economic developments In early 2012, the Central Bank and the Government implemented a comprehensive policy package to strengthen the macro economy. The resultant tight policy environment and the sluggish global economy slowed Swarnamahal Financial Services PLC Annual Report 2012/13 6
Chairman’s Message contd.
down aggregate demand in 2012, and ceiling and reduced benchmark interest rates. However, the company did not this situation was compounded by benefit from the interest rate reduction during the financial year. unfavourable weather conditions in the country that disrupted agricultural outputs Meanwhile, gold prices started declining from November 2012, the gold prices and significantly reduced hydro power dropped by 15% approximately by the end of March 2013 while there was some generation. However, the Sri Lankan relief due to rupee depreciation but it was not a significant deterrent against economy indicated a commendable the sharp deceleration of gold prices. As 80% of our portfolio is on gold related performance in 2012 by recording a lending, this drop in gold prices had a significant impact on our operations. Due to growth of 6.4%. All key sectors contributed a lower rate of redemption of gold articles by the customers, during the financial positively to this economic growth with year, the Company has also made a provisioning as impairment of gold advances, the industrial sector driving growth at amounting to the value of Rs. 84 million for the financial years 2010/11, 2011/12 10.3% supported by a 21% growth in and 2012/13, as per Sri Lanka Accounting Standards. the construction sub sector, reflecting the massive public investment programme and Nevertheless, despite these severe drawbacks, your Company reported a profit several private sector real estate projects. after tax of Rs. 122 million. This is a 23.7% reduction in profitability compared to The Service sector growth moderated to the previous financial year. However, we have already initiated a recovery plan for 4.6% in 2012, from 8.6% in 2011. Despite our gold portfolio and mapped out a new strategic direction for the Company, adverse weather conditions in the second under a new vision of growth for the future. half of the year, the agriculture sector performed better in 2012, with the rate of The stock market continued its downward trend until end August 2012 but growth increasing to 5.8% from 1.4% in showed signs of a turnaround in September 2012. Increased interest rates, limits 2011. The external sector strengthened imposed on stock brokers’ credit, lack of market liquidity, as well as the spill over during the year benefiting from the policy effects of the developments in global financial markets, contributed to decline in measures that were adopted in early 2012. stock prices. Import expenditure declined by 5.4% and the trade deficit contracted to 15.8% of Strategic realignment GDP in 2012 from 16.4% in 2011. A new phase of growth has been mapped out for the Company in line with the far reaching the vision of the EAP Group, to ensure greater value for all stakeholders Company performance of the Company. This includes structural changes in encompassing the entire During the financial year 2012/13, our Group that will modernise internal operations and the Group synergies will performance was significantly affected by enhance growth opportunities through a clear strategic direction. declining gold prices and the rising cost of borrowing. Under the new Group configuration, the entire structure of the Company will be overhauled to allow centralised management of non-core activities. As part In February 2012, the Central Bank raised of this development, all Company back office functions will be out sourced to interest rates and imposed an 18% cap on the Business Process Outsouring Company (BPO), an arm of the EAP Group, commercial bank credit growth. The credit Swarna Solutions. The BPO operation is equipped with the SAP accounting ceiling and the high demand for borrowings system that facilitates central processing of the entire Group’s finances, resulted a rising interest rate trend during inventory Management and has the capability to manage human resources the year. This situation resulted in an and other ancillary services for the entire Group. Therefore, internal operations approximately Rs. 100 million increase in such as accounting, auditing, legal services and human resource management our cost of borrowing. In December 2012, functions, will in future be provided for the entire Group, by Swarna Solutions. the Central Bank eliminated the credit The new structure would enable us to secure a significant cost advantage for the Swarnamahal Financial Services plc 7 Annual Report 2012/13
Company, while ensuring consistent and The proposed new corporate structure of common centralised services has the a high standard of oversight and controls, potential to ensure high cost savings, together with higher operational efficiencies in relation to all aspects of Company’s and employee productivity. With the outsourcing of non-core activities, the operations. management will now be able to focus on developing our core business of financial services. Under these favourable conditions, we plan to enter the To address the current business climate factoring market and expand our market share in the leasing, hire purchase and of declining gold prices, we have already mortgage loan markets. We expect higher prospects, particularly in light of the initiated a comprehensive recovery and growing demand for financial services in emerging rural areas and the rapidly growth strategy that will also address developing Northern and Eastern provinces. Therefore, I am confident of making potential market volatilities in the future. In headway in the new diversified market segments within a short period of time, line with this strategy, we have restructured and our shareholder would see further enhanced value in the future. our gold lending portfolio by discontinuing pawning activities and enhancing short term Appreciations gold loan facilities. This initiative will mitigate I would like to take this opportunity to make a special note of appreciation for lending risk, through short term lending Mr. J.F.G. De Silva, Mr. S.A. Weerasinha , Mr. D.S. Abeyratna and Mr. N.G.M. options and will be able to comfortably De Silva who have left the Board after many years of service. I extend my accommodate future volatility in gold prices. warmest regards and appreciations to them for their dedicated services and valuable advices provided over the years. I also welcome to the Board Mr. S.D. In view of ensuring long term growth and Jayawardhana, Independent Non-Executive Director, Mr. S. Kariyawasam, the increase of shareholder value, we have Non-Executive Director and Mr. B.G. Wimalarathna Banda- Independent Non- also launched a new diversification plan Executive Director. where, we will diversify our operations into the areas of factoring and increase our I extend my gratitude to the Board of Directors and the Management of the presence in the leasing, hire purchase and Company, and all employees, for their commitment towards the success of mortgage loan markets. We are also in the the Company. I look forward to their ongoing support during the new phase of process of divesting our interests in real growth mapped out for the company from the ensuing financial year. estate, to ensure stronger focus on our core activities as a financial services provider.
Future direction In line with the group strategy, the new J.H. Edirisinghe financial year is named as the “Year Chairman of consolidation” for the Company, with extensive internal changes and 21st August 2013 improvements, where we would be able to ensure positive long term results in the form of higher returns for all stakeholders. I am confident the changes envisaged under our new corporate vision will ensure sustainable growth in the coming years, through greater cost advantages, new revenue streams and stronger portfolio management. Swarnamahal Financial Services PLC Annual Report 2012/13 8
Director/Chief Executive Officer’s Message
I am happy to announce that your company has recorded a significant performance during the financial year 2012/13, despite unfavourable business conditions that prevailed throughout the year.
S.M. Ganegoda Director/Chief Executive Officer Swarnamahal Financial Services plc 9 Annual Report 2012/13
We plan to expand It gives me a great pleasure to present the Annual Report of SFS for the financial year 2012/13 our presence in the I am happy to announce that your company has recorded a significant performance during the financial year 2012/13, despite unfavourable business financial service market conditions that prevailed throughout the year. The unexpected reversal of the gold Bull Run during the latter part of the year 2012 had a negative impact by entering the factoring on our operations, due to our heavy emphasis on gold based lending. Gold market and enhancing prices that were on a historic upward trend since 2008 started tumbling from November 2012. The price of a 24 karatage gold sovereign that was Rs. 61,000 our leasing and hire in September 2012, dropped to Rs. 59,000 in November 2012 and continued downwards to Rs. 56,000 in January 2013 and hit Rs. 52,000 in March 2013, purchase portfolios by losing nearly 17% in value within the span of just six months. This resulted in a sharp, but short term deterioration of our gold portfolio. However, I am happy 20% to 30% during the to announce that the company was able to contain the situation quickly, by new financial year. adjusting our business strategies in line with market changes. Having observed the negative trend, we initiated a phasing out of our pawning product and shifted the gold portfolio towards the more flexible gold loans system. Due to this quick reaction, we were able to contain losses and regain our revenue streams.
The rising interest rates experienced during the year meanwhile, resulted in a sharp increase in our cost of financing. The average Interest rate on customers’ deposits was increased from around 12.5 % to 16.5% during the financial year, resulted in an increase of our cost of borrowing nearly by Rs. 100 million. In addition, our gold portfolio was affected to the value of Rs. 15 million during the year due to the escalation of non-redemption rate from 5% to 20% during the second half of the year. These combinations resulted in experiencing lower profitability, during the second half of the financial year, as nearly 80% of our business portfolio is comprised of gold related lending. Therefore, our operating income for the year dropped to Rs. 545.5 million, compared to Rs. 548.8 million in the previous financial year. Our profit before tax stood at Rs. 197.9 million in the financial year 2012/13, compared to Rs. 233.4 million in the previous financial year and our profit after tax stood at Rs. 121.8 million in the current financial year compared to the Rs. 159.5 million in the previous financial year. However, our asset base indicated a strong growth of 17.5% (Rs. 909 million) during the year with the increase of our gold lending portfolio to Rs. 4.7 billion from Rs. 3.8 billion in 2011/12.
We are currently addressing our asset and liability mismatch through the expansion of short term gold loans and I am confident this situation will be neutralized over the next 6-7 months. The shorter lending cycles of 3 to 6 months will also provide an adequate flexibility to deal with any further fluctuations in gold prices. We have already taken steps to dispose the unredeemed gold stocks through Swarnamahal Jewellers (Pvt) Ltd, obtaining a higher bid per sovereign, to Swarnamahal Financial Services PLC Annual Report 2012/13 10
Director/Chief Executive Officer’s Messagecontd.
ensure lower losses. Nevertheless, we have also made an adequate provisioning for the gold portfolio. Despite the economic uncertainties experienced during the year, we were able to further ease our NPL ratio to 0.25% during the current financial year, from 0.3% in the previous year, due to our ongoing efforts to streamline debt collections.
Our fixed deposit portfolio was increased to Rs. 5.3 billion during the year, from 24% Rs. 4.5 billion in the last financial year. Due to the higher cost of bank credit, the fixed deposits were continued to remain as the chief source of funding for Growth in Gross Income the Company and indicated a higher customer demand. We also continued to provide credit facilities, under Finance Leases, Hire Purchase Facilities and Term Loans, for our customers.
Future forecast We are confident that the gold prices will be stabilised at Rs. 52,000 level during the later part of the year 2013. Therefore, under our current strategy of lending, with shorter maturity periods, our gold portfolio could be expected to fully recover during the year 2013 and we also anticipate a favourable exchange rate towards the gold prices in the ensuing year. The restructuring of the EAP Group will play an important role during the new financial year and will contribute significantly towards enhancing our operational capabilities. Under the Group restructuring plan, non core activities of the Company will be outsourced to the Group BPO 40% Company. This will facilitate to a greater focus by management and staff towards improving and enhancing the core area of businesses and their operations. We Growth in Shareholders’ Funds also anticipate lower cost structures through this process of shared services that would give us a significant cost advantage in the financial services market, which is becoming aggressive and extremely competitive.
Supported by the synergies of internal restructuring, we plan to expand our presence in the financial service market by entering the factoring market and increasing our share of the leasing and hire purchase markets. We plan to expand our market share by increasing our leasing and hire purchase portfolios by 20% to 30% during the new financial year, by leveraging the Swarnamahal brand name and our existing branch network. Therefore, in the new financial year, we will focus on strengthening our internal systems for greater efficiencies and strengthening our existing branch network to penetrate the leasing, hire purchase and factoring services markets. We will also maintain our current position in the gold market as a trusted and experienced player in this specialised area.
Acknowledgements At the end of a very challenging year, I must extend my gratitude towards the Board of Directors for their guidance in successfully navigating the complexities faced during the year. I express my sincere appreciation to Mr. J.F.G. De Silva, Swarnamahal Financial Services plc 11 Annual Report 2012/13
Mr. S.A. Weerasinha , Mr. D.S. Abeyratna and Mr. N.G.M. De Silva who left the Board after rendering many years of dedicated service to the Company. I also extend my gratitude to the management and the staff for their untiring drive, which was instrumental in safeguarding our bottom line. I would also like to thank our loyal customers and the shareholders for their continued patronage extended towards the success of our Company.
S.M. Ganegoda Director/Chief Executive Officer
21st August 2013 Swarnamahal Financial Services PLC Annual Report 2012/13 12
Board of Directors
1 2
3 5 6
7 8 Swarnamahal Financial Services plc 13 Annual Report 2012/13
He counts over 32 years of experience in the Banking and Financial sector and 1 Mr. J.H. Edirisinghe Chairman holds the Bachelor of Arts Degree, University of Ceylon, Peradeniya, LLB Degree, Open University of Sri Lanka, Post Graduate Diploma in Management, University Managing Director of EAP Edirisinghe Group of Sri Jayawardanapura. He is a member of Association of Bankers of Sri Lanka of Companies. He counts over 25 years of (A.I.B.) and FBA (Sri Lanka) Professional Banker’s Association of Sri Lanka. extensive experience in the fields of Gold, Jewellery, Finance, Electronic Media and He is a professional banker, primarily served at People’s Bank and retired as Management. the Deputy General Manager-Branch Operations and was the CEO/General Manager-CFL-TAFE Sri Lanka from May 2007 to May 2010. 2 Mrs. A.D. Edirisinghe Executive Director 6 Mr. S.D. Jayawardhana Director of EAP Edirisinghe Group of Independent Non- Executive Director ACA, FSCMA Companies, she counts over 20 years of Director Finance of EAP Holdings Limited and he holds Non Executive experience in the fields of Management and Directorships with ETI Finance Limited, Swarnamahal Jewellers (Pvt) Ltd, EAP Finance. Networks (Pvt) Ltd, Colombo Communications (Pvt) Ltd. EAP Films & Theaters (Pvt) Ltd, Swarna Solutions Limited and EAP RMS Insurance Brokers (Pvt) Ltd. 3 Mr. N.P. Edirisinghe Executive Director He counts over 25 years of experience in finance & management (12 years Director of EAP Edirisinghe Group of overseas) in the fields of in manufacturing, constructions, trading and finance. He Companies, he has an expert knowledge in is an associate member of The Institute of Chartered Accountants of Sri Lanka Gold and other precious metals and stones (ACA) and a fellow member of the Society of Certified Management Accountants and counts over 20 years of extensive of Sri Lanka (FSCMA). experience in the fields of Gold, Information Technology, Finance and Management. He has worked as a Management Consultant (2007-2011), Finance Director / Head Finance to Hemas FMCG (2006-2007), Rasasi Perfume Industry LLC, UAE 4 Mr. A.S. Edirisinghe (1998-2006), The Blantyre Netting Co. Ltd. Malawi (1995-1998) & CDE Group (not in picture) (1990-1994) and trained at KPMG (1985 -1990). Executive Director Director of EAP Edirisinghe Group of 7 Mr. B.G. Wimalarathna Banda Companies, he is a Finalist of the Chartered Independent Non-Executive Director B.Sc. (B.Admin-) Sp. AIB(SL) Institute of Management Accountants (UK) He counts over 37 years of experience in the banking field and holds the and a Member of the Film Association. Bachelor of Science (Business Administration) Sp. Degree, Vidyodaya University He counts over 20 years of experience in of Sri Lanka, Master of Arts (Buddhist Studies), University of Kelaniya and the fields of Film Industry, Gold, Information Diploma in Credit Management. He is an associate of the Institute of Bankers of Technology and Finance. Sri Lanka and the Institute of Credit Management of Sri Lanka.
5 Mr. S. Kariyawasam He is a professional banker, primarily served at People’s Bank and retired as the Non- Executive Director Assistant General Manager-Operation Coordinator- Core Banking Project and BA,LLB, AIB (SL) was the Operation Manager from 2005 to May 2007, at PABC Bank. He was the Executive Director/CEO of EAP Advisor-Banking from May 2007 to November 2012, at National Savings Bank. Holdings Limited and he holds Non Executive Directorships with ETI Finance 8 Mr. S.M. Ganegoda Limited, Swarnamahal Jewellers (Pvt) Director/CEO ACA, B.B. Mgt.(Acc.), ACMA Ltd,EAP Networks (Pvt) Ltd, Colombo He counts over 15 years of experience in the fields of Finance and Audit and Communications (Pvt) Ltd, EAP Films & holds the Business Management Degree from the University of Kelaniya and is Theaters (Pvt) Ltd, Swarna Solutions Limited an Associate Member of the Institute of Chartered Accountants of Sri Lanka and and EAP RMS Insurance Brokers (Pvt) Ltd. Institute of Certified Management Accountants of Sri Lanka. He was the General Manager Finance and Administration of Edirisinghe Trust Investments Limited (2006-2009). Swarnamahal Financial Services PLC Annual Report 2012/13 14
Senior Management Team
1 2 3 4
1 Mr. Sameera Ganegoda He counts over 15 years of experience in the fields of Finance and Audit and holds Director/CEO ACA, B.B. Mgt.(Acc.), the Business Management Degree from the University of Kelaniya and is an Associate ACMA Member of the Institute of Chartered Accountants of Sri Lanka and Institute of Certified Management Accountants of Sri Lanka. He was the General Manager Finance and Administration of Edirisinghe Trust Investments Limited (2006-2009).
2 Mr. Dhanuka Perera He counts over 12 years of experience in the fields of Pawning and Gold Sales and Senior Manager - Pawning & holds a Diploma in Business Management. Gold Sales
3 Mr. R.M.G. Ratnayake He counts over 09 years of experience in Financial Sector and holds the Degree of Senior Manager – Finance B.Sc. Accountancy & Financial Management (Special), from the University of Sri Jayawardenapura. He holds a Diploma in Treasury Management, Institute of Bankers of Sri Lanka.
4 Mr. George Samantha He counts over 09 years of experience in the fields of Banking and Finance and Senior Manager – Corporate holds the B.Sc Marketing Management (Special) Hons. Degree, from the University Relations of Sri Jayawardenapura and is a Member of the Chartered Institute of Marketing (MCIM). Swarnamahal Financial Services plc 15 Annual Report 2012/13
5 6
5 Mrs. Subhani Edirisinghe She counts over 12 years of experience in the field of deposit mobilization. She Manager - Deposit holds the B.Sc Business Administration (Marketing Special) Degree from the Mobilizations University of Sri Jayawardenapura.
6 Mr. Newton Fernando He counts over 14 years of experience in the field of Credit and holds the B.Sc Manager – Credit Business Administration (Special) Degree from the University of Sri Jayawardenapura.
7 Mr. R. Harendran He counts over 06 years of experience in the field of Audit and Assurance. He holds (Not in picture) the Bachelor of Business Administration (Special Finance Management) Degree from Manager – Internal Audit the University of Colombo and is an Associate Member of the Institute of Chartered Accountants of Sri Lanka. He counts over 04 years of experience at Ernst and Young (E&Y) Chartered Accountants. Swarnamahal Financial Services PLC Annual Report 2012/13 16
Management Discussion and Analysis
Overview India, are projected to record higher economic expansion, with China expected to Swarnamahal Financial Services PLC grow by 8% in 2013 and 8.2% in 2014, while India is expected to grow by 5.7% (SFS), is a public limited liability Company, in 2013 and 6.2% in 2014. incorporated on 14th January 2004, in Colombo, under the Companies Act No The Sri Lankan economy 17 of 1982 and re-registered under the The Central Bank followed a tight monetary policy stance during the year to Companies Act No.7 of 2007 on 16th contain high monetary expansion with the aim of reducing demand driven September, 2008. The Company is licensed inflationary pressures while supporting the strengthening of external sector by the Monetary Board of the Central Bank stability. The Central Bank raised its policy interest rates by 50 basis points of Sri Lanka under the Finance Business Act each, in February 2012, while allowing greater flexibility in the determination No.42 of 2011 and listed on the Colombo of the exchange rate. This was the first increase in policy interest rates since Stock Exchange. 2007. Subsequently, the Repurchase rate was further increased by 25 basis points to 7.75%, while the Reverse Repurchase rate was increased by 75 basis SFS is one of the fastest growing finance points to 9.75% in April 2012. The Central Bank also issued a Direction under companies in the non bank financial Section 101(1) of the Monetary Law Act in March 2012 informing licensed services sector of Sri Lanka, with a highly banks to restrict their rupee credit growth to 18%, or 23% with respect to banks trained, experienced staff. The company that finance the difference through funds mobilised abroad. At the same time, provides a wide array of financial services the government also took necessary measures to curb selected non-essential for both corporate and individual customers. imports as the prevailing high import demand was observed to be a source of These include fixed deposits, gold loan excessive credit expansion. services, leasing and hire purchase, term loans and savings and minors’ savings With these measures, credit growth decelerated sharply, thus helping the growth accounts. of money supply to moderate level from the second quarter onwards with the deceleration of credit extended to the private sector, and also considering Operating environment favourable inflation expectations in 2013, the Central Bank relaxed its monetary The global economy has entered a three- policy stance in December 2012, recording the shortest tightening cycle in recent speed recovery with emerging markets years. The Central Bank reduced its policy rates by 25 basis points to induce a and developing countries continuing along downward adjustment in market interest rates and also allowed the credit ceiling a reasonably robust growth trajectory, to expire at end 2012. This move is expected to provide an impetus to economic while advanced economies are expected activities in 2013. to record either slow progress or to record growth that is expected to remain in Financial sector performance negative territory, in 2013. As per the World The key indicators of the banking sector, such as capital adequacy and return Economic Outlook published by the IMF in on assets have remained at favourable levels, indicating the soundness of April 2013, economic growth in the United the financial sector. The gross non-performing loan ratio, however, increased States is forecast to be 1.9% in 2013 and marginally by March 2013, although still remaining at comfortable levels. In this 3.0% in 2014. However, growth in the Euro regard, an easing of monetary policy is expected to improve the repayment area is forecast to be -0.3% in 2013 but capacity of borrowers. expected to be return to a positive level of around 1.1% in 2014. Growth in emerging The Non-Bank Financial Institutions (NBFIs) sector that is comprised of 47 markets and developing economies is Licensed Finance Companies (LFCs) and 13 Specialised Leasing Companies forecast to reach 5.3% in 2013 and 5.7% (SLCs), expanded further during the first eight months of 2012. Total assets in 2014. In developing Asia, both China and of the sector expanded by 13% to Rs. 553 billion, but profits of the NBFIs Swarnamahal Financial Services plc 17 Annual Report 2012/13
declined in the first eight months of 2012 In face of this unexpected market downturn the Company responded promptly to Rs. 10.1 billion from Rs. 11.3 billion in to contain losses and sustain the growth. Therefore, a new business plan was the corresponding period of 2011. The introduced during the financial year that resulted in a restructuring of our gold annualised ROA and ROE were lower lending portfolio. As pawning products are subject to the Pawning Ordinance at 3.9% and 18.3% respectively, for regulations of a minimum of 12 months lending period, the fall in gold prices had the eight months period ending August an adverse affect on recoveries. During the year our redemption ratio declined 2012, compared with 5.3% and 30.1%, from 95 % in the previous financial years to 80% in the current financial year. respectively, at the end of August 2011, as Therefore, a strategic decision was made to realign the gold portfolio under the the interest margins declined. Mortgage Act, that allows for shorter lending cycles, compared to the longer 12 months lending cycles under the Pawning Ordinance. The shorter lending cycles During the year, several measures were mitigate the risk of gold price volatility and enable us a greater flexibility in credit introduced to streamline the operations management. of NBFIs. The maximum limit on rates of interest that could be offered by LFCs Therefore, under the new business plan, we gradually exited from the pawning on time deposits and non-transferable market and expanded our gold loans portfolio, successfully countering the Certificates of Deposits were revised, while risks associated with declining gold prices. This decision enabled the company allowing for an additional 1% interest rate to sustain its traditionally strong presence in the domestic gold market, while above the ceiling for senior citizens. facilitating greater flexibility in credit management through shorter lending cycles, against gold securities. During the year, our gold loans portfolio, which amounted Core Activities of the company to Rs. 3.7 billion as at 31st March 2012, grew by 23.7% to Rs. 4.7 billion, by 31st The company’s principal lines of business March 2013. The interest income from gold loans grew from Rs. 917.4 million in are broadly classified under two categories: the 2011/12 financial year, to Rs. 1,168.7 million during financial year 2012/13. During the year, we continued to penetrate the emerging markets in the Northern Lending products and borrowing products. and Eastern provinces and met a strong demand for gold based credit. Lending products include gold loans, leasing, hire purchase and term loans, while As it was financially unviable to dispose of unredeemed gold stocks via open borrowing products include fixed deposits market auctions in face of declining gold prices, we dispose such gold stock and savings accounts. through the EAP Group’s companies to minimise losses. However, during the financial year, we have also made an impairment provisioning for gold to the value Gold Loans of Rs. 84 million for the financial years 2010/11, 2011/12 and 2012/13 as per Gold related lending has remained as the Sri Lanka Accounting Standards. We are confident that the adverse impact company’s largest business activity during experienced during the year, could be offset during the new financial year as a the year. However, its core business was result of operationalizing the newly introduced credit cycles. adversely affected by the crash in global Leasing, Hire Purchase, Term Loans and Factoring services gold prices. While there was a strong The Company’s leasing and hire purchase portfolio remained at Rs. 290 million demand in face of rising gold prices in the from Rs. 294 million in the previous financial year. previous financial years this positive trend indicated a drastic reversal from November In the new financial year we expect to enter the factoring market and to expand 2012. Gold prices began plummeting from our presence in the leasing, hire purchase and mortgage markets by enhancing Rs. 61,000 per 24 karatage gold sovereign our existing portfolios by 20% to 30%. We hope to leverage our strategically in September 2012, to Rs. 52,000 by end located branch network that currently comprises 11 fully fledged branches March 2013. and 6 gold loan service centres, to take our expanded range of services to the emerging SME sector. Swarnamahal Financial Services PLC Annual Report 2012/13 18
Management Discussion and Analysis contd.
We are confident of meeting our growth • NORMAL SAVINGS ACCOUNT – This account provides competitive interest targets in the new financial year, supported rates for savings regardless of the volume of savings. by the strength of the Swarnamahal brand • MINORS’ SAVINGS ACCOUNT –The “Kumara Kumari” savings accounts are name and the public trust placed in the designed for children, with attractive interest rate to encourage the savings company. We are also in the process of habit among children. developing a range of value added services designed to suit the requirements of our Future Outlook different customers. These products will We are gearing to face the future with a new strategic plan and internal structural be supported by competitive rates and changes that will enhance operational efficiencies and reduce operational costs. personalized, efficient support services. We expect to pass on these benefits to our customers in the form of more competitive products and value added services. Fixed Deposits In face of rising interest rates experienced The new financial year is named as the “Year of consolidation” where we will during the year, fixed deposits were our adapt to a new Group operational structure and leverage our existing branch main source of funding, our fixed deposit network to maximise the delivery of a full range of financial services. Under the base grew by Rs. 800 million from Rs. 4.5 new Group corporate strategy, all non-core activities of the company will be billion as 31st March 2012 to Rs. 5.3 billion outsourced to the Group Business Process Outsourcing (BPO) Company, Swarna as at 31st March 2013. Solutions. Non-core operational elements such as finance, human resource management, legal services and IT facilities, will in future be provided through the We expect to expand our fixed deposits BPO Company. This move will significantly reduce operating overheads through segment by leveraging the Swarnamahal centralised shared services. This would also enable the Company to leverage Brand Name and the existing customer Group synergies and expertise. confidence placed in the company, and by expanding our market reach through In the new financial year we also plan to diversify our operations into factoring and our existing network. Our customer expand our presence in leasing and hire purchase markets. This would diversify care services are a significant factor of our risk of business portfolios while increasing alternate avenues of revenue. differentiating SFS in the LFC sector. Unlike many LFCs, we do not penalise customers for early withdrawal of fixed deposits and our customers are not required to give prior notice for pre-matured withdrawal of fixed deposits. This strong customer orientation has resulted a higher customer satisfaction and repeat customer visits to the company.
Savings Accounts Our savings products are specially designed for corporate and individual customers, including children. • SFS SAVER – This product is exclusively designed for depositors who opt to deposit in large volumes. Clients earn higher interest rates on savings, depending on the deposit amount. Swarnamahal Financial Services plc 19 Annual Report 2012/13
Sustainability Report
We view sustainability as a long term, Age Analysis Service at SFS Provincial Distribution strategic process that encompasses of Staff social, economic and environmental 3% 8% 2% considerations, while we pursue our 19% 28% 30% 9% business objectives. Therefore, while striving 4% to achieve our corporate objectives, we 1% fully appreciate the importance of being a 15% 36% 6% 48% good corporate citizen and are committed 4% to deliver sustainable value to all our 18% stakeholders. 38% 31% 20-24 28% Over 5 Years 30% Western 48% Our Approach to Sustainability 25-29 38% 3-5 Years 31% Central 18% Our approach to sustainability revolves 30-34 15% 1-2 Years 36% Eastern 4% on adding value to all our stakeholders by Over 35 19% Below 1 Year 3% Northern 6% fostering an excellent team sprit among North Central 1% our staff by making them a part of our Sabaragamuwa 4% success and by ensuring equitable returns Southern 9% to our other stakeholders, while consciously Uva 2% reducing environmental impacts from our Wayamba 8% operations.
Employee Responsibility Employee Profitability st We are an equal opportunity employer The net profit per employee was Rs. 0.9 million as at 31 March 2013. and as such we provide opportunities for employment, development and growth with Shareholder Responsibility no discrimination and comply with all labour We provide many opportunities for our valued key shareholders to contribute laws of the country. suggestions and recommendations to the management and to discuss company strategies and implementation. Analysis of Staff Our employee strength stood at 140 We ensure prompt communications with our shareholders by presenting the Persons as at 31st March 2013. financial reports and disclosing other relevant information in a timely manner. Our shareholders’ wealth grew by Rs. 124.4 million (40.3%) to Rs. 433 million, as at 31st March 2013, from Rs. 309 million on 31st March 2012. Staff Gender Ratio Compliance with Regulations The Company has complied with regulatory requirements of relevant authorities. 32% Environmental Responsibility We believe awakening an environmental consciousness is vital for sustainability 68% in the current age of climatic change and extreme weather patterns, experienced not only in Sri Lanka but across the globe. Therefore, we believe in conducting our business activities while making a conscious effort to minimize adverse impacts on the natural environment. Male 68% Female 32% Swarnamahal Financial Services PLC Annual Report 2012/13 20
Sustainability Report contd.
In this context we have invested in a number of sustainable initiatives for environmental conservation.
Reduce, Reuse, Recycle • We have a policy of recycling and reusing waste paper and envelopes within the organization, wherever possible. • Continuous awareness programs are conducted to reduce printing of e-mails and unnecessary documents and to encourage the use of e-mails and electronic documents instead of printed matter. • To reduce energy consumption, CFL bulbs have been introduced at all our branch offices and our head office. • We limit the use of air conditioners during office hours to reduce electricity consumption. • We practice separating recycled paper, polythene and organic waste in separate bins to ensure methodical garbage disposal.
Customer Responsibility We have developed a Customer Service Action Plan to enhance our service delivery and to ensure customer satisfaction in our services. Customer feedback is ensured through year round engagements with management, marketing and front office staff in the form of promotional visits, direct mails, calls and personal visits. Swarnamahal Financial Services plc 21 Annual Report 2012/13
Risk Management
Overview d) risk taking decisions are explicit and clear. Risk is a possibility that the outcome of an action or event could either result in a direct Risk Governance and Integrated Risk Management Framework loss of earnings and/or capital or create The Board of Directors has the authority to determine the overall risk constraints on the Company’s ability to meet management framework for the Company and has the responsibility to oversee its business objectives. Such constraints the effective implementation of risk management strategies. Accordingly, the pose a risk as these could hinder a Board approves the risk management policies and formulates goals and limits for company’s ability to conduct its ongoing risk appetite and strategy. The Board has established board sub committees to business or to take benefit of opportunities effectively manage all types of risks faced by the Company. to enhance its business. Integrated Risk Management Committee Risks are usually defined as adverse The Board Integrated Risk Management Committee (BIRMC) is responsible impacts on profitability from several distinct to provide a direction on the risk management process and formulations of sources of uncertainty, while the types and policies and procedures for the ratification by the Board of Directors and the degree of risks that the Company may implementation of such policies and procedures and ensuring that all operations be exposed to, depend upon a number are within the guidelines and policies set by the Board. of factors such as its size, complexity of Business activities, volume, clients, The established policies, procedures and decision making process are integrated etc,. The key areas of Risks that our into the daily operations of SFS and the internal audit department conducts Company focuses on are Credit, Market, independent and regular inspections in order to ensure the effectiveness of the Liquidity, Operational, Compliance (Legal & risk management strategies. Regulatory), Reputation and Strategic. The BIRMC is comprised of three Non-Executive Directors, one of whom chairs Risk Management policies and procedures the meetings and the Director/CEO, Senior management staff that attended are designed to analyze and address all meetings were Senior Manager-Pawning, Senior Manager- Finance, Senior types of risks, set appropriate risk limits, Manager Corporate- Relations and Manager-Credit. take apt measures on continuous basis in line with the evolving business requirements The Committee, oversees the risks of the Company by assessing Market, Credit, and regulatory guidelines to ensure risks are Liquidity, Operational, Compliance, Reputation and Strategic risks regularly, within the tolerance levels. reviews and monitors the functions and the effectiveness of committees such as ALCO and Credit to manage the risks of the Company within the set limits. Our risk management strategy is based on identification, measurement, monitoring and It also has established a compliance function to assess the Company’s controlling risks of the Company to ensure compliance with laws, regulations, regulatory guidelines, internal controls and that; approved policies in all areas of business operations. a) the individuals who take or manage risks Board Audit Committee clearly understand them. The Committee monitors the effectiveness of Internal Audit Function by reviewing b) the organization’s risk exposure is and examining the adequacy, efficiency, effectiveness of the system of internal within the limits established by Board of controls and procedures that are in place to mitigate risks in financial reporting. Directors. It also reviews the accounting policies, procedures, financial reporting and c) risk taking decisions are in line with the compliance with other regulatory requirements. The committee operates under business strategies and objectives set the direction of the Board. by the Board. Swarnamahal Financial Services PLC Annual Report 2012/13 22
Risk Management contd.
Risk Management Framework
Board of Directors
Board Integrated Risk Board Credit Committee Board Audit Committee Management Committee
Assets and Liability Compliance Internal Audit Committee (ALCO)
Business Unit Heads
Risk exposures Credit, Market, Liquidity, Operational, etc
Board Credit Committee Key Risks and its Mitigation Strategies The Committee evaluates the Credit portfolio of the Company and direct Credit risk appropriate actions to control and mitigate Credit risk is the likelihood that a debtor or financial instrument issuer is unwilling the Credit Risk. The Committee reviews the or unable to pay interest or repay the principal according to the terms specified in facilities granted under the approval level a credit agreement resulting in economic loss to the Company. of the Director/CEO and approves Credit Facilities above his delegated authority Credit risk means that payments may be delayed or ultimately not paid at all, levels. The Committee also counter which can in turn cause cash flow problems and affect the company’s liquidity. recommends credit facilities recommended by the Director/CEO for the approval of These losses could take the form of outright default or alternatively, changes the Board as per the defined delegated in portfolio value arising from actual or perceived deterioration in credit quality levels of authority of the Company. The that is short of default. The objective of credit risk management is to minimize committee meets at least once a month, or the risk and maximize Company’s risk adjusted rate of return by assuming and more frequently if necessary, to review and maintaining credit exposure within the acceptable parameters. approve the credit facilities. Swarnamahal Financial Services plc 23 Annual Report 2012/13
Credit Risk Mitigation financial year. Our risk mitigation strategy is to strictly adhere to the approved credit manual and policy of the Company. Credit Origination The Company has established a sound Credit Administration credit evaluation process for approving A sound credit administration function is in place to maintain and ensure that the credit in a safe and sound manner. The credit portfolio is properly maintained. criteria laid down sets out the eligibility, This includes keeping the credit files up to date, obtaining current financial quantum, types, terms and conditions for information, sending out renewal notices and preparing various documents such the granting of credit. The process requires as loan agreements. that sufficient information be gathered to enable a comprehensive assessment of the Portfolio Management true risk profile of the borrower. The Credit portfolio of the Company has been properly diversified across geographical areas and among large number of middle market and retail Credit process customers in order to optimize the benefits associated with diversification and to The Company has reviewed its Credit reduce the potential adverse impact of concentration of exposure to a particular evaluation process to avoid weaknesses in borrower or a sector. granting of credit and to ensure an effective monitoring process. Asset and Liability Committee The Assets and Liability Committee (ALCO) is headed by the Director/CEO and Exposure Ceilings: comprises of selected members of the senior management of the key business The Company has clearly defined exposure units. limits for each category of customers and strictly adheres to the limits approved by the The committee is set up to analyze, review and mitigate the asset-liability Board. The Credit exposure limit for Gold mismatch risk. Asset-liability mismatch risk arises due to a mismatch in the Loans was reduced from 75% to 50% with maturity pattern of assets and liabilities of the Company. ALCO is responsible for a view of mitigating the risk of declining gold managing the lending and the borrowing rates, statement of financial position prices. items including assets and liabilities, capital structure, business operations and liquidity. This is supported by the implementation of asset liability management Delegation of Authority strategies including sensitivity analysis, variance analysis and cash flow forecasts. During the year, the delegation of authority The Committee meets once a month or more frequently if necessary, to develop structure of the Company was reviewed by long term strategies to maintain the statement of financial position structure in the Board of Directors and these authority an optimal manner and ensure that controls are currently in place to address the levels have been properly communicated risks, the Company is exposed to. to the relevant personnel in the senior management and the credit committee. The Internal Controls Lending authority assigned to officers is The Internal Audit Department of the Company conducts ongoing assessment of commensurate with their experience, ability the credit risk management process. and personal character. All facilities are subjected to individual risk review at least once a month. The Credit Manual and Policy results of such reviews were properly documented and reported directly to Board The Credit Manual and the Credit policy Audit committee with recommendations to take corrective actions. The purpose framework of the Company were reviewed of such reviews is to assess the credit administration process, the accuracy of and implemented by the Board during the credit rating including adequacy of provisions for losses and overall quality of credit portfolio. Swarnamahal Financial Services PLC Annual Report 2012/13 24
Risk Management contd.
NPL Ratio and the senior management provide guidance relating to funding sources and Non performing loss ratio was further ensure that the Company has diversified sources of funding for day-to-day eased from 0.31% in the previous year to liquidity requirements. 0.25% as at 31st March 2013 due to the implementation of sound recovery process Interest Rate Risk and risk mitigation strategies. Interest Rate Risk is the potential negative impact on the Net Interest Income and it refers to the vulnerability of Company’s financial condition to the movement in Liquidity Risk interest rates. Changes in interest rate affect earnings, value of assets, liabilities Liquidity risk is the potential for loss to the off-financial position items and cash flows. Hence, the objective of interest rate Company arising from either its inability risk management is to maintain earnings, improve the ability to absorb potential to meet obligations as they fall due or to loss and to ensure the adequacy of the compensation received for the risk taken fund increases in assets without incurring and effect risk return trade-off. unacceptable cost or losses (funding liquidity risk). Management of interest rate risk aims at capturing the risks arising from the maturity and re-pricing mismatches and is measured both from the earnings and Liquidity risk management strategy involves economic value perspective. Earnings perspective involves analyzing the impact not only analyzing the Company’s on and of changes in interest rates on accrual or reported earnings in the near term. This off-financial positions to forecast future cash is measured by measuring the changes in the Net Interest Income (NII) equivalent flows, but also how the funding requirement to the difference between total interest income and total interest expense. would be met. The latter involves identifying In order to manage interest rate risk, the Company has been evaluating the the funding market the Company can vulnerability of their portfolios to the risk of fluctuations in market interest rates. have access to, understanding the nature The Asset Liability Committee (ALCO) of the Company uses the information of those markets, evaluating institution’s contained in the duration gap analysis to guide and frame strategies. current and future use of such markets. Operational Risk Risk Mitigations Strategies The Company always lives with the risks arising out of human error, financial fraud and natural disasters. Composition of Assets and Liabilities The strategy is outlined by the mix of Operational risk is the risk of loss arising from inadequate or failed internal assets and liabilities to maintain liquidity processes, people and systems or from external events. position. 89% of the interest earning assets comprised of Gold Loan advances with Risk Mitigation short maturity periods, enable the Company Key aspects of our operational risk management lie in the Company’s ability to to maintain robust liquidity positions at all assess its process for vulnerability and establish controls to safeguard its assets. times A well implemented sound internal control mechanism and internal audit systems Diversification and Stability of Liabilities of the Company are used as the primary means of Operational Risk Mitigation. The deposits portfolio of the Company is diversified geographically and among large Continuous risk education for familiarizing the complex operations at all levels of number of customers, with no dependence staff can also reduce operational risk. on one or few customers to ensure that there will be no significant risk in a sudden Further, we extended our operational risk mitigation strategies to obtain withdrawal of funds. The Board of Directors comprehensive insurance covers for our all branches and pawning Centres on 24 hours basis. Swarnamahal Financial Services plc 25 Annual Report 2012/13
The Company is committed to secure its an outline of the important issues that Directors and/or Senior Management of information by developing, implementing the Company may need to consider in ensuring due diligence in the operation of and monitoring comprehensive system the Company as well as an overview of liability of exposure against this risk. procedures to ensure the integrity, confidentiality and availability of such Reputational Risk information. Reputational Risk is the potential for negative publicity regarding an institution’s business practices, whether true or not, that will cause a decline in the customer Strategic Risk base, costly litigation, or revenue reductions. This risk may result from an Strategic risk is the possibility of being institution’s failure to effectively manage any or all of the other risk types. unable to implement appropriate business plans, strategies, or take proper decisions Policies and Procedures or allocate adequate resources and its A plan is underway to adopt sound risk management practices that include the inability to adapt to changes in its business practice of building reputation and earning the goodwill of key stakeholders. environment. The Risk management unit of the Company reviews the emerging trends in risk and involves in the implementation of the company’s strategic plan.
Compliance Risk Compliance Risk is the risk of legal or regulatory sanctions, material financial loss or damage to reputation that an institution may suffer as a result of failure to comply with laws, regulations, rules, self regulatory organization standards and codes of conduct applicable to its activities.
In order to mitigate the Compliance Risk, a compliance officer has been appointed to maintain a better relationship with such regulatory authorities. The compliance officer maintains a pre-planned schedule of compliance activities to ensure the compliance with regulatory authorities is in a timely manner. In the ensuring year, the compliance officer position will be filled by an independent dedicated officer.
Legal Risk Legal Risk is the risk that the Company will conduct activities or carry out transactions in which they are inadequately covered or are left exposed to potential litigation. The legal risk management framework provides Swarnamahal Financial Services PLC Annual Report 2012/13 26
Corporate Governance
The Board of Directors of the Company places the highest emphasis on good governance in every aspect of the Company’s operations. The necessary policies and procedures have been formulated by the Board in order to implement an adequate internal control mechanism in a manner that would enhance stakeholders’ confidence. Accordingly, the Board is assisted by 05 Board Sub Committees to ensure that the business is carried on in compliance with the Corporate Governance Direction No. 3 of 2008 issued by the Central Bank of Sri Lanka including amendments thereto and the Listing Rules of the Colombo Stock Exchange relating to the Corporate Governance.
Corporate Governance Framework
Board of Directors
Board Audit Board Integrated Board Credit Board Board Executive Committee Management Committee Remuneration Operations Committee Committee Committee
ALCO
CBSL DESCRIPTION COMPLIANCE STATUS Section (2) RESPONSIBILITIES OF THE BOARD OF DIRECTORS 2(1) The Board of Directors shall strengthen the safety and soundness of the Company by ensuring the implementation of the following; (a) Approving and overseeing the Finance Company’s The Board approved the Company’s strategic strategic objectives and corporate values and ensuring objectives and corporate values, ensured that they were that such objectives and values are communicated communicated throughout the company and monitored throughout the Finance Company. to ensure that they were being achieved. (b) Approving the overall business strategy of the Company, The Board approved the Overall Business Strategy of the including the overall risk policy and risk management Company which is now being implemented. The overall procedures and mechanisms with measurable goals, for risk management strategies and procedures are being at least the next three years. further refined with the assistance of the Integrated Risk management Committee to manage all risks arising from the Operations of the Company. Swarnamahal Financial Services plc 27 Annual Report 2012/13
CBSL DESCRIPTION COMPLIANCE STATUS Section (c) Identifying the risks and ensuring implementation of The Board appointed Integrated Risk Management appropriate systems to manage the risks prudently. Committee is in the process of formulating appropriate risk measurement indicators with assistance of Senior Management to address the overall risk of the Company. The Company will strengthen risk measurement areas by initiating action to evaluate all risks such as Credit, Market, Liquidity and Strategic risks. (d) Approving a policy of communication with all An appropriate communication policy will be prepared stakeholders, including depositors, creditors, during the Financial Year 2013/14 to communicate shareholders and borrowers. with all stakeholders including depositors, creditors, shareholders and borrowers of the Company. (e) Reviewing the adequacy and the integrity of the finance The Board reviews the adequacy and the integrity of the company’s internal control system and management of Company’s internal control systems through the Board information systems Audit Committee by reviewing the internal audit reports and upgrades the company’s internal control systems to address such findings. (f) Identifying and designating key management personnel, Key Management personnel who are in a position to who are in a position to influence and control over the business activities and risk (i) Significantly influence policy management have been identified / designated by the (ii) Direct activities and Board. (iii) Exercise control over business activities, operations and risk management. (g) Defining the areas of authority and key responsibilities for The Board approved the delegation of authority levels the Board and for the key management personnel. for the Board and management with clear directions and definitions. (h) Ensuring that there is appropriate oversight of the affairs The policies, procedures and decisions approved by the of the finance Company by key management personnel, Board relevant to the Key Management personnel have that is consistent with the finance company’s policy. been duly communicated to them for proper oversight of the affairs of the Company. (i) Periodically assessing the effectiveness of its The Board assesses periodically effectiveness of its governance practices including (i) the selection, governance practices especially in these three areas. nomination, and election of Directors and appointment of key management personnel (ii) the management of conflicts of interest and (iii) the determination of weaknesses and implementation of changes where necessary. (j) Ensuring the company has an appropriate succession The Board is in a process of developing an appropriate plan for key management personnel. succession plan for all key management personnel. Swarnamahal Financial Services PLC Annual Report 2012/13 28
Corporate Governance contd.
CBSL DESCRIPTION COMPLIANCE STATUS Section (k) Meeting regularly with key management personnel to Polices are reviewed regularly with participation of all the review policies, establish lines of communication and key management personnel to monitor progress towards monitor progress towards corporate objectives. corporate objectives. (I) Understanding the regulatory environment. The Board of Directors updates the changes in regulatory environment on regular basis and the Company maintains an effective relationship with all regulatory authorities. (m) Exercising due diligence in the hiring and oversight of The Board carries out the functions of hiring and external auditors. oversight of external auditors through the Board Audit committee and subject to the shareholder approval at the AGM. 2(2) The Board shall appoint the Chairman and Chief The Chairman and the Chief Executive Officer have been Executive Officer and define and approve the functions appointed by the Board and the positions of Chairman and responsibilities of the Chairman and the Chief and Chief Executive Officer are held by two separate Executive Officer. individuals.
The Chairman provides leadership to the Board and the Chief Executive Officer carries out day to day operations of the Company. 2(3) There shall be a procedure determined by the Board A procedure is in place for the Directors to obtain to enable Directors upon reasonable request to separate independent professional advice, upon seek independent professional advice in appropriate reasonable request and when appropriate, at Company’s circumstances at the company’s expense. expense.
The Board shall resolve to provide separate Independent professional advice to Directors to assist them to discharge their duties to the Company. 2(4) A Director shall abstain from voting on any Board The Directors abstain from voting on matters in which resolution in relation to a matter in which he/she or any they or their relatives have a substantial interest and they of his/her relatives or a concern in which he/she has are not counted in the quorum in relation to such board substantial interest, is interested and he/she shall not be agenda items. counted in the quorum for the relevant agenda item at the Board meeting. 2(5) The Board shall have a formal schedule of matters Complied with specifically reserved to it for decision to ensure that the direction and control of the Finance Company is firmly under its authority. Swarnamahal Financial Services plc 29 Annual Report 2012/13
CBSL DESCRIPTION COMPLIANCE STATUS Section 2(6) The Board shall, if it considers that the finance No such circumstances have arisen during the year company is, or is likely to be, unable to meet its 2012/2013 and the Board shall comply with this obligations or is about to become insolvent or is requirement if such a situation arises. about to suspend payments due to depositors and other creditors, forthwith inform the Director of the Department of Supervision of Non-Bank Financial Institutions of the situation of the finance company prior to taking any decision or action. 2(7) The Board shall include in the Finance Company’s Annual Complied with. Report, an Annual Corporate Governance Report setting out the compliance with this Directions. 2(8) The Board shall adopt a scheme of self-assessment to The Board of Directors will introduce an appropriate be undertaken by each Director annually, and maintain scheme of self assessment to be undertaken by each records of such assessments. Director annually, to fulfill this requirement. 3. MEETINGS OF THE BOARD 3(1) The Board shall meet at least twelve times a financial year The Board Meetings are generaly held on monthly basis. at approximately monthly intervals. Obtaining the Board’s Instances of obtaining Board approval by circulation have consent through the circulation of written or electronic been very rare and no approvals have been obtained resolutions/papers shall be avoided as far as possible. electronically.
3(2) The Board shall ensure that arrangements are in place The Company has given an equal opportunity for every to enable all Directors to include matters and proposals Director to include matters and proposals related to the in the agenda for regular Board meetings where such promotion of business and management of risk of the matters and proposals relate to the promotion of Company in the Agenda for regular Board Meetings. business and the management of risks of the finance company. 3(3) A notice of at least 7 days shall be given of a regular Complied with. Board meeting to provide all Directors an opportunity to attend. For all other Board meetings, a reasonable notice shall be given. 3(4) A Director, who has not attended at least two-thirds of Complied with. the meetings in the period of 12 months immediately preceding or has not attended the immediately preceding three consecutive meetings held, shall cease to be a Director. Provided that participation at the Directors’ meetings through an alternate Director shall, however, be acceptable as attendance. Swarnamahal Financial Services PLC Annual Report 2012/13 30
Corporate Governance contd.
CBSL DESCRIPTION COMPLIANCE STATUS Section 3(5) Board shall appoint a Company Secretary, whose M/s Cyrus Corporate Services (Pvt) Limited, engaged primary responsibilities shall be to handle the secretarial as the Secretary and Registrar to Company during the services to the Board and shareholder meetings and to Financial Year 2011/12, ended its Services when its carry out other functions specified in the statutes and contract expired on 15th May 2012. other regulations. The Board has appointed SSP Corporate Services (Pvt) Ltd as the new Secretaries and Registrar to the Company which satisfies the provisions of the Companies Act No. 07 of 2007 and the Finance Business Act No. 42 of 2011 and the directions issued therein, effective from 16th May 2012. 3(6) If the Chairman has delegated to the Company The Agenda is prepared by the Company Secretary in Secretary the function of preparing the agenda for consultation with the Chairman of the Company. a Board meeting, the Company Secretary shall be responsible for carrying out such function. 3(7) All Directors shall have access to obtain advice and All the Directors have access to obtain advice and services of the Company Secretary with a view to services of the Company Secretary in order to ensure ensuring that Board procedures and all applicable laws, that Board procedures and all applicable laws, directions, directions rules and regulations are followed. rules and regulations are followed. 3(8) The Company Secretary shall maintain the minutes of The minutes of the Board meetings are maintained by the Board meetings and such minutes shall be open for Company Secretary and are open for inspection by any inspection at any reasonable time, on reasonable notice Director at any reasonable time. by any Director. Swarnamahal Financial Services plc 31 Annual Report 2012/13
CBSL DESCRIPTION COMPLIANCE STATUS Section 3(9) Minutes of Board meetings shall be recorded in sufficient The minutes of the Board Meetings have been recorded detail so that it is possible to gather from the minutes, as by the Company Secretary in a manner that these to whether the Board acted with due care and prudence requirements have been complied with. in performing its duties. The minutes of a Board meeting shall clearly contain or refer to the following: (a) A summary of data and information used by the Board in its deliberations; (b) The matters considered by the Board; (c) The fact-finding discussions and the issues of contention or dissent which may illustrate whether the Board was carrying out its duties with due care and prudence; (d) The explanations and confirmations of relevant executives which indicate compliance with the Board’s strategies and policies and adherence to relevant laws and regulations; (e) The Board’s knowledge and understanding of the risks to which the Finance Company is exposed and an overview of the risk management measures adopted; and (f) The decisions and Board resolutions. 4. COMPOSITION OF THE BOARD 4(1) The number of Directors on the Board shall not be less The number of Directors on the Board is eight which is than 5 and not more than 13. within the statutory limits. 4(2) The total period of service of a Director other than a Mr. J.H. Edirisinghe has completed 9 years of service in Director who holds the position of Chief Executive Officer January 2013. or Executive Director shall not exceed nine years. The total period in office of a Non-Executive Director shall be The Board will fully comply with these requirements during inclusive of the total period of service served by such a the financial year 2013/14. Director up to the date of this direction. No other Director of the Company (other than Executive Directors) has served for more than 9 years since the Company was incorporated in the year 2004. 4(3) An employee of a finance company may be The Board is comprised with 8 directors, of whom 4 appointed, elected or nominated as a Director of the directors are executive hence this requirement has been finance company (hereinafter referred to as an ‘Executive complied with. Director’) provided that the number of Executive Directors shall not exceed one-half of the number of Directors of the Board. In such an event, one of the Executive Directors shall be the Chief Executive Officer of the Company. Swarnamahal Financial Services PLC Annual Report 2012/13 32
Corporate Governance contd.
CBSL DESCRIPTION COMPLIANCE STATUS Section 4(4) The number of Independent Non- Executive Directors, of The Board consisted of 08 directors, of whom two are the Board shall be at least one fourth of the total number Independent Non-Executive Directors. of Directors.
A Non-Executive Director shall not be considered independent if such director:
(a) has shares exceeding 2% of the paid up capital of the finance company or 10% of the paid up capital of another finance Company. (b) has or had during the period of two years immediately preceding his/her appointment as Director, any business transactions with the finance Company as described in Direction hereof, aggregate value outstanding of which at any particular time exceeds 10% of the capital funds of the Finance Company as shown in its last audited statement of financial position. (c) has been employed by the Finance Company during the two-year period immediately preceding the appointment as Director; (d) has a relative, who is a Director or Chief Executive Officer or a key member of the Management personnel, or holds shares exceeding 10% of the paid up capital of the Finance Company or exceeding 12.5% of the paid up capital of another finance company. (e) represents a shareholder, debtor, or such other similar stakeholder of the Finance Company; (f) is an employee or a Director or has a share holding of 10% or more of the paid up capital in a company or business organization. (i) which currently has a transaction with the finance Company as defined in 9 of this direction, aggregate value outstanding of which at any particular time exceeds 10% of the capital funds as shown in its last audited statement of financial position of the finance company or Swarnamahal Financial Services plc 33 Annual Report 2012/13
CBSL DESCRIPTION COMPLIANCE STATUS Section (ii) in which any of the other Directors of the finance Company is employed or is a director or holds shares exceeding 10% of the capital funds as shown in its last audited statement of financial position of the Finance Company ; or (iii) in which any of the other Directors of the finance Company has a transaction as defined in paragraph 09 of the Directions, aggregate value outstanding of which at any particular time exceeds 10% of capital funds as shown in its last audited statement of financial position of the Finance Company. 4(5) In the event an alternative Director is appointed to No such situation arose during the financial year 2012/13. represent an Independent Non-Executive Director, the person so appointed shall also meet the criteria that apply to the Independent Non-Executive Director. 4(6) Non-Executive Directors shall have necessary skills and All Non- Executive Directors are having necessary skills experience to bring an objective judgment to bear on and experience to bring objective judgments. issues of strategy, performance and resources. 4(7) With effect from three years from the date of this The Board comprised of four Executive Directors during Direction, a meeting of the Board shall not be duly the financial year 2012/13. The Board meetings held constituted, although the number of Directors required to during the year had fully complied with this direction since constitute the quorum at such meeting is present, unless quorum of such meetings consisted with one half of Non- at least one half of the number of directors that constitute Executive Directors. the quorum meeting are Non-Executive Directors. 4(8) The Independent Non-Executive Directors shall This direction has been fully complied with in all be expressly identified as such in all corporate Corporate communications that disclose the directors’ communications that disclose the names of Directors names. of the Finance Company. The Finance Company shall disclose the composition of the Board, by category of Profiles of all the Directors are disclosed in pages 12 to Directors, including the names of the Chairman, 13. Executive Directors, Non-Executive Directors and Independent Non- Executive Directors in the Annual Corporate Governance Report which shall be an integral part of the Annual Report. 4(9) There shall be a formal, considered and transparent New appointments to the Board are based on well- procedure for the appointment of new Directors to the defined procedures and there are procedures in place for Board. There shall also be procedures in place for the orderly succession. orderly succession of appointments to the Board. Swarnamahal Financial Services PLC Annual Report 2012/13 34
Corporate Governance contd.
CBSL DESCRIPTION COMPLIANCE STATUS Section 4(10) All Directors appointed to fill a casual vacancy shall be If a director is appointed to fill a casual vacancy in the subject to election by shareholders at the first General Board, it shall be subject to election by shareholders at Meeting after their appointment. the first General Meeting thereafter. 4(11) If a Director resigns or is removed from office, the Board The Director of Supervision of Non Bank Financial shall announce to the Shareholders and notify the Institutions of the Central Bank of Sri Lanka has been Director of the Department of Supervision of Non Bank duly informed regarding resignations of the Directors and Financial Institutions of the Central Bank of Sri Lanka, in future the Company will take necessary arrangements regarding the resignation of the director or removal and to disclose to the shareholders as well as indicating the the reasons for such resignation or removal including reasons for such removal or resignation including but not but not limited to information relating to the relevant limited to information relating to the relevant Director’s Director’s disagreement with the Board, if any. disagreement with the Company if any. 5. CRITERIA TO ASSESS THE FITNESS AND PROPRIETY OF DIRECTORS 5(1) Subject to the transitional provisioning contained in the The director who was over 70 years of age resigned from directions, a person over the age of 70 years shall not the Board with effect from 09th September 2013 in order serve as a director of a finance company. to comply with this direction. 5(2) A director of a finance company shall not hold office as No director holds directorships or any other equivalent a Director or any other equivalent position in more than positions in more than 20 companies/societies/ bodies 20 companies/societies/ bodies corporate including corporate including Subsidiaries or Associate Companies Subsidiaries or Associate Companies of the Finance of the Finance Company or in more than 10 companies Company. Provided that such director shall not hold that are classified as Specific Business Entities in terms of office of a director or any other equivalent position in the Sri Lanka Accounting and Auditing Standards Act No. more than 10 companies that are classified as Specific 15 of 1995. Business Entities in terms of the Sri Lanka Accounting and Auditing Standards Act No. 15 of 1995. 6. DELEGATION OF FUNCTION BY THE BOARD 6(1) The Board shall not delegate any matters to a Board Sub The Board has not delegated any of its functions to Committees, Chief Executive Officer, Executive Directors Board Sub Committees, Chief Executive Officer or Key or Key Management Personnel, to an extent that such Management personnel to an extent that such delegation delegation would significantly hinder or reduce the ability would significantly reduce the ability of the Board to of the Board as a whole to discharge its functions. discharge its functions. 6(2) The Board shall review the delegation processes in place The Board reviews the delegation process regularly. on a periodic basis to ensure that they remain relevant to the needs of the Finance Company. 7. THE CHAIRMAN AND CHIEF EXECUTIVE OFFICER 7(1) The roles of Chairman and Chief Executive Officer shall The posts of Chairman and Chief Executive Officer are be separated and shall not be performed by a same held by different persons and their roles have been person. separated. Swarnamahal Financial Services plc 35 Annual Report 2012/13
CBSL DESCRIPTION COMPLIANCE STATUS Section 7(2) The Chairman shall be a Non-Executive Director in The Chairman is a Non-Executive Director, though not the case where the Chairman is not an Independent independent. Non - Executive Director; the Board shall designate an Independent Non-Executive Director as the Senior The Board intends to appoint an Independent Non- Director with suitably documented terms of reference to Executive Director as the Senior Director with suitably ensure a greater independent element. The designation documented terms of reference during the financial year of the Senior Director shall be disclosed in the Finance 2013/14. Company Annual Report. 7(3) The Board shall disclose in its Corporate Governance There is no relationship between Mr. J.H. Edirisinghe, the Report, which shall be an integral part of its Annual Chairman and Mr. S.M. Ganegoda, the Chief Executive Report, the name of the Chairman and the Chief Officer. Directors, Mr. J.H. Edirisinghe, Mrs. A.D. Executive Officer and the nature of any relationship Edirisinghe, Mr. N.P. Edirisinghe and Mr. A.S. Edirisinghe [including financial, business, family or other material/ are siblings. relevant relationship(s)], if any, between the Chairman and the Chief Executive Officer and the relationships among Mr. S. Kariyawasam and Mr. S.D. Jayawardana are the members of the Board. Directors of EAP Holdings Limited, ETI Finance Limited, Swarnamahal Jewellers (Pvt) Ltd, EAP Networks (Pvt) Ltd, EAP Films & Theaters (Pvt) Ltd, Swarna Solutions Limited, EAP RMS Insurance Brokers (Pvt) Ltd. in which represents the same siblings. 7(4) The Chairman shall: The Chairman provides the leadership to the Board, and (a) provide leadership to the Board; ensures that the Board works effectively, discharges its (b) ensure that the Board works effectively and responsibilities and key issues are discussed by the Board discharges its responsibilities; and in a timely manner. (c) ensure that all key issues are discussed by the Board in a timely manner. 7(5) The Chairman shall be primarily responsible for The agenda is prepared by the Company Secretary after preparation of the agenda for each Board meeting; consultations with the Chairman. The Chairman may delegate the function of preparing the agenda to the Company Secretary. 7(6) The Chairman shall ensure that all Directors are informed The Chairman ensures that the Directors are properly and adequately and in a timely manner of the issues arising at in a timely manner briefed of issues arising at each Board each Board meetings. meeting and the agenda and board papers are circulated among the Directors with adequate time prior to each Board Meeting. 7(7) The Chairman shall encourage each Director to make a The Chairman ensures that full and active contributions full and active contribution to the Board’s affairs and take are made by each of the Directors and act in the best the lead to ensure that the Board acts in the best interests interest of the Company. of the Finance Company. Swarnamahal Financial Services PLC Annual Report 2012/13 36
Corporate Governance contd.
CBSL DESCRIPTION COMPLIANCE STATUS Section 7(8) The Chairman shall facilitate the effective contribution Complied with. of Non-Executive Directors in particular and ensure constructive relationships between Executive and Non- Executive Directors. 7(9) Subject to the transitional provisions contained herein, The Chairman is a Non-Executive Director and does the Chairman, shall not engage in activities involving directly involve in the supervision of key management direct supervision of Key Management Personnel or any personnel or in any other executive duties whatsoever. other executive duties whatsoever. 7(10) The Chairman shall ensure that appropriate steps Such effective steps have been taken and shareholders are taken to maintain effective communication with views have been communicated to the Board. shareholders and that the views of shareholders are Further during the last year, the AGM and the communicated to the Board. Extraordinary General Meeting were good occasions for the shareholders to share their views and they were encouraged to do so directly with the Chairman, whenever necessary. 7(11) The Chief Executive Officer shall function as the apex The Chief Executive Officer functions as the apex executive-in-charge of the day-to-day-management of executive in-charge of the day-to-day management of the the Finance Company’s operations and business. Company’s operations and business. 8. BOARD APPOINTED COMMITTEES 8(1) Every Finance Company shall have at least the two The Board has formed five Sub Board Committees Board committees set out in paragraphs 8(2) and 8(3) namely: hereof. Each committee shall report directly to the Board. Audit Committee, Integrated Risk Management Each committee shall appoint a secretary to arrange its Committee, Remuneration Committee, Credit Committee meetings, maintain minutes, records and carry out such and Executive Operation Committee. other secretarial functions under the supervision of the chairman of the committee. The Board shall present The stipulated procedures have been followed and a report on the performance, duties and functions of reports on performance, duties and functions of the each committee, at an Annual General Meeting of the Board Audit Committee, Integrated Risk Management Company. Committee and Remuneration Committee are included in this Annual Report. 8(2) AUDIT COMMITTEE The following rules shall apply in relation to the Audit Committee. (a) The Chairman of the Committee shall be a Non- The Chairman of the Audit Committee is an Independent Executive Director who possesses qualifications and Non-Executive Director and a fellow member of experience in accountancy and/or audit. Chartered Accountants of Sri Lanka and possesses qualifications and related experience. His brief profile is given in page 13. Swarnamahal Financial Services plc 37 Annual Report 2012/13
CBSL DESCRIPTION COMPLIANCE STATUS Section (b) The Board members appointed to the Committee shall All directors appointed to the Audit Committee are Non- be Non-Executive Directors. Executive Directors. (c) The Committee shall make recommendations on matters The Board Audit Committee makes recommendations to in connection with: the Board in compliance with this direction. (i) The appointment of the External Auditor for audit services to be provided in compliance with the relevant statutes; (ii) the implementation of the Central Bank guidelines issued to Auditors from time to time; (iii) the application of the relevant accounting standards; and (iv) the service period, audit fee and any resignation or dismissal of the Auditor; provided that the engagement of the Audit Partner shall not exceed five years, and that the particular Audit Partner is not re- engaged for the audit before the expiry of three years from the date of the completion of the previous term. (d) The committee shall review and monitor the External The Committee reviews and monitors the auditor’s Auditor’s independence and objectivity and the independence and objectivity and the effectiveness of the effectiveness of the audit processes in accordance with audit process. applicable standards and best practices. Swarnamahal Financial Services PLC Annual Report 2012/13 38
Corporate Governance contd.
CBSL DESCRIPTION COMPLIANCE STATUS Section 8(2) (e) The Committee shall develop and implement a policy with Complied with the approval of Board on the engagement of an External Auditor to provide non-audit services that are permitted under the relevant statutes, regulations, requirements and guidelines. In doing so, the Committee shall ensure that the provision by an External Auditor of non- audit services does not impair the External Auditor’s independence or objectivity. When assessing the external auditor’s independence or objectivity in relation to the provision of non- audit services, the Committee shall consider:
(i) whether the skills and experience of the auditor make it a suitable provider of the non-audit services (ii) whether there are safeguards in place to ensure that there is no threat to the objectivity and/or independence in the conduct of the audit resulting from the provision of such services by the External Auditor; and (iii) whether the nature of the non-audit services, the related fee levels individually and in aggregate relative to the auditor, pose any threat to the objectivity and/ or independence of the External Auditor. (f) The Committee shall, before the audit commences, Before commencing and finalizing the audit. The Audit discuss and finalize with the External Auditors the nature Committee discusses with the External Auditor, with and scope of the audit, including: regard to the nature and the scope of the audit and an assessment of the Finance Company’s compliance with (i) an assessment of the Finance Company’s compliance the relevant Directions, guidelines, applying of relevant with the relevant Directions issued under the Act and accounting principles and the company’s internal controls the management’s internal controls over financial over financial reporting. reporting; (ii) the preparation of financial statements in accordance with relevant accounting principles and reporting obligations; and (iii) the co-ordination between auditors where more than one auditor is involved. Swarnamahal Financial Services plc 39 Annual Report 2012/13
CBSL DESCRIPTION COMPLIANCE STATUS Section 8(2) (g) The Committee shall review the financial information of The audited financial statements of the company were the Finance Company, in order to monitor the integrity reviewed and examined by the Board Audit Committee, of the financial statements of the Finance Company, its in line with this direction, before submitting for the Annual Report, accounts and periodical reports prepared approval of the Board. for disclosure, and the significant financial reporting judgments, contained therein. In reviewing the Finance The Committee is in the process of preparing a Company’s Annual Report and accounts and periodical documented procedure to comply under this section to reports before submission to the Board, the Committee improve financial reporting standard. shall focus particularly on:
(i) major judgmental areas; (ii) any changes in accounting policies and practices; (iii) significant adjustments arising from the audit; (iv) the going concern assumption; and (v) the compliance with relevant accounting standards and other legal requirements. (h) The Committee shall discuss issues, problems and The Audit Committee meets the External Auditor in reservations arising from the interim and final audits, and absence of key management personnel as and when any matters the Auditor may wish to discuss including necessary. those matters that may need to be discussed in the absence of Key Management Personnel, if necessary. (i) The Committee shall review the External Auditor’s Complied with. management letter and the management’s response thereto. Swarnamahal Financial Services PLC Annual Report 2012/13 40
Corporate Governance contd.
CBSL DESCRIPTION COMPLIANCE STATUS Section (j) The Committee shall take the following steps with regard All stipulations under this direction have been complied to the internal audit function of the Finance Company; with.
(i) Review the adequacy of the scope, functions and resources of the Internal Audit Department, and satisfy it that the department has the necessary authority to carry out its work. (ii) Review the internal audit program and results of the internal audit process and, where necessary, ensure that appropriate actions are taken on the recommendations of the Internal Audit Department. (iii) Review any appraisal or assessment of the performance of the head and senior staff members of the Internal Audit Department. (iv) Recommend any appointment or termination of the head, senior staff members and outsourced service providers to the internal audit function. (v) Ensure that the Committee is appraised of resignations of senior staff members of the Internal Audit Department including the Chief Internal Auditor and any outsourced service providers, and to provide an opportunity to the resigning senior staff members and outsourced service providers to submit reasons for resigning. (vi) Ensure that the internal audit function is independent of the activities it audits and that it is performed with impartiality, proficiency and due professional care. (k) The Committee shall consider the major findings of Complied with. internal investigations and management’s responses thereto. (l) The Chief Finance Officer, the Chief Internal Auditor and The Senior Manager - Finance and head of Internal Audit a representative of the External Auditors may normally normally attend the meetings and the Chief Executive attend meetings. Other Board Members and the Chief Officer attends meetings by invitation. Executive Officer may also attend meetings upon the invitation of the Committee. However, at least The Audit Committee members have met six times during once in six months, the Committee shall meet with the last year without Chief Executive Officer. External Auditors without the Executive Directors being present. Swarnamahal Financial Services plc 41 Annual Report 2012/13
CBSL DESCRIPTION COMPLIANCE STATUS Section 8(2)(m) The Committee shall have: Terms of Reference of the Committee are being reviewed, (i) explicit authority to investigate into any matter within to be submitted to the Board for approval during the its terms of reference; ensuing year. (ii) the resources which it needs to do so; (iii) full access to information; and (iv) authority to obtain external professional advice and to invite outsiders with relevant experience to attend, if necessary. (n) The Committee shall meet regularly, with due notice of The Committee Meetings were held regularly with the issues to be discussed and shall record its conclusions in Agenda and papers circulated in a timely manner. Internal discharging its duties and responsibilities. audit reports were discussed, decisions recorded and appropriate actions taken thereon. (o) The Board Shall, in the Annual Report, disclose in an Details of the activities of the Audit Committee have been informative way; disclosed in pages 61 to 62. (i) details of the activities of the audit committee. (ii) the number of audit committee meetings held in the The number of Committee Meetings held during the year year and and the members’ attendance thereto is given in page 51. (iii) details of attendance of each individual member at such meeting. (p) The Secretary of the Committee (who may be the During the financial year 2012/13, SSP Corporate Company Secretary or the head of the internal audit Services (Pvt) Ltd was the Secretary to the Board Audit function) shall record and keep detailed minutes of the Committee. committee meetings. (q) The Committee shall review arrangements by which The Committee will take appropriate measures to comply employees of the Finance Company may, in confidence, with this direction in the ensuing year. raise concerns about possible improprieties in financial reporting, internal control or other matters. Accordingly, the Committee shall ensure that proper arrangements are in place for the fair and independent investigation of such matters and for appropriate follow-up action and to act as the key representative body for overseeing the Finance Company’s relations with the External Auditor. 8.3 INTEGRATED RISK MANAGEMENT COMMITTEE (a) The Committee shall consist of at least one Non- The Integrated Risk Management Committee comprises Executive Director, the Chief Executive Officer and key of three Non-Executive Directors, of whom two are management personnel supervising broad risk categories, independent, the Chief Executive Officer and other key i.e., credit, market, liquidity, operational and strategic managerial personnel handling the Company’s credit, risks. The Committee shall work with key management market, liquidity, operational and strategic risks. personnel very closely and make decisions on behalf of the Board within the framework of the authority and responsibility assigned to the Committee. Swarnamahal Financial Services PLC Annual Report 2012/13 42
Corporate Governance contd.
CBSL DESCRIPTION COMPLIANCE STATUS Section (b) The Committee shall assess all risks, i.e., credit, market, Assessment and management of all such risks are done liquidity, operational and strategic risks to the Finance on a monthly basis by the committee which has taken Company on a monthly basis through appropriate risk appropriate measures to further strengthen the risk indicators and management information. In the case assessment and management of the company during the of Subsidiary Companies and Associate Companies, ensuing year. risk management shall be done, both on the finance company basis and group basis. The Company does not have any subsidiary or associate companies. 8 (3) (c) The Committee shall review the adequacy and The Committee currently assesses the effectiveness of effectiveness of all management level Committees Credit Committee and Assets and Liability Management such as the Credit Committee and the Asset-Liability Committee (ALCO) to further strengthen the risk Committee to address specific risks and to manage assessment indicators of the Company to manage risk those risks within quantitative and qualitative risk limits as categories. specified by the Committee. (d) The Committee shall take prompt corrective action to The Committee is in the process of formulating mitigate the effects of specific risks in the case such benchmark and tolerance levels for each category of risks are at levels beyond the prudent levels decided by risk indicators to effectively monitor risks and to take the Committee on the basis of the Finance Company’s corrective actions accordingly. policies and regulatory and supervisory requirements. (e) The Committee shall meet at least quarterly to assess all During the Financial Year, one Risk Management aspects of risk management including updated business Committee meeting was held and committee ensures to continuity plans. hold Risk Management Committee meetings quarterly basis or more frequently when necessary to assess and improve the risk management area of the Company in the ensuing year.
The Business Continuity Plan is being formulated. Swarnamahal Financial Services plc 43 Annual Report 2012/13
CBSL DESCRIPTION COMPLIANCE STATUS Section (f) The Committee shall take appropriate actions against Such instances had occurred a few times during the year the officers responsible for failure to identify specific risks and detected by the Line Management and/or Internal and take prompt corrective actions as recommended Audit. Corrective action had been taken and reported to by the Committee, and/or as directed by the Director of the Board. the Department of Supervision of Non-Bank Financial Institutions of the Central Bank of Sri Lanka. The Committee is currently in the process of preparing codified procedures for disciplinary actions. (g) The Committee shall submit a risk assessment report The Committee submits report to the Board at its first within a week of each meeting to the Board seeking the meeting following the committee meeting. Board’s views, concurrence and/or specific directions. (h) The Committee shall establish a compliance function to The Company’s compliance function is in place and the assess the Finance Company’s compliance with laws, Company is in the process of appointing a dedicated regulations, Directions, rules, regulatory guidelines, independent compliance officer in place of the present internal controls and approved policies on all areas of Officer, who is not fully dedicated or independent to business operations. A dedicated compliance officer further strengthen the process. selected from Key Management Personnel shall carry out the compliance function and report to the Committee periodically. 9. RELATED PARTY TRANSACTIONS 9(2) The Board shall take the necessary steps to avoid any The Board had taken appropriate measures to avoid conflicts of interest that may arise from any transaction of any conflicts of interest that may arise from related party the Finance Company with any person, and particularly transactions of the company. with the following categories of persons who shall be considered as “related parties” for the purposes of this Direction:
(a) Any of the Finance Company’s subsidiary companies; (b) Any of the Finance Company’s associate companies; (c) A Directors of the Finance Company; (d) A Key Management Personnel of the Finance Company (e) A relative of a director or a Key Management Personnel of the Finance Company; (f) A shareholder who owns shares exceeding 10% of the paid up capital of the Finance Company; (g) A concern in which a director of the finance company or relative of a director or a shareholder who owns shares exceeding 10% of the paid up capital of the finance company, has substantial interest. Swarnamahal Financial Services PLC Annual Report 2012/13 44
Corporate Governance contd.
CBSL DESCRIPTION COMPLIANCE STATUS Section 9(3) The transactions with a related party that are covered in During the Financial Year 2012/13, the Company has this Direction shall be the following engaged only in such transactions that occurred in the (a) Granting accommodation normal course of business with no preferential treatment (b) Creating liabilities to the finance company in the form meted out. of deposits, borrowings and investments (c) Providing financial or non-financial services to the finance company or obtaining those services from the finance company (d) Creating or maintaining reporting lines and information flows between the finance company and any related party which may lead to share proprietary, confidential or otherwise sensitive information that may give benefits to such related party. Swarnamahal Financial Services plc 45 Annual Report 2012/13
CBSL DESCRIPTION COMPLIANCE STATUS Section 9(4) The Board shall ensure that the finance company does The Board has taken appropriate measures to ensure not engage in transactions with a related party, in a that “more favourable treatment” is not granted to related manner that would grant such parties “more favourable parties than that is accorded to other similar constituents treatment” than that is accorded to other similar of the Company. constituents of the finance company. In this context, “more favourable treatment” shall mean
(a) Granting of “total net accommodation” to a related party, exceeding a prudent percentage of the finance company’s regulatory capital, as determined by the Board. The “total net accommodation” shall be computed by deducting from the total accommodation, the cash collateral and investments made by such related party in the Finance Company’s share capital and debt instruments with a remaining maturity of 5 years or more (b) Charging of a lower rate of interest than the finance company’s best lending rate or paying a rate of interest exceeding the rate paid for a comparable transaction with an unrelated comparable counterparty. (c) Providing preferential treatment, such as favourable terms, covering trade losses and/or waiving fees commissions, that extend beyond the terms granted in the normal course of business with unrelated parties; (d) Providing or obtaining services to/from a related party without a proper evaluation procedure; e) Maintaining reporting lines and information flows between the finance company and any related party which may lead to share proprietary, confidential or otherwise sensitive information that may give benefits to such related party except, as required for the performance of legitimate duties and functions. Swarnamahal Financial Services PLC Annual Report 2012/13 46
Corporate Governance contd.
CBSL DESCRIPTION COMPLIANCE STATUS Section 1O. DISCLOSURES 10(1) The Board shall ensure that: The Annual and Interim Financial Statements have been (a) Annual Audited Financial Statements and periodical prepared and published in accordance with the formats Financial Statements are prepared and published prescribed by the supervisory and regulatory authorities in accordance with the formats prescribed by the and applicable Accounting Standards. Further, such supervisory and regulatory authorities and applicable financial statements have been published in all three accounting standards, and that languages in the national newspapers of Sinhala, English (b) such statements are published in the newspapers in and Tamil. an abridged form, in Sinhala, Tamil and English. 10(2) The Board shall ensure that the following minimum disclosures are made in the Annual Report: (a) A statement to the effect that the Annual Audited A statement to this effect has been included in the Financial Statements have been prepared in line “Statement of Directors’ Responsibility” in pages 58 to with applicable accounting standards and regulatory 59. requirements, inclusive of specific disclosures. (b) A report by the Board on the Finance Company’s This report is contained in the “Directors’ statement on internal control mechanism that confirms that the Internal Control over Financial Reporting” in page 57. financial reporting system has been designed to provide a reasonable assurance regarding the reliability of financial reporting, and that the preparation of Financial Statements has been done in accordance with relevant accounting principles and regulatory requirements. (c) The External Auditor’s certification on the effectiveness The Board will ensure to comply with these requirements of the internal control mechanism in respect of any in the ensuing financial year. statements prepared or published after 31st March 2010. (d) Details of Directors, including names, transactions with This has been included in the Annual Report of the Board the Finance company. of Directors on the affairs of the Company” in pages 52 to 56. (e) Fees and remuneration paid by the finance company to The fees & remuneration paid to the Directors has been the Directors in aggregate in the annual reports published disclosed in note No. 10 to the Financial Statements as after January 1, 2010. given in page 84. (f) Total net accommodation as defined in 9(4) outstanding The total net accommodations granted to related in respect of each category of related parties and the net parties are disclosed in note No. 32.4 to the Financial accommodation outstanding in respect each category of Statements in page 103. related parties as a percentage of the finance Company’s capital funds. Swarnamahal Financial Services plc 47 Annual Report 2012/13
CBSL DESCRIPTION COMPLIANCE STATUS Section (g) The aggregate values of remuneration paid by the Disclosed in note No. 32.2 to the Financial Statements in finance company to its key management personnel and page 101. the aggregate values of the transactions of the finance company with its key management personnel during the financial year, set out by broad categories such as remuneration paid, accommodation granted, deposits or investment made in the finance Company. (h) A report setting out details of compliance with prudential There were no instances of material “non compliance” requirements, regulations, laws and internal controls and by the Company, but minor lapses were reported and measures taken to rectify any material non-compliance. addressed by the Company and communicated to the Director of Supervision of non bank financial institutions. (i) A statement of the regulatory and supervisory concerns No such situation had arisen. on lapses in the finance company’s risk management, or non-compliance with the Act ,and the rules and Directions that have been communicated by the Director of Supervision of non bank financial institutions , if so directed by the Monetary Board to be disclosed to the public, together with the measures taken by the finance company to address such concerns. (j) The External Auditor’s certification of the compliance with We will comply with these requirements in the ensuing the act and rules and direction issued by the monetary year. board in the annual corporate governance report published after January 1, 2011. Swarnamahal Financial Services PLC Annual Report 2012/13 48
Corporate Governance contd.
Compliance with the section 7.10 of continuing listing requirements of the Colombo Stock Exchange. CSE DESCRIPTION COMPLIANCE STATUS CODE NO 7.10.1 Non-Executive Directors 7.10.1 (a) The Board of Directors of a Listed Entity shall include at Complied with as 4 out of 8 Directors of the Board are least, two Non-Executive Directors, or such number of Non- Executive Directors. Non-Executive Directors equivalent to one third of the total number of directors whichever is higher. 7.10.2 Independent Directors 7.10.2 (a) Where the constitution of the Board of Directors Complied with as 2 out of 4 Non-Executive Directors includes only two Non-Executive Directors in terms of were independent. Rule 7.10.1.a above, both such Non-Executive Directors shall be ‘independent’. In all other instances two or 1/3 of Non-Executive Directors appointed to the Board, whichever is higher shall be ‘Independent’. 7.10.2 (b) The Board shall require each Non-Executive Director to Complied with as the Board has determined the submit a signed and dated declaration annually of his/ independence of each Non-Executive Director based on her independence or non independence against the the declarations submitted by them and will continue to specified criteria. 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- The Board has determined Mr. S.D. Jayawardhana and Executive Director based on such declaration and other Mr. B.G. Wimalaratna Banda as Independent Non- information available to the board and shall set out in Executive Directors of the Board. 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 Complied with resume of each director on its board which includes The brief profile of each Director has been set out in information on the nature of his/her expertise in relevant pages 12 to 13. functional 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 During the financial year, three new Directors were resume of such director for dissemination to the public. appointed and provided to the Exchange a brief resumes of those Directors. Swarnamahal Financial Services plc 49 Annual Report 2012/13
CSE DESCRIPTION COMPLIANCE STATUS CODE NO 7.10.5 Remuneration Committee 7.10.5 (a) The Remuneration Committee shall comprise of a During the financial year the Committee was comprised minimum of two Independent Non-Executive Directors of four Non-Executive Directors, two out of them were (in instances where an Entity has only two Directors independent. 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 Complied with. remuneration payable to the executive directors and The Board remuneration committee was formed in Chief Executive Officer of the Listed Entity and/or order to ensure formal and transparent procedures equivalent position thereof, to the board of the Listed in developing an effective remuneration policy for all Entity which will make the final determination upon Executive Directors including the Director/CEO and consideration of such recommendations. the Senior Management personnel. No Director was involved in deciding his or her remuneration in order to avoid potential conflict of interest. 7.10.5 (c) The Annual Report should set out the names of Complied with. directors comprising the remuneration committee, The remuneration policy and the aggregate of contain a statement of the remuneration policy and set remuneration paid to the Executive and Non- Executive out the aggregate remuneration paid to Executive and Directors are given in page 84. Non-Executive Directors.
7.10.6 Audit Committee 7.10.6 (a) The Audit Committee shall comprise of a minimum of The Audit Committee of SFS comprises of 03 Non- two Independent Non-Executive Directors (in Instances Executive Directors, two of whom, including the where an Entity has only two directors on its board) Chairman are Independent Directors. or Non-Executive Directors a majority of who shall be independent, whichever shall be higher. Swarnamahal Financial Services PLC Annual Report 2012/13 50
Corporate Governance contd.
CSE DESCRIPTION COMPLIANCE STATUS CODE NO 7.10.6 (b) Functions of the Committee shall include, Complied with.
(i) Overseeing of the preparation, presentation and Functions of the Board Audit Committee are given in the adequacy of disclosures in the financial statements Board Audit Committee Report in pages 61 to 62. of a Listed Entity, in accordance with Sri Lanka Accounting Standards. (ii) Overseeing of the Entity’s compliance with financial reporting requirements, information requirements of the Companies Act and other relevant financial reporting related regulations and requirements. (iii) Overseeing the processes to ensure that the Entity’s internal controls and risk management are adequate, to meet the requirements of the Sri Lanka Auditing Standards. (iv) Assessment of the independence and performance of the Entity’s external auditors. (v) To make recommendations to the Board pertaining to appointment, re-appointment and removal of external auditors and to approve the remuneration and terms of engagement of the External Auditors. 7.10.6 (c) The names of the Directors comprising the Audit Names of the Directors of the Board Audit Committee Committee should be disclosed in the annual report. are given in the Board Audit Committee Report in page 61.
Determination of independence of Board of those Companies and 90% of stake of SFS is owned by ETI Finance Mr. S.D. Jayawardhana Limited. As per the Listing Rules of the Colombo Stock Exchange, Mr. S.D. Jayawardhana The following facts have been considered by the Board when determining his does not fall under the category of Independence “independent” since he serves on the i. Mr. S.D. Jayawardhana is only a Non- Executive Director of ETI Finance Limited. Board of EAP Holdings Limited as the ii. Although, Mr. S.D. Jayawardhana holds Executive Directorship with EAP Holdings Group Director Finance and in the Boards Ltd, as the Group Finance Director, he holds Non Executive Directorships of Swarnamahal Jewellers (Pvt) Ltd, EAP with Swarnamahal Jewellers (Pvt) Ltd, EAP Networks (Pvt) Ltd, EAP Films & Networks (Pvt) Ltd, EAP Films & Theaters Theaters (Pvt) Ltd, EAP RMS Insurance Brokers (Pvt) Ltd and Swarna Solutions (Pvt) Ltd, EAP RMS Insurance Brokers (Pvt) Limited, SFS does not have any material business relationship with any of those Ltd, Swarna Solutions Ltd and ETI Finance Companies in which the Board of Directors of SFS is represented. Limited as a Non Executive Director when iii. He has not been employed by Swarnamanhal Financial Services PLC during the majority of the Board of Swarnamanhal the period of two years immediately preceding his appointment as a director Financial Services PLC (SFS) is on the and does not have a Material Business Relationship with SFS or any other company where he holds directorships directly or indirectly. Swarnamahal Financial Services plc 51 Annual Report 2012/13
iv. Mr. S.D. Jayawardhana doest not have a Close Family Member (s) who is a Director or Chief Executive Officer of SFS or any other company where he holds directorships directly or indirectly. v. He does not have any Shareholding in SFS or any other company where he holds directorships directly or indirectly. vi. He has not served on the Board of SFS for a period exceeding nine years from the date of the first appointment.
DIRECTORS’ ATTENDANCE AT MEETINGS DURING THE FINANCIAL YEAR 2012/13 NAMES DIRECTORSHIP BOARD AUDIT INTEGRATED REMUNERATION COMMITTEE RISK COMMITTEE MANAGEMENT COMMITTEE No. of meetings held 12 6 1 1 Mr. J.H. Edirisinghe Chairman Non- 12/12 1/1 Executive Director Mr. N.P. Edirisinghe Executive Director 12/12 1/1 Mrs. A.D. Edirisinghe Executive Director 10/12 Mr. A.S. Edirisinghe Executive Director 9/12 Mr. S. Kariyawasam Non- Executive Director 3/3 2/2 (Appointed w.e.f 10/01/2013) Mr. S.D. Jayawardana Independent Non- 3/3 2/2 (Appointed w.e.f 10/01/2013) Executive Director
Mr. B.G. Wimalaratna Banda Independent - Non- 3/3 2/2 (Appointed w.e.f. 10/01/2013) Executive Director Mr. S.M. Ganegoda Executive Director 12/12 1/1 Mr. S.A. Weerasinha Independent - Non- 9/9 4/4 1/1 1/1 (Ceased w.e.f. 17/01/2013) Executive Director Mr. N.G.M. De Silva Non- Executive Director 2/8 (Ceased w.e.f. 02/10/2012) Mr. D.S. Abeyratna Independent - Non- 9/9 4/4 1/1 (Ceased w.e.f. 17/01/2013) Executive Director Mr. J.F.G. De Silva Independent - Non- 7/7 3/3 1/1 1/1 (Ceased w.e.f.09/09/2012) Executive Director Swarnamahal Financial Services PLC Annual Report 2012/13 52
Annual Report of the Board of Directors on the Affairs of the Company
General Directors’ Shareholdings The Directors have pleasure in presenting The Directors’ interests in Ordinary Shares were as follows: the Annual Report together with the Audited No. Name of the Director No of shares held as at Financial Statements of the Company for st st the financial year ended 31st March 2013. 31 March 2013 31 March 2012 Swarnamahal Financial Services PLC 1 Mr. J.H. Edirisinghe 0* 82,000,020 (“SFS”) is a public limited liability Company, 2 Mrs. A.D. Edirisinghe 0* 82,000,020 incorporated 14th January 2004 in Colombo, under the Companies Act No. 17 of 1982 3 Mr. N.P. Edirisinghe 0* 82,000,020 and re-registered under the Companies 4 Mr. A.S. Edirisinghe 0* 82,000,020 Act No.7 of 2007, 16th September 2008. 5 Mr. S.M. Ganegoda 200,020 200,020 The company is registered as a Finance Company under the Finance Business Act 6 Mr. N.G.M. De Silva (Resigned 20 20 No. 42 of 2011, the Finance Leasing Act with effect from 02/10/2012) No. 56 of 2000 and has quoted its shares *All shares were transferred to ETI Finance Limited with effect from 01st February on the Colombo Stock Exchange since May 2013 and duly disclosed to the CSE. 2011. Stated Capital The Annual Report together with the The stated capital of the company consists of 500,000,140 Ordinary Voting Audited Financial Statements was approved Shares amounting to Rs. 250,000,070/- as at 31st March 2013. by the Board of Directors 21st August 2013. Information relating to earnings, net assets and market value per share is given in Registered Office and Business Office pages 2 and 118. The registered office of the Company is situated at No. 676, Galle Road, Colombo Shareholders 03 and the business office is at No.654, There were 2,357 shareholders registered as at 31st March 2013, the details are Galle Road, Colombo 03. given in page 118. Principal Activities Related Party Transactions During the Financial year 2012/13, the In terms of the Sri Lanka Accounting Standards comprising the Sri Lanka company continued with Gold Loan Financial Reporting Standard (LKAS 24), Related Party Transactions, including services, Leasing, Hire Purchase, Personal write off balances and provisioning for doubtful receivables, have been disclosed Loans and mobilization of Fixed and in notes to the financial statements as given in pages 101 to 103 forming the Savings deposits as its main lines of part of the Annual Report of the Board of Directors while details of the significant business. There were no material changes transactions are given below. in the nature of the principle business activities of the company. Name of Lending/ Outstanding Amount as a Related party Borrowings/ amount as at 31st percentage of Other transactions March 2013. capital fund Directors’ Meetings The meetings of the Board of Directors were Swarnamahal Term Loan 1,063,358 1.67 Jewellers (Pvt) held once a month or more frequently when Gold Sale 5,797,700 ever necessary. The Directors’ attendance Ltd at the Board Meetings is given in page 51. EAP Holdings Shared services 6,067,596 1.50 Ltd expenses (prepaid) Swarnamahal Financial Services plc 53 Annual Report 2012/13
Donations Auditor’s Report During the Financial Year, donations of The Auditor’s report on the Financial Statements is given in page 67. Rs. 1.2 million were made in terms of the resolution passed at the Annual General Statement of Compliance on the Contents of the Annual Meeting held in September 2012. Report The Audited Financial Statements included in this Annual Report have been Directors’ Remuneration prepared and presented with the relevant disclosures in accordance with the Sri The aggregate sum of Directors’ fees and Lanka Accounting Standards and other applicable regulatory requirements. emoluments paid during the year was Rs. 10,100,000/- and is disclosed in note No. Corporate Governance 10 to the Financial Statements in page 84. The Company has placed a very high degree of attention to conforming to the best corporate governance practices and procedures. Accordingly, systems and Financial Statements procedures are revised and improved from time to time. A separate report on Financial Statements of the Company are Corporate Governance is given in pages 26 to 51. given in pages 68 to 115. Internal Controls Significant Accounting Policies The Board has formed an effective and comprehensive system of Internal The significant accounting policies adopted Controls covering financial reporting, compliance with rules and regulations of in preparation of the Financial Statements relevant authorities and risk management to carry on the business in an orderly are given in pages 72 to 83. There have manner to safeguard its assets and to ensure as far as possible the accuracy and been no changes in the accounting policies reliability of the financial records. adopted by the Company during the year and are consistent with those adopted Internal Control mechanism of the Company is reviewed and improved on a in the previous financial year as required continuous basis, based on the recommendations of the Internal Auditor and on by the Sri Lanka Accounting Standards site observations of the Central Bank of Sri Lanka and the External Auditor during (SLAS-3) on “presentation of Financial their inspections and audit. Statements”. The figures pertaining to the previous periods have been re-stated where Directors’ Statement of Internal Control necessary to confirm a better presentation In line with the Finance Companies (Corporate Governance) Direction No.3 of of the Financial Statements for the year 2008, the Board of Directors has issued a report on the system of Internal Control under review. of the Company confirming that the financial reporting system of the company has been designed to provide a reasonable assurance regarding the reliability of Financial Reporting financial reporting, and that the preparation of financial statements for external The Company has adopted Sri Lanka purposes has been done in accordance with relevant accounting principles and Accounting Standards (SLFRS) in the regulatory requirements. The Directors’ report on Internal Control is given in page preparation of the Financial Statements. 57. Consequently, the necessary quantifications and disclosures have also been made based on SLFRS. Prior year figures have been adjusted in accordance with SLFRS and the reconciliation for the changes due to adoption of SLFRS has been provided in Note 38 in the Financial Statements. Swarnamahal Financial Services PLC Annual Report 2012/13 54
Annual Report of the Board of Directors on the Affairs of the Companycontd.
Board Sub Committees The Board of Directors of the Company has formed the following Board Sub Committees.
Audit Committee Mr. S.D. Jayawardhana Independent Non-Executive Director - Chairman (appointed w.e.f. 17/01/2013) Mr. S. Kariyawasam Non-Executive Director (appointed w.e.f. 17/01/2013) Mr. B.G. Wimalarathna Banda Independent Non-Executive Director (appointed w.e.f. 17/01/2013). Mr. J.F.G. De Silva Independent Non-Executive Director (ceased to be a member w.e.f. 09/09/2012). Mr. S.A. Weerasinha Independent Non-Executive Director (ceased to be a member w.e.f. 17/01/2013). Mr. D.S. Abeyratna Independent Non-Executive Director - Committee Chairman (ceased to be a member w.e.f. 17/01/2013).
The report of the Audit Committee is given in pages 61 to 62.
Human Resources and Remuneration Committee Mr. S. Kariyawasam Non-Executive Director – Chairman, (appointed w.e.f. 17/01/2013). Mr. S.D. Jayawardhana Independent Non-Executive Director (appointed w.e.f. 17/01/2013). Mr. B.G. Wimalarathna Banda Independent Non-Executive Director (appointed w.e.f. 17/01/2013). Mr. J.F.G. De Silva Independent Non-Executive Director (ceased to be a member w.e.f. 09/09/2012). Mr. S.A. Weerasinha Independent Non-Executive Director (ceased to be a member w.e.f. 17/01/2013). Mr. D.S. Abeyratna Independent Non-Executive Director (ceased to be a member w.e.f. 17/01/2013).
The report of the Remuneration Committee is given in page 65.
Integrated Risk Management Committee Mr. S. Kariyawasam Non-Executive Director – Chairman, (appointed w.e.f. 17/01/2013). Mr. S.D. Jayawardhana Independent Non-Executive Director (appointed w.e.f. 17/01/2013). Mr. B.G. Wimalarathna Banda Independent Non-Executive Director (appointed w.e.f. 17/01/2013). Mr. S.M. Ganegoda Director - Chief Executive Officer Mr. J.F.G. De Silva Independent Non-Executive Director (ceased to be a member w.e.f. 09/09/2012). Mr. S.A. Weerasinha Independent Non-Executive Director (ceased to be a member w.e.f. 17/01/2013). Mr. D.S. Abeyratna Independent Non-Executive Director (ceased to be a member w.e.f. 17/01/2013).
The report of Integrated Risk Management Committee is given in pages 63 to 64.
Directorate The Board of Swarnamahal Financial Services PLC consists of 8 directors with a wide array of experience in financial & commercial sectors as at 31st March 2013. The brief profiles of the directors are given in pages 12 to 13. Swarnamahal Financial Services plc 55 Annual Report 2012/13
The names of the Directors who serve/served on the board are given below
Executive Directors Mr. N.P. Edirisinghe Executive Director Mrs. A.D. Edirisinghe Executive Director Mr. A.S. Edirisinghe Executive Director Mr. S.M. Ganegoda Director/Chief Executive Officer Non- Executive Directors Mr. J.H. Edirisinghe Chairman - Non-Executive Director Mr. S. Kariyawasam Non-Executive Director (appointed w.e.f. 10/01/2013). Mr. S.D. Jayawardhana* Independent Non-Executive Director (appointed w.e.f. 10/01/2013). Mr. B.G. Wimalarathna Banda *Independent Non-Executive Director (appointed w.e.f. 10/01/2013). Mr. J.F.G. De Silva* Independent Non-Executive Director(ceased to be a Director w.e.f. 09/09/2012). Mr. N.G.M. De Silva Non-Executive Director(ceased to be a Director w.e.f. 02/10/2012). Mr. S.A. Weerasinha* Independent Non-Executive Director (ceased to be a Director w.e.f. 17/01/2013). Mr. D.S. Abeyratna* Independent Non-Executive Director (ceased to be a Director w.e.f. 17/01/2013).
* Independent Non-Executive Directors as per the Listing Rules of Colombo Stock Exchange
Re-designation of Directors The Board has determined the independence of each Non-Executive Director based on the declarations submitted by them and re-designated Mr. S.D. Jayawardhana as an Independent Non-Executive Director of the Board with effect from 9th August 2013.
Secretary M/s SSP Corporate Services (Pvt) Ltd engaged as the Secretary and Registrar to the Company.
Fair Value of Real Estate Stock The Fair Value of Real Estate Stock recorded was Rs. 165,956,056 as at 31st March 2013, based on the Independent Valuation that resulted in the company creating a provisioning of Rs. 15,496,986 as an impairment that has occurred during the financial year 2012/13.
Directors’ Responsibility of Financial Reporting The Directors of the Company are responsible for the preparation and presentation of the financial statements of the Company to reflect a true and fair view of the state of affairs of the Company. The Financial Statements of the Company for the year ended 31st March 2013 are prepared and presented, consistent with the underlying books of accounts, in accordance with the requirements of Sri Lanka Accounting Standards (SLAS) issued by the Institute of Chartered Accountants of Sri Lanka, the Companies Act No. 07 of 2007, Sri Lanka Accounting and Auditing Standards Act No. 15 of 1995, Finance Business Act No. 42 of 2011 and the Listing Rules of the Colombo Stock Exchange inclusive of specific disclosures. The statement of directors responsibility for financial statements is given in page 51 and forms an integral part of the annual report of the Board of Directors. Swarnamahal Financial Services PLC Annual Report 2012/13 56
Annual Report of the Board of Directors on the Affairs of the Companycontd.
Human Resources has adequate resources to continue in operation into the foreseeable future and The Company recruits the best talented continue to adopt the going concern basis in preparing Financial Statements. people and provides equal employment opportunities with no discrimination. Events after the reporting date There have not been any material events that occurred subsequent to the The Human Resources Policies of the date of statement of financial position that require adjustments to the Financial Company includes comprehensive training Statements. and developments programs to enhance skills of new recruits and the existing staff Auditor for greater efficiency. Messrs KPMG, Chartered Accountants served as the auditor during the year under review. As at 31st March 2013, 140 employees were in the company. During the Financial Year 2012/13, a sum of Rs. 1,105,360 (2011/12 - Rs. 396,750) is provided as audit and audit related fees to the Auditor, Messrs Report on Compliance with Prudential KPMG, Chartered Accountants. Requirements, Regulations and Laws The Company has complied with the The Board has accepted the recommendation of the Board Audit Committee and regulatory and prudential and internal has recommended the reappointment of Messrs KPMG, Chartered Accountants control requirements arising from the as Auditors to the Company for the Financial Year 2013/14 as they have provisions in the statutes applicable to the expressed their willingness to continue in office. A resolution to re-appoint the Company, such as the Finance Business auditors and to authorize the Directors to determine their remuneration will be Act No. 42 of 2011, Directions issued by the proposed at the Annual General Meeting to be held 30th September 2013. Central Bank of Sri Lanka, Companies Act No.7 of 2007, Inland Revenue Act No. 10 of Annual General Meeting 2006, Value Added Tax Act No. 14 of 2002, The 08th Annual General Meeting of the Company will be held at Hotel Sapphire, Financial Transaction reporting Act No. 06 No. 371, Galle Road, Colombo 06, on 30th September 2013 at 10.30 a.m. of 2006, Sri Lanka Accounting and Auditing Standards Act No. 15 of 1995, Listing Rules of Colombo Stock Exchange etc.
Statutory Payments J.H. Edirisinghe The Board of Directors of the Company Chairman is satisfied, to the best of their knowledge and belief that all statutory dues to the Government and employees have been made in full, on time. S.M. Ganegoda Director/Chief Executive Officer Going Concern The Board of Directors is satisfied, to the best of their knowledge and belief, that the Financial Statements of the Company SSP Corporate Services (Pvt) Ltd give a true and fair view of the assets, Company Secretaries liabilities, financial position and profit of the Company and is satisfied that the Company 21st August 2013 Swarnamahal Financial Services plc 57 Annual Report 2012/13
Directors’ Statement on Internal Control
In line with the Finance Companies The key processes that have been established in reviewing the adequacy and (Corporate Governance) Direction No.3 of integrity of the system of internal controls with respect to financial reporting 2008, the Board of Directors presents this include the following: report on Internal Control. • Various Committees were established by the Board to assist the Board The Board of Directors (“Board”) is in ensuring the effectiveness of Company’s daily operations and that the responsible for the adequacy and Company’s operations are in accordance with the corporate objectives, effectiveness of Swarnamahal Financial strategies and the annual budget as well as the policies and business Services PLC’s (“the Company”) system of directions that have been approved. internal controls. Such a system is designed to manage the Company’s key areas of • The Internal Audit Division of the Company checks for compliance with risk within an acceptable risk profile by policies and procedures and the effectiveness of the internal control systems highlighting any deviation from the limits, on an ongoing basis and highlights significant findings in respect of any rather than eliminate the risk of failure to non-compliance. Audits are carried out on all units, branches and pawning achieve the policies and business objectives centres, the frequency of which is determined by the level of risk assessed, of the Company. to provide an independent and objective report. The Annual Audit plan is reviewed and approved by the Audit Committee. Findings of the Internal Accordingly, the system of internal Audit are submitted to the Audit Committee for review at their meetings held controls can only provide reasonable but quarterly. not absolute assurance against material misstatements of management, financial • The Audit Committee of the Company reviews internal control issues information and records or against financial identified by the respective Internal Audit Division, regulatory authorities and losses or fraud. management, and evaluates the adequacy and effectiveness of the risk management and internal control systems. It also reviews the Internal Audit The Board has established an ongoing functions with particular emphasis on the scope of audits and quality of process for identifying, evaluating and Internal Audits. The minutes of the Audit Committee meetings are tabled to managing the significant risks faced by the Board of the Company on a periodic basis. the Company and this process includes enhancing the system of internal controls Confirmation as and when there are changes in business Based on the above processes, the Board confirms that the financial reporting environment or regulatory guidelines. system of the Company has been designed to provide reasonable assurance regarding the reliability of financial reporting and that the preparation of Financial The Board is in the view that the system Statements for external purposes has been done in accordance with Sri Lanka of internal controls in place is sound Accounting Standards (SLAS) and regulatory requirements of the Central Bank of and adequate to provide a reasonable Sri Lanka. assurance regarding the reliability of financial reporting and preparation of financial For and on behalf of the Board statements for external purposes, and is in accordance with relevant accounting principles and regulatory requirements. J.H. Edirisinghe S.D. Jayawardhana The management assists the Board in the Chairman Chairman Board Audit Committee implementation of the Board’s policies and procedures on risk and control by identifying and assessing the risks faced, and in the design, operation and monitoring of suitable S.M. Ganegoda internal controls to mitigate and control Director/Chief Executive Officer these risks. 21st August 2013 Swarnamahal Financial Services PLC Annual Report 2012/13 58
Statement of Directors’ Responsibilities in Relation to Financial Statements
The responsibility of the Directors of the • Judgments and estimates made are reasonable and prudent and all Company, in relation to the preparation and applicable Accounting Standards have been complied with. presentation of the Financial Statements of the Company in accordance with the The Directors accept responsibility to ensure that the company has adequate relevant provisions of the Companies Act resources to continue in operation to justify applying the going concern basis in No. 07 of 2007, Finance Business Act No. preparing these Financial Statements. 42 of 2011 and other statutes which are applicable in the preparation of Financial The Financial Statements of the Company for the year ended 31st March 2013 statements are set out in the following are prepared and presented, consistent with the underlying books of accounts, in statement. accordance with the requirements of the Sri Lanka Accounting Standards issued by the Institute of Chartered Accountants of Sri Lanka, the Companies Act No. The responsibilities of the External Auditors, 07 of 2007, Sri Lanka Accounting and Auditing Standards Act No. 15 of 1995, in relation to the Financial Statements are Finance Business Act No. 42 of 2011 and the Listing Rules of the Colombo Stock set out in the report of the Auditors given in Exchange inclusive of specific disclosures. page 67. The Directors are responsible for ensuring that the Company keeps sufficient In accordance with the Companies Act accounting records, which disclose the financial position of the Company with No. 07 of 2007, the Directors of the reasonable accuracy and enable them to ensure that the financial statements Company are responsible for ensuring, have been prepared and presented as aforementioned. the Company keeps proper books of account of all the transactions and prepare The Directors of the Company have instituted an effective and comprehensive Financial Statements for each financial system of Internal Control for identifying, recording, evaluating and managing the year. The Financial Statements of the significant risks faced by the company throughout the year and it is under regular Company are comprised of the Statement review of the Board of Directors. This comprises internal reviews, internal audit of Financial Position as at 31st March 2013, and the whole system of financial and other controls required to carry on the the Statement of Comprehensive Income, business of the Company in an orderly manner, safeguard its assets, prevent and Statement of Changes in Equity, Statement detect frauds and secure as far as practicable, the accuracy and the reliability of of Cash Flow for the year ended 31st March the records. 2013 and notes thereto. The Directors of the Company are responsible for preparing and presenting Accordingly, the Directors confirm that the the Financial Statements and have provided the Company’s External Auditor, Financial Statements of the Company give a Messrs KPMG, Chartered Accountants with every opportunity to undertake true and fair view of the state of affairs of the the inspections they considered appropriate and necessary. Messrs KPMG, Company as at 31st March 2013. Chartered Accountants carried out sample checks on the effectiveness of the system of internal controls as they considered appropriate and necessary in The Directors are responsible to ensure that: expressing their independent audit opinion on the Financial Statements and maintenance of accounting records. Messrs KPMG, Chartered Accountants • the appropriate accounting policies has examined the Financial Statements of the Company together with all other have been selected and applied in financial records and minutes of the meetings of the Board of Directors and a consistent manner and material expressed their opinion which appears on page 67. deviations, if any, have been disclosed, Swarnamahal Financial Services plc 59 Annual Report 2012/13
Compliance Report The Directors of the Company confirm that to the best of their knowledge and belief, all statutory payments in relation to all relevant regulatory and statutory dues, as were due and payable by the Company as at the reporting date, have been paid or where relevant, provided for. The Directors are of the view that they have discharged their responsibilities as set out in this above statement.
By order of the Board
J.H. Edirisinghe Chairman
S.M. Ganegoda Director/Chief Executive Officer
21st August 2013 Swarnamahal Financial Services PLC Annual Report 2012/13 60
Chief Executive Officer’s and Senior Finance Manager’s Statement of Responsibility
The Financial Statements of Swarnamahal The Board of Directors and the Management of the Company accept Financial Services PLC for the financial responsibility for the integrity and objectivity of these Financial Statements. The year ended 31st March 2013 have been estimates and judgments relating to the Financial Statements were made on prepared and presented, consistent with a prudent and reasonable basis, in order that the Financial Statements reflect the underlying books of accounts, in in a true and fair manner, the form and substance of transactions and that the accordance with the requirements of the Company’s state of affairs is well presented. To ensure this, the Company has Sri Lanka Accounting Standards issued taken proper and sufficient care in installing a system of Internal Controls and by the Institute of Chartered Accountants accounting records, for safeguarding assets and for preventing and detecting of Sri Lanka, the Companies Act No. frauds as well as other irregularities, which is reviewed, evaluated and updated on 07 of 2007, Sri Lanka Accounting and an ongoing basis. Our Internal Auditors have conducted periodic audits to ensure Auditing Standards Act No. 15 of 1995, that the policies and procedures of the Company were consistently followed. Finance Business Act No. 42 of 2011 and However, there are inherent limitations that should be recognized in weighing the the Listing Rules of the Colombo Stock assurances provided by any system of Internal Controls and Accounting. Exchange. The Company’s External Auditor, Messrs KPMG, Chartered Accountants, has The formats used in the presentation of the audited the Financial Statements of the Company and their report is given in page Financial Statements and the disclosures 67. are complied with the formats prescribed by the Institute of Chartered Accountants of The Board Audit Committee of the Company reviewed all the Internal Audit Sri Lanka. inspections, audit plans, the efficiency of Internal Control Systems and procedures and also reviewed the quality of the significant Accounting Policies The significant accounting policies and and their adhering to the Statutory and Regulatory requirements. To ensure estimates that involved a high degree of complete independence, the Internal and External Auditors had full and free judgment and complexity were discussed access to the members of the Board Audit Committee to discuss any matter of with the Company’s External Auditor and substance. the Board Audit Committee. Comparative information has been reclassified whenever We further confirm that the Company has complied with all the guidelines for the necessary to comply with the current audit services. presentation and material deviations, if any, have been disclosed and explained in the The Company has also complied with all applicable laws, regulations and notes to the Financial Statements. prudential requirements. There are no material non-compliances and there are/ were no litigations or proceedings against the Company in the recent past. We confirm, to the best of our knowledge and belief, that the Financial Statements of the Company give a true and fair view of the assets, liabilities, financial position S.M. Ganegoda and profit of the Company, its cash flows Director/ Chief Executive Officer and liquidity position. We also confirm that the Company has adequate resources to continue in operation and have applied the going concern basis in preparing Financial R.M.G. Ratnayake Statements. Senior Manager-Finance
21st August 2013 Swarnamahal Financial Services plc 61 Annual Report 2012/13
Board Audit Committee Report
The Composition Meetings of the Committee The Board Audit Committee consisted During the Financial year 2012/13, four meetings of the Committee were held, of three Independent Non-Executive one per quarter. The proceedings of the committee meetings were recorded Directors up to 09th September 2012 and and circulated to the Board of Directors regularly for information and advice. The two Independent Non-Executive Directors members’ attendance at the committee meetings are tabled below. th th from 09 September 2012 to 17 January Names Directorship Attendance 2013. From January 2013, the committee comprises of three Non-Executive Directors No. of meetings held 6 out of whom two are Independent. Mr. S. Kariyawasam Non- Executive 2/2 (appointed with effect from Director The following Directors serve/served on the 17/01/2013) Committee Mr. S.D. Jayawardhana, Independent Non- Mr. S.D. Jayawardana Independent Non- 2/2 Executive Director - Chairman (appointed (appointed with effect from Executive Director w.e.f. 17/01/2013). 17/01/2013) Mr. S. Kariyawasam, Non-Executive Director Mr. B.G. Wimalaratna Banda Independent Non- 2/2 (appointed w.e.f. 17/01/2013). (appointed with effect from Executive Director Mr. B.G. Wimalarathna Banda Independent 17/01/2013) Non-Executive Director (appointed w.e.f. Mr. J.F.G. De Silva Independent - Non- 4/4 17/01/2013). ( ceased with effect from 09/09/2013) Executive Director Mr. J.F.G. De Silva, Independent Non- Executive Director (ceased to be a member Mr. S.A. Weerasinha Independent - Non- 4/4 w.e.f. 09/09/2012). (ceased with effect from 17/01/2013) Executive Director Mr. S.A. Weerasinha Independent Non- Mr. D.S. Abeyratna Independent - Non- 3/3 Executive Director (ceased to be a member (ceased with effect from 17/01/2013) Executive Director w.e.f. 17/01/2013). Mr. D.S. Abeyratna Independent Role of the Audit Committee Non-Executive Director –Committee The Audit Committee assists the Board of Directors in fulfilling effectively its Chairman (ceased to be a member w.e.f. oversight responsibilities in the financial reporting process and other related affairs 17/01/2013). of the Company.
Secretary to the Board Audit The Committee has been empowered to: Committee SSP Corporate Services (Pvt) Ltd • Analyze and review risks and examine the adequacy, efficiency, effectiveness of the system of internal controls and procedures that are in force to mitigate The Chairman, Mr. S.D. Jayawardhana risks. counts over 25 years of experience in • Monitor and evaluate the External Auditor’s independence, objectivity and the fields of Finance & Management and effectiveness of the Audit Process. is an associate Member of Chartered • Meet External Auditor during the year to discuss and finalize the Audit Accountants of Sri Lanka (ACA) and fellow approach, procedures, nature and the scope, including the matters relating member of Society of Certified Management to the company’s compliance with directions, internal control over financial Accountants of Sri Lanka (FSCMA). reporting and auditor’s independence. • Review the Audited Financial Statements with the External Auditors in order to The Director/CEO and the Senior Manager- monitor the integrity of the Financial Statements and its conformity with the Sri Finance were present at all the meetings on Lankan Accounting Standards, prior to submission to the Board. invitation. Swarnamahal Financial Services PLC Annual Report 2012/13 62
Board Audit Committee Report contd.
• Review Accounting Policies, emerging Standards, the Company’s Act No. 07 of 2007 and the Directions issued by the accounting issues and disclosures Central Bank of Sri Lanka. according to LKAS/SLFRS • Review the External Auditor’s The Committee liaised with the other Board members, reviewed the Company’s Management Letter together with the annual and interim financial statements and recommended the issue of such management response thereto. financial statements to the shareholders. The Committee analyzed and examined • Discuss with the External Auditor the adequacy, efficiency, effectiveness of the system of internal controls and regarding the issues, problems and procedures in place to ensure the reliability of information provided to the Board reservations arising from the Interim and and other stakeholders. Final Audits of the Company. • Ensure that a sound reporting system Internal Audit is in place to provide timely information The Internal Audit division of the Company is responsible for review and report to the Board of Directors, Regulatory on the efficiency of the system of internal controls mechanism, procedures and Authorities, Management and compliance with other regulatory requirements. The weaknesses highlighted Stakeholders. by the Internal Audit Division in relation to such control procedures were • Review the performance of the Internal critically analyzed and recommendations suggested for implementation; such Audit Function, adequacy of the scope, implementations were followed up and reviewed. The internal audit personnel resources and the authority of the were invited to the committee discussion as and when required, for further Internal Audit division. clarification. • Review internal audit programs and its results and ensure that External Audit appropriate actions are taken on the The Committee actively monitored the implementation of the recommendations recommendations of Board Audit of the External Auditor. Prior to commencement of the audit of the financial year Committee. 2012/13, the Auditor’s approach, procedures, nature and the scope of the Audit, • Ensure that the internal audit function including the matters relating to the company’s compliance with directions were is independent of the Company’s discussed and finalized. other activities and that it is performed with impartially, proficiency and due The Committee is also empowered to recommend the appointment and fees professional care. of the External Auditor. Accordingly, the Committee has recommended the • Evaluate and discuss the major findings re-appointment of Messrs KPMG, Chartered Accountants as auditors to the and observations of Internal Auditor and Company for the ensuing financial year 2013/14, subject to the approval of the the management responses thereon, shareholders at the Annual General Meeting. periodically. • Financial Reporting. Committee Evaluation The evaluation of the Committee was carried out by the other members of the The Committee assists the Board of Board in order to assess the effectiveness of the Committee and its performance, Directors in discharging their responsibilities which was found to be highly satisfactory. for the preparation of financial statements that indicates a true and fair view of the affairs of the Company in accordance with the Company’s Accounting Records and in S.D. Jayawardana conformity with the Sri Lanka Accounting Chairman-Board Audit Committee
21st August 2013 Swarnamahal Financial Services plc 63 Annual Report 2012/13
Board Integrated Risk Management Committee Report
The Composition
The following Directors serve/served on the Committee Mr. S. Kariyawasam Non-Executive Director – Chairman, (appointed w.e.f. 17/01/2013). Mr. S.D. Jayawardhana Independent Non-Executive Director (appointed w.e.f. 17/01/2013) Mr. B.G. Wimalarathna Banda Independent Non-Executive Director (appointed w.e.f. 17/01/2013) Mr. S.M. Ganegoda Director - Chief Executive Officer Mr. J.F.G. De Silva Independent Non-Executive Director (ceased to be a member w.e.f. 09/09/2012) Mr. S.A. Weerasinha Independent Non-Executive Director (ceased to be a member w.e.f. 17/01/2013) Mr. D.S. Abeyratna Independent Non-Executive Director (ceased to be a member w.e.f. 17/01/2013).
Management Representatives who attended the meetings were Mr. Dhanuka Tharanga Senior Manager- Pawning & Gold Sales Mr. R.M.G. Ratnayake Senior Manager-Finance Mr. George Samantha Senior Manager-Corporate Relations Mr. Newton Fernando Manager-Credit
Brief profiles of the Directors and management representatives are given in pages 12 to 15.
Terms of Reference • Taking appropriate actions reported against officers responsible for any failure The committee gives directions to ensure in risk management to improve the overall effectiveness of risk management that the Company fulfills its statutory, at SFS. fiduciary and regulatory responsibilities on • Taking prompt corrective actions to mitigate the effects of specific risks in the risk management. event such risks are beyond the prudent levels on the basis of the company’s policies, procedures and regulatory criteria. The main functions of the committee • compliance with laws, regulations, regulatory guidelines, internal controls and include approved policies in all areas of business operations. • Assessing all risks, including credit, • Reviewing and updating the business continuity plan, for approval of the market, liquidity, operational and Board. strategic risks on a regular basis using • Review specific quantitative and qualitative risk limits for all management level appropriate risk indicators and MIS committees viz Credit, Asset Liability and report any risk indicators periodically reports. to the Board. • Ensuring the risks of the Company is • The Committee shall meet at least quarterly. within the prudent levels decided by the • The Committee shall submit a risk management report to the first Board committee, based on the Company’s Meeting which will be held soon after each BIRMC meeting, seeking the risk appetite and the regulatory and board’s view, concurrence and /or specific directions. supervisory requirements. Swarnamahal Financial Services PLC Annual Report 2012/13 64
Board Integrated Risk Management Committee Report contd.
Meetings During the Financial Year 2012/13, one meeting of the Committee was held and the proceedings of the committee meeting were recorded and circulated to the Board of Directors for information and advice.
The members’ attendance at the committee meeting is given on page 51.
S. Kariyawasam Chairman - Board Integrated Risk Management Committee
21st August 2013 Swarnamahal Financial Services plc 65 Annual Report 2012/13
Board Human Resources and Remuneration Committee Report
The Composition The Board Human Resources and Remuneration Committee consisted of three Independent Non-Executive Directors up to 09th September 2012 and two Independent Non-Executive Directors from 09th September 2012 to 17th January 2013. From January 2013, the committee comprises of three Non-Executive Directors out of whom two are Independent.
The following Directors serve/served on the Committee Mr. S. Kariyawasam Non-Executive Director – Chairman, (appointed w.e.f. 17/01/2013). Mr. S.D. Jayawardhana Independent Non-Executive Director (appointed w.e.f. 17/01/2013). Mr. B.G. Wimalarathna Banda Independent Non-Executive Director (appointed w.e.f. 17/01/2013). Mr. J.F.G. De Silva Independent Non-Executive Director (ceased to be a member w.e.f. 09/09/2012). Mr. S.A. Weerasinha Independent Non-Executive Director (ceased to be a member w.e.f. 17/01/2013). Mr. D.S. Abeyratna Independent Non-Executive Director (ceased to be a member w.e.f. 17/01/2013).
The Functions of the Committee Policy • Determining and formulating a set The set of remuneration policies of the Company is formulated to ensure that the of remuneration policies and criteria Executive Directors including the Chief Executive Officer and senior management pertaining to the compensation and are adequately rewarded for their individual contribution to the success of the benefits of the Executive Directors Company. including the Chief Executive Officer while ensuring that no director The primary objective of the remuneration policy aims to ensure that the is involved in setting his/her own remuneration levels are sufficient to attract, motivate, and retain talent with the remuneration and salaries and the appropriate professional, managerial and operational expertise necessary to Committee also determining the achieve the objectives of the Company to enhance the long term value for all salaries and benefits of the corporate stakeholders of the Company. management and senior management. • Recommending the objectives and Committee Meetings targets to be set for Director/CEO and The Committee meets when necessary and makes recommendation on key managerial personnel and evaluating bonuses, annual increments and performance incentives to ensure that all level of the performance of the Director/ employees are sufficiently rewarded on their performance and commitments. CEO and key managerial personnel against the established goals and The Director/Chief Executive Officer who is responsible for the overall objectives in order to suggest suitable management of the Company attends meetings by invitation. recommendations to the Board. • Implementing a framework for regular The total remuneration paid to the Directors during the period under review is set performance appraisal of the staff under out in the Note No. 10 of page 84. various performance parameters in order to obtain feedback of their work performance. • Making independent judgments on S. Kariyawasam the level of payments to the individuals Chairman - Board Human Resources and Remuneration Committee according to their performance. 21st August 2013 Swarnamahal Financial Services PLC Annual Report 2012/13 66
Financial Reports
Independent Auditors’ Report 67 Statement of Comprehensive Income 68 Statement of Financial Position 69 Statement of Cash Flow 70 Statement of Changes in Equity 71 Notes to the Financial Statements 72 Swarnamahal Financial Services plc 67 Annual Report 2012/13
Independent Auditors’ Report
TO THE SHAREHOLDERS OF appropriate accounting policies; and making accounting estimates that are SWARNAMAHAL FINANCIAL reasonable in the circumstances. SERVICES PLC Scope of Audit and Basis of Opinion REPORT ON THE FINANCIAL Our responsibility is to express an opinion on these financial statements based STATEMENTS on our audit. We conducted our audit in accordance with Sri Lanka Auditing We have audited the accompanying Standards. Those standards require that we plan and perform the audit to obtain financial statements of Swarnamahal reasonable assurance whether the financial statements are free from material Financial Services PLC (“the Company”), misstatement. which comprise the statement of financial position as at 31st March 2013, the An audit includes examining, on a test basis, evidence supporting the amounts statements of comprehensive income, and disclosures in the financial statements. An audit also includes assessing the changes in equity and cash flows for the accounting policies used and significant estimates made by management, as well year then ended, and notes, comprising a as evaluating the overall financial statement presentation. summary of significant accounting policies and other explanatory information set out We have obtained all the information and explanations which to the best of our on pages 68 to 115 of the annual report. knowledge and belief were necessary for the purposes of our audit. We therefore The corresponding figures presented believe that our audit provides a reasonable basis for our opinion. are based on financial statements of the Company as at and for the year ended 31st Opinion March 2012, which were audited by another In our opinion, so far as appears from our examination, the Company maintained auditor whose report dated 05th June 2012, proper accounting records for the year ended 31st March 2013 and the financial expressed an unqualified opinion. statements give a true and fair view of the financial position of the Company as at 31st March 2013 and of its financial performance and its cash flows for the year Management’s Responsibility for the then ended in accordance with Sri Lanka Accounting Standards. Financial Statements Management is responsible for the Report on Other Legal and Regulatory Requirements preparation and fair presentation of These financial statements also comply with the requirements of Section 151(2) these financial statements in accordance of the Companies Act No. 07 of 2007. with Sri Lanka Accounting Standards. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are Chartered Accountants free from material misstatement, whether Colombo, Sri Lanka. due to fraud or error; selecting and applying 21st August 2013 Swarnamahal Financial Services PLC Annual Report 2012/13 68
Statement of Comprehensive Income
For the year ended 31st March 2013 2012 Note Rs. Rs.
Interest income 1,339,429,496 1,061,399,312 Interest expense (794,578,117) (528,873,188) Net interest income 7 544,851,379 532,526,124 Net gain/(loss) from financial instruments at fair value through profit or loss 8 (103,223) (1,613,763) Other income 9 748,459 17,916,515 Total operating income 545,496,615 548,828,876
Operating expenses Personnel expenses 10 (81,461,145) (88,375,199) Other expenses 11 (243,209,509) (226,461,583) Impairment (charges)/reversals for loans and other losses 12 (805,099) 27,591,854 Operating profit before value added tax and income tax 220,020,862 261,583,948 Value added tax on financial services (22,102,759) (28,153,127) Profit before income tax 197,918,103 233,430,821 Income tax expense 13 (76,161,903) (73,968,284) Profit for the year 121,756,200 159,462,537
Other comprehensive income, net of income tax Net change in fair value on available-for-sale financial assets 2,647,171 (6,692,864) Other comprehensive income for the year, net of tax 2,647,171 (6,692,864) Total comprehensive income for the year 124,403,371 152,769,673
Earnings per share Basic earnings per share 14 0.24 0.32
The notes to the financial statements form an integral part of these financial statements. Swarnamahal Financial Services plc 69 Annual Report 2012/13
Statement of Financial Position
As at 31st March 2013 2012 1st April 2011 Note Rs. Rs. Rs.
Assets Cash and cash equivalents 15 104,075,371 205,787,319 129,901,452 Deposits with financial institutions 16 2,598,498 8,661,665 9,864,077 Financial assets held at fair value through profit and loss 17 3,993,370 4,096,593 3,815,170 Financial assets available-for-sale 18 448,530,265 338,578,351 182,553,618 Loans and receivables 19 5,108,234,477 4,144,172,115 3,170,398,417 Investment property 20 73,000,000 62,000,000 54,000,000 Property, plant and equipment 21 72,266,717 86,479,862 73,965,188 Other assets 22 289,996,624 344,169,527 323,830,187 Total assets 6,102,695,322 5,193,945,432 3,948,328,109
Liabilities Deposits 23 5,399,512,653 4,506,384,687 3,552,371,771 Bank overdrafts 15 43,306,040 97,837,043 110,393,728 Interest bearing borrowings 24 161,788,587 214,969,050 101,597,013 Current tax liabilities 25 34,804,703 40,582,787 5,571,471 Deferred tax liabilities 26 1,607,933 2,970,185 2,908,114 Employee benefits 27 3,982,079 2,781,271 1,756,480 Other liabilities 28 24,281,227 19,411,680 17,490,476 Total liabilities 5,669,283,222 4,884,936,703 3,792,089,053
Equity Stated capital 29 250,000,070 250,000,070 250,000,070 Reserves 30 183,412,030 59,008,659 (93,761,014) Total equity 433,412,100 309,008,729 156,239,056 Total liabilities and equity 6,102,695,322 5,193,945,432 3,948,328,109
The notes to the financial statements 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.
N.P. Edirisinghe S.M. Ganegoda Managing Director Director/Chief Executive Officer
Colombo, Sri lanka 21st August 2013 Swarnamahal Financial Services PLC Annual Report 2012/13 70
Statement of Cash Flow
For the year ended 31st March 2013 2012 Rs. Rs.
Profit before taxation 197,918,103 233,430,821 Adjustment for; Depreciation 26,611,309 25,884,039 Impairment for loan losses (1,400,358) (27,591,854) Impairment for gold stock 2,205,457 - Impairment / (reversal) of real estate stock (19,293,981) 11,890,766 Profit from disposal of PPE (12,026) - Other provisions 6,063,161 1,202,412 Fair value gain on investment property (11,000,000) (8,000,000) Provision for gratuity 1,437,058 1,024,791 Fair value loss on investments 103,223 1,613,763 202,631,946 239,454,738 Changes in; - loans and advances to customers (962,662,004) (946,181,844) - other assets 71,261,434 (32,230,106) - deposit from customers 893,127,966 954,012,916 - other liabilities 4,869,547 1,921,204 Cash generated from operating activities 209,228,889 216,976,908
Tax paid (83,302,239) (38,894,897) Employee benefit paid (236,250) - Net Cash from operating activities 125,690,400 178,082,011
Cash flows from investment activities Investment in government securities (107,304,744) (162,717,597) Proceeds from disposal of PPE 62,074 - Purchase of investments - (1,895,186) Additions to Property, plant and equipment (12,448,212) (38,398,713) Net cash used in investment activities (119,690,882) (203,011,496)
Cash flow from financing activities Net proceeds/(repayments) of borrowings (53,180,463) 113,372,037 Net cash (used)/from in financing activities (53,180,463) 113,372,037
Net (decrease)/increase in cash and cash equivalents (47,180,945) 88,442,552 Cash and cash equivalents at the beginning of the year 107,950,276 19,507,724 Cash and cash equivalent at the end of the year 60,769,331 107,950,276
Reconciliation of cash and cash equivalents Cash in hand bank balances 104,075,371 205,787,319 Bank overdrafts (43,306,040) (97,837,043) 60,769,331 107,950,276
The notes to the financial statements an integral part of these financial statements. Swarnamahal Financial Services plc 71 Annual Report 2012/13
Statement of Changes in Equity
For the year ended 31st March 2013 Stated Statutory Investment Retained Available for Total Capital Reserve Fund Earnings sale reserve Rs. Rs. Rs. Rs. Rs. Rs.
Balance as at 01st April 2011 250,000,070 16,944,750 - 26,834,223 - 293,779,043 Prior year adjustment - - - (9,636,510) - (9,636,510) Impact of adopting SLFRSs as at 1st April 2011 - - - (127,384,941) (518,536) (127,903,477) Restated balance as at 1st April 2011 250,000,070 16,944,750 - (110,187,228) (518,536) 156,239,056
Profit for the year 2011/12 - - - 159,462,537 - 159,462,537 Other comprehensive income, net of tax - - - - (6,692,864) (6,692,864) Total comprehensive income for the year - - - 159,462,537 (6,692,864) 152,769,673
Transfers during the year 2011/12 - 28,149,206 22,882,378 (51,031,584) - - Balance as at 31st March 2012 250,000,070 45,093,956 22,882,378 (1,756,275) (7,211,400) 309,008,729
Profit for the year 2012/13 - - - 121,756,200 - 121,756,200 Other comprehensive income, net of tax - - - - 2,647,171 2,647,171 Total comprehensive income for the year - - - 121,756,200 2,647,171 124,403,371
Transfers during the year 2012/13 - 60,878,100 27,822,599 (88,700,699) - - Balance as at 31st March 2013 250,000,070 105,972,056 50,704,977 31,299,226 (4,564,229) 433,412,100
The notes to the financial statements an integral part of these financial statements. Swarnamahal Financial Services PLC Annual Report 2012/13 72
Notes to the Financial Statements
1. Reporting entity These are the Company’s first financial statements prepared in accordance with Swarnamahal Financial Services PLC (the the new Sri Lanka Accounting Standards and SLFRS 1 First - time adoption “Company”) is a public limited company of Sri Lanka Accounting Standards has been used to prepare these financial incorporated and domiciled in Sri Lanka and statements. listed on the Colombo Stock Exchange. The address of the Company’s registered office An explanation on how the transition to SLFRSs has affected the reported is No.676, Galle Road Colombo 03 and the financial position, financial performance and cash flow of the Company is principal place of business is situated at No provided in Note 38. 654, Galle Road, Colombo 03. The financial statements for the year ended 31st March 2013 were authorized for The Company is a registered finance issue by the Directors on 21st August 2013. company under the Finance Business Act No. 42 of 2011. 2.2. Basis of measurement The financial statements have been prepared on the historical cost basis except The staff strength of the Company as at 31st for the following material items in the statement of financial position and no March 2013 is 140 (2012-197). adjustments have been made for inflationary effects.
1.1 Principal activities • non derivative financial instruments at fair value through profit or loss are The principal activities of the Company measured at fair value are pawn brokering, granting leasing, hire • available for sale financial assets are measured at fair value purchase & loan facilities and accepting • investment property is measured at fair value fixed & savings deposits. • liability for defined benefit obligations is recognised as the present value of the defined benefit obligation
2. Basis of preparation The financial statements have been prepared on a going concern basis. 2.1. Statement of compliance The Institute of Chartered Accountants 2.3. Functional and presentation currency of Sri Lanka has issued a new volume of The financial statements are presented in Sri Lankan Rupees, which is the Sri Lanka Accounting Standards which functional currency of the Company. All financial information presented in became applicable for financial periods Sri Lankan Rupees has been rounded to the nearest rupee. beginning on or after 1st January 2012. The Financial Statements of the Company 2.4. Use of estimates and judgments which comprise the Statement of Financial The preparation of financial statements in conformity with Sri Lanka Accounting Position, Statement of Comprehensive Standards requires management to make judgments, estimates and assumptions Income, Statement of Changes in Equity, that affect the application of accounting policies and the reported amounts of Statement of Cash Flows and Notes thereto assets, liabilities, income and expenses. Actual results may differ from these have been prepared in accordance with estimates. these Sri Lanka Accounting Standards (LKASs and SLFRSs) laid down by the Estimates and underlying assumptions are reviewed on an ongoing basis. Institute of Chartered Accountants of Sri Revisions to accounting estimates are recognised in the period in which the Lanka, and comply with the requirements of estimates are revised and in any future periods affected. Companies Act No 7 of 2007 and Finance Business Act No 42 of 2011. Swarnamahal Financial Services plc 73 Annual Report 2012/13
Information about assumptions and The Company derecognises a financial asset when the contractual rights estimation uncertainties that have a to the cash flows from the asset expire, or it transfers the rights to receive significant risk of resulting in a material the contractual cash flows on the financial asset in a transaction in which adjustment within the next financial year are substantially all the risks and rewards of ownership of the financial asset are included in the following notes: transferred. Any interest in transferred financial assets that is created or retained by the Company is recognised as a separate asset or liability. • Note 27 – Measurement of retirement benefit Obligation Financial assets and liabilities are offset and the net amount presented in the • Note 26 – Deferred tax assets statement of financial position when, and only when, the Company has a legal • Note 19 – Impairment allowance on right to offset the amounts and intends either to settle on a net basis or to realise Loans and receivables the asset and settle the liability simultaneously.
The Company classifies non-derivative financial assets into the following 3. Materiality and Aggregation categories: financial assets at fair value through profit or loss, Held to maturity Each material class of similar items is financial assets, loans and receivables and available-for-sale financial assets. presented separately in the financial statements. Items of dissimilar nature or Financial assets at fair value through profit or loss function are presented separately, unless A financial asset is classified as at fair value through profit or loss if it is classified they are immaterial. as held-for-trading or is designated as such on initial recognition. Financial assets are designated as at fair value through profit or loss if the Company manages such investments and makes purchase and sale decisions based on their fair 4. Significant accounting policies value in accordance with the Company’s documented risk management or The accounting policies set out below have investment strategy. Attributable transaction costs are recognised in profit or loss been applied consistently to all periods as incurred. Financial assets at fair value through profit or loss are measured at presented in these financial statements and fair value and changes therein, which takes into account any dividend income, in preparing the opening SLFRSs statement are recognised in profit or loss. of financial position at 1 April 2011 for the purposes of the transition to SLFRSs, Loans and receivables unless otherwise indicated. Loans and receivables are financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are recognised initially at 4.1 Assets and liabilities and basis of fair value plus any directly attributable transaction costs. Subsequent to initial their measurement recognition loans and receivables are measured at amortised cost using the effective interest method, less any impairment losses. a) Financial instruments Loan and other receivables comprise total loans and advances. Non-derivative financial assets The Company initially recognises loans and Available-for-sale financial assets receivables and deposits on the date that Available-for-sale financial assets are non-derivative financial assets that are they are originated. All other financial assets designated as available-for-sale or are not classified in any of the categories of (including assets designated at fair value financial assets. Available-for-sale financial assets are recognised initially at fair through profit or loss) are recognised initially value plus any directly attributable transaction costs. on the trade date at which the Company becomes a party to the contractual Subsequent to initial recognition, they are measured at fair value and changes provisions of the instrument. therein, other than impairment losses are recognised in other comprehensive Swarnamahal Financial Services PLC Annual Report 2012/13 74
Notes to the Financial Statements contd.
income and presented in the fair value c) Stated capital reserve in equity. When an investment is derecognised, the gain or loss accumulated Ordinary shares in equity is reclassified to profit or loss. Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of ordinary shares are recognised as a deduction from equity, net of any Cash and cash equivalents tax effects. Cash and cash equivalents comprise cash balances and deposits with maturities of d) Property, plant and equipment three months or less from the acquisition date that are subject to an insignificant risk Recognition and measurement of changes in their fair value, and are used Items of property, plant and equipment are measured at cost less accumulated by the Company in the management of its depreciation and accumulated impairment losses. short-term commitments. Cost includes expenditure that is directly attributable to the acquisition of the b) Non-derivative financial liabilities asset. The cost of self constructed assets includes the following: The Company initially recognises debt • the cost of materials and direct labour; securities issued and subordinated liabilities • any other costs directly attributable to bringing the assets to a working on the date that they are originated. All condition for their intended use; other financial liabilities (including liabilities When parts of an item of property, plant and equipment have different useful designated at fair value through profit or lives, they are accounted for as separate items (major components) of property, loss) are recognised initially on the trade plant and equipment. date at which the Company becomes a party to the contractual provisions of the Gains and losses on disposal of an item of property, plant and equipment are instrument. determined by comparing the proceeds from disposal with the carrying amount of property, plant and equipment, and are recognised net within other income in The Company derecognises a financial profit or loss. liability when its contractual obligations are discharged or cancelled or expire. Subsequent costs The cost of replacing a part of an item of property, plant and equipment is Financial assets and liabilities are offset and recognised in the carrying amount of the item if it is probable that the future the net amount presented in the statement economic benefits embodied within the part will flow to the Company, and of financial position when, and only when, its cost can be measured reliably. The carrying amount of the replaced part the Company has a legal right to offset the is derecognised. The costs of the day-to-day servicing of property, plant and amounts and intends either to settle on a equipment are recognised in profit or loss as incurred. net basis or to realise the asset and settle the liability simultaneously. Depreciation Depreciation is calculated over the depreciable amount, which is the cost of an Such financial liabilities are recognised asset, or other amount substituted for cost, less its residual value. initially at fair value plus any directly attributable transaction costs. Subsequent Depreciation is recognised in profit or loss on a straight-line basis over the to initial recognition these financial liabilities estimated useful lives of each part of an item of property, plant and equipment, are measured at amortised cost using the since this most closely reflects the expected pattern of consumption of the future effective interest method. economic benefits embodied in the asset. Swarnamahal Financial Services plc 75 Annual Report 2012/13
Items of property, plant and equipment are Measurement depreciated from the date that they are An investment property is measured initially at its cost. The cost of a purchased installed and are ready for use, or in respect investment property comprises of its purchase price and any directly attributable of internally constructed assets, from the expenditure. The cost of a self constructed investment property is its cost at the date that the asset is completed and ready date when the construction or development is complete. for use. The Company applies the fair value model for investment properties in The estimated useful lives for the current accordance with Sri Lanka Accounting Standard (LKAS 40) “Investment and comparative years of significant items Property”. Accordingly, investment properties are stated at fair value and an of property, plant and equipment are as external independent valuation company having an appropriate recognized follows: professional qualification values every three years period. Any gain or loss arising Category Years of from a change in fair value is recognized in statement of comprehensive income. depreciation Derecognition Buildings Improvements 10 years Investment properties are derecognized when disposed of or permanently (Includes partitions and withdrawn from use because no future economic benefits are expected. other permanent fixtures) Transfers are made to and from investment properties only when there is change Computer 04 years in use. Office equipments 03 years f) Inventory Motor vehicles 04 years Inventory mainly consists of real estate stock and gold. The company’s policy for Furniture and Fittings 03 years the accounting of inventory is as follows. Air conditioners 04 years Real estate Investments in real estate are carried at cost or net realisable value whichever is Depreciation methods, useful lives and lower. Cost of purchase, costs of conversion and other costs including selling residual values are reassessed at each and distribution expenses that are necessary to bring the asset to the saleable reporting date and adjusted if appropriate. condition are included in the carrying value of the property. Net realisable value is the price at which inventories can be sold in the ordinary course of business, e) Investment property less the estimated cost of completion and the estimated cost necessary to make Investment property is property held the sale. Net Realisable Value is determined based on independent, external either to earn rental income or for capital valuations made by qualified valuers. appreciation or both but not for sale in the ordinary course of business, used in the Gold stock production or supply of goods or services or Cost or Market value whichever is lower at the year-end. for administrative purposes. 4.2 Impairment Basis of recognition Investment property is recognised if it is a) Financial assets probable that future economic benefits A financial asset not carried at fair value through profit or loss is assessed at each that are associated with the investment reporting date to determine whether there is objective evidence that it is impaired. property will flow to the Company and cost A financial asset is impaired if objective evidence indicates that a loss event has of the investment property can be reliably occurred after the initial recognition of the asset, and that the loss event had measured. a negative effect on the estimated future cash flows of that asset that can be estimated reliably. Swarnamahal Financial Services PLC Annual Report 2012/13 76
Notes to the Financial Statements contd.
Objective evidence that financial assets Losses are recognised in profit or loss and reflected in an allowance account (including equity securities) are impaired can against loans and advances. Interest on the impaired asset continues to be include significant financial difficulty of the recognised through the unwinding of the discount. When a subsequent event borrower or issuer, default or delinquency causes the amount of impairment loss to decrease, the decrease in impairment by a borrower, indications that a borrower loss is reversed through profit or loss. or issuer will enter bankruptcy, or the disappearance of an active market for a Impairment losses on available-for-sale investment securities are recognised by security. In addition, for an investment in an transferring the cumulative loss that has been recognised in other comprehensive equity security, a significant or prolonged income, and presented in the fair value reserve in equity, to profit or loss. decline in its fair value below its cost is The cumulative loss that is removed from other comprehensive income and objective evidence of impairment. recognised in profit or loss is the difference between the acquisition cost, net of any principal repayment and amortisation, and the current fair value, less any The Company considers evidence of impairment loss previously recognised in profit or loss. Changes in impairment impairment for loans and advances at both provisions attributable to time value are reflected as a component of interest a specific asset and collective level. All income. individually significant loans and advances are assessed for specific impairment. All If, in a subsequent period, the fair value of an impaired available-for-sale debt individually significant loans and advances security increases and the increase can be related objectively to an event found not to be specifically impaired occurring after the impairment loss was recognised in profit or loss, then the are then collectively assessed for any impairment loss is reversed, with the amount of the reversal recognised in profit impairment that has been incurred but not or loss. However, any subsequent recovery in the fair value of an impaired yet identified. Loans and advances that are available-for-sale equity security is recognised in other comprehensive income. not individually significant are collectively assessed for impairment by Companying b) Non financial Assets together loans and advances with similar The carrying amounts of the Company’s non-financial assets, other than deferred risk characteristics. tax assets are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset’s In assessing collective impairment the recoverable amount is estimated. Company uses historical trends of the probability of default, adjusted for The recoverable amount of an asset or cash-generating unit is the greater of management’s judgement as to whether its value in use and its fair value less costs to sell. In assessing value in use, the current economic and credit conditions are estimated future cash flows are discounted to their present value using a pre- such that the actual losses are likely to be tax discount rate that reflects current market assessments of the time value of greater or less than suggested by historical money and the risks specific to the asset. For the purpose of impairment testing, trends. assets that cannot be tested individually are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely An impairment loss in respect of a financial independent of the cash inflows of other assets or group of assets (the “cash- asset measured at amortised cost is generating unit, or CGU”). calculated as the difference between its carrying amount and the present value of An impairment loss is recognised if the carrying amount of an asset or its CGU the estimated future cash flows discounted exceeds its estimated recoverable amount. Impairment losses are recognised in at the asset’s original effective interest rate. profit or loss. Swarnamahal Financial Services plc 77 Annual Report 2012/13
An impairment loss is reversed if there To determine the net amount in the Statement of Financial Position, any actuarial has been a change in the estimates used gains and losses that have not been recognised because of application of the to determine the recoverable amount. An ‘corridor’ approach described below are added or deducted as appropriate and impairment loss is reversed only to the unrecognised past service costs are deducted. extent that the asset’s carrying amount does not exceed the carrying amount The Company recognises a portion of actuarial gains and losses that arise in that would have been determined, net calculating the Company’s obligation in respect of a plan in profit or loss over of depreciation or amortisation, if no the expected average remaining working lives of the employees participating impairment loss had been recognised. in the plan. The portion is determined as the extent to which any cumulative unrecognised actuarial gain or loss at the end of the previous reporting period 4.3 Employee benefits exceeds 10% of the greater of the present value of the defined benefit obligation and (the corridor). Otherwise, the actuarial gains and losses are not recognised. Defined contribution plans A defined contribution plan is a post- The present value of the defined benefit obligation depends on a number of employment benefit plan under which factors that are determined on an actuarial basis using a number of assumptions. an entity pays fixed contributions into Key assumptions used in determining the defined retirement benefit obligations a separate entity and will have no legal are given in Note 27. Any changes in these assumptions will impact the carrying or constructive obligation to pay further amount of defined benefit obligations. amounts. Obligations for contributions to defined contribution plans are recognised Provision has been made for retirement gratuities from the first year of service for as an employee benefit expense in profit or all employees, in conformity with LKAS 19 “Employee Benefits”. However, under loss in the periods during which services are the Payment of Gratuity Act No.12 of 1983, the liability to an employee arises rendered by employees. only on completion of 5 years of continued service.
The Company contributes 12% and 3% The gratuity liability is not externally funded. of gross emoluments of employees as provident fund (EPF), and trust fund (ETF) 4.4 Provisions contribution respectively. A provision is recognized if, as a result of a past event, the Company has a present legal or constructive obligation that can be estimated reliably, and it Defined benefit plan is probable that an outflow of economic benefits will be required to settle the A defined benefit plan is a post-employment obligation. benefit plan other than a defined contribution plan. The defined benefit is 4.5 Revenue calculated by an independent actuary using Projected Unit Credit method as a) Interest recommended by LKAS 19 “Employee Interest income and expense are recognized in profit or loss using the effective Benefits”. The present value of the interest method. The effective interest rate is the rate that exactly discounts the defined benefit obligation is determined estimated future cash payments and receipts through the expected life of the by discounting the estimated future cash financial asset or liability (or, where appropriate, a shorter period) to the carrying outflows using the yield on government amount of the financial asset or liability. When calculating the effective interest bonds at the reporting date and have rate, the Company estimates future cash flows considering all contractual terms maturity dates approximating to the terms of of the financial instrument, but not future credit losses. the Company’s obligations. Swarnamahal Financial Services PLC Annual Report 2012/13 78
Notes to the Financial Statements contd.
The calculation of the effective interest rate The excess of aggregate rentals receivable over the cost of the leased assets includes all transaction costs and fees that constitutes the total unearned income. The unearned income is taken into are an integral part of the effective interest revenue over the term of the lease, commencing from the month in which the rate. Transaction costs include incremental lease is executed in proportion to the remaining receivable balance of the lease. costs that are directly attributable to the acquisition or issue of a financial asset or d) Dividend income liability. Dividend income is recognised in the Statement of comprehensive income on an accrual basis when the company’s right to receive the dividend is established. Interest income and expense presented in the statement of comprehensive income e) Overdue interest include interest on financial assets and Overdue interest income from leasing and other loans have been accounted for liabilities measured at amortised cost on a cash received basis. calculated on an effective interest basis and interest income on available for sale f) Real estate income investment securities calculated on an Revenue is recognized when properties are sold and the buyer has taken effective interest basis. possession of such properties. However, when there is insufficient assurance as to the receipt of the total consideration, income is accounted for on a cash b) Fee and commission received basis. Fee and commission income and expense that are integral to the effective interest rate g) Gains or losses on Disposal of Property, Plant & Equipment on a financial asset or liability are included Profit/loss from sale of property plant and equipment is recognized in the period in the measurement of the effective interest in which the sale occurs. rate. h) Profit from Gold Sale Fee and commission income, including Profit/loss from gold sale is recognized in the period on a cash basis. account service fees, sales commission and placement fees as the related services are i) Other Income performed. Other income is recognized on an accrual basis.
Other fees and commission expensed relate 4.6 Expenses mainly to transaction and service fees, Expenses are recognized in profit or loss as they are incurred, in the period to which are expensed as the services are which they relate. received. Operating leases c) Finance lease income Leases where the Lessor effectively retains substantially all the risks and rewards Assets leased to customers who transfer of ownership over the lease term are classified as operating leases. Payments substantially all the risk and rewards made under operating leases are recognised in statement of comprehensive associated with ownership other than income on a straight-line basis over the term of the lease. the legal title are classified as finance leases. Amounts receivable under finance Operating expenses leases are included under “Lease rental All expenses incurred in day to day operations of the business and in maintaining receivable”. Leasing balances are stated the property, plant and equipment in a state of efficiency has been charged in the Statement of financial position after to the statement of comprehensive income in arriving at the profit for the year. deduction of initial rental received. Provision has also been made for bad and doubtful debts, all known liabilities and depreciation on property, plant and equipment. Swarnamahal Financial Services plc 79 Annual Report 2012/13
Finance expense Deferred tax assets and liabilities are offset if there is a legally enforceable right Finance costs comprise interest expense to offset current tax liabilities and assets, and they relate to taxes levied by the on short and long term borrowing and bank same tax authority on the same taxable entity, or on different tax entities, but they charges. intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realised simultaneously. Income tax expense Income tax expense comprises current and A deferred tax asset is recognised to the extent that it is probable that future deferred tax. Current tax and deferred tax taxable profits will be available against which they can be utilised. Deferred tax is recognized in profit or loss except to the assets are reviewed at each reporting date and are reduced to the extent that it is extent that it relates to items recognized no longer probable that the related tax benefit will be realised. directly in equity or in other comprehensive income. Value Added Tax on Financial Services The value base for value added tax for the Company is the adjusted Current tax accounting profit before tax and emoluments of employees. The adjustment Current tax is the expected tax payable to the accounting profit before tax is for economic depreciation computed on or receivable on the taxable income or prescribed rates instead of the rates adopted in the Financial Statements. loss for the year, using tax rates enacted or substantively enacted at the reporting Economic Service Charges (ESC) date, and any adjustment to tax payable ESC is payable on the liable turnover at specified rates. As per the provision of in respect of previous years. Current tax the Economic Service Charge Act No. 13 of 2006 and subsequent amendments payable also includes any tax liability arising thereto, ESC is deductible from the income tax liability. Any unclaimed payment from the declaration of dividends. can be carried forward and set off against the income tax payable as per the relevant provision in the Act. The provision for income tax is based on the elements of income and expenditure 4.7 Earnings per share as reported in the financial statements and The Company presents basic earnings per share (EPS) data for its ordinary computed in accordance with the provisions shares. Basic EPS is calculated by dividing the profit attributable to ordinary of the Inland Revenue Act No 10 of 2006 shareholders of the Company by the weighted average number of ordinary and subsequent amendments thereon. shares outstanding during the year.
Deferred tax 4.8 Commitments and contingencies Deferred tax is recognized in respect of Contingencies are possible assets or obligations that arise from a past event temporary differences between the carrying and would be confirmed only on the occurrence or non-occurrence of uncertain amounts of assets and liabilities for financial future events, which are beyond the Company’s control. reporting purposes and the amounts used for taxation purposes. 4.9 Events after the reporting date All material events occurring after the reporting date have been considered and Deferred tax is measured at the tax where necessary, adjustments to or disclosure have been made in the financial rates that are expected to be applied to statements. temporary differences when they reverse, using tax rates enacted or substantively 4.10 Comparative information enacted at the reporting date. The comparative information is re-classified wherever necessary to conform with the current year’s presentation in order to provide a better presentation. Swarnamahal Financial Services PLC Annual Report 2012/13 80
Notes to the Financial Statements contd.
4.11 Directors’ responsibility statement savings deposit liabilities and exclude the following: The Board of Directors of the Company is responsible for the preparation and • Deposit liabilities to member institutions. presentation of these financial statements. • Deposit liabilities to the Government of Sri Lanka inclusive of Ministries, Departments and Local Governments. 4.12 Segmental reporting • Deposit liabilities to shareholders, directors, key management personnel and A segment is a distinguishable component other related parties of the Company that is engaged either in • Deposit liabilities held as collateral against any accommodation granted. providing product or service (Business/ • Deposits falling within the meaning of dormant deposits in terms of the Industry segment) or in providing products Finance Companies Act, funds of which have been transferred to the Central or services within a particular economic Bank of Sri Lanka in terms of the relevant Directions issued by the Monetary environment (Geographical segment). The Board. primary format business segments are based on the Company’s management and A premium of 0.15 per centum per annum is payable monthly, calculated on total internal reporting structure. amount of all eligible deposits as at end of the month.
Segment results assets and liabilities 4.14.2 Investment Fund Account (IFA) includes items directly attributable to As proposed in the budget proposals of 2011 every person or partnership segment as well as those that can be who is in the business of banking or financial services is required to establish allocated on a reasonable basis. and operate an Investment Fund Account. As and when taxes are paid after 1st January 2011, Registered Finance Companies are required to transfer the 4.13 Cash Flow Statement following funds to the Investment Fund Account and build a permanent fund in The cash flow statement has been prepared the company. using the indirect method in accordance with Sri Lanka Accounting Standard 7 - • 8% of the profits calculated for the payment of Value Added Tax (VAT) on Statement of Cash Flows. financial services on dates as specified in the VAT Act for payment of VAT • 5% of the profit before tax calculated for payment of income tax purposes on 4.14 Regulatory Provisions dates specified in Section 113 of the Inland Revenue Act and amendments thereto for the self-assessment payments of tax 4.14.1 Deposit Insurance Scheme In terms of the Finance Companies RFCs shall commence utilization of funds in the IFA in the following manner within (Insurance of deposit liabilities) Direction three months from the date of transfer to the IFA; No. 2 of 2010, “Sri Lanka Deposit Insurance Scheme Regulations”, issued (i) Invest in long-term Government securities and/or bonds with maturities not on 27th September 2010 and subsequent less than seven years. amendments thereto all Registered Finance (ii) Lend on maturities not less than five years at interest rates not exceeding Companies are required to insure their 5-year Treasury bond rates plus 2 per cent. deposit liabilities in the Deposit Insurance (iii) Facilities granted only for the following purposes Scheme operated by the Monetary Board (a) Long-term loans for cultivation of plantation crops/agriculture crops in terms of Sri Lanka Deposit Insurance including, fruits, vegetables, cocoa and spices and for livestock and Scheme Regulations No. 1 of 2010 issued fisheries. under Sections 32A to 32E of the Monetary (b) Factory/mills modernization/establishment/expansion Law Act with effect from 1st October 2010. (c) Small and medium enterprises: Deposits to be insured include time and a. loans up to Rs. 30 million or Swarnamahal Financial Services plc 81 Annual Report 2012/13
b. loans over Rs. 10 million to c) market risks enterprises with annual turnover d) operational risks. less than Rs. 300 million and employees less than 400. This note presents information about the Company’s exposure to each of (d) Information Technology related the above risks (except market risk), the Company’s objectives, policies and activities and Business Process processes for measuring and managing risk, and the Company’s management of Outsourcing capital. (e) Infrastructure development (f) Education - vocational training and 5.2 Risk management framework tertiary education The Board of Directors has overall responsibility for the establishment and (g) Restructuring of loans extended for oversight of the Company’s risk management framework. In discharging its the above purposes. governance responsibility it operates through two key committees the Board Integrated Risk Management Committee and the Audit Committee. 4.14.3 Statutory reserve Reserve Fund is a capital reserve which The BIRMC provides the Board the assurance that risk management strategies, contains profit transferred as required by policies and processes are in place to manage events / outcomes that have the Section 3(b)(ii) of Central Bank Direction No. potential to impact significantly on earnings performance, reputation and capital. 1 of 2003. The approach entails active monitoring of the level of risk exposure against the parameters set in the risk appetite. The BIRMC also assists the Board by As per the said Direction, every Licensed assessing and approving significant credit and other transactions beyond the Finance Company shall maintain a Reserve discretion of executive management. Fund and transfer to such reserve fund out of the net profits of each year after due The following Executive Management Sub - Committees, each with specialized provisions have been made for taxation focus, support the BIRMC and are responsible for the co-ordination of risk and bad and doubtful debts on the following matters for each of the areas of risk management: basis: • Asset and Liability Committee (ALCO) Capital funds to % of transfer to • Credit Committee Deposit Liabilities Reserve • Remuneration Committee Fund • Board executive operation committee
Not less than 25% 5% Internal Audit undertakes both regular and ad-hoc reviews of risk management Less than 25% and controls and procedures, the results of which are reported to the Audit not less than 10% 20% Committee. The Audit Committee provides its assessment on the effectiveness of Less than 10% 50% internal audit and external disclosure of accounting policies and financial reporting to the Board. Risk management policies and systems are reviewed regularly to reflect changes in market conditions, products and services offered. 5. Financial risk management a) Credit risk 5.1 Introduction and overview Credit risk is the risk of financial loss to the Company if a customer or The Company has exposure to the following counterparty to a financial instrument fails to meet its contractual obligations, and risks from financial instruments: arises principally from the Company’s loans and advances to customers, and a) credit risk investment in debt/equity securities. For risk management reporting purposes b) liquidity risk Swarnamahal Financial Services PLC Annual Report 2012/13 82
Notes to the Financial Statements contd.
the Company considers and consolidates b) Liquidity risk all elements of credit risk exposure (such as Liquidity risk is the risk that the Company will encounter difficulty in meeting individual obligor default risk, industry risk obligations associated with its financial liabilities that are settled by delivering cash etc.). or another financial asset.
Management of credit risk Management of liquidity risk The Company has developed a policy which The Company’s approach to managing liquidity is to ensure, that funds available defines the principles encompassing client are adequate to meet credit demands of its customers and to enable deposits to selection, due diligence, early alert reporting, be repaid on demand or upon maturity as appropriate. tolerable levels of concentration risk and portfolio monitoring in line with Company’s The main sources of the Company’s funding are capital, core deposits from risk appetite. The policy is reviewed at least customers and access to borrowed funds from the market. The Company also annually ensuring consistency with the maintains a portfolio of readily marketable securities to further strengthen its Company’s business strategy. A monthly liquidity position. The treasury and liquidity policies and compliance there under Credit Policy Meeting chaired by the Chief are reviewed and approved by the ALCO. A summary report, including any Executive Officer, drives policy decisions exceptions and remedial action taken, is submitted quarterly to ALCO and implementation plans. Exposure to liquidity risk Allowances for impairment The Company monitors the following liquidity ratios to assess funding The Company established an allowance requirements. for impairment losses on assets carried at amortised cost/available for sale that Liquid assets include cash and short term funds, bills purchased and short term represents its estimate of incurred losses investments. Short term liabilities include savings deposits, repo borrowings and in its loan and investment debt/equity current taxation. security portfolio. The main components of this allowance are a specific loss The Company also monitors the maturity profile of its assets and liabilities. component that relates to individually Maturity analysis of assets and liabilities which is based on the remaining period significant exposures, and, for assets as at the date of the Statement of Financial Position to the respective contractual measured at amortised cost, a collective maturity date is given in Note 36 to the financial statements. loan loss allowance established for groups of homogeneous assets as well as for c) Operational risks individually significant exposures that Operational risk is the risk of direct or indirect loss arising from a wide variety of were subject to individual assessment for causes associated with the Company’s involvement with financial instruments, impairment but not found to be individually including processes, personnel, technology and infrastructure, and from external impaired. Assets carried at fair value factors other than credit, market and liquidity risks such as those arising from through profit or loss are not subject to legal and regulatory requirements and generally accepted standards of corporate impairment testing as the measure of fair behavior. value reflects the credit quality of each asset. The Company’s objective is to manage operational risk so as to balance the avoidance of financial losses and damage to the Company’s reputation with overall cost effectiveness and to avoid control procedures that restrict initiative and creativity. Swarnamahal Financial Services plc 83 Annual Report 2012/13
Compliance with Company’s standards is • Sri Lanka Accounting Standard – SLFRS 9 “Financial Instruments” supported by a program of periodic reviews The objective of this SLFRS is to establish principles for the financial reporting undertaken by Internal Audit. The results of of financial assets and financial liabilities that will present relevant and useful Internal Audit reviews are discussed with the information to users of financial statements for their assessment of the amounts, management of the business unit to which timing and uncertainty of an entity’s future cash flows. they relate, with summaries submitted to the Audit Committee and senior management of An entity shall apply this SLFRS to all items within the scope of LKAS 39 Financial the Company. Instruments: Recognition and Measurement.
This SLFRS will become effective for the Company from 1 April 2015. 6. New Accounting Standards issued but not effective as at reporting date The Institute of Chartered Accountants of Sri Lanka has issued the following new Sri Lanka Accounting Standards which will become applicable for financial periods beginning on or after 1st January 2014/ 2015.
Accordingly, these Standards have not been applied in preparing these financial statements.
• Sri Lanka Accounting Standard - SLFRS 13, “Fair Value Measurement” This SLFRS defines fair value, sets out in a single SLFRS a framework for measuring fair value; and requires disclosures about fair value measurements.
This SLFRS will become effective for the Company from 1 April 2014. This SLFRS shall be applied prospectively as of the beginning of the annual period in which it is initially applied. The disclosure requirements of this SLFRS need not be applied in comparative information provided for periods before initial application of this SLFRS. Swarnamahal Financial Services PLC Annual Report 2012/13 84
Notes to the Financial Statements contd.
For the year ended 31st March 2013 2012 Rs. Rs.
7. Net interest income Interest income Placements with financial institutions 204,000 - Financial investments - loans and receivables 1,281,641,632 1,030,547,297 Financial investments - available for sale 48,900,056 29,207,704 Other interest income 8,683,808 1,644,311 Total interest income 1,339,429,496 1,061,399,312
Interest expense Interest on deposits from customers 762,377,106 502,172,309 Interest on interest bearing borrowings 31,794,570 26,672,128 Other interest expenses 406,441 28,751 Total interest expense 794,578,117 528,873,188 Net interest income 544,851,379 532,526,124
8. Net gain/ (loss) from financial instruments at fair value through profit or loss Investment Equity shares (103,223) (1,613,763)
9. Other income Service income 1,506,744 1,479,818 Sundry income 3,023,809 4,235,086 Profit/(Loss) on gold sales (15,394,120) 4,201,611 Gain/(Loss) on sale of property, plant & equipment 12,026 - Change in fair value of investment property 11,000,000 8,000,000 Rent income from Lavinia Breeze 600,000 - 748,459 17,916,515
10. Personnel expenses Salary and wages 45,408,343 55,568,561 Directors’ emoluments 10,100,000 9,002,800 Contributions to defined contribution plans 6,882,272 6,684,595 Contributions to defined benefit plans 1,437,057 1,024,791 Over time payment 5,295,727 6,025,168 Fuel expenses 5,374,820 3,596,310 Staff welfare 2,815,601 2,575,253 Others 4,147,325 3,897,721 81,461,145 88,375,199 Swarnamahal Financial Services plc 85 Annual Report 2012/13
For the year ended 31st March 2013 2012 Rs. Rs.
11. Other expenses Audit fee and expenses 550,360 396,750 Audit related fee and expenses 555,000 - Professional and legal expenses 3,126,505 5,970,679 Depreciation of property, plant & equipment 26,611,309 25,884,039 Office administration and establishment expenses 212,366,335 194,210,115 243,209,509 226,461,583
12. Impairment charges/(reversals) for loans and other losses Impairment charge/(reversal) on collective impairment (Note 12.1) (1,400,358) (27,591,854) Impairment of gold stock (Note 22.1) 2,205,457 - 805,099 (27,591,854)
12.1 Impairment charge/(reversal) on collective impairment Impairment charge on gold loans 20,766,577 29,574,365 Impairment charge on lease rentals receivables 178,991 183,490 Impairment reversal on hire purchase receivables (23,681,540) (56,859,058) Impairment charge/(reversal) on other term loans 1,335,614 (490,651) (1,400,358) (27,591,854)
13. Income tax expense Current income tax (Note 13.1) 72,083,993 76,317,551 Deemed Dividend tax for undistributed profit 5,864,330 1,817,150 Under/over provision (424,168) (4,228,487) Deferred tax expense (Note 26) (1,362,252) 62,070 Total Income tax expense 76,161,903 73,968,284 Swarnamahal Financial Services PLC Annual Report 2012/13 86
Notes to the Financial Statements contd.
For the year ended 31st March 2013 2012 Rs. Rs.
13.1 Reconciliation of the total tax charge Net profit before tax 197,918,103 233,430,821 Adjustments: Non-taxable income (19,695,834) - Disallowable expenses 127,341,275 98,819,430 Allowable expenses (48,120,713) (59,687,569) Total statutory income 257,442,831 272,562,682 Less : Qualifying payments - - Taxable income 257,442,831 272,562,682 Income tax rate 28% 28% Income tax 72,083,993 76,317,551 Deemed Dividend Tax for undistributed profit 5,864,330 1,817,150 Over provision (424,168) (4,228,487) Deferred tax expenses (Note 26) (1,362,252) 62,070 Income tax on profit for the year 76,161,903 73,968,284 Effective tax rate (Note 13.2) 38% 32%
For the year ended 31st March 2013 2012 % Rs. % Rs.
13.2 Reconciliation of effective tax rate Net profit before tax 197,918,103 233,430,821 Taxable income 28% 55,417,070 28% 65,360,630 Disallowable expenses 18% 35,655,557 12% 27,669,440 Non-taxable income -3% (5,514,834) 0% - Allowable expenses -7% (13,473,800) -7% (16,712,519) Effects on deferred taxation -1% (1,362,252) 0% 62,070 Deemed dividend tax for undistributed profit 3% 5,864,330 1% 1,817,150 Over provision 0% (424,168) -2% (4,228,487) Total income tax 38% 76,161,903 32% 73,968,284 Swarnamahal Financial Services plc 87 Annual Report 2012/13
14. Basic earnings 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”.
For the year ended 31st March 2013 2012 Rs. Rs.
Profit for the year attributable to equity holders of the company 121,756,200 159,462,537 Weighted average number of ordinary shares 500,000,140 500,000,140 Basic earnings per share (Rs.) 0.24 0.32
As at 31st March 2013 2012 1st April 2011 Rs. Rs. Rs.
15. Cash and cash equivalents Cash in hand 67,673,709 66,657,831 43,890,432 Cash at bank 36,203,987 138,945,874 77,301 Stamps on hand 197,675 183,614 85,933,719 104,075,371 205,787,319 129,901,452 Bank overdrafts (43,306,040) (97,837,043) (110,393,728) 60,769,331 107,950,276 19,507,724
16. Deposits with financial institutions Fixed deposits with financial institutions 8,661,659 9,322,981 9,864,077 Provision for impairment (6,063,161) (661,316) - 2,598,498 8,661,665 9,864,077
17. Financial assets held at fair value through profit and loss Equity shares (Note 17.1) 3,993,370 4,096,593 3,815,170 3,993,370 4,096,593 3,815,170 Swarnamahal Financial Services PLC Annual Report 2012/13 88
Notes to the Financial Statements contd.
As at 31st March No. of 2013 2012 2011 shares Cost/ Market Cost/ Market Cost/ Market Market value Market value Market value value at the value at the value at the beginning beginning beginning of the year of the year of the year Rs. Rs. Rs. Rs. Rs. Rs.
17.1 Equity shares Quoted shares: Commercial Bank of Ceylon PLC 6,613 561,800 676,091 628,636 561,800 588,300 597,000 John Keels Holdings PLC 1,333 274,598 329,251 285,600 274,598 297,100 285,600 Seylan Bank PLC 1,000 66,900 65,200 75,200 66,900 100,500 75,200 LB Finance PLC 2,000 269,800 265,400 175,100 269,800 278,000 175,100 Pan Asia Bank PLC 4,000 94,000 76,000 102,600 94,000 104,800 102,600 Sampath Bank PLC 1,046 183,935 235,245 288,300 183,935 292,000 288,300 Distilleries Lanka PLC 1,000 145,000 166,500 180,000 145,000 172,000 180,000 Environmental Resources PLC 500 8,400 7,800 38,650 8,400 41,650 38,650 Hatton National Bank PLC 3,085 283,500 406,603 426,600 283,500 438,000 426,600 Aitken Spence PLC 1,000 112,700 119,600 162,300 112,700 187,000 162,300 Cargill’s PLC 1,000 174,000 151,800 228,300 174,000 184,900 228,300 Ceylon Theatres PLC 1,000 150,100 126,200 200,000 150,100 189,000 200,000 SMB Leasing PLC - - - - - 1,000,000 1,000,000 Laughs Lanka PLC 1,600 24,960 28,480 55,520 24,960 28,500 55,520 Vallible One PLC 51,700 982,300 827,200 1,590,750 982,300 - - Renuka Shaw Wallace PLC 4,000 104,600 72,000 143,000 104,600 - - Sierra Cables PLC 200,000 660,000 440,000 1,129,800 660,000 - - 4,096,593 3,993,370 5,710,356 4,096,593 3,901,750 3,815,170 Mark to market gain/(loss) (103,223) - (1,613,763) - (86,580) - 3,993,370 3,993,370 4,096,593 4,096,593 3,815,170 3,815,170
As at 31st March 2013 2012 1st April 2011 Rs. Rs. Rs.
18. Financial assets available-for-sale Treasury bills (Note 18.1) 399,959,313 318,291,216 182,551,118 Treasury bonds (Note 18.2) 48,568,452 20,284,635 - Share investment - unquoted company (Note 18.3) 2,500 2,500 2,500 448,530,265 338,578,351 182,553,618 Swarnamahal Financial Services plc 89 Annual Report 2012/13
18.1 Treasury bills 31.03.2013 31.03.2012 01.04.2011 Face Year of Carrying Cost of Market Cost of Market Cost of Market value Maturity value investment value investment value investment value
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 18,836,215 - - - - 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 - - - - 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 21,737,895 - - - - Rs. 40.609 Mn 2013 36,458,807 - - 37,368,686 36,458,807 - - Rs. 41.622 Mn 2013 37,767,235 - - 38,614,036 37,767,235 - - Rs. 54.650 Mn 2013 49,589,266 - - 50,874,841 49,589,266 - - Rs. 32.208 Mn 2012 31,934,547 - - 32,082,739 31,934,547 - - Rs. 17.000 Mn 2012 16,695,234 - - 16,841,745 16,695,234 - - Rs. 64.517 Mn 2012 63,360,194 - - 63,742,104 63,360,213 - - Rs. 34.411 Mn 2012 32,204,464 - - 33,127,772 32,204,464 - - Rs. 20.106 Mn 2012 19,560,998 - - 19,674,729 19,560,998 - - Rs. 31.577 Mn 2012 30,720,452 - - 30,748,586 30,720,452 - - Rs. 32.100 Mn 2011 30,777,656 - - - - 30,922,840 30,777,656 Rs. 36.553 Mn 2011 35,920,059 - - - - 35,844,517 35,920,059 Rs. 18.589 Mn 2011 18,267,323 - - - - 18,317,204 18,267,323 Rs. 36.955 Mn 2012 34,536,546 - - - - 34,706,322 34,536,545 Rs. 50.000 Mn 2012 47,030,822 - - - - 47,217,748 47,030,822 Rs. 16.205 Mn 2011 16,018,713 - - - - 16,061,024 16,018,713 Total treasury bill 401,478,648 399,959,313 323,075,238 318,291,216 183,069,655 182,551,118
18.2 Treasury bonds
31.03.2013 31.03.2012 01.04.2011 Face Year of Carrying Cost of Market Cost of Market Cost of Market value Maturity value investment value investment value investment value
Rs. 34.100 Mn 2022 27,040,941 28,519,440 27,040,941 - - - - Rs. 6.000 Mn 2019 5,210,929 5,332,548 5,210,928 5,239,425 4,998,037 - - Rs. 10.000 Mn 2016 8,710,270 9,462,011 8,710,270 9,303,236 8,160,434 - - Rs. 8.733 Mn 2016 7,606,313 8,299,347 7,606,313 8,169,350 7,126,164 - - 51,613,346 48,568,452 22,712,011 20,284,635 - - Swarnamahal Financial Services PLC Annual Report 2012/13 90
Notes to the Financial Statements contd.
18.3 Share investment - unquoted company
31.03.2013 31.03.2012 01.04.2011 No of Cost of Market Cost of Market Cost of Market shares investment value 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 2,500 2,500 2,500 2,500
As at 31st March 2013 2012 1st April 2011 Rs. Rs. Rs.
19. Loans and receivables Gross loans and receivables (Note 19.1) 5,211,677,130 4,249,015,126 3,302,833,282 Less: Individual impairment - - - Collective impairment (Note 19.2) (103,442,653) (104,843,011) (132,434,865) 5,108,234,477 4,144,172,115 3,170,398,417
19.1 Gross loans and receivables Gold loans (Note 19.3) 4,694,362,855 3,757,193,222 2,747,841,787 Lease rentals receivables (Note 19.4) 55,320,831 43,668,004 32,452,866 Hire purchase receivables (Note 19.5) 234,405,746 250,060,443 279,990,363 Other term loans (Note 19.6) 226,524,340 188,498,740 214,774,822 Inter company loan (Note 19.7) 1,063,358 9,594,717 27,773,444 5,211,677,130 4,249,015,126 3,302,833,282
19.2 Movement in allowance for collective impairment during the year Opening balance (104,843,011) (132,434,865) (9,186,222) (Charge)/reversal to the statement of comprehensive income (Note 12.1) 1,400,358 27,591,854 (123,248,643) Closing balance (103,442,653) (104,843,011) (132,434,865)
19.3 Gold loans Gold loans - 3 months 352,866,596 - - Gold loans - 9 months 148,394,455 - - Gold loans - 12 months 3,675,938,551 3,541,626,280 2,747,821,787 Transfer of Gold Loans 517,163,253 215,566,942 20,000 4,694,362,855 3,757,193,222 2,747,841,787 Less: Individual impairment for lease receivables - - - Collective impairment for gold loans (84,263,142) (63,496,565) (33,922,200) 4,610,099,713 3,693,696,657 2,713,919,587 Swarnamahal Financial Services plc 91 Annual Report 2012/13
As at 31st March 2013 2012 1st April 2011 Rs. Rs. Rs.
19.4 Lease rentals receivables Gross lease rentals receivable within one year Total lease rentals receivable within one year 40,717,331 37,128,892 19,042,849 Less: Unearned lease income (10,902,550) (14,649,975) (4,615,008) Individual impairment for lease receivables - - - Collective impairment for lease receivables (1,086,434) (389,199) (1,263,762) 28,728,347 22,089,718 13,164,079 Gross lease rentals receivable after one year Total lease rentals receivable from one to five years 35,223,209 28,795,987 28,564,273 Less: Unearned lease income (9,717,159) (7,606,900) (10,539,248) Individual impairment for lease receivables - - - Collective impairment for lease receivables (539,809) (1,058,053) - 24,966,241 20,131,034 18,025,025
Total gross lease receivable 55,320,831 43,668,004 32,452,866 Total net lease receivable 53,694,588 42,220,752 31,189,104
There were no lease receivables beyond five years.
19.5 Hire purchase receivables Hire purchase receivable within one year Hire purchase rentals receivable within one year 186,323,613 177,160,233 186,407,469 Less: Unearned HP income (47,201,259) (41,082,069) (30,012,063) Individual impairment for hire purchase - - - Collective impairment for hire purchase (26,415,909) (27,227,174) (84,788,346) 112,706,445 108,850,990 71,607,060
Hire purchase receivable after one year Hire purchase receivable from one to five years 128,885,350 153,918,505 194,126,849 Less: Unearned lease income (33,601,958) (39,936,226) (70,531,892) Individual impairment for hire purchase - - - Collective impairment for hire purchase 19,369,743 (3,500,532) (2,798,418) 114,653,135 110,481,747 120,796,539
Total gross hire purchase receivable 234,405,746 250,060,443 279,990,363 Total net hire purchase receivable 227,359,580 219,332,737 192,403,599
There were no hire purchase receivables beyond five years. Swarnamahal Financial Services PLC Annual Report 2012/13 92
Notes to the Financial Statements contd.
As at 31st March 2013 2012 1st April 2011 Rs. Rs. Rs.
19.6 Other term loans Medium term loans 68,700,916 53,187,216 66,730,223 Wedaduru loans 16,486,031 24,909,364 43,916,921 Revolving loans 14,445,487 18,856,865 24,731,270 Wisdom loans 132,410 132,410 3,132,410 Staff loans 2,425,174 2,678,055 2,640,211 On-time loans 124,334,322 88,734,830 73,623,787 226,524,340 188,498,740 214,774,822
Individual impairment for other term loans - - - Collective impairment for other term loans (10,507,102) (9,171,487) (9,662,138) 216,017,238 179,327,253 205,112,684
19.7 Intercompany loans Medium term loan to Swarnamahal Jewellers (Pvt) Ltd 1,063,358 9,594,717 27,773,444 1,063,358 9,594,717 27,773,444
20. Investment property Opening balance 62,000,000 54,000,000 54,800,000 Change in fair value 11,000,000 8,000,000 (800,000) Closing balance (Note 20.1) 73,000,000 62,000,000 54,000,000
As at 31st March 2013 Location Building Extent Market sq.ft perches value
20.1 Valuation of investment properties Land (46.2 P) No 10, De Alwis Avenue, Mount Lavinia. - 46.2 65,286,980 Building (6,505 Sq. ft) - do - 6,505 - 7,713,020 73,000,000
Fair value of the Company’s investment property as at 31 March 2013 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 open market method in valuation. Swarnamahal Financial Services plc 93 Annual Report 2012/13
21. Property, plant & equipment
Cost Building Office Furniture Air Motor Leased Leased Computer Total Improvements Equipment & Fittings Conditioners Vehicles Assets Assets & Computers Motor Hardware Vehicles Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs.
Balance as at 1st April 2011 54,309,678 32,130,618 14,325,451 4,461,718 1,164,325 - - 25,139,537 131,531,327 Additions during the year 7,963,906 3,703,518 2,975,151 697,526 18,160,062 1,707,005 - 3,191,545 38,398,713 Disposals during the year ------Balance as at 31st March 2012 62,273,584 35,834,136 17,300,602 5,159,244 19,324,387 1,707,005 - 28,331,082 169,930,040
Balance as at 1st April 2012 62,273,584 35,834,136 17,300,602 5,159,244 19,324,387 1,707,005 - 28,331,082 169,930,040 Additions during the year 6,387,422 975,773 291,548 352,302 - - 2,950,982 1,490,185 12,448,212 Disposals during the year ------(69,000) (69,000) Transfers during the year - - - - - (1,707,005) - 1,707,005 - Balance as at 31st March 2013 68,661,006 36,809,909 17,592,150 5,511,546 19,324,387 - 2,950,982 31,459,272 182,309,252
Accumulated depreciation Balance as at 1st April 2011 13,773,552 18,273,075 7,687,871 1,980,398 610,266 - - 15,240,977 57,566,139 Charge for the year 5,755,220 8,269,115 3,726,569 1,041,725 2,814,425 426,751 - 3,850,234 25,884,039 Disposals during the year ------Balance as at 31st March 2012 19,528,772 26,542,190 11,414,440 3,022,123 3,424,691 426,751 - 19,091,211 83,450,178
Balance as at 1st April 2012 19,528,772 26,542,190 11,414,440 3,022,123 3,424,691 426,751 - 19,091,211 83,450,178 Charge for the year 6,647,406 6,106,793 3,487,108 1,021,779 4,731,648 1,280,254 612,430 2,723,891 26,611,309 Transfer during the year - - - - - (1,707,005) - 1,707,005 - Disposals during the year ------(18,952) (18,952) Balance as at 31st March 2013 26,176,178 32,648,983 14,901,548 4,043,902 8,156,339 - 612,430 23,503,155 110,042,535
Balance as at 31.03.2013 42,484,828 4,160,926 2,690,602 1,467,644 11,168,048 - 2,338,552 7,956,117 72,266,717 Balance as at 31.03.2012 42,744,812 9,291,946 5,886,162 2,137,121 15,899,696 1,280,254 - 9,239,871 86,479,862 Balance as at 01.04.2011 40,536,126 13,857,543 6,637,580 2,481,320 554,059 - - 9,898,560 73,965,188 Swarnamahal Financial Services PLC Annual Report 2012/13 94
Notes to the Financial Statements contd.
21.1 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:
2013 2012 Rs. Rs.
Computer equipment 15,628,595 9,894,255 Equipment, furniture and fixtures 34,195,325 4,914,229 Motor vehicles 490,340 239,500 50,314,260 15,047,984
21.2 Leased assets Leased assets for the year 2013 consists solely of 15 units of Motorbikes leased under a 3 year agreement. Whereas leased assets for the year 2012 consisted solely of a computer server for which the agreement expired on 11th of November 2012. 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 28.1.
As at 31st March 2013 2012 1st April 2011 Rs. Rs. Rs.
22. Other assets Deposits & prepayments 70,211,008 70,608,453 80,406,770 Gold stock (Note 22.1) 53,829,560 56,035,018 765,920 Real estate stock (Note 22.2) 165,956,056 217,526,056 242,657,497 Rent Receivable from Lavinia Breeze (Note 22.3) - - - 289,996,624 344,169,527 323,830,187
22.1 Gold Stock Gold stock 56,035,017 56,035,018 765,920 Impairment for gold stock (2,205,457) - - 53,829,560 56,035,018 765,920
The Gold stock was pledge for the overdraft facility obtained by the Sampath Bank PLC amounting to Rs. 45 Mn. An impairment test were carried out as at year end and Rs. 2.2 Mn was made to compensate for the decline in prevailing market prices for gold. Swarnamahal Financial Services plc 95 Annual Report 2012/13
22.2 Real estate stock
As at 01st April 2011 Thalawathugoda Boralesgamuwa Nawala Kandy Koswatta Total Rs. Rs. Rs. Rs. Rs. Rs.
Balance at the beginning of the year 80,202,784 12,400,241 130,789,139 40,845,125 8,044,696 272,281,985 Additions/Transfers during the year 2,522,580 - 29,000 354,096 - 2,905,676 Disposals during the year (17,277,234) - (22,999) (4,884,994) (8,044,696) (30,229,923) Impairment during the year - (2,300,241) - - - (2,300,241) Balance at the end of the year 65,448,130 10,100,000 130,795,140 36,314,227 - 242,657,497
As at 31st March 2012 Thalawathugoda Boralesgamuwa Nawala Kandy Koswatta Total Rs. Rs. Rs. Rs. Rs. Rs.
Balance at the beginning of the year 65,448,130 10,100,000 130,795,139 36,314,227 - 242,657,496 Additions/Transfers during the year - - 7,000 1,961,829 - 1,968,829 Disposals during the year - (4,905,715) - - - (4,905,715) Impairment during the year (9,923,130) (469,285) (11,802,139) - - (22,194,554) Balance at the end of the year 55,525,000 4,725,000 119,000,000 38,276,056 - 217,526,056
As at 31st March 2013 Thalawathugoda Boralesgamuwa Nawala Kandy Koswatta Total Rs. Rs. Rs. Rs. Rs. Rs.
Balance at the beginning of the year 55,525,000 4,725,000 119,000,000 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
In order to ascertain the Net Realisable Value of the real estate stock, the company valued them as at 31st March 2011,2012 and 2013, by a professionally 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 Realisable Value was compared with the Net book value and have been accounted for which ever is lower as per the requirements of LKAS 2.
2013 2012 1st April 2011 Rs. Rs. Rs.
22.3 Rent receivable from Lavinia Breeze Rent receivable from Lavinia Breeze 6,350,000 5,750,000 - Provision for rent receivable from Lavinia Breeze (6,350,000) (5,750,000) - - - - Swarnamahal Financial Services PLC Annual Report 2012/13 96
Notes to the Financial Statements contd.
As at 31st March 2013 2012 1st April 2011 Rs. Rs. Rs.
23. Deposits from customers Fixed deposits (Note 23.1) 5,344,855,081 4,456,523,739 3,501,779,494 Other deposits (Note 23.2) 54,657,572 49,860,948 50,592,277 5,399,512,653 4,506,384,687 3,552,371,771
23.1 Fixed deposits Fixed deposits - General 1,345,449,782 1,402,573,737 1,534,247,251 SFS - Abhimana 3,999,191,899 3,053,060,035 1,964,115,627 Staff fixed deposits 213,400 889,967 3,416,616 5,344,855,081 4,456,523,739 3,501,779,494
23.2 Other deposits Savings - General 32,255,621 29,424,484 31,058,932 SFS Kumara Kumari 16,403,595 15,788,887 14,590,669 Staff savings 413,640 560,306 329,864 Dhanajaya savings 391,041 386,623 383,104 SFS saver 3,245,572 2,721,405 2,620,273 Dhana Pragathi 3,597 79,851 69,669 Miscellaneous savings 1,944,506 899,392 1,539,766 54,657,572 49,860,948 50,592,277
24. Interest bearing borrowings Debentures (Note 24.1) 102,301,798 102,105,464 101,597,013 Borrowings from securitization 20,388,397 99,894,640 - Temporary borrowings from banks & financial institutions 39,098,392 12,968,946 - 161,788,587 214,969,050 101,597,013
24.1 Debentures Number of debentures 1,000,000 1,000,000 1,000,000
Value of debentures 102,301,798 102,105,464 101,597,013
The Rs. 100,000,000/- Unsecured redeemable subordinated debentures issued at following rates will mature on 31st March 2015. Swarnamahal Financial Services plc 97 Annual Report 2012/13
Category Year of Year of Amount Interest Value Value Value issue redemption rate as at as at as at 31.03.2013 31.03.2012 01.04.2011
Type “A” 2010 2015 11,565,000 15.00% 11,767,166 11,767,166 11,712,335 Type “B” 2010 2015 500,000 15.50% 506,450 506,450 506,458 Type “C” 2010 2015 72,275,000 16.00% 73,524,212 73,524,212 73,461,203 Type “D” 2010 2015 15,660,000 16.50% 16,503,970 16,307,636 15,917,017 100,000,000 102,301,798 102,105,464 101,597,013
As at 31st March 2013 2012 1st April 2011 Rs. Rs. Rs.
25. Current tax liabilities Balance at the beginning of the year 40,582,784 5,571,471 (11,865,698) Current tax charge for the year 77,524,155 73,906,214 31,228,847 Current tax payment (63,158,619) (23,726,694) (5,000,000) VAT receivable (11,882,327) - - SRL payment - (439,221) (97,690) Deemed dividend tax payment - (1,817,150) - Economic Service Charge receivable (3,366,761) (10,454,036) (6,665,014) WHT receivable on Treasury Bill and Repo interest (4,638,066) (2,248,969) (2,028,974) WHT receivable on interest income (256,463) (208,828) - 34,804,703 40,582,787 5,571,471
26. Deferred tax liabilities As at the beginning of the year 2,970,185 2,908,114 14,693 Amount originating/(reversing) during the year (1,362,252) 62,071 2,893,421 As at the end of the year (Note 26.1) 1,607,933 2,970,185 2,908,114
26.1 Deferred tax assets/(liabilities) are attributable to the following: Deferred Tax Assets Leased property, plant and equipment 423,429 - - Provision for Gratuity 1,114,982 778,756 491,814 Lease Rentals - 55,708 - Bad debts Provision - 1,037,992 1,057,735 1,538,411 1,872,456 1,549,549
Deferred Tax Liability Property, plant and equipment (2,492,525) (4,842,641) (3,466,188) Lease Rentals (653,819) - (991,475) (3,146,344) (4,842,641) (4,457,663) Net deferred tax liability (1,607,933) (2,970,185) (2,908,114)
Swarnamahal Financial Services PLC Annual Report 2012/13 98
Notes to the Financial Statements contd.
As at 31st March 2013 2012 1st April 2011 Rs. Rs. Rs.
27. Movement of the retirement benefit obligation Balance at the beginning of the year 2,781,271 1,756,480 1,452,321 Retirement benefit expense recognised in the statement of comprehensive income (Note 27.1) 1,437,057 1,024,791 739,159 Benefits paid during the year (236,249) - (435,000) Balance at the end of the year 3,982,079 2,781,271 1,756,480
27.1 Retirement benefit expense recognised in comprehensive income Current service cost 1,059,767 664,276 493,594 Interest cost 373,418 329,243 216,219 Actuarial (gain)/loss at the end of the year 3,872 31,272 29,346 Total 1,437,057 1,024,791 739,159
27.2 Unrecognised actuarial (Gain) or Loss Balance as at 1st April 330,542 Actuarial (gain)/loss for year - obligation 950,252 Actuarial gain/(loss) immediately recognised (3,872) Balance as at 31st March 1,276,922
An actuarial valuation of the gratuity liability was carried out as at 31st March 2013 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”.
As at 31st March 2013 2012 1st April 2011 Rs. Rs. Rs.
Assumptions; Discount rate 11% 12% 12% Salary scale 10% 10% 10% Staff turnover 0% to 15% 0.01% to 8% 0.01% to 8% Retirement Age 50-55 years 50-55 years 50-55 years
28. Other liabilities Accounts payable 31,804,992 15,545,908 14,128,187 Other tax payables (9,871,156) 2,585,518 3,362,289 Lease creditors (Note 28.1) 2,347,391 1,280,254 - 24,281,227 19,411,680 17,490,476
28.1 Lease creditors Less than one year 943,890 1,280,254 - One to five years 1,403,501 - - 2,347,391 1,280,254 - Swarnamahal Financial Services plc 99 Annual Report 2012/13
As at 31st March 2013 2012 1st April 2011 Rs. Rs. Rs.
29. Stated capital Stated capital 250,000,070 250,000,070 250,000,070 250,000,070 250,000,070 250,000,070
No of shares 500,000,140 500,000,140 25,000,007
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.
As at 31st March 2013 2012 1st April 2011 Rs. Rs. Rs.
30. Reserves Statutory reserve fund (Note 30.1) 105,972,056 45,093,956 16,944,750 Investment fund (Note 30.2) 50,704,977 22,882,378 - Available for sale reserve (Note 30.3) (4,564,229) (7,211,400) (518,536) Retained earnings 31,299,226 (1,756,275) (110,187,228) 183,412,030 59,008,659 (93,761,014)
30.1 Statutory reserve Balance at the beginning of the year 45,093,956 16,944,750 4,385,913 Transfers during the year 60,878,100 28,149,206 12,558,837 Balance at the end of the year 105,972,056 45,093,956 16,944,750
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%
Accordingly, the Company has transferred 50% of its net profit after taxation to the Reserve Fund as the Company’s Capital Funds to Deposit Liabilities, belongs to not less than 10% category. Swarnamahal Financial Services PLC Annual Report 2012/13 100
Notes to the Financial Statements contd.
As at 31st March 2013 2012 1st April 2011 Rs. Rs. Rs.
30.2 Investment fund Balance at the beginning of the year 22,882,378 - - Transfers during the year 27,822,599 22,882,378 - Balance at the end of the year 50,704,977 22,882,378 -
As propsed 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 requirments 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 Invested Value
LKB01022A018 8.00% 1-Jan-22 27,768,346 LKB01019E016 8.50% 1-May-19 5,027,598 32,795,944
30.3 Available for sale reserve Balance at the beginning of the year (7,211,400) (518,536) - Gain/(low) during the year 2,647,171 (6,692,864) (518,536) Balance at the end of the year (4,564,229) (7,211,400) (518,536)
31. Commitments and contingencies There were no commitments and contingencies as at reporting date, which require adjustments to or disclosures in the financial statements. Swarnamahal Financial Services plc 101 Annual Report 2012/13
32. Related party disclosures The company carries out transactions in the ordinary course of its business with parties who are defined as related parties in the Sri Lanka Financial Reporting Standard (LKAS 24) “Related Party Disclosures”, the details of which are reported below. The pricing applicable to such transactions is based on the assessment of risk of the company and comparable with what is applied to transactions between the company and its unrelated customers.
32.1 Parent and ultimate controlling party The Company’s parent company is ETI Finance Ltd which is the ultimate controlling party with 90% shareholding.
32.2 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 of Directors and their close family members have been 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.
2013 2012 Rs. Rs.
Compensation to KMP Short term employment benefits (including Director/CEO) 17,300,000 16,202,800
There were no post employment benefits or long term benefits provided to key management personnel.
32.3 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.
Swarnamahal Financial Services PLC Annual Report 2012/13 102
Notes to the Financial Statements contd.
As at 31st March Company Names Mr. J.H. Edirisinghe Mrs. A.D. Edirisinghe Mr. N.P. Edirisinghe Mr. A.S. Edirisinghe Mr. Sumathipala Kariyawasam Mr. Sujith D. Jayawardena EAP Holdings Ltd ETI Finance Ltd Swarnamahal Jewellers (Pvt) Ltd EAP Network (Pvt) Ltd Colombo Communications (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
Mr. B.G. Wimalarathna Banda, Mr. Sameera Ganegoda are Directors and Key Management Personnel of Swarnamahal Financial Services PLC.
Mr. Sunil Abeyratna, Mr. J.F. De Silva , Mr. S.A. Weerasinha and Mr. Mahendra De Silva resigned from the company during the year and Mr. Sumathipala Kariyawasam, Mr. Sujith D. Jayawardena and Mr. B.G. Wimalarathna Banda were appointed to the Board with effect from 10th January 2013.
Swarnamahal Financial Services plc 103 Annual Report 2012/13
32.4 Transactions with entities that are controlled, jointly controlled or significantly influenced by Key Management Personnel or their close member of family, or shareholders who have either control, significant influences or joint control over entity are as follows;
Transactions with related parties
Name of the Relationship Description Amounts Balance Company of Transaction (paid)/ as at received 31st March 2013 Rs. Rs.
Swarnamahal Jewellers (Pvt) Ltd Affiliate Loan capital recovered Loan 8,218,908 - balance due from the company - 1,063,358
Gold sales 58,490,243 - Balance due from gold sales - 5,797,700
EAP Security Services (Pvt) Ltd Affiliate Security expenses (7,868,834) -
EAP Holdings Ltd Affiliate Shared services expense (6,432,404) - Prepaid balance - 6,067,596
Lavinia Breeze Sea Affiliate Rent income 600,000 - Food Restaurant (Pvt) Ltd
33. 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. Swarnamahal Financial Services PLC Annual Report 2012/13 104
Notes to the Financial Statements contd.
34. Comparative information
34.1 Restatement The following comparative figures have been restated during the financial statements for the year ended 31 March 2013 in order to provide a better presentation. All figures below have been reclassified to SLFRS. Comparative information in the financial statements have been restated as follows:
34.1a Net Profit after tax has been restated due to adjustments carried out in 2011 and 2012 to correct under depreciation of property plant and equipment in prior years as shown in detail below.
2011 2011 Change Restated Reported Rs. Rs. Rs.
Statement of comprehensive income for the year ended 01 April 2011
Depreciation Charge 25,116,117 15,479,607 (9,636,510) Profit/(Loss) before taxation (38,660,083) (29,023,573) (9,636,510) Taxation (34,122,268) (34,122,268) - Profit/(Loss) after taxation (72,782,351) (63,145,841) (9,636,510)
Statement of financial position as at the year ended 01 April 2011 Property, plant and equipment 73,965,188 83,601,698 (9,636,510) Total assets 3,949,700,624 3,959,337,134 (9,636,510)
Statement of comprehensive income for the year ended 31 March 2012
Depreciation Charge 25,884,039 24,686,827 (1,197,212) Profit/(Loss) before taxation 228,809,200 230,006,412 (1,197,212) Taxation (78,196,772) (78,196,772) - Profit/(Loss) after taxation 150,612,428 151,809,640 (1,197,212)
Statement of financial position as at the year ended 31 March 2012 Property, plant and equipment 86,479,862 97,313,584 (10,833,722) Total assets 5,192,460,590 5,203,294,312 (10,833,722) Swarnamahal Financial Services plc 105 Annual Report 2012/13
34.1 b Over provision for Witholding tax related to year 2012 has been corrected in the year of 2013 as detailed below.
2012 2012 Change Restated Reported Rs. Rs. Rs.
Statement of comprehensive income for the year ended 31 March 2012
Withholding tax payable 208,828 307,631 98,803
34.1 c Over provision for income tax related to year 2012 has been corrected in the year of 2013 as detailed below.
2012 2012 Change Restated Reported Rs. Rs. Rs.
Statement of financial position as at 31 March 2012
Income tax payable 1,342,984 5,571,471 4,228,487
34.1 d Erroneous entry for director fee related to year 2012 has been corrected in the year of 2013 as detailed below.
2012 2012 Change Restated Reported Rs. Rs. Rs.
Statement of comprehensive income for the year ended 31 March 2012
Director fee 9,002,800 8,990,000 12,800
34.1 e An adjustment was required due to an omission of some quoted securities in the valuation for the year ended 31 March 2012.
2012 2012 Change Restated Reported Rs. Rs. Rs.
Statement of comprehensive income for the year ended 31 March 2012
Net gain from financial instruments at fair value through profit or loss 1,613,763 1,463,568 150,195
The Company reclassified the fall in value of investments from other expenses to net loss from financial instruments at fair value through profit or loss. Swarnamahal Financial Services PLC Annual Report 2012/13 106
Notes to the Financial Statements contd.
34.1 e An adjustment was required due to an omission of some quoted securities in the valuation for the year ended 31 March 2012 contd.
2012 2012 Change Restated Reported Rs. Rs. Rs.
Statement of comprehensive income for the year ended 31 March 2012
Other expenses 204,435,180 206,199,138 1,763,958
Statement of financial position as at 31 March 2012 Other financial assets held for trading 4,096,593 3,946,398 150,195
35. Directors’ responsibility statement The Board of directors of the Company is responsible for the preparation and presentation of these financial statements.
Please refer to page 4 for the statement of the Directors’ responsibility for financial statement. Swarnamahal Financial Services plc 107 Annual Report 2012/13
36. Maturity of assets and liabilities An analysis of the total assets employed and total liabilities as at the year end ,based on the remaining period at the reporting date to the respective contractual maturity dates is given below.
Assets/Liabilities Maturity period Up to 1-3 3-12 1-5 Over 5 Total 1 month Months Months Years Years Rs. Rs. Rs. Rs. Rs. Rs.
Interest earning assets Cash at bank 36,203,987 - - - - 36,203,987 Deposits with financial institutions 2,598,498 - - - - 2,598,498 Financial assets available for sale - Treasury Bills - 21,737,895 378,221,418 - - 399,959,313 - Treasury Bonds - - - 16,316,582 32,251,870 48,568,452 - CRIB - - - - 2,500 2,500 Loans & receivables * - Pawning - 346,532,691 3,755,686,775 507,880,247 - 4,610,099,713 - Leasing 2,405,033 4,776,592 21,494,664 25,018,299 - 53,694,588 - HP 11,411,950 22,765,590 102,445,155 90,736,885 - 227,359,580 - Term Loans 18,388,203 36,445,442 92,344,141 69,902,810 - 217,080,596 71,007,671 432,258,210 4,350,192,153 709,854,823 32,254,370 5,595,567,227
Non interest earning assets Cash in hand 67,871,384 - - - - 67,871,384 Financial assets held at fair value through profit and loss 3,993,370 - - - - 3,993,370 Real estate stock 6,147,767 - - 159,808,289 - 165,956,056 Gold stock - 53,829,560 - - - 53,829,560 Property, plant & equipment - - - - 72,266,717 72,266,717 Investment property - - - - 73,000,000 73,000,000 Other assets - - - 70,211,008 - 70,211,008 78,012,521 53,829,560 - 230,019,297 145,266,717 507,128,095 Total assets 149,020,192 486,087,770 4,350,192,153 939,874,120 177,521,087 6,102,695,322
Percentage - 31st March 2013 2.44 7.97 71.28 15.40 2.91 100 Percentage - 31st March 2012 12.35 10.66 64.19 9.93 2.88 100
Interest bearing liabilities Bank overdrafts - - 43,306,040 - - 43,306,040 Deposits 783,321,108 1,096,300,207 2,398,410,728 1,105,077,564 16,403,046 5,399,512,653 Interest bearing borrowings 39,098,392 - - 20,388,397 102,301,798 161,788,587 822,419,500 1,096,300,207 2,441,716,768 1,125,465,961 118,704,844 5,604,607,280
Non interest bearing assets Other liabilities - - 36,412,635 24,281,228 3,982,079 64,675,942 Equity - - - - 433,412,100 433,412,100 - - 36,412,635 24,281,228 437,394,179 498,088,042 Total liabilities 822,419,500 1,096,300,207 2,478,129,403 1,149,747,189 556,099,023 6,102,695,322
Percentage - 31st March 2013 13.48 17.96 40.61 18.84 9.11 100 Percentage - 31st March 2012 10.02 20.35 41.37 19.59 8.68 100
* Loans and receivables are reported net of impairment. Swarnamahal Financial Services PLC Annual Report 2012/13 108
Notes to the Financial Statements contd.
37. Segmental Information
Pawning Other Total Rs. Rs. Rs.
For the Year Ended 31st March, 2012
Income Interest income 917,357,641 144,041,671 1,061,399,312 Other income 4,217,256 12,085,496 16,302,752 Total income 921,574,897 156,127,167 1,077,702,064 Percentage 86.43% 13.57% 100%
Less : Interest 457,100,222 71,772,967 528,873,188 Other expenses 272,595,631 42,802,423 315,398,055 Total expenses 729,695,853 114,575,390 844,271,243 Profit before taxation 191,879,044 41,551,777 233,430,821 Less : income tax (63,930,105) (10,038,178) (73,968,284) Profit after taxation 127,948,939 31,513,599 159,462,537 Segment assets 3,749,731,675 1,444,213,757 5,193,945,432 Percentage 72.19% 27.81% 100% Segment liabilities 3,526,645,038 1,358,291,665 4,884,936,703
For the year ended 31st March 2013
Income Interest Income 1,168,702,500 170,726,996 1,339,429,496 Other Income (15,373,693) 16,018,929 645,236 Total Income 1,153,328,807 186,745,925 1,340,074,732 Percentage 87.25% 12.75% 100%
Less : Interest 693,299,225 101,278,892 794,578,117 Other Expenses 303,275,296 44,303,217 347,578,513 Total Expenses 996,574,521 145,582,109 1,142,156,630 Profit Before Taxation 156,754,286 41,163,816 197,918,102 Less : Income Tax (66,454,118) (9,707,784) (76,161,903) Profit After Taxation 90,300,168 31,456,032 121,756,199
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
Swarnamahal Financial Services plc 109 Annual Report 2012/13
38. Explanation of transition to SLFRSs These are the Company’s first financial statements prepared in accordance with SLFRSs.
The Company’s accounting policies set out in Notes 1-5 have been applied in preparing the financial statements for the year ended 31 March 2013, the comparative information presented in these financial statements for the year ended 31 March 2012 and in the preparation of an opening SLFRS statement of financial position as at 1 April 2011 (the Company’s date of transition).
In preparing its opening SLFRS statement of financial position, the Company has adjusted amounts reported previously in financial statements prepared in accordance with previous SLASs. An explanation of how the transition from previous SLAS to SLFRSs has affected the Company’s financial position and financial performance is set out in the following tables and the notes that accompany the tables.
38.(a) Explanation of transition to SLFRSs Reconciliation of comprehensive income for the year ended 31 March 2012
Note Previous Effect of SLFRSs SLAS transition restated to SLFRSs Rs. Rs. Rs.
Interest income i, ii, iii 1,058,562,822 2,836,490 1,061,399,312 Interest expenses (528,873,188) - (528,873,188) Net interest income 529,689,634 2,836,490 532,526,124 Net loss from financial instruments designated at fair value through profit or loss (1,613,763) - (1,613,763) Other income iv 9,916,515 8,000,000 17,916,515 Operating income 537,992,386 10,836,490 548,828,876
Operating expenses Personnel expenses (88,375,199) - (88,375,199) Other expenses iii, v, vi (204,435,180) (22,026,403) (226,461,583) Impairment charges for loans and other losses vii 755,302 26,836,552 27,591,854 Operating profit before value added tax 245,937,309 15,646,639 261,583,948 Value added tax on financial services (28,153,127) - (28,153,127) Profit from operation before taxation 217,784,182 15,646,639 233,430,821 Income tax expense (73,968,284) - (73,968,284) Profit for the year 143,815,898 15,646,639 159,462,537
Other comprehensive income for the year, net of taxes
Net losses on re-measuring available-for-sale financial assets ii - (6,692,864) (6,692,864) Total comprehensive income for the year 143,815,898 8,953,775 152,769,673 Swarnamahal Financial Services PLC Annual Report 2012/13 110
Notes to the Financial Statements contd.
38.(a) Explanation of transition to SLFRSs contd.
Reconciliation of financial position
Note Previous Effect of SLFRSs Previous Effect of SLFRSs SLAS transition to SLAS transition to restated SLFRSs restated SLFRSs 1-Apr-11 31-Mar-12 Rs. Rs. Rs. Rs. Rs. Rs.
Assets Cash and cash equivalents 129,901,452 - 129,901,452 205,787,319 - 205,787,319 Deposits with financial institutions ix 9,322,981 541,096 9,864,077 8,661,665 - 8,661,665 Financial assets held at fair value through profit and loss 3,815,170 - 3,815,170 4,096,593 - 4,096,593 Financial assets available-for-sale ii, ix 180,214,795 2,338,823 182,553,618 336,119,786 2,458,565 338,578,351 Loans and receivables i, vii, viii, ix 2,971,109,788 199,288,629 3,170,398,417 3,628,630,420 515,541,695 4,144,172,115 Investment properties iv 54,800,000 (800,000) 54,000,000 54,800,000 7,200,000 62,000,000 Property, plant & equipment 73,965,188 - 73,965,188 86,479,862 - 86,479,862 Other assets iii, vi, viii, ix 647,902,868 (324,072,681) 323,830,187 979,757,729 (635,588,202) 344,169,527 Total assets 4,071,032,242 (122,704,133) 3,948,328,109 5,304,333,374 (110,387,942) 5,193,945,432
Liabilities Deposits ix 3,469,979,521 82,392,250 3,552,371,771 4,399,005,831 107,378,856 4,506,384,687 Bank overdraft 110,393,728 - 110,393,728 97,837,043 - 97,837,043 Interest bearing borrowings ix 100,000,000 1,597,013 101,597,013 212,863,586 2,105,464 214,969,050 Current tax liabilities 5,571,471 - 5,571,471 40,582,787 - 40,582,787 Deferred tax liabilities 2,908,114 - 2,908,114 2,970,185 - 2,970,185 Employee benefit 1,756,480 - 1,756,480 2,781,271 - 2,781,271 Other liabilities v, ix 96,280,396 (78,789,920) 17,490,476 120,334,241 (100,922,561) 19,411,680 Total liabilities 3,786,889,710 5,199,343 3,792,089,053 4,876,374,944 8,561,759 4,884,936,703
Equity Stated capital 250,000,070 - 250,000,070 250,000,070 - 250,000,070 Reserves xiv 34,142,462 (127,903,477) (93,761,014) 177,958,360 (118,949,701) 59,008,659 Total equity 284,142,532 (127,903,477) 156,239,056 427,958,430 (118,949,701) 309,008,729 Total liabilities and equity 4,071,032,242 (122,704,133) 3,948,328,109 5,304,333,374 (110,387,942) 5,193,945,432 Swarnamahal Financial Services plc 111 Annual Report 2012/13
38.(a) Explanation of transition to SLFRSs (Contd.)
38.(a) i. The interest in suspense and the provisions made in accordance with Central Bank of Sri Lanka regulations were reversed.
The impact arising from the change is summarised as follows:
2011/12 Rs.
Statement of comprehensive income Reversal of interest suspended/(charge of interest in suspense reversed) 1,223,679
Statement of financial position 31-Mar-12 1-Apr-11 Interest in suspense 3,224,608 2,000,929 Adjustment to retained earnings 3,224,608 2,000,929
38.(a) ii. The Company changed its method of recognising interest on Available for Sale treasury bills and bonds to Effective Interest Rate (EIR) method in accordance with LKAS 39. Financial Instruments - Recognition & Measurement, whereby the interest was previously accounted for on a straight line basis.
The company changed its basis of measurement for its Available-For-Sale investment portfolio from cost method to fair value method, in accordance with LKAS 39 - Financial instruments - Recognition and measurement.
The impact arising from the change is summarised as follows:
2011/12 Rs.
Statement of comprehensive income Change of interest recognition (130,303)
Statement of other comprehensive income Net change of financial assets measured at fair value through other comprehensive income. Net change in fair value on available-for-sale financial assets (6,692,864)
As at 31-Mar-12 1-Apr-11 Rs. Rs.
Statement of financial position Available-for-sale investment securities (7,211,400) (518,536) Adjustment to available-for-sale reserve (7,211,400) (518,536)
Change of interest recognition (195,789) (65,486) Adjustment to retained earnings (195,789) (65,486) Swarnamahal Financial Services PLC Annual Report 2012/13 112
Notes to the Financial Statements contd.
38.(a) Explanation of transition to SLFRSs (Contd.)
38.(a) iii. The company valued the interest free deposits and the prepaid rent at fair value which were earlier held at nominal value. This resulted in a higher rental expense while Interest income is unwinded on these deposits.
The impact arising from the change is summarised as follows:
2011/12 Rs.
Statement of comprehensive income Interest income Unwinding of interest income on interest free deposits 1,743,114 Rent expense (6,773,221) (5,030,107)
Statement of financial position
31-Mar-12 1-Apr-11 Rs. Rs.
Prepaid rent 14,415,772 17,940,772 Interest free deposit (19,518,277) (18,013,171) Adjustment to retained earnings (5,102,505) (72,399)
38.(a) iv. The Company changed its policy on Investment Property valuation to be performed every reporting date, as per the requirements of LKAS 40 - Investment property.
The impact arising from the change is summarised as follows:
2011/12 Rs.
Statement of comprehensive income Gain from valuation of investment property 8,000,000
31-Mar-12 1-Apr-11 Rs. Rs.
Statement of financial position Investment property 7,200,000 (800,000) Adjustment to retained earnings 7,200,000 (800,000) Swarnamahal Financial Services plc 113 Annual Report 2012/13
38.(a) v. The Company changed the method of accounting for operating lease payments for premises occupied by the Company in accordance with LKAS 17 - Leases.
The impact arising from the change is summarised as follows:
2011/12 Rs.
Statement of comprehensive income Premises, equipment and establishment expenses (3,362,416)
31-Mar-12 1-Apr-11 Rs. Rs.
Statement of financial position Other liabilities 8,561,759 5,199,343 Adjustment to retained earnings (8,561,759) ( 5,199,343)
38.(a) vi. The general provisions made on the real estate stock were reversed and provisions based on external valuations were incorporated.
The impact arising from the change is summarised as follows:
2011/12 Rs.
Reversal of existing provision for diminution of real estate stock 10,303,789 Provision required for diminution of real estate stock (22,194,555) (11,890,766)
31-Mar-12 1-Apr-11 Rs. Rs.
Statement of financial position Real estate stocks (11,890,766) - Adjustment to retained earnings (11,890,766) - Swarnamahal Financial Services PLC Annual Report 2012/13 114
Notes to the Financial Statements contd.
38.(a) vii. The Company charged an impairment provision for loans and advances in accordance with LKAS 39 - Financial Instruments - Recognition & measurement.
The impact arising from the change is summarised as follows:
2011/12 Rs.
Statement of comprehensive income Reversal of bad debt provision for hire purchase portfolio 56,108,354 Loans 494,823
Additional provisions Gold loans (29,574,366) Hire purchase (192,259) 26,836,552
31-Mar-12 1-Apr-11 Rs. Rs.
Statement of financial position Impairment provision for loans and advances (96,412,090) (123,248,642) Adjustment to retained earnings (96,412,090) (123,248,642)
38.(a) viii. The company decided to transfer the unredeemed gold stock to loans and receivables.
The impact arising from the change is summarised as follows:
31-Mar-12 1-Apr-11 Rs. Rs.
Statement of financial position Loans and receivables 215,566,942 20,000 Other assets (215,566,942) (20,000) - - Swarnamahal Financial Services plc 115 Annual Report 2012/13
38.(a) ix. The company classified interest receivable and interest payable accounted for in other assets and other liabilities respectively to the related asset or liability.
The impact arising from the change is summarised as follows:
As at 31-Mar-12 1-Apr-11 Rs. Rs.
Statement of financial position Loans and receivables 393,162,234 320,516,342 Financial investments available-for-sale 9,865,754 2,922,845 Deposits with financial institutions - 541,096 Interest receivable (403,027,988) (323,980,283)
Deposits 107,378,856 82,392,250 Interest bearing borrowings 2,105,464 1,597,013 Other liabilities - interest payable (109,484,320) (83,989,263) Adjustment to retained earnings - -
38.(a) x. The following changes resulted an increase / (decrease) to the retained earnings
31-Mar-12 1-Apr-11 Rs. Rs.
Loans and receivables - reversal of existing impairment - Note 38(a) i 3,224,608 2,000,929 Change of interest recognition - Financial instruments - Note 38.(a) ii (195,789) (65,486) Fair value adjustment for interest free deposits - Note 38.(a) iii (5,102,505) (72,399) Adjustment in relation to Investment Property - Note 38.(a) v 7,200,000 (800,000) Adjustment in relation to straight lining of operating leases - Note 38.(a) vi (8,561,759) (5,199,343) Adjustment in relation to provision for real estate stock - Note 38.(a) vii (11,890,766) - Loans and receivables - impairment - Note 38.(a) viii (96,412,090) (123,248,642) (111,738,301) (127,384,941)
The following change resulted an increase / (decrease) to the available-for-sale reserve Fair value adjustment for investments - Note 38.(a) ii (7,211,400) (518,536) (7,211,400) (518,536) Total adjustment to reserves (118,949,701) (127,903,477) Swarnamahal Financial Services PLC Annual Report 2012/13 116
Seven Years at a Glance
Rs. Mn Year Ended 31st March (Audited) 2007 2008 2009 2010 2011 2012 2013
Profit Performance Gross Income 155 190 309 425 714 1,078 1,340 Interest Income 142 164 256 417 706 1,061 1,339 Interest Expenses 102 151 228 274 383 529 794 Interest on customers deposits 102 151 228 274 363 502 762 Interest on other borrowings - - - - 20 27 32 Net Interest Income 40 13 28 143 323 532 545 Other Income 13 26 53 8 8 17 1 Operating Expenses * 48 78 93 121 230 315 325 Impairment charges/(reversals) for loans and other losses - - - 4 126 (27) 1 Profit befor tax (PBT) 5 (39) (12) 26 (25) 261 220 Income Tax & Other Tax expenses ** 2 - - 9 49 102 98 Profit after tax (PAT) 3 (39) (12) 17 (74) 159 122 Other comprehensive income for the year, net of tax - - - - (1) (6) 2 Total comprehensive income for the year 3 (39) (12) 17 (75) 153 124
Assets Cash and cash equivalents 5 88 55 122 130 205 104 Investments In Government Securities 104 124 148 126 183 339 448 Other Investments 114 153 156 130 68 75 80 Pawning Gold Jewellery - 6 84 864 2,714 3,694 4,610 Hire Purchase Receivable - 53 87 211 192 219 227 Lease rentals receivable 4 20 21 23 31 42 54 Other Loans & Advances 545 569 505 304 233 189 217 Value of non performing Advances - - - 9 11 13 13 Other Trading Stock 49 172 263 272 243 274 220 Other Receivables 40 104 256 245 80 71 54 Fixed assets 72 82 89 122 74 86 72 TOTAL ASSETS 933 1,371 1,664 2,419 3,948 5,194 6,086
Liabilities Fixed Deposits 682 1,120 1,285 1,896 3,502 4,456 5,345 Savings 11 18 65 48 50 50 55 Borrowings (Refinance) - - - 100 102 215 162 Other Liabilities 32 64 157 144 138 164 91 TOTAL LIABILITIES 725 1,202 1,507 2,188 3,792 4,885 5,653
Shareholders’ Funds Stated Capital 200 200 200 250 250 250 250 Reserves 8 (31) (43) (19) (94) 59 183 TOTAL SHAREHOLDERS’ FUND 208 169 157 231 156 309 433
TOTAL EQUITY & LIABILITIES 933 1371 1664 2419 3,948 5,194 6,086
Other Information Number of Staff as at 31st March 42 69 83 131 196 198 135 Number of Branches & Pawning Centers 4 4 9 11 15 17 17
Ratios Growth of Income -9.4% 22.6% 62.6% 37.5% 68.0% 51.0% 24.3% Cost to Income Ratio 90.6% 200.0% 114.8% 80.1% 69.5% 57.4% 59.5% Growth of Deposits -27.4% 64.2% 18.6% 44.0% 82.7% 26.9% 19.8% Growth of Advances -45.6% 18.0% 7.6% 101.1% 126.1% 30.7% 23.3% ROA (before Tax) 0.5% -3.4% -0.8% 1.3% -0.8% 5.7% 3.9% ROA (After Tax) -3.4% -0.8% 0.8% -2.3% 3.5% 2.2% ROE (after Tax) 1.6% -20.7% -7.4% 8.8% -38.8% 65.8% 33.4% Advances to Deposits & Borrowings 80.5% 57.9% 54.2% 70.2% 88.0% 88.7% 92.8% Total Assets to Shareholders funds (times) 4.5 8.1 10.6 10.5 25.3 16.8 14.1 EPS (after Tax) (Rs.){considered Subdivision} 0.01 -0.10 -0.03 0.03 -0.15 0.32 0.24 Net Asset Value P.S. (Rs.) {considered Subdivision} 0.52 0.42 0.39 0.46 0.31 0.62 0.87 Interest Cover (times) 1.4 1.1 1.1 1.5 1.8 2.0 1.7 Net Interest Margin 4.8% 1.8% 3.5% 12.1% 13.2% 13.6% 10.9% Net Interest Spread *** 3.6% 2.9% 8.3% 15.2% 14.4% 14.0% 10.8% Liquid Assets Ratio 15.7% 18.6% 13.6% 11.9% 8.4% 11.2% 9.0% Government Security / TB Ratio 11.9% 12.6% 12.4% 8.6% 10.0% 11.1% 10.1% NPL Ratio 0% 0% 0% 0.64% 0.35% 0.31% 0.25% Core Capital Ratio 28.8% 16.8% 12.9% 16.0% 10.3% 17.4% 22.3% Total Risk Weighted Capital Ratio 28.8% 16.8% 12.9% 23.7% 16.9% 21.8% 25.3%
*Ratios for the FY’s before 2011 have been calculated based on the Financial Statement prepared in accordance with the SLAS. Swarnamahal Financial Services plc 117 Annual Report 2012/13
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 2013
Name No. of Shares Percentage (%)
1. ETI Finance Ltd 450,000,100 90.00 2. Almar Trading Co (Pvt) Ltd 5,334,330 1.07 3. MR. W.A.S.P. De Saram 5,060,889 1.01 4. MRS. N. Muljie 2,148,580 0.43 5. MR. P.A. Anil 1,364,300 0.27 6. MR. M.A. Wijayasinghe 1,045,000 0.21 7. MR. R.R.F. Ferdinando 1,027,336 0.21 8. Almar Holdings (Pvt) Limited 950,000 0.19 9. MR. S.A.J.N. Sakalasuriya 854,043 0.17 10. MR. W.A.K.D. Saparamadu 670,608 0.13 11. MR. J.M.J. Mallikarathna 633,766 0.13 12. MR. R.E. Rambukwelle 515,000 0.10 13. ERA Seylan Bank PLC/MR. S.N.C.W.M. Bandara C. 500,000 0.10 14. MR. K.A.D.N. Kasturiratna 489,845 0.10 15. MR. R.M.I. Rajapaksa 451,964 0.09 16. MR. S.M. Wijesinghe 443,998 0.09 17. MRS. K.I. Senadheera 400,000 0.08 18. MR. H.W.M. Woodward 390,400 0.08 19. MRS. S.S. Navaratnam 376,235 0.08 20. MR. L.H.K.P. Sathyadasa 376,051 0.08 Others 26,967,695 5.39 Total 500,000,140 100
The stated Capital of the company consisting solely issued and fully paid up Ordinary Voting Shares of 500,000,140 as at 31st March 2013. Swarnamahal Financial Services PLC Annual Report 2012/13 118
Share Information contd.
3. MARKET PRICE OF AN ORDINARY SHARE
31st March 31st March 2013 2012
Highest 9.40 181.50 Lowest 2.80 80.60 Closing 3.20 158.80 No. of Ordinary Voting Shares 500,000,140 ** 25,000,007
** In accordance with the Special Resolution passed at the Extraordinary General Meeting held on 27th March 2012, each of the issued and fully paid up Voting Ordinary Shares of the Company subdivided into twenty (20) issued and fully paid up Ordinary Voting Shares consequent to which the Ordinary Voting Shares of the Company increased from 25,000,007 to 500,000,140. The said subdivision was effected on 27th March 2012 and subsequent to the subdivision, the trading of the shares commenced on 02nd April 2012.
4. NUMBER OF ORDINARY SHAREHOLDERS AS AT 31ST MARCH 2013
Share Resident Non Resident Total Holdings Number No of Percentage Number No of Percentage Number No of Percentage of Shares (%) of Shares (%) of Shares (%) Shareholders Shareholders Shareholders
1 to 1000 826 349,568 0.07 1 100 0.00 827 34,9668 0.07 1001 to 10,000 999 4,502,498 0.90 7 56,800 0.01 1,006 4,559,298 0.91 10,001 to 100,000 456 13,883,971 2.78 2 150,000 0.03 458 14,033,971 2.81 100,001 to 1000,000 56 13,990,726 2.80 3 108,5942 0.22 59 15,076,668 3.02 Over 1,000,000 7 465,980,535 93.20 0 0 0.00 7 465,980,535 93.20 Total 2,344 498,707,298 99.74 13 1,292,842 0.26 2,357 500,000,140 100.00
Public holding as a percentage of Issued Share Capital as at 31st March 2013 9.96%
Categories of No. of No. of Percentage shareholders Shareholders Shares (%)
Individuals 2,301 41,529,286 8.31 Institutional 56 458,470,854 91.69 Total 2,357 500,000,140 100 Swarnamahal Financial Services plc 119 Annual Report 2012/13
Glossary of Financial Terms
Accounting Policies Commitments The specific principles, bases, conventions, Credit facilities approved but not yet utilized by the clients as at the reporting rules and practices adopted by an entity in date. preparing and presenting Financial Statements. Contingent Liabilities Conditions or situations at the reporting date, the financial effect of which are to Accrual Basis be determined by the future events which may or may not occur. Recognition of the effects of transactions and other events when they occur without Corporate Governance waiting for receipt or payment of cash or its The process by which corporate entities are governed. It is concerned with the equivalents. way in which power is exercised over the management and direction of entity, the supervision of executive actions and accountability to owners and others. Amortization The systematic allocation of the depreciable Cost Income Ratio amount of an intangible asset over its useful Operating expenses as a percentage of net income. life. Credit Risk Capital Adequacy Credit risk is the risk of financial loss to the Bank if a customer or counter party The percentage of risk-adjusted assets to a financial instrument fails to meet its contractual obligations, and arises supported by capital as defined under the principally from the loans and advances to customers and other banks and framework of risk based capital standards investment debt securities. developed by the Bank for International Settlement (BIS) and as modified to suit Credit Ratings local requirements by the Central Bank of An evaluation of a corporate entity to assess its ability to repay its obligations or Sri Lanka. likelihood of not defaulting, carried out by an independent rating agency.
Capital Reserves Dealing Securities Capital Reserves consist of revaluation These are marketable securities acquired and held with the intention to resale reserves arising from revaluation of over a short period of time. properties owned by the Company and Reserve Fund set aside for specific Deferred Tax purposes defined under the Finance Sum set aside in the financial statements for taxation that may become payable Business Act No. 42 of 2011 and shall in a financial year other than the current financial year. not be reduced or impaired without the approval of the Monetary Board. Depreciation The systematic allocation of the depreciable amount of an asset over its useful Cash Equivalents life. Short-term highly liquid investments that are readily convertible to known amounts Earnings Per Share (EPS) of cash and which are subject to an Profit attributable to ordinary shareholders, divided by the number of ordinary insignificant risk of changes in value. shares in issue. Swarnamahal Financial Services PLC Annual Report 2012/13 120
Glossary of Financial Terms contd.
Effective Tax Rate Interest Spread Provision for taxation, excluding deferred This represents the difference between the average interest rate earned and the taxation, divided by the profit before tax. average interest rate paid on funds.
Equity Interest Cover Total of shareholders’ fund; share capital + A ratio showing the number of times interest charges is covered by earnings statutory reserves + other reserves. before interest and tax.
Equity Method Interest Earning Assets The equity method is a method of Assets which earn interest; Loans and Advances, Bills, Leases, Call money, etc. accounting whereby the investment is initially recognized at cost and adjusted Interest in Suspense thereafter. Interest suspended on non-performing loans and advances.
Fair Value Investment Properties Fair value is the amount for which an Investment property is property (land or a building – or part of a building - or both) asset could be exchanged between held (by the owner or by the lessee under a finance lease) to earn rentals or for a knowledgeable, willing buyer and a capital appreciation or both, rather than for use or sale. knowledgeable, willing seller in an arm’s length transaction. Investment Securities Securities acquired and held for yield or capital growth purposes and are usually Finance Lease held to maturity. A lease in which the lessee acquires all the financial benefits and risks attaching to Key Management Personnel ownership of whatever is being leased. Key Management Personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the entity, directly or General Provisions indirectly, including any Director (whether Executive or otherwise) of that entity. General provisions are established for loans and advances for anticipated losses on Liquid Assets aggregate exposures where credit losses Assets that are held in cash or in a form that can be converted to cash readily, cannot yet be determined on individual such as deposits with other banks, bills of exchange and treasury bills. facility basis. Loan Losses and Provisions Impairment Amounts set aside against possible losses on loans, advances and other credit This occurs when recoverable amount of an facilities as a result of such facilities becoming partly or wholly uncollectible. asset is less that its carrying amount. Market Risk Interest Margin This refers to the possibility of loss arising from changes in the value of a financial Net interest income as a percentage of instrument as a result of changes in market variables such as interest rates, average interest earning assets. exchange rates, credit spreads and other asset prices.
Net Asset Value per Share Shareholders’ funds divided by the number of ordinary shares in issue. Swarnamahal Financial Services plc 121 Annual Report 2012/13
Net-Interest Income (NII) Return on Average Assets (ROA) The difference between what a Company Net income expressed as a percentage of average total assets, used along with earns on assets such as loans and ROE, as a measure of profitability and as a basis of intra-industry performance securities and what it pays on liabilities comparison. such as deposits refinance funds and other borrowings. Revenue Reserve Reserves set aside for future distribution and investment. Non-Performing Loans (NPL) All loans are classified as non-performing Return on Equity (ROE) when a payment is 180 days’ in arrears. Net income, less preferred share dividends if any, expressed as a percentage of average ordinary shareholders’ equity. NPL Ratio Total non-performing advances (net of Related Parties Interest in Suspense) divided by total Parties where one party has ability to control the other party or exercise advances portfolio (net of Interest in significant influence over the other party in making financial and operating Suspense). decisions, directly or indirectly.
Off Financial Position Transactions Revenue Reserves Transactions that are not recognized Reserves set aside for future distribution and investment. as assets or liabilities in the statement of financial position, but which give rise Return on shareholders’ fund to contingencies and commitments in An accounting ratio, expressing the profit for the financial year as a percentage of the statement of financial position as at average shareholders’ funds. reporting date. Segmental Analysis Operational Risk Analysis of financial information by segments of an enterprise specifically, the This refers to the risk of loss resulting from different industries and the different geographical areas in which it operates. inadequate or failed internal processes, people and systems or from external events. Shareholders’ Funds Total of issued and fully paid share capital and revenue reserves. Price Earnings Ratio (P/E Ratio) Market price of an ordinary share divided by Statutory Reserve Fund earnings per share (EPS). A capital reserve created as per the provisions of the Finance Business Act No. 42 of 2011. Provision for Bad and Doubtful Debts A charge to income which is added to Core Capital (Tier I) the allowance for loan losses. Specific Core Capital includes selected items of capital funds. Major core capital items are provisions are established to reduce the share capital, share premium, statutory reserve funds, retained profits, general book value of specific assets (primarily reserves, surpluses/losses after tax arising from the sale of fixed and long-term loans) to estimated realizable values. investments.
Supplementary Capital (Tier II) Supplementary Capital includes, approved revaluation reserves, general provisions, hybrid (debt/equity) capital items and approved subordinated term debts. Swarnamahal Financial Services PLC Annual Report 2012/13 122
Our Network
FULLY FLEDGED BRANCHES
No. Branch Address Tele. No. 1. Batticaloa No. 190, Trincomalee 065 2222880 Road, Batticaloa
2. Chilaw No. 24A, Bazaar 032 2224888 Jaffna Street, Chilaw 3. Hatton No.15, Main Street, 051 2224466 Hatton 4. Jaffna No. 338, Hospital 021 2220245 Road, Jaffna 5. Kandy No.156, Kotugodella 081 2226126 Street, Kandy 6. Kollupitiya No. 654, Galle Road, 011 2556160-4 Vavuniya Colombo 03 Trincomalee 7. Negombo No. 93, Rajapaksha 031 2222619 Broadway, Negombo 8. Nugegoda No. 31, St. Thilakaratna 011 2810666 Mw, Nugegoda 9. Ratnapura No.15, Main Street, 045 2226270 Ratnapura 10. Trincomalee No. 31, Central Road, 026 2226677 Trincomalee Batticaloa
11. Vavuniya No. 141, Kandy Road, 024 2226233 Chilaw Vavuniya PAWNING CENTRES Kandy 12. Aluthgama No. 164, Galle Road, 034 2271775 Negombo Aluthgama Ja-ela Gampaha Ragama 13. Gampaha No. 16, Market Street, 033 2248444 Wattala Hatton Sea Street Gampaha Kollupitiya Nugegoda 14. Ja-Ela No. 120, Negombo 011 2249085 Road, Ja-Ela Ratnapura 15. Ragama No. 62A, Tewatte Road, 011 2957053 Ragama Aluthgama 16. Sea Street No. 147, Sea Street, 011 2452245 Colombo 11 17. Wattala No. 416, Negombo 011 3193340 Road, Wattala Swarnamahal Financial Services plc 123 Annual Report 2012/13
Notice of Meeting
Notice is hereby given that the Eighth (08th) Annual General Meeting of Swarnamahal Financial Services PLC will be held at Hotel Sapphire, No. 371, Galle Road, Colombo 06 on Monday, the Thirtieth (30th) day of September 2013 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 2013 with the Report of the Auditors thereon.
2. To re-elect Mr. S. Kariyawasam 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.D. Jayawardhana who in terms of Article 20(5)of the Articles of Association of the Company retires by rotation at the Annual General Meeting as a Director.
4. To re-appoint Messrs KPMG, Chartered Accountants as the Auditors for the ensuing year and authorize the Directors to determine their remuneration.
5. To authorize the Directors to determine contributions to charities for the financial year ending 31st March 2014.
BY ORDER OF THE BOARD S S P CORPORATE SERVICES (PRIVATE) LIMITED
Secretaries No.101, Inner Flower Road, Colombo 03.
23rd August 2013
Note:- A member is entitled to appoint a proxy to attend and vote instead of himself/herself and a Proxy need not be a member of the Company.
A Form of Proxy is enclosed for this purpose. The instrument appointing a proxy must be deposited at the Registered Office of the Secretaries, S S P Corporate Services (Pvt) Ltd .101, Inner Flower Road, Colombo 03.
Security Check:- We shall be obliged if the shareholders/proxies attending the Annual General Meeting produce their National Identity Card to the security personnel stationed at the entrance. Swarnamahal Financial Services PLC Annual Report 2012/13 124
Notes
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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
...... of ...... (National Identity Card Number) as* my/our proxy, to represent *me/us and to vote as indicated hereunder for *me/us on *my/our behalf at the Annual Meeting of the Company to be held at Hotel Sapphire No.371, Galle Road, Colombo 6 on Monday, the Thirtieth (30) day of September 2013 at 10.30 a.m. and at any adjournment thereof and at every poll which may be taken in consequence thereof:
For Against 1. To consider and adopt the Annual Report of the Board of Directors on the Affairs of the Company and the Statements of Accounts for the year ended 31st March 2013 with the Report of the Auditors thereon.
2. To re-elect Mr. S. Kariyawasam 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.D. Jayawardhana who in terms of Article 20(5) of the Articles of Association of the Company retires by rotation at the Annual General Meeting as a Director.
4. To re-appoint Messrs KPMG, Chartered Accountants as the Auditors for the ensuing year and authorize the Directors to determine their remuneration.
5. To authorize the Directors to determine contributions to charities for the financial year ending 31st March 2014.
Signed this ...... day of ...... Two Thousand and Thirteen.
Signature of the shareholder: …………………………….
Note : (a) *Please delete the inappropriate words. (b) Instructions are noted on the reverse hereof. Swarnamahal Financial Services PLC Annual Report 2012/13 128
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. About us Swarnamahal Financial Services PLC is a Public Limited Liability Company Incorporated in Sri Lanka on 14th January 2004, under the Companies Act No.17 of 1982, and re-registered on 16th September 2008 under the Companies Act No.7 of 2007. The Company is licensed by the Monetary Board of the Central Bank of Sri Lanka under the Finance Business Act No.42 of 2011 and listed on the Corporate Information Colombo Stock Exchange.
Name of the Company Number of employees Contents. . . Vision Swarnamahal Financial Services PLC 140 To be the Premier Financial Services Provider in the LFC market. Legal Form Company Secretary Financial Highlights 2 A Public Limited liability Company SSP Corporate Services (Pvt) Ltd th Chairman’s Message 4 incorporated 14 January 2004, under No. 101, Inner Flower Road, Colombo 03 the Companies Act No.17 of 1982 and Director/Chief Executive Officer’s Message8 re-registered 16th September 2008 under Auditors Board of Directors 12 Mission the Companies Act No.7 of 2007, registered Messrs KPMG Senior Management Team 14 To create superior long - term value to our shareholders, as a finance Company under the Finance Chartered Accountants Management Discussion and Analysis 16 customers and employees above the industry standard. Business Act No. 42 of 2011 by the 32A, Sir Mohamed Macan Markar Mawatha, Sustainability Report 19 Monetary Board of the Central Bank of Sri Colombo 3. Risk Management 21 Lanka. Corporate Governance 26 Bankers Annual Report of the Board of Directors on the Registered Office Commercial Bank of Ceylon PLC Affairs of the Company 52 Values No.676, Galle Road, Colombo 03. Sampath Bank PLC Seylan Bank PLC Directors’ Statement on Internal Control 57 Highest standards of ethics and integrity Business Office Hatton National Bank PLC Statement of Directors’ Responsibilities in Relation • Always do the right thing and keep commitments. No. 654, Galle Road, Colombo 03 to Financial Statements 58 • Engage others to build trust and encourage strong Tel : 011 2556160-4 Fax: 011 2595062 Chief Executive Officer’s and Senior Finance E-mail : [email protected] web: www.sfs.lk communication. Manager’s Statement of Responsibility 60 • Listen and share as a team Board Audit Committee Report 61 Board of Directors Board Integrated Risk Management Committee Respect Mr. J.H. Edirisinghe Report 63 Mr. N.P. Edirisinghe • Respect all through trust, courtesy and open communication Board Human Resources and Remuneration Mrs. A.D. Edirisinghe Mr. A.S. Edirisinghe Committee Report 65 Innovation and continuous improvements Independent Auditor’s Report 67 Mr. S. Kariyawasam • Anticipate customer needs and work to exceed their Mr. S.D. Jayawardhana Statement of Comprehensive Income 68 expectations Mr. B.G. Wimalaratna Banda Statement of Financial Position 69 Mr. S.M. Ganegoda Statement of Cash Flow 70 Service Excellence Statement of Changes in Equity 71 • Commitment to achieve the highest standard of services Company Registration No. Notes to the Financial Statements 72 quality with personalized services. PB 594 PQ Seven Years at a Glance 116 Share Information 117 Learning focused VAT Registration No. Glossary of Financial Terms 119 • Search new knowledge for innovations. 114363510 – 7000 Our Network 122 Credit Ratings Notice of Meeting 123 BB+/NP RAM Ratings (Lanka) Limited Form of Proxy 127 Swarnamahal Financial Services PLC | Annual Report 2012/2013 Swarnamahal
creating SYNERGY
No 654, Galle Road, Colombo 03, Sri Lanka. Tel.011 2556160-4, 2595061 Fax: 011 2589823, 2595062 Swarnamahal Financial Services PLC E-mail:[email protected] Web.www.sfs.lk Annual Report 2012/13