Swarnamahal Financial Services PLC - Annual Report 2016/17 i Creating Value, Steering Progress Annual Report 2016/17 Content Financial Highlights 3 Chairman’s Message 4 CEO’s Message 6 Board of Directors 8 Senior Management Team 9 Risk Management 11 Corporate Governance Report 18 Annual Report of the Board of Directors on the Affairs of the Company 25 Directors’ Statement on Internal Control 28 Statement of Directors’ Responsibilities in Relation to Financial Statements 29 Statement of Responsibility of the Chief Executive Officer and General Manager - Finance 30 Board Audit Committee Report 31 Board Integrated Risk Management Committee Report 33 Board Remuneration Committee Report 34 Board Related Party Transactions Review Committee Report 35 Financial Reports Independent Auditors’ Report 37 Statement of Profit or Loss and Other Comprehensive Income 38 Statement of Financial Position 39 Statement of Changes in Equity 40 Statement of Cash Flows 41 Notes to the Financial Statements 42 Ten Years at a Glance 83 Share Information 85 Glossary of Financial Terms 87 Our Network 90 Notice of Meeting 91 Form of Proxy 95 Corporate Information Inner Back Cover Swarnamahal Financial Services PLC - Annual Report 2016/17 1 Creating Value, Steering Progress We take pride in understanding and prioritizing our people’s pulse and financial requirements. In focusing on this aspect of our business, we have retained our standing as one of the nation’s foremost innovative and trusted financial service providers. The year under review has witnessed the company’s stay on course in its bid to reach even greater heights in the provision of financial services. Your company remains dedicated towards creating long-term value for all discerning stakeholders and is motivated towards steering the Company’s progress further than it has ever ventured toward before. Firmly grounded in our customer-centric, service-oriented stance, a clearly-defined course, ethical framework and the desire to constantly and consistently anticipate and improve will ascertain a bright future for the company in the years to come. 2 Swarnamahal Financial Services PLC - Annual Report 2016/17 About Us Swarnamahal Financial Services PLC is a Public Limited Liability Company incorporated in Sri Lanka on14th January 2004, under the Companies Act No.17 of 1982, and re-registered on 16th September 2008 under the Companies Act No.7 of 2007. The Company is licensed by the Monetary Board of the Central Bank of Sri Lanka under the Finance Business Act No.42 of 2011 and listed on the Colombo Stock Exchange. Vision To be one of the most trusted, innovative financial services provider in the country, understanding the pulse and financial needs of the people. Mission To create opportunities for everyone to uplift their living standards while ensuring superior long term value to our stakeholders. Values Customer Focus Ethics We provide personalized financial solutions for our Our success is with ethics and not with our rights. customers and always work towards to exceed their expectations. Integrity We believe in fair dealings, honest and complete Service Excellence communication with our clients and aspire towards We are committed to achieve the service perfection continuous improvement in our organization. with the highest standard of service quality. Flexibility Continuous improvements and anticipation We are really persistent of our goals and flexible in our We are always doing the best today to create a better methods and approach. tomorrow for all our stakeholders. Teamwork Direction We nurture individual talents to strengthen our All our efforts and courage are clearly in line with our teamwork to thrive on competition and challenges. direction. Swarnamahal Financial Services PLC - Annual Report 2016/17 3 Financial Highlights 2016/17 2015/16 Rs. Rs. Financial Performance for the year (Rs. Mn) Gross Income 773 631 Net Profit before Tax (PBT) 55 29 Income Tax Expense (4) 13 Net Profit after Tax (PAT) 59 16 Financial Position at the year end (Rs. Mn) Total Assets 2,874 3,023 Pawning Advances 1,284 1,519 Other Loans and Advances 776 718 Deposits 3,772 4,015 Shareholders’ Funds (995) (1,052) Information for Ordinary Share (Rs.) Earnings 0.12 0.03 Net Asset Value (1.99) (2.10) Key Indicators Return on Average Shareholders’ Funds (%) 5.7 1.2 Return on Average Assets (%) 2.0 0.5 Cost to Income Ratio (%) 72.3 101 Capital Adequacy Ratios Core Capital Ratio - Tier I (%) (77.3) (85.6) Total Risk weighted Capital Ratio - Tier I & Tier II (%) (77.3) (85.6) Statutory Ratios Shareholders’ Funds to Deposits (%) (26.4) (26.2) Liquid Assets Ratio (%) 13.7 13.9 4 Swarnamahal Financial Services PLC - Annual Report 2016/17 Chairman’s Message A series of tactical moves targeting predominant income sources ensured that all key income generators, made positive contributions to the bottom line Dear Shareholders, Sri Lankan Economic Context It gives me a great pleasure to welcome all of you, our Sri Lanka too began to feel the effects of the global economic valued shareholders to the 12th Annual General Meeting of downturn, albeit to a much lesser extent than most developing Swarnamahal Financial Services PLC and to present you the nations. Sri Lanka’s Economic Downturn continued to widen, Audited Financial Statements and the Annual Report for the fueled largely by the heightened demand for imports. As per Financial Year 2016/17. this dictum, the Goverment of Sri Lanka together with the Central Bank of Sri Lanka (CBSL) implemented comprehensive Global Economic Outlook macro-economic policy reforms, with a view to mitigating the The year 2016 was a challenging on both globally and locally. effects of unrestrained growth. The global economy has been impacted due to the many uncertainties during the year under review. Global growth is Most significant among these changes was the aggressive three projected to remain modest at 2.7% in 2017, picking up from tier strategy that would encompass fiscal policy, monetary 2.3% in 2016. policy and exchange rate policies. These plans were put into action immediately, intending to decelerate credit growth, The British government published a white paper on 2nd of regulate import demand and manage the widening trade gap. February 2017, which formally lays out the strategy for UK’s exit from the European Union. The Federal Reserve ruled Sri Lankan economy recorded a growth at a slower rate of 4.4% unanimously to keep its benchmark interest rate in a range of in 2016 when compared with 4.8% in the previous year, the 0.5% to 0.75%.The Federal Reserve had raised its benchmark unfavourable weather conditions which prevailed in the country interest rate by 0.25% in December 2016, only the second affected the Agriculture sector and the slow paced global increase in a decade. economic growth affected the growth in exports. The Services sector constituted 57% of Sri Lankan GDP recording a growth of 4% compared to last Year. Whilst the financial services sector grew by 12% largely contributed to the expansion in Services Sector to the Sri Lankan GDP. Swarnamahal Financial Services PLC - Annual Report 2016/17 5 23% Revenue Growth The most significant is the growth in credit to private sector The Road Ahead which remained high at 21.9% by end 2016 and has fairly Having performed commendably well, amidst testing eased from the peak of 28.5% observed in July 2016 whilst circumstances in 2016/17, I am confident that SFS is now ready CCPI inflation increased to a six-month high of 5.5% on year- to capture the promise of the future. Financially we have set on-year basis amid the base year revision and NCPI inflation is ambitious goals, including the recapitalisation of the Company. accelerated to a two year high of 6.5% on year-on-year basis in This will result in enhanced brand equity of the Company. January 2017. Appreciations Rising to the Challenge I wish to express my sincerest appreciation to the Board of In the face of rising interest rates, as NIM’s continued to decline, Directors for the support and wise counsel extended to me we made sure it did not impinge on our profitability. A series of at all times. I take this opportunity to congratulate our CEO, tactical moves targeting predominant income sources ensured the Senior Management and the entire staff of SFS for their that all key income generators, made positive contributions exceptional fortitude in delivering success to our shareholders, to the bottom line. While Gold Loans being our core income notwithstanding tenuous market circumstances. I am inspired generator, leasing, hire purchase and term loan income also by your determination to work towards a common goal and continued to be noteworthy contributors to the equation. We thank you for your unquestionable loyalty. I rely on your were thus able to generate a profit after tax of Rs.58.7 Mn for the continued commitment in fulfilling the future aspirations of all Financial Year 2016/17 compared to the profit after tax of our stakeholders. Rs.16.1 Mn reported during the previous Financial Year 2015/16. We prudently focused on recoveries at this juncture, which not only ensured a consistently healthy liquidity position J.H. Edirisinghe throughout the year but helped to maintain the NPL ratio within Chairman accepted industry limits. 23rd June 2017 6 Swarnamahal Financial Services PLC - Annual Report 2016/17 CEO’s Message A combination of prudent financial management and tactical growth strategies which were implemented ensured the significant growth of the profitability during the financial year compared with the previous year. I am happy to announce that your company has recorded a Performance Review significant performance during the financial year 2016/17. During the year under review, your company continued to The year under review reported significant number of policy surge ahead with growth trajectory in revenue and profits.