Adam’s Peak… Sri Pada… Sivanolipatha Malai one mountain peak… a footprint at its crest.... intrigues Buddhists who believe the foot print to be that of Lord Buddha… intrigues Hindus who think the footprint may be that of Lord Shiva… intrigues Christians and Muslims alike, who surmise the foot print could be that of Adam as he first set foot on earth… and in being a focal point for the great religions that most Sri Lankans are adherents of... it intrigues us all... as a telling symbol of Unity in Diversity… to a Nation on the threshold of Resurgence and Rebuilding With a history dating back over 2500 years, Sri Lanka was truly the Pearl of the Indian Ocean. We were an important stop along the Silk Route… our spices drew traders from afar to our shores… after the traders, came the colonisers, the Portuguese, the Dutch and the British.

Our lush and verdant paddy lands gave way to tea, rubber and coffee… and to other infrastructural development such as roads and railways.

This is but a ‘thimbleful’ of the colourful history of the jewel shaped island, Sri Lanka, we call home.

As in all affairs of men, we embraced the good and the not so good! External influences brought diversity of races, religions, cultures, food and flora, to name a few. With such change came enrichment as well as enmity… the latter aspect brought into modern focus by an internecine terrorist conflict that had ravaged the country for almost 30 years.

And so, the one time ‘Pearl of the Indian Ocean’, ‘Taprobane’, ‘Serendip’ became a ‘Third World’, ‘developing’ and as some would have it, an ‘underdeveloped’ country. Is this truly the real picture? Let’s take stock.

Sri Lanka consists of 65,610 square kilometers of unparalleled beauty, bounty and diversity… yes even after all the ravages of history, recent and long past! From the relative aridity of the North, from whence came ample produce and enterprise, to the green and fertile paddy and tea gardens and the urban industrial hubs, there is a nascent prosperity that needs a helping hand to reach full flower.

‘Green’ Sri Lanka existed long before the world woke up to environmental issues… and by and large we enjoy a way of life that supports our eco systems.

From Point Pedro to Dondra, ours is a land richly grounded in faith and morals providing a rich religious base for the community.

Ours is a highly literate community and one must not lose sight of the fact that we are descendants of a proud land that gave the world some of history’s most stupendous achievements, particularly in irrigation, water management and construction. But time has paled the edge of accomplishment… and today, Sri Lanka stands in need of development to catalyse the resurgence of enterprise lying fallow and to rebuild previously war afflicted areas in the immediate aftermath of the war.

But we must realise… that through such development activity must flow true enrichment and safeguarding of national strengths and qualities.

It is within this context that one finds LOLC, a Company fully focused on extending the scope of its products and services into the vital areas of Resurgence and Rebuilding of Sri Lanka. We have an excellent pedigree in sustainable business; we espouse good governance practices of the highest standards and have built ourselves into a truly stable entity.

More importantly, we realise how vital these qualities are in the context of the renewal and development that must gather momentum.

This is an epic undertaking…. one in which YOU can Join us! Play an important role! Photo Catching by LOLC

The photographs in these pages, of Sri Lanka in all its diverse beauty, were captured not by a professional photographic unit… but by our own staff. They serve as a reminder of the vast potential that reposes in the country as seen through the eyes of LOLC.

It is plainly evident that our task of resurgence and rebuilding is in good hands… in the hands of people who love and cherish their country. Contents

Financial Highlights 07 I Chairperson’s Statement 08 I Deputy Chairman’s Review 12 I Group Managing Director’s Review 16 I Board of Directors 22 Corporate Management Team 26 I Operational Management Team 30 I Business Impact Report 32 I Business Synergies 44 Sustainability Review 46 I Human Resources 54 I Expanding Our Reach 58 I Enterprise Governance 60 Enterprise Risk Management Report 72 I Financial Review 78

Financial Report 87 I Audit Committee Report 88 I Remuneration Committee Report 89 I Nominations Committee Report 89 Corporate Governance Committee Report 90 I Annual Report of the Directors on the Affairs of the Company 91 I Directors’ Responsibility for Financial Reporting 97 Chief Executive Officer’s and Chief Financial Officer’s Responsibility Statement 98 I Independent Auditor’s Report 99 I Income Statements 100 I Balance Sheets 101 Statements of Changes in Equity 102 I Cash Flow Statements 103 I Notes to the Financial Statements 105 I Milestones 140 I Ten Year Summary 142 Summarised Quarterly Statistics 143 I Value Addition 144 I Group Companies 146 I Investor Information 149 I Economic and Financial Indicators 151 Glossary 152 I Notice of Meeting 155 I Form of Proxy Enclosed I Corporate Information Inner Back Cover ORIX Corporation was established in 1964 in added value to ORIX with its long track record of Osaka, Japan as Orient Leasing Company Ltd. successful business innovation and diversification. The ORIX by three trading companies and five banks, as a LOLC’s dynamic diversification strategy is based pioneer of leasing. Since its inception, ORIX has on the driving principle that ‘expansion into been on the leading edge of financial innovation new areas will increase our specialisation and and attributes its success to the ability to competitiveness, which will then create new value Connection respond rapidly to changes in the market place. for our customers. This strategy draws inspiration ORIX’s growth strategy has involved expansion from the ‘ORIX-way’ and enables it to sustain Group strategically and geographically, with a boldness synergy, professionalism, expertise, technology, and scope that puts the Company in a class by innovative products and services and a dynamic itself among major Japanese financial services corporate culture. firms. ORIX has a diverse range of revenue streams, from operating and financing leases, low- In addition to the parental guidance margin business focused on auto and equipment LOLC constantly receives from ORIX, it also leasing, insurance, corporate rehabilitation, loan benefits from the global ORIX network by way servicing, real-estate related and other specialised of knowledge transfer, technical expertise and finance, investments and retail banking and compliance standards through its regular reviews value-added services. The Company’s name was and participation in ORIX conferences. changed to ORIX Corporation in 1989 to reflect its increasingly international profile into financial While LOLC gained pioneering status as a leasing services other than leasing and is listed in the entity in Sri Lanka 29 years ago, the Group has now Tokyo and New York Stock Exchanges. morphed into a Total Financial Solutions Provider with an array of services beyond leasing such as Today, ORIX Corporation is the single largest insurance, factoring, savings and fixed deposits, leasing company in the world and the second pawning, micro finance, mortgage loans, islamic largest financial solutions provider in Japan finance, working capital and stock brokering. and has a global network of 231 consolidated The Group has also invested into other business subsidiaries and 100 affiliates throughout 27 streams in line with its long-term business goals. countries worldwide. It has 1,208 offices in Japan, with 298 locations throughout the United States, With the end of the terrorist conflict in the Northern Asia, Oceania, Europe, the Middle East and part of the country, LOLC look forward to playing a Northern Africa. prominent role in the country’s economy to rebuild the nation, having a business model developed The financial year completed was challenging to suit financial needs of the most deserving SME for ORIX, with the global business environment and the Micro sectors. LOLC is also focusing on changing dramatically affecting most international regional expansion opportunities with a view to businesses. The impact on ORIX’s dominant client facilitating cross-border knowledge and technology base in Small and Medium - sized Enterprises transfer, which will enable it to become a financial (SMEs) in Japan, required the Company to adopt a services leviathan. strict approach towards credit. While many global financial giants faced financial crisis, ORIX has LOLC will continue to follow in the footsteps of maintained a healthy level of profits and steered the ORIX while pursuing its management strategy to Group towards long term economic sustainability in contribute to the betterment of society and provide a turbulent environment. greater long-term benefits to its stakeholders by keeping abreast of market trends to continue to Lanka ORIX Leasing Company PLC (LOLC) being create new value. the third Joint Venture of ORIX with the International Finance Corporation (IFC), has relentlessly

01. Australia 14. New Zealand 02. China 15. Oman 03. China (Hong Kong) 16. Pakistan 04. Egypt 17. Philippines 05. England 18. Poland 06. France 19. Saudi Arabia 07. Germany 20. Singapore 08. India 21. South Korea 09. Indonesia 22. Sri Lanka 10. Ireland 23. Taiwan 11. Japan 24. Thailand 12. Kazakhstan 25. UAE 13. Malaysia 26. USA

6 | LOLC | Annual Report 2008/09 Financial Highlights

For the year ended 31 March 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Restated Company

PERFORMANCE INDICATORS (Rs. Mn)

Net Profit after Tax 118 181 213 256 418 562 664 987 1,059 504 New Executions 2,152 2,437 2,242 3,189 4,427 4,972 8,858 12,068 12,127 12,170

Gross Portfolio (Rentals Receivables) 5,432 6,018 6,052 6,757 8,082 9,144 12,858 19,851 25,056 25,185 Net Portfolio (Net Investment) 4,215 4,550 4,570 5,129 6,193 7,088 9,653 13,547 16,727 16,985 Outstanding Borrowings 3,939 3,915 3,751 4,113 5,396 6,025 9,824 16,250 22,273 24,850 Non-Performing Portfolio 378 556 715 815 883 865 113 137 443 538 Interest in Suspense 45 68 87 101 107 149 18 14 47 148 Provision 107 338 389 485 608 645 61 45 116 237

KEY INDICATORS (Rs. Per Share) Dividends per Share 2.25 3.00 3.25 3.25 1.95 2.32 3.00 1.50 2.25 2.80 Market Price per Share 22.50 21.50 51.00 73.50 60.00 85.00 101.00 107.50 150.00 69.25 Book Value per Share 29.84 28.00 30.81 35.31 38.81 48.57 59.98 77.74 100.21 107.35

(Times) Debt to Equity Ratio 2.78 2.97 2.56 2.45 2.93 2.61 3.45 4.40 4.68 4.87 Interest Cover 1.22 1.32 1.38 1.52 1.85 2.56 1.96 1.63 1.28 1.14 Dividend Cover 4.42 2.54 2.75 3.30 4.50 5.09 4.64 13.86 9.53 3.79

LOLC I Annual Report 2008/09 | 7 Chairperson’s LOLC employs an optimum balance Statement between collections and supportive credit that strives to deliver a win-win solution, safeguarding our own business interests whilst providing maximum leeway for the businesses of our customers to survive and grow

us the ideal business platform to cope with challenge and conduct our business affairs with great success.

Partnerships of Strength An unique aspect of LOLC’s operations and one which we honour and cherish, is the Dear Reader, strong relationship we enjoy with a substantial portfolio of global funding agencies. I have pleasure in presenting to you, the Annual Report and Audited Accounts of In addition to our main shareholder, ORIX LOLC for the financial year 2008/09. This has Corporation of Japan, many of the world’s been a year of great challenge during which top funding agencies not only channel the Group has performed commendably. valuable resources through LOLC to meet the country’s development requirements, To perform well in a climate of challenge but also play an invaluable role in helping us requires resilience and a business model streamline our own processes and systems. that responds well to the need for change, in the face of adversity. I believe that Such assistance flows from independent LOLC’s strategic realignment and planning transfer of expertise as well as through process instituted two years ago, has given compliance requirements of donor agencies that LOLC needs to comply with.

8 | LOLC | Annual Report 2008/09 VIBRANCE Blue Pansy -This uncommon and fast flying butterfly This has helped LOLC to strengthen its The Sri Lankan economy grew by 6% and is one of the 244 species found in the country corporate culture founded on transparency, although the country has thus far been good governance and sustainability. relatively unaffected by the global crisis largely due to Sri Lanka being insular and The Global and Domestic Economic less open to the global economy, the signs Environment are beginning to emerge, of hard times The collapse of the sub-prime mortgage ahead, particularly for the commodities markets in the US has triggered unprecedented market such as tea, rubber and garments. constraints on the performance of almost every global economy. This is a ‘crisis of confidence’. Some Implications for LOLC The global Banking and Financial Services The global economic crisis has had an sector has been affected by greed, over impact on LOLC due to the escalating cost leveraging, poor risk management, lack of of financing and delays in repayment, where integrity at the highest levels, failure to enforce businesses constrained by the crisis find it regulations and failure to respond with new difficult to keep to schedule in meeting their regulations to cope with new products and the obligations to LOLC. changing economic environment. In such a scenario, LOLC employs an Consequently, by the end of 2008, we were optimum balance between collections and faced with an imminent worldwide economic supportive credit that strives to deliver a recession. win-win solution - safeguarding our own business interests whilst providing maximum The Sri Lankan economy, which is heavily leeway for the businesses of our customers dependent on imports, had to contend with to survive and grow. high oil and commodity prices that prevailed in early 2008. Rapidly escalating prices, high The high interest rate regime is reflected in interest rates, high inflation and restrictions high borrowing costs. Therefore, with the on lending, all made 2008 a very difficult rate of inflation coming down, we believe that year for Sri Lankan businesses. interest rates will follow suit, thus enabling us to lend at reasonable rates and pass on the By year end 2008, although inflation rates benefits to our valued clientele. were dropping towards a single digit regime, interest rates remained high.

Chairperson’s Statement I LOLC I Annual Report 2008/09 | 9 Highlights of 2008/09 shareholders. The Group recorded PBT of Before I detail specific highlights, I believe Rs. 1,247 Mn, a growth of 5.4% over last it is important to emphasise that LOLC year. However, the Company profits saw concentrates on serving the SME and Micro a dip mainly seeing a shift in profits to its Finance sectors. A good 90% of our clientele subsidiaries. Most companies made positive are to be found within these categories. contributions to the bottom line of the Group and will continue to make a significant Apart from business potential, we see contribution in the coming years. that these are the categories that will The company declared an interim dividend require valuable input in the country’s of Rs. 2.80 per share. The EPS for the Group drive towards resurgence of enterprise was Rs. 22.18 The market capitalisation was and as peace returns to the Northern and Rs. 3.3 Bn and LOLC’s share price was Eastern Provinces, towards rebuilding of stable at Rs. 69.25 per share at the year end. communities and businesses. Two Key Events Distinguished Today, an analysis of contribution to GDP the Year for LOLC by Province reveals that the Western The first was our acquisition of Commercial Province contributes 50.8% whilst all other Leasing Company PLC (CLC). Being a Provinces together account for the balance profitable company, CLC with its strong 49.2%. This reveals quite clearly, the need leasing operation offered many areas of to focus on development, in areas outside of synergy to LOLC. Jointly, LOLC Group the Western Province. achieves an expanded outreach, a combined strength of formidable proportions Despite the turbulent environment in in the sphere of leasing products to market which the Company had to operate during and an added strength to the Group’s the financial year, carefully planned and portfolio and Balance Sheet. proactively executed strategies enabled The other event of note came through BLESSINGS OF CO-EXISTENCE the Group to deliver resilient profits to the Devalaya, Kirinda Temple - An ancient Hindu Kovil, alongside our decision to spin off our Micro Credit the historic Buddhist Temple signifies the religious harmony that goes back centuries business as a separate Company. LOLC Micro Credit Ltd. (LOMC) was constituted through a partnership with one of our funding agencies, The Netherlands Development Finance Company (FMO) which took a 20% stake in the new company, whilst also providing a credit line.

I believe this is the first Sri Lankan private sector Micro Credit Company incorporated with foreign partnership.

The business plan of the new Company envisages taking micro credit facilities to the provinces. Our goal is to develop rural entrepreneurship by combining credit lines with relevant training in areas such as Finance, Bookkeeping, Marketing and other

10 | Chairperson’s Statement I LOLC | Annual Report 2008/09 disciplines. Through such development, we positive performance of this year can also expect to fulfil the hopes and aspirations and be attributed to a loyal customer base as well as to the high standards of integrity and improve the quality of life of our clientele, CHARM UNFADED whilst meeting Company objectives. professionalism of our Board of Directors Frangipani flowers floating on water - Beauty and fragrance of these flowers remain for sometime and the Management Team. It has always been my belief that access to credit alone will not help our micro sector I am happy to state that one of our key clientele and their enterprises to survive and strengths is our young and professional team be viable in a sustainable manner. We must of employees, who are highly specialised in look beyond credit lines to the provision of their respective disciplines and extremely total financial solutions that are especially focused. This is exemplified in their flexibility tailored for the sector. and swift response to change, both of which are highly desirable attributes, given the LOLC Micro Credit Ltd. endeavours to current volatile business environment. achieve this and more, networking with other external agencies to provide its fullest LOLC ensures that a high level of skill and support where necessary. motivation prevails through its training and development structure as well as its reward Through our microfinancing activities we and recognition schemes. CELEBRATION OF LIFE also plan to empower women and help them Purple Coot - Engaged in courtship display, I am confident that the strategic direction emerge as entrepreneurs in their own right. at Nawadankulama Tank, one of the 439 species of of LOLC as a total financial solutions birds found in the country This is an aspect we know is very close to provider, will facilitate our contribution to the the hearts of our donor agencies, not only in resurgence and rebuilding of the Nation. terms of gender issues, but in the way women bring intrinsic qualities to business - frugality, On a personal note, mine has been a journey meeting commitments - among others. of 50 years through the banking and financial sector. Through these years, there have been We are honoured to report that LOLC was many challenges to be met and surmounted; affirmed its rating this year at A(lka) by there have been good and bad times. I am Fitch Ratings, whilst our finance company, happy that the present finds me with the Lanka ORIX Finance Company Ltd. (LOFIN) LOLC Group, where I feel my skills and received an upgrade from BBB+(lka) to expertise are a source of strength and are put A - (lka). This is a significant achievement to good use in service to our stakeholders. in the context of the domestic and global environments that prevailed during the year In conclusion, I would like to thank all under review. employees, the Corporate Management and the Board of Directors of the Group for another I would also like to note the recent year of yeoman endeavour, support and developments and turmoil that have beset guidance, which has yielded good results. the informal finance markets of the country in recent times, which have resulted not only The years ahead are full of promise and in the erosion of investor confidence but in I believe that we have what is necessary many personal concerns and difficulties. to progress from promise to fulfilment.

In this context, LOLC has maintained a responsible and stable profile, due to its continuous emphasis on good governance, Rohini Nanayakkara transparency and a sustainable business Chairperson model. Under the circumstances, the 29 May 2009

Chairperson’s Statement I LOLC I Annual Report 2008/09 | 11 Deputy At the dawn of the long awaited peace, Chairman’s enterprise must start Review up and communities must aspire to a sustainable prosperity. Steeped as we are in the SME sector, we at LOLC began to see an evolution of our operations towards fulfilling yet another National need - uplifting the much needed Microfinancing sector

are ready and focused to drive this initiative of resurgence and rebuilding.

Renewed purpose LOLC’s involvement in economic At the backdrop of the global economic development has a long story. Twenty- crisis of the past two years and our own nine years ago the country embarked on debilitating civil war for the past 27 years, an ambitious programme of accelerating there is no better time than now for a infrastructure development planned for resurgence of the nation and her peoples. 30 years to a 5 - year period. The financial With the recent conclusion of the civil war, services sector of the day did not provide we are honoured and proud to be one nation viable asset financing and management once again! And with new life renewed options which were prerequisites for energy, we will endeavour, persevere to accelerated development. In order to bridge make up for the lost time and embark on this gap, LOLC was launched on a solid that momentous, meaningful growth that this foundation provided by the IFC, which is country deserves. Once again, we at LOLC the private sector arm of the World Bank,

12 | LOLC | Annual Report 2008/09 ENERGIZING DAWN Bandarawela - All forms of life living in these cold areas ORIX Corporation of Japan together with immediate needs to other areas of the value depend on the warmth and the light of the Sun. the Government of Sri Lanka and pioneered chain. As a result, LOLC has strategically Have we truly harnessed its constant energy? Leasing in Sri Lanka. diversified into group of business entities that offer a varied portfolio of solutions such With the incorporation of LOLC and as factoring, insurance, stock brokering, introduction of leasing, new worlds of working capital, savings and deposits, SME opportunity opened up for the SME sector... and microfinancing, fleet management, they were able to access that essential information technology, Islamic financing, capital which had previously been restricted foreign currency deposits, covering the to a segment with acceptable collateral and entire value chain. This related diversification realise the dreams of their entrepreneurial was also supported with our sustainable spirit. And from this stems our mission, business model, proactive reinforcement assist those driven by the spirit of enterprise of our internal processes and corporate to reach greater heights, through our governance, the solid partnerships we enjoy innovative, personalised and wide-ranging with our funding partners and regulators, financial solutions. and our ability to keep sustainable business processes operating for our prime customer In effect, we added a new segment, a new segments without compromise even in the base to the national economy. face of current trends.

Leasing has not only revolutionised the SME Today, with more than 8 subsidiaries and sector but also the financial sector of the many associate companies, coupled with country. Today there are over 100 institutions a reach and a brand that goes to every engaged in leasing in one form or another household and a loyal customer base, and LOLC remains the market leader. LOLC is in a stronger position to fulfil both timely roles that the nation is longing for- But our story is different. As pioneers, we Resurgence and Rebuilding ! identified the needs, the potential and the opportunities of the market. Having gained in Strategy in Action depth insight into the businesses, lifestyles, At the dawn of the long awaited peace, needs and aspirations of our clientele, we enterprise must start up and communities were able to look beyond and link them with must aspire to a sustainable prosperity. more expansive solutions that go beyond Steeped as we are in the SME sector,

Deputy Chairman’s Review I LOLC I Annual Report 2008/09 | 13 we at LOLC began to see an evolution of credit - together with our external partners our operations towards fulfilling yet another with whom we share this developmental

A GLORIOUS BEGINNING national need - uplifting the much needed goal, LOLC offers technical know-how, help Warakapola - Sunrise is as magnificent as can be in the Microfinancing sector. According to the in finding market linkages, conduct training very early hours of the morning. study done by GTZ, a leading technical and community development programmes assistance provider for Microfinancing and above all, have become an important in Germany & the Ministry of Finance & platform to uplift their quality of living. Planning Sri Lanka, in 2008, it is estimated that 50% of Sri Lankan households totalling Our unprecedented growth in microfinancing to 4.5 Mn do not have access to credit and was also reinforced by the fact that we this unmet demand for micro finance in acquired a substantial stake in PRASAC, Sri Lanka is estimated at Rs. 125 Bn. Cambodia. PRASAC is one of the leading Micro Finance institutions in Asia, and LOLC Back in 2003, LOLC ventured into the Micro has benefited immensely from their expertise Finance sector through RERED (Renewable and of the other bi-lateral agencies all Energy for Rural Economic Development) a engaged in Microfinancing. solar power financing project initiated by the WATCHFUL World Bank to promote rural electrification At the time of renaissance in the Yala National Park - These Whistling Teal like many birds look for a safe place such as this dead tree in the water to and we became the largest private sector country, we made another vital initiative avoid the ground dwelling predators at night. financier of solar panels in the country. in Microfinancing. Together with The Today we have Sundaya Lanka (Pvt) Ltd. Netherlands Development Finance (SLPL) one of the largest solar assembling Company FMO, we converted our rapidly companies in Sri Lanka under our wing. growing Microfinancing business unit Through SLPL system we have a continued into a standalone business entity - LOLC vendor presence to ensure consistent Micro Credit Ltd. This is the first and the service in the deployed areas. only regulated Micro Finance Company with foreign equity in the country. It’s yet Serving closely to this grass root level another addition to our track record of customer over the past seven years made ‘firsts’. With this solid partnership, our focus us realise the absence of access to capital, in microfinancing will extend well beyond the lack of required knowledge and technical the core, in to the periphery, to create and know-how as well as the infrastructure for address the entire value chain. This is this segment. LOLC’s experience in the SME illustrated in detail in the sustainability review sector coupled with the in house expertise in pages 46 and 53. enabled us to foresee not only the great need of the hour but also the unlimited potential of Going further on the Company’s business this untapped market across the country in model on sustainable development, LOLC’s particular in the North and East areas. investment in Touchwood Investments Ltd. (TIL) has been promising. TIL has We realised that the only way we can make established more than 20 greenfield sites a meaningful contribution towards the across Sri Lanka and LOLC’s involvement sustainable development and progress of a is aimed at catalysing an expansion of size micro client is by offering a comprehensive and scope of the project whilst stimulating products and services range that covers this large scale reforestation activity. Through entire value chain. Thus, we do not just offer this initiative we are safeguarding and

14 | Deputy Chairman’s Review I LOLC | Annual Report 2008/09 replenishing rain forests. The project, whilst trust LOLC as a perfect conduit for the generating considerable commercial benefit successful implementation of their resource is also a major earner of carbon credits. programmes. Our processes have been Thus in Touchwood we have a two pronged perfected throughout to report to these strategy - long-term reforestation and agencies on the impact they have created. propagation of valuable timber resources as Therefore it comes as no surprise, while it well as short-term intermediate cash crops. is always an honour for us to realise that we are the first non-banking financial institution Another ongoing project of note is the to be recognised by these funding entities, revitalisation of the Gal Oya Plantations, to be included in their developmental and formerly known as Hingurana Sugar commercial road maps. Industries. This is a successful Public/Private sector initiative where the Government has I am truly excited by the times that lie ahead a shareholding of 51%, whilst LOLC and of LOLC. Resurgence and Rebuilding that Brown & Company hold the balance 49% must spread through our country, now lies in along with the management rights. This was our path. a project that had been neglected for over a decade before it was resuscitated. This is There is room for and a role for everyone… yet another facet of our sustainable business all of us at LOLC, our funding partners, model as in the process of sugar production, regulators, customers… all stakeholders. alternative energy sources such as ethanol and e-diesel can be produced. This will also Lets journey together! facilitate our micro initiatives of the ‘farmer out-grower system’.

Funding Partners and LOLC… A mutually Ishara Nanayakkara honoured trust Deputy Chairman BEAUTY AND PURPOSE We count it a great honour that LOLC has 29 May 2009 Mahakanadarawe Tank - In all Sri Lankan villages both life and been able to establish and maintain an livelihood revolves around the Sun and water from a nearby Tank. excellent track record with a most illustrious portfolio of funding partners, over many years.

A listing of these entities appears on pages 42 and 43 of this report.

Fundamentally, funding agencies have two main goals for channelling resources- commercial progress and developmental progress of recipients.

LOLC has an exemplary record in the effective deployment of these funds and delivering desired results. Over the years, they have come to know and

Deputy Chairman’s Review I LOLC I Annual Report 2008/09 | 15 Group We have continued to grow true to the Managing spirit of the business model in acquiring Director’s and diversifying our Review portfolio and reach when necessary, we have worked closely with all stakeholders in achieving developmental and commercial goals, and that’s not all. We have been recognised by the regulators and rating agencies which we consider a great honour

goals, and that’s not all. We have been recognised by the regulators and rating Highlights agencies which we consider a great honour. Looking back at the year under review, we have performed well in these exceptional Lanka ORIX Finance Company Ltd. (LOFIN) circumstances in the market, we have fine was upgraded to A- from BBB+, by Fitch tuned our internal processes to optimise Ratings and this was the only upgrade of resources and efficiencies, we have an institution of this magnitude among the continued to grow true to the spirit of the non-bank financial institutions in the year business model in acquiring and diversifying under review. our portfolio and reach when necessary, we have worked closely with all stakeholders in The consistency and strength of LOLC’s achieving developmental and commercial performance, the good governance

16 | LOLC | Annual Report 2008/09 BLESSED Dalada Maligawa, Kandy - The Temple of the Tooth Relic processes and the credibility have always this move, this merger has inarguably overlooking the lake enshrines the sacred tooth relic of Lord Buddha. The rulers of the land, then and now, been recognised by the regulators and strengthened the Group’s Balance Sheet. It has sought its blessings and protection was reaffirmed when the Central Bank of also created new opportunities by reaching a Sri Lanka in a landmark decision granted diversified customer base accessed through approval for LOFIN to engage in foreign varied distribution channels. currency business. We are the only non-bank financial institution in Sri Lanka to Always aspiring for opportunities to thrive in enjoy this privilege of opening NRFC and our core business lines, LOLC converted its RFC accounts for clients. This is a significant steadfast microfinancing arm to a stand- achievement in light of the recent adverse alone business entity together with The developments in the financial sector. Netherlands Development Finance Company (FMO) and we are proud to state that this is In further recognition of our stability and the first micro finance company in Sri Lanka financial strength, the Central Bank also with foreign equity. granted approval for LOLC to enter into SWAP agreements effectively reducing the The current perception of LOLC links us with borrowing costs of the Group and allowing microfinancing and the SME and Agricultural the Company to compete in the banking sectors. It is a compelling association of sector, for funding. thought that is totally evocative of the manner in which our business has developed over In line with our acquisition strategy, we have the years - from a basic leasing operation, to invested in Commercial Leasing Company becoming a total financial solutions provider PLC (CLC), one of the largest leasing in the most important sectors of endeavour institutions in the country. This has been one in this country - the SMEs and the Micro of the biggest transactions to take place on Finance seekers. the Colombo Stock Exchange during the year and has made LOLC the market leader in It is this evolution in business that places both leasing and factoring. Notwithstanding our theme in context - the Resurgence and the obvious synergies that emerged from Rebuilding of a Nation.

Group Managing Director’s Review I LOLC I Annual Report 2008/09 | 17 Within the prevailing environment, we have seen that many institutions in our line of business are struggling with collections - striving to achieve a balance between timely recoveries whilst being supportive of their clients. In this respect, LOLC is on a better footing than most. We have LEADERSHIP Elephants, Udawalawe - This family of elephants though proactively revamped our collection and concealed in the grass, were able to find their way towards Strategic initiatives a small water hole guided by their matriarch recovery initiatives, minimising the impact to From the commencement of the financial our customers from the recurrent negative year 2008/09, LOLC recognised that the economic conditions. local and global economies were going to face a rough year. Long before the global Another key initiative we took in coping with economic crisis made its impact, LOLC had this era of challenge was to parallel our effected strategic change and repositioned other initiatives with an inward look at better its business model to meet future challenge. cost management. Everyone at LOLC took That this was a timely measure is clearly genuine efforts to minimise waste, recycle evident in the resilience and flexibility with and other initiatives to curtail expenses which the Group has responded in the year which made a significant difference to the under review. I believe this to be a unique cost base in a very short time span. From a strength of LOLC. 30% reduction in mobile telephony costs and a 10% reduction in electricity consumption, From a strategic perspective, we reaffirmed to so many more achievements of this kind, our long-term focus to become a total we have been making progress over the year financial solutions provider with short-term in reducing costs and achieving a healthier strategies and implemented a Quarterly balance between costs and revenue. Roadmap, which has been invaluable, particularly in addressing the increasingly Although there were internal cost turbulent and volatile economic scenario management measures, LOLC’s spirit unfolding at present. of enterprise and ‘service first’ mindset remained strong. In keeping with our With weekly Management reviews to closely strategy of enhancing reach for our follow up its progress, we made conscious customers, we formed a strategic tie-up with decisions to streamline business processes Sri Lanka post where LOLC has a presence and enhance operations. in many Post Offices around the country. This is a particularly useful initiative, given One such endeavour has been on stringent that the markets we are targeting are often credit measures alongside focus on the situated in the peripheries of the country. collections and recoveries regime.

18 | Group Managing Director’s Review | LOLC | Annual Report 2008/09 In this manner, the Group increased its with the increasing borrowing cost in the presence around the country with the opening local market we focussed heavily on liquidity of 5 new LOLC centres within the LIOC fuel management. In the year under review, we station network, 15 centres within Post Offices engaged in many successful dialogues and 2 fully fledged branches in Horana and for attractive fund procurement with our Wellawatta and a mini branch in Ampara. external funding agencies on account of our longstanding relationship and integrity we In the area of fleet management, we earned throughout. Thus, LOLC possesses streamlined processes and introduced a very strong funding pipeline into the future, several new enhancements such as the which is amazing when one considers the integration of all vehicle yards into one magnitude of the global economic crisis, which location, and a new loyalty card programme has made funding very difficult to source. to reward our loyal customers with many benefits such as breakdown assistance, During the year, LOLC was successful in rent-a-car facilities and more. We are also mobilising international funding of Rs. 3.8 Bn completing the construction of a state-of-the and US $ 30 Mn, from multilateral agencies, PRECISION EXTENDED art work shop, a much needed addition to which in these times of hardship, is a Gardens of King Kashyapa Sigiriya - Lush green in an arid zone, a result of the hydro engineering expertise thousands of years ago service our fleet management clients more commendable achievement. efficiently and effectively. The Year 2008/09 and LOLC Capitalising on the opportunities that Whilst gearing for the year, we also worked lie in diversification and enhancing our towards maintaining that consistency of portfolio towards becoming a total financial performance which our stakeholders deserve solutions provider, we transformed our and which we have steadfastly striven to deliver, year after year. If one looks at LOLC’s Islamic finance division into a fully fledged, performance over the past 10 years, it is clear Shar’iah approved Islamic business unit that LOLC has recorded superior performance under our Finance Company. It is the first with consistent growth throughout. finance company to receive Central Bank approval to launch an Islamic finance unit. During the early part of the year, the We offer a full range of Islamic financing SAFEGUARD Company continued on its strategy of top line Kirinda Beach - An enclave on the kirinda beach products and are now ours is one of the growth and during the latter part of the year, protected from the turbulent waves largest Islamic financial service providers in consolidated the position achieved during the country. For further convenience of our the last few years. Stringent credit evaluation customers, the Group also launched its own criteria coupled with the renewed focus on ATM programme linked with the Commercial collections and recoveries saw the Company Bank of Ceylon’s ATM network, with over 300 managing the NPLs effectively maintaining same at healthy levels compared with the outlets across the country. industry and other financial institutions.

Realising that markets were becoming The total executions for the year was increasingly volatile and that funding would Rs. 12.2 Bn maintained at the same level as also be more difficult to source, especially the previous year.

Group Managing Director’s Review I LOLC I Annual Report 2008/09 | 19 The working capital business completed the The total interest costs of the Group grew year with funds in use of Rs. 3 Bn, a marginal from Rs. 3.4 Bn to Rs. 6.4 Bn, an 89% growth

EAGLE EYE VIEW increase over last year. over last year. Knuckles range - A natural pool in the rocky mountains, carved out by the water fall The deposit base of the finance company, Provisions on account of bad and doubtful saw significant growth, which is considered debt too saw an increase over the year, but remarkable given the turbulent times during far less than that of the industry in the current the year, recording a growth from Rs. 3.3 Bn environment. The total provisions for the to Rs. 5.3 Bn, a 59% increase compared with Group was Rs. 370 Mn. the previous year. The profit before tax recorded by the Group was Rs. 1,247 Mn, an increase of 5.4% over last year.

CONTEMPLATION Pelican, Kandy Lake - Enjoying the beauty of the sun’s ripples on the water and its warmth

We made significant inroads with the Sri Lankan diaspora abroad in its first year of operations in foreign currency business,

achieving a deposit base of US$ 1.5 Mn by A major contribution to the profits came from the year end. the newly acquired CLC, giving the group immediate returns on the investment made. The insurance business grew along with The rest of the businesses too made positive the lending operations of the group and contribution to the bottom line of the Group. achieved the milestone of collecting

Rs. 1 Bn as Gross Written Premium with a In terms of Human Resources, LOLC has resultant commission income contribution proven its status as a desired employer. We to the Group of Rs. 144 Mn. have been constantly growing our employee retention ratio - it stands at 86% for the year The significant increase in interest costs, had under review, up from 83% the previous year a negative impact on the profit before tax. and 78% in 2006.

20 | Group Managing Director’s Review | LOLC | Annual Report 2008/09 Looking Ahead I am confident that we can discharge this Our focus is on resurgence and rebuilding role with benefit to all. It is a journey in which and our strategy to give effect to this focus is all stakeholders have partnership - our through addressing the needs of SMEs and funding agencies, regulators, customers, Micro Finance seekers all over the country depositors, and all of us at LOLC. and when enterprise returns, to the North and East of the country. There is a role for us all, in the years ahead.

It is our ultimate goal to improve access to financial solutions for people in these sectors. As war recedes and peace and enterprise gradually begin to return to the Kapila Jayawardena Northern and Eastern Provinces, we see vast Group Managing Director/ Chief Executive Officer potential for what we have to offer in terms of products and services. 29 May 2009

These are the areas of focus that we have begun to plan for. These and other areas of relative impoverishment and lack of opportunity will form the basis of our drive to boost the resurgence and rebuilding that must happen, to return Sri Lanka to stability and prosperity.

The future will also see a continued emphasis on the strengthening of LOLC’s REACHING FOR THE SUN Tortoise, Kandy Lake - A common sight during the day infrastructure, our access to funding and our constant pursuit of sustainability of our business through exemplary governance and implementation of best practice across all disciplines, among other factors.

I truly believe that there is a role of great significance reserved for LOLC, in the progress of Sri Lanka in the years ahead. Our track record so far has been remarkable with direction and guidance from the Board led by Mrs. Rohini Nanayakkara who completed 50 years of service in the banking and financial sector.

Group Managing Director’s Review I LOLC I Annual Report 2008/09 | 21 Land Exchange and Taprobane Fund Management Board of Ltd., focusing on primary markets. Mr. Nanayakkara is a Director of Associated Battery Manufacturers (Cey) Ltd and Browns Group of Directors Companies, a conglomerate with exposure in trade, leisure and manufacturing. With the exposure in the SME sector and going further into the Micro sector, he is a Director of the companies he spearheads - LOLC Micro Credit Ltd. and Sundaya Lanka (Pvt) Ltd., and PRASAC, the largest micro finance Company in Cambodia. Mrs. R.L. Nanayakkara Focusing on sustainable forestry and plantations, Rohini Nanayakkara obtained her BA Second Class Mr. Nanayakkara is also the Deputy Chairman of Honours Degree from the University of Peradeniya, Touchwood Investments Ltd. He is a Director of Sri Lanka and a Diploma in French from the Maturata and Pussallawa Plantations and the Sugar Chamber of Commerce, Brussels. She is a Fellow manufacturing Company - Gal Oya Plantations, which of the Institute of Management and the Institute is a Public - Private Partnership with the Government Manager of the Bank of Ceylon, CEO of the Private of Sri Lanka. Sector Infrastructure Development Fund, a World Bank funded project, Director/CEO of Seylan Bank and Chairman/Director of several other financial institutions and business organisations. In January 2005, H.E. the President of Sri Lanka appointed her as a Member of the Task Force to Rebuild the Nation (TAFREN).

Mr. W.D.K. Jayawardena Kapila Jayawardena holds an MBA in Financial Management from the American University of Asia. He is also a Fellow Member of the Institute of Bankers and an Associate of the Institute of Cost and Executive Accountants, London. He served as the Country Head and CEO (Sri Lanka and Mr. I.C. Nanayakkara Maldives) of Citibank N.A. from 1999 to 2007. Mr. Nanayakkara is instrumental in all investment He has varied experience in the fields of Banking strategies adopted by the LOLC Group, leading the Operations, Audit, Relationship Management, group towards diversification and risk mitigation. Corporate Finance, Corporate Banking and He holds a Diploma in Business Accounting from Treasury Management with Citibank of which Australia and started his career as the Managing 8 years were as CEO. Director of the Ishara Traders Group. Mr. Nanayakkara Mr. Jayawardena was appointed as the Chairman also worked in Japan for two years with the largest the Sri Lanka Banks’ Association (SLBA) in exporter of reconditioned motor vehicles - Yamagin 2003/04. He has also served as the President of Corporation. He serves as the Deputy Chairman the American Chamber of Commerce in Sri Lanka of the Board of LOLC and all its subsidiaries and and was appointed to the Financial Sector Reforms associate companies, including Commercial Leasing Committee (FSRC) by the Prime Minister and is a Company PLC. He is also a Director of Colombo

22 | LOLC | Annual Report 2008/09 A BIRD’S EYE VIEW Nuwara Eliya -The cold mountains of ‘Little England’ Member of the Finance Sector and Capital Markets Cluster of the National Council of Economic Development (NCED). He joined LOLC in the year 2007 as Group Managing Director and CEO. He is also on the Boards of Lanka ORIX Factors Ltd., Lanka ORIX Insurance Brokers Ltd., Lanka ORIX Finance Company Ltd., LOLC Micro Credit Ltd., Lanka ORIX Information Technology Ltd. and LOIB Financial Services Ltd. which are subsidiaries of the LOLC Group. Mr. Jayawardena is also a Director of Touchwood Mr. R.M. Nanayakkara Investments Ltd., Sundaya Lanka (Pvt) Ltd. and People’s Merchant Bank. Rajah Nanayakkara is the founder and Executive Chairman of Ishara Traders (Pvt) Ltd., a business which pioneered the import and sale of new and reconditioned motor vehicles. Thirty years later, this organisation remains an industry leader. He was also the founder Chairman of the Motor Vehicle Importers’ Association of Sri Lanka and continues to play a significant role. Mr. Nanayakkara is also the Chairman of Ishara Plantations - an award winning Estate of Tea and Spices and Chairman of Ishara Property Development, a company which has been involved in construction for the past 18 years. Mrs. K.U. Amarasinghe Kalsha Amarasinghe holds an Honours Degree in Economics. She serves on the Boards of all the LOLC Group Companies, on the Boards of Ishara Traders (Pvt) Ltd. and its Group Companies and also on the Board of Touchwood Investments Ltd.

Board of Directors I LOLC I Annual Report 2008/09 | 23 Mr. R.A. Fernando Mr. M.T.L. Fernando Ravi Fernando holds an MBA from the University Lal Fernando is a Fellow of the Institute of of Colombo and is a Fellow of the Chartered Chartered Accountants, England & Wales and Sri Institute of Marketing (UK). He holds a Diploma in Lanka. He was the Precedent Partner of Ernst & International Management (1999) and completed Young, Sri Lanka for over 30 years. the Advanced Management Programme (2001) at He has served on the Board of The Colombo Stock the INSEAD Business School in France. He is an Exchange and was a Member of the Council of the Alumni of the University of Cambridge University Institute of Chartered Accountants of Sri Lanka, Past PANORAMIC VISION View of the hills from Nuwara Eliya -The diversity Programme for Industry having done the Climate Chairman - Taxation Committee and a Committee of terrain just three hours from the shores Leadership Programme in 2007. Member of the Ceylon Chamber of Commerce. Ravi started his career at Unilever (Sri Lanka) as a Management Trainee (Marketing) and left as Senior Brand Manager (DT Foods) in 1987. He commenced his International Career with Sterling Winthrop as Regional Marketing Director, East Africa moved to General Manager Gulf Region and Regional Marketing Director, Middle East to Chief Resident Representative/Operations Director of Smithkline Beecham International, Vietnam during the period of 1988 to 1999. Between 2000-02, he was Managing Director/CEO of Reckitt Benckiser (Lanka) Ltd., and is currently Director, Corporate Branding & Strategic CSR at MAS Holdings Ltd., Deshamanya M.D.D. Pieris and on the Board of MAS Fabric Park. He is Deshamanya Dharmasiri Pieris is a Fellow of the BEAUTY IN DIVERSITY the United Nations Global Compact Focal point Chartered Management Institute, U.K. and has Kudawella beach - Indigo sea against charcoal rocks, for Sri Lanka and on its Barcelona Centre and bordered by verdant shores been conferred the Degree of Doctor of Letters Asian Faculty on ‘Progress and Values’. He is on (Honoris Causa) by the University of Colombo. the Boards of LOLC, World Vision, Habitat for Humanity, Environmental Foundation of Lanka He is an illustrious retired Civil Servant, who in the and the Duncan White Sports Foundation. He is a course of his distinguished career in the public Guest Lecturer on Strategic CSR at the Advanced service has held several important posts, including Management Programmes at INSEAD (France) Secretary to the Prime Minister; Secretary, Ministry since 2005 and leads the course Advanced Brand of Public Administration, Provincial Councils and Management at the University of Colombo MBA Home Affairs; Secretary, Ministry of Agriculture, programme. He functions as Marketing Advisor to Food and Co-operatives; Secretary, Ministry of the Hayleys Group affiliate Mabroc/Kelani Valley Education and Higher Education and Chairman Plantations. In September 2007, he won a ‘Global and Director General of Broadcasting. Strategy Leadership Award’ at the World Strategy He also serves as Director in Lanka ORIX Factors Summit for his work on Ethical Branding for the Sri Ltd., Lanka ORIX Insurance Brokers Ltd., Lanka ORIX Lankan Apparel and Tea Sectors.

24 | Board of Directors | LOLC | Annual Report 2008/09 Finance Company Ltd., Lanka ORIX Information Technology Ltd., and LOIB Financial Services Ltd. which are subsidiaries of the LOLC Group.

A GOOD BEGINNING Morning, Dickwella beach - A fisherman pulling ashore his boat after a long night at sea

Mr. T.H.M. Wickramasinghe Tushan Wickramasinghe has over 16 years of extensive experience in a wide range of financial services. He has over 11 years experience in the area of education and is the Founder Chairman of Shakthi Institute (Pvt) Ltd., a leader in the field of Education. Mr. Makoto Inoue He currently serves as the Managing Director of Makoto Inoue joined ORIX Corporation in1975. Since Lanka ORIX Securities (Pvt) Ltd. then, he has served in ORIX Group of Companies in Japan. He has now been appointed the Corporate Senior Vice-President of Global Business and Alternative Investment Headquarters.

Mr. Hideo Ichida Hideo Ichida joined ORIX Corporation in 1982. Since then, he has served in ORIX Group of Companies in Japan and the United States of America. This year, he Miss C. S. Emmanuel was appointed Executive Vice-President of the ORIX Chrishanthi Emmanuel is a Fellow of the Institute of Corporation. Chartered Secretaries and Administrators - UK. She is the Company Secretary of all companies within the LOLC Group, including Touchwood Investments Ltd. and Sundaya Lanka (Pvt) Ltd. She is also Secretary of the Leasing Association of Sri Lanka.

Board of Directors I LOLC I Annual Report 2008/09 | 25 Corporate Management Team

Brindley de Zylva Conrad Dias Managing Director/Chief Executive Officer Managing Director/Chief Executive Officer Lanka ORIX Finance Co. Ltd. Lanka ORIX Information Technology Ltd. Joined LOLC in 2003. Counts over 25 years of Chief Information Officer - LOLC Group experience in both Registered Finance Companies Joined the LOLC Group in 2006. Counts over and Finance Leasing Establishments. Member of 18 years of experience in both Finance and the Council of Management of the Finance Houses IT Management in Trading, Banking & Finance and Association since 2005. Manufacturing sectors.

AN EARLY START Seaside dawn at Tangalle beach - Fishermen drawing in a net cast in the shallow waters of the bay Gunendra Jayasena General Manager - LOLC Ventures Joined LOLC in 2007. Counts over 16 years of experience in Manufacturing, Human Resource Management, General Trading & Plantation Management.

26 | LOLC | Annual Report 2008/09 Held a number of important positions in the State including the Office of State Counsel attached to the Attorney General’s Department, the Office of Director, Legal of the Securities and Exchange OCEAN OF OPPORTUNITY Tangalle Beach - Southern dawn brings a bountiful harvest Commission and the Insurance Board of Sri Lanka and was involved in setting up the Consumer Affairs Authority as its first Director General.

Jayantha Kelegama Chief Credit Officer Joined LOLC in 2005. Has over 15 years experience in Leasing & Asset Financing, Credit Risk Management and commercial Banking. Director of the Leasing Association of Sri Lanka.

GLOWING FINALE Sanjiv Keerthiratne Polhena beach - A sunset of calm warmth Chief Executive Officer Lanka ORIX Insurance Brokers Ltd. Joined LOLC in 1999 and played a key role in setting up Lanka ORIX Insurance Brokers Ltd. Counts over 21 years of experience in the Insurance Industry. Council Member of the Sri Lanka Insurance Brokers Association and the Sri Lanka Insurance Institute.

Anura L. Dharmaprema Corporate Executive Officer - Recoveries Joined LOLC in 1998. He has over 20 years of experience in recoveries in the Financial Services Industry. Was previously Senior Collections Manager of a leading Finance Company.

Sunjeevani Kotakadeniya Chief Financial Officer - LOLC Group Joined in 2005. Counts over 21 years of experience in Financial Management in Insurance, Asset Management and Financial Services. Many years of experience in Strategic and Business Planning, Treasury Management, Project Management, IT, Kithsiri Gunawardene Administration and ERP Solutions Implementation. Chief Operating Officer & Chief Legal Officer Joined LOLC in 2004. Counts over 19 years of experience with the State as well as the Private Bar.

Corporate Management Team I LOLC I Annual Report 2008/09 | 27 Jacqueline Lord Ravi Tissera Chief HR Officer - LOLC Group Director/Chief Executive Officer LOLC Micro Credit Ltd. Joined in 2006. Counts over 18 years of experience in Human Resource Management and Joined LOLC in 1993 and has experience in Development, including HR Strategy, Restructuring Branch Management, Strategic Partnerships, Automation of HR Processes, etc. Gained exposure Commercial Banking and Credit Policy Formulation. in Intrastructure Management Encompassing Conceptualised and introduced Micro Finance to Building and Office Services. LOLC in 2003. Member of the Steering Committee HIGH WIRE on Promotion of the Micro Finance Sector PROMIS. The tappers, Galle - Traditional craft of tapping the coconut palm for its sap which has a multitude of uses

Rohan Perera Sharmini Wickremasekera Group Treasurer Chief Risk Officer Joined LOLC in 2007. Counts over 21 years Counts 25 years of experience covering Finance, of experience in Treasury Management, Banking Accounting, Credit, Auditing, Risk Management REJUVENATING & Corporate sector, including Strategic Risk Kukule Ganga Falls - One of many spectacular water falls and Business Process Re-engineering. Introduced Management & Cash Management. Pioneer in in the wet zone of the country the concept of Enterprise Risk Management introducing the concept of Corporate Treasury in (ERM), Insurance Broking and IT Auditing to LOLC. Sri Lanka. President of the Association of Corporate President of the ISACA (USA) - Sri Lanka Chapter, Treasurers in Sri Lanka and involved in setting up of and she is the first female to head a professional IT the Association as its first President. Association in Sri Lanka. She also sits on the Boards of SLCERT and Infotel and was appointed to the SPTAC on ICT Industry Sector by the TVE Commission.

28 | Corporate Management Team | LOLC | Annual Report 2008/09 A BRILLIANT DISPLAY Painted Stork - Of the 5 species of storks in the country, these photographed at Bundala National Park is the most colourful

Nimal Mendis Chief Executive Officer Lanka ORIX Project Development Ltd. Director Agrisel Holdings Ltd. Joined LOLC in 2005. Possess 39 years experience in General Management, Engineering, Project - Contracts - Construction & Maintenance Management. 23 years at overseas locations and balance in Sri Lanka. A professional Civil, Building Tushan Wickramasinghe & Building Services Engineer. Managing Director Lanka ORIX Securities (Pvt) Ltd. Joined the LOLC Group in 2002. Chairman of Shakthi Institute (Pvt) Ltd. and Director of several other companies. Counts 18 years of experience in Financial Services. Accounts for many strategic transactions in the Colombo Stock Exchange.

Krishan Thilakaratne Chief Executive Officer Auto Finance Deputy Chief Executive Officer Commercial Leasing Company PLC Joined LOLC in 1995. He counts over 17 years experience in Banking, Credit, Leasing and Branch Management. Conceptualised and Dr. H.S.D. Soysa introduced Islamic Finance to LOLC. General Manager/CEO Commercial Leasing Company PLC He joined the Commercial Leasing Company PLC in 2002. Counts over 25 years experience in the financial sector. He is a committee member of Ceylon Chamber of Commerce and is the former Chairman of the Leasing Association of Sri Lanka.

Corporate Management Team I LOLC I Annual Report 2008/09 | 29 Operational Management Team

Gayani de Silva Graham Lawrence Head of Corporate MARCOM & CRM CEO Working Capital Head of Metropolitan Branch Network

LIGHT AT THE END ... Kadugannawa Railway Tunnel - One can only imagine the courage and hard work that resulted in the completion of this railway tunnel, built more than a century ago

Jithendra Gunatilake Mehra Mendis DGM - Finance Operations AGM - Fleet Management

NOURISHING SURROUNDINGS Young elephant, Udawalawe - The lush vegetation provides ample nutrition for the young and growing!

Soloman Jesudason Sujeewa Vidanapathirana Head of Marketing Operations AGM - Insurance

30 | LOLC | Annual Report 2008/09 VERSATILITY Farm land, Knuckles range - The ground preparation is referred to as ‘Hel Malu’ in Sinhala, meaning steps along the slope, the only way to take full advantage of the fertile soil

Chrishanthi Emmanuel Company Secretary

Chandana Jayanath Ashan Nissanka AGM - Recoveries Head of Regional Branch Network

Dilum Mahawatte Rohana Kumara DGM - Finance Corporate AGM - Micro Finance

Operational Management Team I LOLC I Annual Report 2008/09 | 31 With our strategy aimed at revolutionising the Business With our strategy microfinance sector through an innovative aimed at and comprehensive offering of products, Impact services and know-how, we will strive to revolutionising drive the resurgence and rebuilding of our Report the microfinance country’s economy. sector through The creation of Business Units consequent an innovative and to the restructure of the business model comprehensive of the LOLC Group has resulted in the development of products and services to offering of products, cater to the financial needs of our customers. services and Some Highlights of the Year know-how, we will A new Company, LOLC Micro Credit Limited strive to drive the (LOMC) was incorporated during the year resurgence and under review, with a 20% foreign investment from one of our long-standing funding rebuilding of our partners, FMO, a reputed AAA rated (by country’s economy Standard & Poor’s Rating) development financial institution in Europe. The unique aspect of the new Company is that, it is the The Contours of sustainability first microfinancing establishment to be set Two words in our theme this year have up with foreign investment in Sri Lanka. special significance - Resurgence and Rebuilding. One of the biggest transactions to take place through the Colombo Stock Exchange, At its inception, LOLC was instrumental LOLC acquired Commercial Leasing in giving effect to resurgence in Sri Lanka Company PLC (CLC), one of the largest and through the introduction of leasing, which successful leasing companies in Sri Lanka. provided economic support and placed During the year, the Company acquired over financial solutions in the hands of a needy 98% of CLC. The investment made in CLC sector of our population who had no has brought significant benefits to the Group access to formal financing options from the not only in terms of leadership in the leasing conventional financial sources of the day. industry, but also, through the integration of the distribution channels, increasing the The resultant resurgence of viable and customer base and room for future synergies sustainable enterprise from such financially in middle and back office operations. impoverished sectors led to a rebuilding of livelihoods and put them on the road to a Lanka ORIX Factors Ltd., was merged better future. These customers have graduated with the Parent Company creating new to the SME sector and many businesses have opportunities and scope for the working evolved to the corporate level. capital business.

32 | LOLC | Annual Report 2008/09 NEW DISCOVERIES Blue Whale - The adult whale, is the largest mammal to Performance Highlights of Business Units which enabled the Company to manage the have ever lived on earth, photographed off Mirissa in the South, a surprising find in Sri Lanka Auto NPLs within acceptable levels. The Auto Business Unit is the single largest Business Unit within the Group offering a During the year, we strived to achieve a varied portfolio of more than twenty products balance between business growth and and service options rooted in auto financing quality of portfolio. We also capitalised on and other instruments that use motor vehicles the branch and broker distribution network of and equipment as collateral. CLC to offer customer solutions considering their needs of the day. Many initiatives were This Business Unit remains as the biggest taken to streamline operations and improve income generator for the Group and the key customer services and one such initiative contributor to LOLC’s bottom line during the was the introduction of the Internal Valuation year under review. The portfolio of the Group Unit. Customers are now able to benefit saw a drastic increase due to the acquisition from this service and the Company is able of CLC, which essentially revolves around to assess the true value of the assets that auto finance business. are taken as collateral. LOLC is a registered valuer with the Leasing Association of Sri Due to the negative economic sentiments Lanka. We are the only Valuer-cum-Leasing in the market, the rate of growth was Company in the Association. The Valuation consciously curtailed in this sector. The Unit is expanding its reach to cover key finance lease industry remained stagnant regions in the country. due to the fiscal policies prevalent. This was a time for consolidation and acquiring In terms of new product offers, we extended a debt conscious customer base. Auto BU a special loan scheme targeting holders has been able to cater to the demands of the of Government permits to import motor customer with innovative financial solutions vehicles. The new product solutions offered and continued to lead the industry. to the customers of the Islamic Finance Business Unit saw significant growth To manage the negative impacts from the considering that this business commenced economic crisis, strict credit evaluation only recently. policies were introduced and the focus was shifted from executions to collections and Strategic business promotion campaigns much effort was put in for active recoveries carried out with our business partners, DIMO, Toyota Lanka and Micro Cars Ltd.

Business Impact Report I LOLC I Annual Report 2008/09 | 33 in packaged offers drew customer interest in to enterprises that engage in pollution the total solutions we provide. control and waste management in

CONSERVING FOR TOMMORROW industries, resource saving initiatives, The Thalangama tank - A tank in protected Development Finance recycling of waste and energy saving wetlands in the suburbs of Colombo LOLC has been actively seeking business projects. LOLC has disbursed funds opportunities that help develop various for projects involved in waste water sectors of the economy and the Development treatment plants and converting Finance Unit of LOLC has been engaged in industries from fossil fuel to biomass this business since the late 90’s formed with energy saving projects. the participation in the SMAP loan scheme y EIB Post-Tsunami Credit Line - LOLC funded by JBJ Nippon Fund. Since then, the is a PFI for the disbursement of funding Company has participated in several such made available by the European credit lines and is the largest financier of Investment Bank at the request of the refinance loan schemes among the non- Government of Sri Lanka for tsunami - banking financial institutions. affected small-to medium-sized industries. y Construction Sector Development The development finance portfolio under Project (CSDP) - LOLC is also a PFI THE SILVER LINING LOLC is as follows: Blue Mist - This is an endemic species found commonly in the for the fund set up by AFD (French dry zone. These flowers blooming together add striking colours Tea Development Project - LOLC was to the otherwise dry forest y Development Agency) which facilitates the first non-banking financial institution financial and technical capacity building to be recognised as a PFI (Participating of local private businesses in post- Financial Institution) under this project tsunami reconstruction. funded by ADB, which is aimed at supporting the tea smallholder sector. Micro The Company so far has funded over 60 LOLC Micro Credit Ltd. (LOMC) is the new projects. Company set up for our microfinancing activity. y Plantation Development Project – LOLC is also a PFI for the ADB funding Our business consists mainly of extending scheme for long-term sustainability and loans to individuals and communities development of the plantations sector of less affluent circumstances who are and improving the living and working predominantly located in rural areas of the conditions of the estate workforce. country. Our focus is mainly on assisting y Second Perennial Crop Development those engaged in agriculture, skill-enabled Project (SPCDP) – LOLC is a PFI for the small businesses, dairy and other small disbursement of the revolving fund set business activities who have little or no up for the support and development of access to mainstream financial services. the perennial crops sector. Our foray into microfinancing began many y Environmentally Friendly Solutions years ago, through projects that provided Fund Project II (E-Friends II) - A special rural communities with solar power, where fund set up to support environmental access to electricity from the national grid protection projects. LOLC is a PFI for was unavailable. this funding line and provides facilities

34 | Business Impact Report | LOLC | Annual Report 2008/09 Today, LOLC provides financial instruments The Micro Business Unit exceeded budgeted that help rural communities to start growth by 13.2%, which is commendable enterprises through access to agricultural given the turbulent business environment machinery and equipment such as two- that prevailed during the year. The Company wheel and four-wheel tractors, water pumps, hopes to continue to grow with the additional motor vehicles such as three-wheelers and strength of the new alliance formed with FMO motor bikes. Solar home systems as well as and other multinational funding partners who group loans offered to women’s groups are have pledged their support and commitment becoming very popular. to provide Micro Finance opportunities to a much needy sector in the Sri Lankan During the year under review, our three- economy. Each of these funding agencies wheeler business saw a growth of 26% have different developmental goals and LOMC over the last year and we have granted is becoming the conduit in achieving these skill-enabled facilities and agriculture- goals for them. Several initiatives have already related facilities which are distributed in taken shape benefiting the rural sector. the rural areas through a dedicated Micro Finance sales team. With the strengthened y the BU established 20 rural internet distribution channels and dedicated efforts, centres under the aegis of the Last collections are maintained at competitive Mile Initiative of USAID. GTZ provides levels despite the negative economic climate technical assistance to scale up micro that prevailed during the year. loans for Self-Help Groups and to extend microfinancing to post-conflict areas in We are committed to uplift and provide Sri Lanka including the North and the access to credit to the Micro sector. Having East. They also provide assistance in identified reach as a key element of its staff training and help LOMC staff to get strategy, the Company leveraged on the exposure in overseas environments for strategic alliances entered into with the better service for its clients. SPIRITED Long-snouted Spinner Dolphin - Large pods of these playful Lanka Indian Oil Company (LIOC) which mammals, sometimes comprising of thousands of animals has over 150 fuel stations island-wide and can be seen off the sea in Kalpitiya opened 14 service centres during the year. In another strategic move we partnered Sri Lanka Post (SLP), which has 641 Post Offices and over 3,000 Sub-Post Offices Island-wide. During the year, 10 Post Office centres were opened.

The BU also continues to benefit from the tie-up with Sundaya Lanka Ltd., a solar component assembly and marketing facility. The BU leads the market in Solar Financing, to uplift the living conditions of the rural poor and facilitates this through the RERED fund (Refinancing loan scheme of the World Bank).

Business Impact Report I LOLC I Annual Report 2008/09 | 35 y Through our involvement in the South is the Bio-Digester, which converts cattle Asia Micro Finance Network, ACTED dung to eco-friendly, clean fuel. The slurry provides technical assistance to the that is left from this process makes excellent BU to help improve the standards and compost, which the farmer can employ in technical soundness of the staff. his cultivation, completing the cycle. The product cycle will begin in reality, with the Success was driven through a mix of Company facilitating the farmer to purchase innovative products and services tailored the cow - then help him produce and market for the sector, the strong performance of the dairy products. The cycle is completed the country’s agricultural sector, the strong with the Bio-Digester. and visible presence of the Company on the ground where it matters, well trained and We have already commissioned a feasibility knowledgeable staff coupled with study in Sri Lanka with the assistance of the stringent monitoring and supervision University of Colombo and a consultant from of processes. Holland and hope to begin pilot projects shortly.

For the future, in a macro sense, we see the Outreach, sustainability of operations, and fast returning normalcy to the Eastern and achieving greater operational efficiencies Northern Provinces of the country as areas that will benchmark the BU as the best in of huge potential, where the core purposes South Asia are a few of the future objectives and benefits of microfinancing will need to of the BU. be deployed to the fullest, as we stimulate resurgence and rebuilding of the livelihoods of Savings individuals and communities in those regions. Lanka ORIX Finance Company Ltd. (LOFIN) is Sri Lanka’s only finance company with We will continue to increase the range of a direct association with a reputed global products and services. One such product OPPORTUNITY financial entity. Mannar - With the arrival of peace, the true potential of the wide open spaces of the North and East can now be realised LOFIN is registered and licensed with the Monetary Board of the Central Bank of Sri Lanka (CBSL) and in a significant development during the year under review, the CBSL has extended this licence, allowing LOFIN to engage in foreign currency business, the only finance company to receive such approval.

Thus in July 2008, LOFIN commenced deposit mobilisation of foreign currencies. Almost 85% of the foreign currency deposits are remittances from overseas.

In the financial year 2008/09, the Company’s deposit base exceeded Rs. 5 Bn, a growth of 55% compared with the last year and

36 | Business Impact Report | LOLC | Annual Report 2008/09 almost a 50% growth in market share. This The concept of Islamic Finance is firmly is considered remarkable given the negative based on Shar’iah Law and an in-house market sentiments that prevailed during the Shar’iah Supervisory Board oversees the FINDING MIRACLES 2nd half of the year due to the collapse of functioning of the Unit. This Unit operates Kap ruka, Thundola - Rice is the staple food of Sri Lankans. Coconut too plays an integral role, and the palm is referred several registered and unregistered financial under the guidance of the All Ceylon to as the ‘miracle tree’ since all parts of it is used by the peoples of this land institutions in the country. Jamiyyathul Ulama (ACJU), the official proponent of the Shar’iah Law Supervisory In terms of products, LOFIN launched an in Sri Lanka. ATM operation for all its SLR account holders, in collaboration with Commercial Bank. Our Products offered include Mudharabah first LOLC branded ATM was commissioned (Profit Sharing Investments), Ijarah (Leasing), at our Head Office at Rajagiriya. Now, all Murabaha (Trade Finance) and Diminishing savings account holders can access their Musharakah (Property Development Finance). account from over 300 ATMs island-wide.

LOFIN continues to offer a wide range of During the year under review, the portfolio products - from savings schemes for minors, of the unit grew from Rs. 50 Mn to Rs. 450 through corporate entities to senior citizens. Mn. It also paid the highest quantum of We also offer tailored savings instruments to profit share to its investors, of all the Islamic the rural community. Finance Institutions in the country. APPRECIATING MICRO Brazil Clover - Even though only a little larger than a pin head, there is great beauty hidden in these flowers, which can be During the year, LOFIN offered an The IBU identifying the need of the enjoyed by only those who would take the time to look unconventional deposit product, ‘unfixed community for these products, is expecting deposits’ with greater flexibility to the investor to broadbase its operations to the regions considering the current market conditions. with the wealth of knowledge and expertise This is the first time a Finance Company has gained in the field during the past year. offered such a product in the country. LOFIN is the only entity to have received We widened reach through the opening of approval and is registered with the Central two new branches at Horana and Wellawatte Bank to conduct Islamic Finance Business. and nine new Savings Centres located within LIOC fuel stations around the country. Insurance Lanka ORIX Insurance Brokers Ltd. (LOIB) LOFIN was also honoured this year when chalked up several milestones this year. Fitch upgraded its rating from BBB+(lka) to A-(lka), thus reinforcing the strength and The Company completed 10 years of stability of the Company. This is another enterprise in the field of Insurance Brokering. milestone which depicts the success of the finance company given the current market During the year under review, LOIB surpassed trend on downgrading ratings in the banking the Rs. 1 Bn mark by achieving a total Gross and finance industry. Written Premium of Rs. 1.26 Bn, a growth of 38% over the last year. This can be regarded Islamic Finance Business Unit as a singular achievement in the face of the We are honoured to report the formation of inhospitable financial climate within which the the Islamic Finance Business Unit which Company operated. functions under LOFIN.

Business Impact Report I LOLC I Annual Report 2008/09 | 37 The Company carried out new business shown an increase due to the high cost of promotions and capitalised on Group owning and maintaining vehicles. synergies by offering a wide range of products to the customers, especially to This year, the Company strove to consolidate leasing and factoring customers. its position in fleet management services whilst investing in infrastructure needed to pursue The Company operates through all branches opportunities in the short-term hire market. of LOLC and has expanded the reach with the establishment of LIOC branches and We also introduced many enhancements offers its services through the post offices to products and services offered. The having LOLC centres. These strategies introduction of the ‘Royalty’ privilege card enable the Company to broadbase its rewards loyal customers with value added customer segments with access to the SME services such as breakdown assistance, and now the Micro sector. The growth in the rent-a-car facilities and discounts on corporate sector too paid dividends during selected items for vehicles. MAMMOTH POTENTIAL Asian Elephant - This lone bull elephant, one the year recording a threefold increase. of the 91 species of wild mammals found in the country caused a ‘road block’ at Udawalawe With the expansion of the fleet of vehicles National Park. The innovative ‘Guardian’ product range managed by this Business Unit, the caters to the SME and Micro sectors and the Company identified the immediate personal Guardian product was the latest requirement to have its own workshop which addition to the range. will bring immense service-related benefits to the customers as well as cost effective Fleet Management maintenance for the Company. The state- Over the past few years, the Fleet of-the-art workshop is being constructed Management unit of LOLC has become in Gothatuwa with significant additional popular with large corporates and even capacity to accept outside business with the state sector as the choice for as well. The workshop is expected to total solutions in fleet management. The generate future revenues for the Group, once popularity of the products and services commissioned. offered by this unit is an indicator of the potential that lies within this field of asset Working Capital HERALDING PROPERITY Drummers, Lankathilaka Viharaya, Kandy - management business. Through the solutions it offers, the Working The ‘Kohomba Kankariya’ performed here, is a ritual to ensure freedom from diseases and invoke blessings Capital Business Unit of LOLC enables SME Fleet management solutions lie beyond sector entrepreneurs to generate steady cash the leasing of individual vehicles to single inflows required for their ongoing cashflow parties with LOLC offering a complete needs, growth and expansion. transport solution to large corporates/ institutions. We take care of their transport The year in review brought with it a solutions by freeing the customers from restructuring of the unit, which saw the infrastructural ‘headaches’ of running Lanka ORIX Factors (LOFAC), a Group a vehicle pool of their own. The short-term Company since its incorporation in 1992, hire market essentially targets the individual fully amalgamating with LOLC in February customer who needs a vehicle for short-term 2009. The working capital business of CLC hires. The demand for short-term hires have operates independently and is popularly

38 | Business Impact Report | LOLC | Annual Report 2008/09 known as ‘ComFactors’. This strengthens the leadership position LOLC has in the factoring market.

With these two independent operations the Working Capital Business Units target different market segments and also reach customers using independent distribution A PILGRIMAGE OF REMEMBARANCE A buddhist monk climbing up the Kirinda rock - Kirinda has a channels, thus, creating an effective Stockbroking special significance in the history of Sri Lanka as the place diversification in the distribution strategy with where the ship carrying benevalant queen The latter half of 2008 was an extremely Vihara Maha Devi came ashore a wide ranging customer base. challenging period for the stockbroking industry. Many international institutional The amalgamation of LOFAC with LOLC was investors took flight from emerging markets a strategic move to strengthen the Business such as Sri Lanka, which in turn depressed Unit with much needed additional capacity to activity levels. grow. Now the business expansion strategies will focus on regional expansion using the During 2008, the price indices, the ASPI branch network. and MPI, decreased by 41% and 50% respectively. Market capitalisation decreased We persisted with new market penetration by 40% to close at Rs. 489 Bn. The total strategies, introducing factoring products turnover at the Colombo Stock Exchange and solutions to suburban and rural sectors, was Rs. 110 Mn. where research indicates that significant potential exits. The gloom lifted somewhat in early 2009, emboldened by military victory in the Despite intense competition, the Business conflict areas. Unit continued to achieve operational efficiencies through internal reorganisation of Lanka ORIX Securities (LOSEC) maintained functions and cost management measures. steady momentum in this mercurial However, high costs of borrowing and environment, serving the client base adverse impacts experienced in the finance with undiminished vigour and maintaining industry pushed lending rates up and also the outreach intact, at a time when many reduced demand for working capital facilities. others in the industry were cutting back on resources. The Business Unit will in the short-to medium-term, concentrate on leveraging on the leadership position within the industry. Performance Highlights of Other Subsidiaries We are confident that economic conditions Information Technology and interest rates will both improve during The financial year 2008/09 presented an the forthcoming financial year. unprecedented challenge for LOLC Group IT as well as new entity, Lanka ORIX Information Returning peace to the country also Technology Ltd. (LOIT), the latter just stepping promises new market opportunities which into business, where turbulence in the will greatly benefit the industry.

Business Impact Report I LOLC I Annual Report 2008/09 | 39 The all new Group website was launched and in its second phase of development, online access will be incorporated for clients as an added feature.

LOIT in its short journey was able to achieve the Gold Certified Partner Level from PURITY Microsoft Corporation, USA, the highest Stream, Knucles range - A pristine stream of unpolluted water flowing through the rainforests local arena was exacerbated by the global level of partnership that an IT company can economic crisis. achieve with Microsoft.

Project Development Though the market for direct business looked bleak, a decision was made to remain Lanka ORIX Project Development proactive and the Company went ahead Company Ltd. (LOPD) was constituted with strategic investments, which reaped to pursue two objectives - to partner with good results for the Group during the year reputed, experienced foreign organisations under review, with LOIT supporting many IT and to participate in infrastructure and initiatives undertaken by the Group. related projects in Sri Lanka and other regional countries. The Company strengthened the Information Security domain by investing in a data centre During the year under review, LOPD grade firewall solution. Network connectivity prepares to commence a project in offshore to the Head Office was strengthened by sand mining to supply to the construction investing in a dark fibre metro ethernet and other related industries. solution, which is efficient and cost effective. The project will be a collaboration with Following the principles of ‘Green IT’ Dredging International N.V. of Belgium practices an investment was made in with financial assistance from the a server virtualisation environment that Government of Belgium. will enable LOIT team to reduce server administration load, cut costs and boost Another project involves Precipitated Silica efficiency by moving from physical servers to manufacture from rice husk ash, for which virtual servers. a project company, Agrisil Holdings Limited was incorporated this year. This Company To support the all round growth of the Group, is a partnership between LOPD and Agritec investments were made in bandwidth Incorporated - USA. BOI approval has been optimisation hardware and software solutions obtained for the project and arrangements are that enables the Group and its branches under way for implementing our first plant in to increase the speed and efficiency of Thailand with Thai partners, ING Fund. customer service.

LOIT also designed and implemented a new application for the new Micro Credit Company.

40 | Business Impact Report | LOLC | Annual Report 2008/09 Global Alliances and Funding Partners Laundering (AML) policies, Know Your Over its twenty-eight years, LOLC has Client (KYC) policies, and environmental evolved as a total financial solutions provider protection procedures and also ensures and is recognised today as a significant that the Company manages risks involved player in the industry. The Company’s in its business effectively. They have been long-term vision of sustainable growth and instrumental in providing expertise and development of the SME and Micro sectors know-how for the implementation of the is a vision that is aligned very clearly with environmental and AML policies at LOLC the goals of many multilateral and bilateral which have enabled us to enhance our agencies. LOLC would not have been able to knowledge and in turn, support our clients realise its dreams and successes if not for the better. The agencies’ expertise has been backing of these funding institutions which, transferred to LOLC, with support to train having understood the vision of the Company, our staff, knowledge transfer and even IT have supported us with long-term funding systems support for the development of risk solutions at attractive terms and conditions. management tools. MELODY OF NATURE Spot-winged Thrush - At Sinharaja forest, this is In 1994, LOLC for the first time secured While the foreign bilateral and multilateral one of the main contributors to the sweet dawn course of bird calls. It is one of the 33 endemic a long term funding line from FMO - the agencies support the business with attractive birds found in the country Development Finance Company of the funding options, the local commercial banks Netherlands, marking the beginning of too play an equal important role in having its success at securing many more such confidence in LOLC and extending support funding lines for SME and microfinancing with further funding lines for business activities. Today, LOLC is one of a handful expansion, over the years. of Sri Lankan private sector entities that partners many of these funding institutions These long-term mutually beneficial around the world in providing long-term partnerships between LOLC and our funding funding. The full list of LOLC’s partner institutions not only provide long-term funding institutions is given below. funding solutions to us, but also provide LOLC with a total solution that helps us LOLC’s vision for sustainable development, ingrain best practices into our operations. its drive to develop the SME and the Micro ALERT AND RESPONSIVE sectors and its superior performance have Spotted Deer - In Yala National Park the difference between life and death for these deer convinced many funding institutions to can be their vigilance consider LOLC, as their preferred local partner to fulfil their developmental goals, that cover attractive long-term funding and on capacity building and technical assistance.

In addition to providing funding for lending to the customer, these agencies have driven LOLC to reach the highest standards of ethics, transparency and accountability; they ensure that LOLC follows internationally accepted guidelines such as Anti-Money

Business Impact Report I LOLC I Annual Report 2008/09 | 41 Global Funding Partners

Institution Type of Facility Purpose of Funding Value Addition WELCOMING DIVERSITY Indian Pea-fowl - Commonly seen at Yala National Park, Organisation of Long-term US$ SME sector financing one of the most popular game reserves in the country the Petroleum Loan and development Exporting Countries Fund for International Development (OPEC)

The Netherlands Long-term Rupee SME and Micro Finance Environmental Development Loan/Equity Tier sector financing and policy; Anti Money Finance Company I & II and debt development Laundering policy (FMO) - capital for the micro Netherland finance company

French Long-term US$ loan Tsunami-affected SME Environmental Development sector financing policy; Anti Money Agency Group Laundering policy (PROPARCO) - France

Deutsche Long-term US$ loan SME sector financing Environmental Investitions- and development policy; Anti Money und Entwicklungs- Laundering Policy, gesellschaft mbH Liquidity Risk (DEG) - Germany Management technology

Belgium Investment Long-term US$ loan SME sector financing Environmental Organisation (BIO) - and development policy; Anti Money Belgium Laundering policy

Overseas Private Risk sharing facility SME sector financing Environmental Investment with Citi Bank, and development policy; Anti Money Corporation (OPIC) Colombo Laundering policy

United States Portable guarantee Micro Finance Sector Environmental Agency for scheme development in Eastern policy; Anti Money International and Uva province Laundering policy Development (USAID) - USA

Finish Development Long-term US$ loan SME sector financing Environmental Finance Company and development policy; Anti Money (FINNFUND) - Laundering policy Finland

European Long-term Rupee/ Tsunami-affected SME Environmental Investment Bank Euro refinancing sector development policy; Anti Money (EIB) scheme and support in tourism Laundering policy sector

World Bank Long-term Refinancing of rural Environmental refinancing sector renewable policy; Anti Money Rupee loan energy development Laundering policy

42 | Business Impact Report | LOLC | Annual Report 2008/09 Institution Type of Facility Purpose of Funding Value Addition

Japan Bank for Long-term Rupee Environmental Environmental International loan/ Refinancing Protection/ Mitigate policy; Anti Money Corporation (JBIC) scheme & eliminate industrial Laundering policy - Japan pollution and waste / Energy saving, Recycling & resource recovery in industries

Asian Development Long-term Rupee SME sector financing Environmental Bank (ADB) loan/ refinancing and development policy; Anti Money scheme / Tea smallholders Laundering policy income improvement and development. Development of the plantation sector in enhancing profitability. Improve the living and working conditions of the workforce

Deutsche Technical Development of Micro Promotion of Micro Gesellschaft assistance for finance sectors Finance Sector für Technische Micro Finance Zusammenarbeit (GTZ) - Germany

Export Long-term US$ loan SME Sector financing Development & development with Corporation (EDC) - Canadian Imports Canada

Nippon Export and Long-term US$ loan Citi Bank and ING Investment Bank Tokyo being the Insurance (NEXI) - lenders and Nexi as the Japan guarantor PERSEVERANCE AND SUCCESS Carpenter Bee on Vogel’s Tepharosia - This industrious insect ING Bank - Japan photographed at Haldummulla, visits hundreds of flowers to find enough nectar to sustain it

Citi - Japan

Triple Jump - Long-term EURO Micro finance sector Netherlands loan development

Triodos Bank - Long-term US$ loan Micro finance sector Netherlands development

Sybiotics - Long-term US$ loan Micro finance sector Switzerland development proposal

Business Impact Report I LOLC I Annual Report 2008/09 | 43 Business Synergies

44 | LOLC | Annual Report 2008/09 DIVING IN Muthurajawela, Negambo - Two birds diving in for delicious lake fish

TAKING FLIGHT A Purple Heron – Mirroring the air craft at the international airport minutes away from this site

Business Synergies I LOLC I Annual Report 2008/09 | 45 progress and develop the recipients of micro Sustainability Our business begins credit to advance to the status of an SME and even beyond, to the Corporate. Review often in the rural heartlands of the We believe that, unlike many other country, with start enterprises, LOLC is uniquely placed in up enterprises, direct contact with the ‘sustainability tripod’ with farmers, with of economic, social and environmental factors where they are most apparent and people who have a have the most impact. Our business scope small dream and no spans to all segments of the society. money to make it Our business begins often in the rural come true. We go to heartlands of the country, with start up them. We take in the enterprises, with farmers, with people who location, the project, have a small dream and no money to make the environment, it come true. We go to them. We take in the location, the project, the environment, the the economic economic implications, the social aspects… implications, the this is as ‘hands on’ as you can get. social aspects… this As our own business evolved in service is as ‘hands on’ as to this sector, we structured products, you can get services and a business model that placed uncompromising responsibility towards safeguarding the sustainabiity tripod. A Closely-Woven Fabric of Responsible Development and Upliftment We have developed a visual interpretation of From the inception LOLC has been ‘in the the ‘value chain’ that exemplifies the manner ground’ of sustainability. From the moment in which we progress our business and the we pioneered leasing, we were placing a development of the recipients of our products unique portfolio of products, services and and services, through which the latter uplift solutions at the service of a sector of the their economic and social well being. All population who had no such support from processes are environmentally friendly. traditional financial sources. The examples we have used are those of an Today, LOLC’s business model finds us agri-farmer and a dairy - farmer - however, drilling downwards, as we increasingly the model works across every business/ enhance our services to the grass root level entrepreneurial segment in the microfinancing of the society, micro credit. Almost 80% sector. In that respect, the chain also of our business targets the micro credit encompasses LOLC’s products and services sector. In the simplest of terms, our aim is to to the SME and Corporate sectors as well.

46 | LOLC | Annual Report 2008/09 OVERFLOW OF ABUNDANCE Thudugala Falls - Water, so precious, in gushing abundance Across the Chain At the initial point on our ‘value chain’ the Typically, a recipient of LOLC support at the facilities offered by LOLC to the farmer are start of the ‘value chain’ would begin with loans for acquisition of tractors, loan, leasing Cycle 1 of our Group Loan facility, as and hire purchase facilities for acquisition a member of a Group in the community. of cattle and/or farming equipment, crop The Group Loan scheme spans three cycles insurance (loss of income) plus loans for skill and loans progress from the starting point development and a savings facility. of Rs. 20,000/- up to Rs. 65,000/-, as at end of Cycle 3. Let’s look at this, in operation.

Sustainability Review I LOLC I Annual Report 2008/09 | 47 Farmer X is identified for assistance with - we also offer support to our customers to LOLC’s Group Loan facilities under Cycle 1 establish the relevant market linkages they of the scheme. He takes a loan to purchase need, to carry their business forward and to AT GRASS ROOT LEVEL Grass Flower - These tiny flowers, photographed at equipment he needs for his farm. His monthly obtain fair and lucrative returns for their efforts. Tangalle, are extremely common in most grass fields. One has to be at ground level to appreciate their beauty premium for payback includes a contribution Lets look at some examples where LOLC to the savings account. At the end of one catalysed the market linkage process for year, he would have repaid part of his loan our customers. and have also saved for his future, gradually he will qualify for Cycle 2 of the Company’s In Embilipitiya, we work with a group of spice Group Loan scheme. growers who are recipients of our Group Loan facility. We also have a customer who Along the way LOLC will provide Farmer X is a wholesaler in the area in the spice trade. with a Crop Insurance, which not only covers We made the connection between the two his repayments to LOLC in any eventuality, but and today the growers have their market at also provides a quantum financial assistance fair price whilst the wholesaler gets a reliable for personal use, to ride over the crisis. supply of quality produce from the area.

CATCHING THE ELUSIVE Ceylon Trogon - Photographed at Sinharaja World Heritage To dairy farmers we offer a facility to purchase Site, this is one of the most beautiful but extremely elusive LOLC has facilitated similar linkages birds of this ancient forest. cattle and to develop his infrastructure. between top corporates and Corn growers, Gherkin farmers, Big Onion growers etc. The Company also offers a Skill Development Loan facility which we regard Self-help is also a quality the Company as a support service to the main products. that fully supports. We quote an example This facility provides for knowledge of a group of LOLC customers who have enhancement across enterprises enabling been successful at bargaining for and subjects such as bookkeeping, marketing clinching a lucrative supply arrangement and general business skills. for their produce, with one of the country’s top supermarket chains. Individually none Since LOLC operates across the entire of them would have had the required ‘clout’ spectrum - i.e. the Micro, SME and Corporate

48 | Sustainability Review | LOLC | Annual Report 2008/09 but together, aided by their own growing knowledge of market dynamics and business skills, they have had the strength and acumen to establish their own market linkages.

Another example of self-help in seeking markets comes from the tea smallholder A PERFECT BLEND sector. In the areas of Matugama and Jezebel - One of the few species of butterflies provides for loans above Rs. 65,000/- and up which is commonly seen in the city, this one at Badureliya, there are around 1,200 families ‘Meemure’ in the Knukles mountain range. to a maximum of Rs. 200,000/-. engaged in growing tea. Typically, they each may own a half or quarter acre plot Our target is to migrate at least 50% of producing anywhere between 10 kg and 20 our Group Loan customers to the individual kg of tea. Around 100 of these families are loan category. LOLC customers.

Looking at our value chain depiction, These smallholders have had great difficulty our farmer would now be eligible for an in getting their produce to market, since equipment lease and or loan to purchase collectors do not find it a viable proposition harvesting equipment or, in the case of a to travel around the area, to collect such dairy farmer, a means of transport to get his small quantities from each farmer. The produce to a milk collection point, such as a farmers banded themselves together, hired motor cycle. their own transport, collected their produce and delivered it directly to a tea factory, The Company’s Individual Loan facility also thus getting over the hurdle of dealing with has a Savings scheme in built, as for the a collector and establishing a vital direct Group Loan structure. Thus we continue connection with a tea manufacturer. to encourage the recipient to build and maintain financial stability. Today, these farmers have worked out a lucrative price for their produce and have The dairy farmer is at this point, also eligible developed their relationship with the tea to participate in an exciting new project factory to a point where they enjoy a barter which we have launched this year - the facility - taking a portion of remuneration in Bio-digester. This is a project which has processed tea. been extensively researched by LOLC along with a Dutch consultancy firm, where It’s a great win-win example of empowered our feasibility studies show a significant business at the most basic level. degree of success and benefit across the sustainability tripod. At the end of the third cycle in the Group Loan facility, the customer is ready to The Bio-digester is a processing plant progress towards an Individual Loan facility. whereby, cattle waste (dung) or any other The range of support in this category biodegradable waste is the input. Once

Sustainability Review I LOLC I Annual Report 2008/09 | 49 At the Distribution point, LOLC provides facilities such as Factoring, Leasing, Insurance and Fleet Management.

At the Marketing point, we offer Factoring and Insurance.

A FRAGRANT CUP Pussellawa plantations - Perfectly manicured tea plantations, Now, let us examine the benefits of LOLC’s spanning acres across the hill country. Ceylon tea is renowned processed, it yields a ‘clean’, bio-efficient for its unmatched flavor and remains a top export earner, enterprise against our ‘sustainability tripod’. sustaining the economy gas ideal for cooking purposes. The slurry that emerges as waste from the Bio-digester Economic Impact constitutes excellent organic compost and can even be used as fish food. The Company’s financial input at the commencement of the value chain

The final three points in the ‘chain’ find us empowers, start up, nascent or struggling now in SME and Corporate territory where ventures to develop profitably. Incorporating our products and services cater not only a savings facility helps establish and grow to the customer rising through the ranks, the financial stability of the customer. but to many of our customers who join the The crop insurance facility provides real change at different points or are already protection in a sector where crop failure can entrepreneurs at these points. have immediate and drastic economic effects

LOLC’s products at the Collection/ for the farmer. Providing market linkages Processing point of the chain include Debt opens up lucrative and fair returns to the Factoring, Invoice Discounting, Insurance, customer, increasing wealth and well-being. Intermediary facilities to set up Milling Machines, Freezer facilities, Processing and The markets targeted by our customers with Packaging, Rice Milling Machines, Paddy their enterprise are often ‘peopled’ by other Stocking, Transport facilities and Provision customers of LOLC. They benefit from a direct for Working Capital. supply of goods and services that are of good

50 | Sustainability Review | LOLC | Annual Report 2008/09 quality, often at their doorstep, which saves The ravages of the tsunami of 2004 are on transport costs and helps them progress still being repaired today in our land. The with their own businesses leading to their own Government with the assistance of the economic development and well-being. European Investment Bank (EIB) established a Post-Tsunami Project as a dedicated credit LOLC’s support across the value chain, to line of finance for small and medium-scale customers in the SME and Corporate sectors enterprises in industry, tourism and other empowers a range of business enterprises service sectors which had been directly/ placing financial support where it’s needed indirectly affected. most and ultimately ensuring that businesses thrive and prosper sustainably. The Construction Sector Development Project is funded by AFD (the French The Company maintains its assets and Development Agency) and aims to liabilities portfolios in a manner that optimises strengthen the financial and technical overall profitability, proactively explores capacities of private local businesses investment opportunities and identifies and to participate effectively in construction PROTECTING THEIR FUTURE Sloth Bear, Yala National Park -These two playful bear cubs, works with funding partners who share similar and public work in the post-tsunami a brother and sister, will need our intervention to protect their shrinking jungle habitat values and development goals. reconstruction effort.

In a landmark achievement, LOLC became In 2006, LOLC became a PFI for the the only non-banking financial institution to Revolving Fund of the Second Perennial become a Participating Financial Institution Crop Development Project, which seeks to (PFI) for the ADB-funded Tea Development provide support for the perennial crop sector, Project in 2001, which seeks to develop increasing enterprise profitability and farmer the tea smallholder sector in Sri Lanka. income and broadening the agricultural export To date the Company has disbursed over base whilst encouraging a greater private Rs. 225 Mn across more than 60 projects. sector participation in commercial agriculture.

In 2005, LOLC became a PFI for the Social Impact ADB-funded Plantation Development A CHOICE PICK It’s all about empowering entrepreneurship… Fishing, Negombo - The bountiful sea fare Project aimed at improving the long-term in the shallow waters of the lagoon from the humblest to the most sophisticated. sustainability of the plantations sector. The aims of the project are twofold - to From the initial inputs LOLC offers enhance the profitability of the sector throughout a well structured portfolio of through transformation of Regional Plantation financial solutions and services that span Companies from primary producers to the gamut of Micro, SME and Corporate agri-business entities and to improve sectors in this country, we are providing and the living and working conditions of enhancing wealth creation and sustainable the estate sector workforce to achieve prosperity of the people. In the process we parity with other sectors. are also closely involved with knowledge enhancement in critical areas

Sustainability Review I LOLC I Annual Report 2008/09 | 51 of entrepreneurship that builds social worth programme, we have been qualified as a as well as business acumen, in service PFI where we’ll be granting the facility at a to the community. subsidised interest rate, with the support of the State, which will be promoted especially LOLC catalysed initiatives such as solar in the post-conflict areas of the country. power in rural electrification across the country, the new bio-digester that will place Environmental Impact clean, renewable and affordable energy at The ethos that LOLC has, of looking well the disposal of rural communities across the beyond the financial solution to impact that land, a significant contribution to nutritional spread across the entire supply chain has well being in the country through supporting enabled the Company to fully embrace a agro-farming and dairy farming among many sustainability mindset. This mindset influences other Company initiatives. our core business model and radiates outwards to every product, service and LOLC has facilitated community centres at interaction we have with our stakeholders. LOLC Ridhee Gama in Seenigama and at ON A HIGH PERCH Medhabadda. This is the centre of village Little Cormorant, Thalangama - A resourceful water bird There are innumerable examples of projects community life where everything from business we have chosen to fund because they have to welfare can be discussed or enjoyed. impeccable ‘credentials of sustainability’, whilst enhancing the enterprises of our In another measure of social upliftment, we business audiences. have recruited 60 field officers to promote micro finance - they are all from these villages From solar power and other clean and we are expecting to increase cadre. and renewable energy generation, environmentally responsible agricultural Our outreach is closely linked with all and dairy farming to our own environmental Post Offices and Sub Post Offices of best practices within the Group itself, we are Sri Lanka Post. committed fully to preserving and enhancing natural resources wherever possible. REFRESHED Returning peace in the Country has allowed A domesticated elephant - A welcome dip in the Menik Ganga, Kataragama, to beat the daytime heat us to go in and serve the people of the In 2007, LOLC became a PFI in the country. We are planning to set up three Environmentally-Friendly Solutions Fund fully-fledged branch offices in Trincomalee, Project II (E-Friends II) which has as its main Batticaloa and Ampara. Each branch will be objectives the control of industrial pollution, in close proximity to about five or six Post minimising industrial waste, protection and Offices, to expand reach and provide more saving of resources, recycling waste and customer convenience. energy saving. E-Friends II assists industries to comply with the regulations and standards In addition to our own micro finance Group of the National Environmental Act. Loan facilities, under the Government’s Poverty Alleviation Micro Finance

52 | Sustainability Review | LOLC | Annual Report 2008/09 The project is ongoing and to date, LOLC has disbursed funding facilities for projects such as waste water treatment plants, energy saving and converting industries from using fossil fuel to bio-mass produced energy.

LOLC continues to be a PFI in the NEW HORIZONS Renewable Energy for Rural Economic Orange Migrant - This butterfly found in Wariyapola made history in being a new species to the country and carried the message of the possibility more new discoveries for those who strive Development (RERED), under which we provide additional financing to promote Grid Connected Renewable Energy. We concentrate mainly on financing Grid connected mini-hydro power projects.

Internally within the scope of LOLC’s own operation, we have a plethora of initiatives that we apply across the Group, with the wholehearted support of our staff, in heightened environmental consciousness, to enact our business affairs with responsibility.

These measures range from maximising natural lighting sources within our office complexes, to the proliferation of energy saving lighting (CFL bulbs), a way of life that sees LOLC people switching off unnecessary power draw offs, such as lights, air-conditioners, computers, a responsible approach to IT which is not only power saving but also working towards a paperless office environment amongst others.

Our responsibility and commitment as well as our stewardship of Business Sustainability is only as strong as each strand of the ‘closely woven fabric’ that is our business operations.

It is where the strength of LOLC is to be clearly seen.

Sustainability Review I LOLC I Annual Report 2008/09 | 53 The HR processes begin as we seek the Human The LOLC Team ‘right’ employee to drive our business has made immense goals. The Company employs a multitude of Resources means to reach the right employee: on-line progress in growing recruitment, job fairs, recruitment camps, the success of the direct recruitment (through a referral scheme), Group as well as head hunting, walk-in interviews and more. At the conclusion of the financial year, LOLC has their own personal been able to deploy diverse employee cadres development - we in addition to its core cadre, in pursuit of realising its corporate goals while being able can truly subscribe to attract a pool of talented individuals within to this motto ‘as we and outside the industry, ensuring diversity grow, so would you’ of the workforce. The graphs below highlight the segmentation of the staff within the management, executives and non-executive cadres of the Company: The LOLC Group is firmly on course to attain its goal of becoming a total financial solutions provider. That journey is going to encompass crucial national goals of resurgence and rebuilding of North and East as peace gradually returns, to which effort the Group expects to contribute immensely.

Developing the ideal business model to deliver the desired results began with our recent restructuring and is now firmly established.

Whatever the business plan, whatever the corporate goals it must be driven by people who are competent, passionate, innovative and ethically sound. Today, we have built The Company continually invests in the the LOLC Team into a committed, service skill and competency development of oriented, energised and multi-skilled work the employees, guided by our corporate force robustly led and much admired by the goals. During the year in review 82% of financial industry. our workforce was exposed to continuous learning initiatives. An investment of Rs. 6.6 Mn was made for training with 152 interventions being provided to the staff. The introduction of new products and services

54 | LOLC | Annual Report 2008/09 HARMONY IN NATURE Asian Elephant and Spotted Deer - Elephants are messy feeders. has provided our employees with many At Yala National park, Deer will seek the company of Elephants to feed on the leaves of branches broken by them, creating for opportunities to acquire new skills thereby themselves, an otherwise unavailable opportunity enhancing their own personal capacities.

Bespoke training programmes were conducted throughout the year, which fostered team bonding, development of leadership skills and more. We received great support from our donor agencies such as FMO, ACTED and International Development Ireland Limited, whereby we were able to offer our Team overseas as well as local training opportunities.

Statistically, the LOLC Team has grown as a consequence of our targeted approach to acquiring the skills and aptitudes that will drive our business objectives into the future. At the end of the financial year in review, we had a total employee strength of 664 (Company) and 1,164 (Group). The diversity of the LOLC Team is outlined in the ensuing charts:

Human Resources I LOLC I Annual Report 2008/09 | 55 Employee retention rates are sound and we techniques that are fully inclusive and have been able to augment them year on transparent to constantly improving

RESILIENCE year through the application of simple and assessment standards we offer a very Waves, Kirinda - Momentum of the transitional wave is no match for the stability of the rock practical initiatives aimed at obtaining a comprehensive rewards and recognition better return on human capital investment. regime that is in itself a great motivator. The spread of employees based on the years of service with the Company is Awards were presented once again to our graphically represented below: employees whose service exceeded 10 years which included three of our employees who successfully completed 25 years with the Company.

We also recognise the vital importance of balancing these initiatives with adequate recreational opportunities to truly enhance the quality of our employees’ working life. DROP AT A TIME Nelum leaf - These tiny droplets on the impermeable lotus leaf provides nourishment for many even tinier insects This latter aspect is the province of SPIRIT, the Group’s Recreation Club. During the year under review, the Club organised a full calendar of recreational opportunities for the employees - the Annual Staff and Family Trip, a Group Dinner Dance, Kiddies Party, a Sinhala New Year Sports Festival and the A significant acquisition by the Group was Annual Pirith Ceremony, among others. that of Commercial Leasing Company PLC (CLC). The staff strength of CLC stands at Employees are encouraged to identify with 268, with an employee growth rate of 18.06%. LOLC in its core pursuit of true sustainability and care for society. Within the many CSR We introduced our HR policies and initiatives enthusiastically supported by staff, processes into CLC and Lanka ORIX the donation of medical supplies to the Securities (Pvt) Ltd. with a view to Sri Lanka Army Medical Unit, Anuradhapura streamlining it’s HR systems and operations was a good example of our response in the and aligning them with the Group Company. hour of need. This has been successfully completed and the benefits of the HR architecture operating LOLC CARE a new CSR initiative organised as a shared services entity have been by the Group, engages the LOLC Team in derived by the Group. contributing to the society through diverse charitable events both financially and Performance management has been through active participation. The success significantly enhanced over the year. of this initiative will ultimately draw all From emancipated performance appraisal stakeholders of LOLC to contribute to

56 | Human Resources | LOLC | Annual Report 2008/09 this initiative and thereby become worthy corporate citizens who act with responsibility to the continued enrichment of society. LOLC Care

An extension to the social sphere of the Sustainability Our multi-talented employees have Policy of LOLC, lies ‘LOLC Care’ the Company’s represented the Company in the knowledge Strategic CSR initiative, focused on contributing to the society at large with the total commitment base and sports arena and have received and support from the internal society, i.e. LOLC high commendation, thus strengthening the Team. LOLC Care an integral component of the image and reputation of the Company: Sustainability Policy of LOLC, will enable LOLC to leap into the paradigm of a Socially Responsible · 1st Prize in this year’s final of FMO Asset Business (SRB), which would be the ultimate that a and Liability Management Competition commercial entity would desire to be in.

held in Netherlands. CSR is not alien to the LOLC team who has risen to many occasions in the past to support · Champions in the Inter-Firm Badminton the needy, whether, for internal staff or for the Team Championship - 2008 organised community. LOLC Care brings the formal entity by the Mercantile Badminton Association into life within which the staff will look forward to serve the community at large. LOLC care would · Our Insurance Brokering arm won the be a ‘not for profit entity’ within the umbrella of the Hayleys AIG Inter Broker Six-a-Side LOLC Group and would be run by the staff who would zealously engage in all its endeavours, Cricket Tournament and became the considering it to be an obligation that they need Joint Champions of HNB Assurance to fulfil for society it belongs to. Beach Rugby Challenge Cup 2009 All channel offices of the LOLC Group would · Winner of the Mercantile Open have a specially designed till placed in a Badminton Men’s Single Plate conspicuous position, that would prompt staff as well as customers to contribute regularly for a Championship worthy cause. The cause would be proposed and decided by the staff from time to time. The ultimate · Representation in Ari-Lanka Mercantile ownership of the concept and the obligation to Badminton Team sponsored by the fulfil the objectives would also rest with staff and it Mercantile Badminton Association in India. is envisaged that this would facilitate not only the efficient operation of the LOLC care concept, but CONSERVATION total commitment of the team. Anagi Mala Ella, Kanneliya - A feeder forest for the State Overall, the capability, competence Plywood Corporation, later converted to a forest reserve and capacity of the organisation and its During the year under review, the staff of LOLC rose striking a balance between development and conservation. workforce have appreciated significantly, to the needs of the Army Hospital in Anuradhapura and collected funds to donate a large stock of over this financial year. We are confident that material needed by the injured soldiers. we are geared to meet and overcome the challenges of the future. In the coming months, the LOLC team will utilise contributions made to LOLC Care for Internally Displaced People and work is already underway The LOLC Team has made immense to identify the requirements. progress in growing the success of the LOLC Care not only focuses on raising funds for Group as well as their own personal worthy causes but also will prompt the LOLC Team development - we can truly subscribe to this to habitually take part in contributing to the society motto ‘as we grow, so would you’. at large.

Human Resources I LOLC I Annual Report 2008/09 | 57 Expanding our Reach

58 | LOLC | Annual Report 2008/09 A SEA OF ATTRACTION Sanderling -These migrant birds running down the beach in LOLC Branches LOLC Service Centres unison to feed on what the receding waves at Chilaw offers - the value of working in harmony 1. Rajagiriya at LIOC Filling Stations 2. Kandy 27. Morawaka 3. Kegalle 28. Trincomalee 4. Matara 29. Pilimathalawa 5. Badulla 30. Seeduwa 6. Ratnapura 31. Aluthgama 7. Embilipitiya 32. Kadawatha 8. Polonnaruwa 33. Ambalangoda 9. Anuradhapura 34. Debarawewa 10. Kochchikade 35. Beliatta 11. Colombo 7 36. Talawakelle 12. Kurunegala 37. Panadura 13. Kalutara 38. Batticaloa 14. Galle 39. Padukka 15. Nuwara Eliya 40. Deraniyagala 16. Gampaha 17. Kiribathgoda At Post Offices 18. Wattala 41. Melsiripura 19. Chilaw 42. Kuliyapitiya 20. Mahiyangana 43. Godakawela 21. Mount Lavinia 44. Balangoda 22. Union Place 45. Elpitiya 23. Ampara 46. Bulathsinhala 24. Dambulla 47. Thambuththegama 25. Horana 48. Padaviya 26. Wellawatte 49. Eheliyagoda 50. Divulapitiya 51. Nikaweratiya

Expanding our Reach I LOLC I Annual Report 2008/09 | 59 seeks to ensure that every group company Enterprise The Board seeks is in sound financial health and alive to its Governance to establish a compliance requirements. corporate culture The Company acknowledges with gratitude which stresses the favourable position it holds in the eyes of shareholders, financiers and regulators. the importance In a turbulent and uncertain environment, of team work, the Company and the Group which it heads ethical behaviour, can still avail itself of borrowing, be sure of steady demand for its products and risk appraisal be able to immediately honour all and mitigation commitments to stakeholders.

and compliance The Company, which was a pioneer in with regulatory leasing, remains a leader in a field which and statutory now numbers over 70 players. Recognising the need to carry the pioneering spirit further, requirements the Company has, over the past several years, gradually expanded into a group by the judicious incorporation of subsidiaries, The Directors believe that good governance within the financial services sector. Thus benefits all stakeholders. Following the Group companies now offer leasing, hire implementation of a strategic plan that purchase, fleet management, factoring, focused on optimising group strengths and insurance broking, shariah compliant synergizing expertise and functions, the financial products, fixed and savings Group is now working within a business deposits, pawning and micro finance. unit structure. Procedures are constantly being reviewed to ensure speed and Acquisitions too have been synergistic efficiency, while eliminating duplication of with the Group’s core products. Associate work or under-utilisation of resources. By companies focus on cultivation and establishing clear lines of accountability and reforestation, tying in with the Group’s a regular reporting process, the Board is concept of sustainable development and a able to monitor productivity, profitability and sharper focus on micro finance. compliance with required standards. Group procedures, practices and policies The Board now takes a holistic view of the are adopted by each new company Group. Reports of the subsidiary CEOs, within the Group, thereby ensuring the relating not only to performance but also maintenance of tried and tested checks to compliance and risk management are and balances. The Board seeks to establish reviewed by the Company’s Board of a corporate culture which stresses the Directors regularly. Believing that a chain is importance of team work, ethical behaviour, only as strong as its weakest link the Board risk appraisal and mitigation and compliance with regulatory and statutory requirements.

60 | LOLC | Annual Report 2008/09 AWAITING REVIVAL Udawalawe tank - As sure as the setting sun will rise tomorrow, This has ensured sustainable growth and Detailed below are the corporate the seemingly ‘dead’ tree will spring in to life development for the LOLC Group, thereby governance principles advocated by the when the water level in the tank recedes enabling it to play a significant role in helping Institute of Chartered Accountants of to rebuild the nation and to restore hope and Sri Lanka and LOLC’s compliance thereto. opportunities for all areas of Sri Lanka.

Governance Principle Conformance

Board of Directors and Board Committees

Composition of the Board The Board is made up of 11 Directors, including the Non-executive Chairman and the Executive Managing Director.

Of the 11 Directors, 8 are Non-Executive. In this way, LOLC observes the recommended best practice of having the majority of its Directors Non-Executive. Further, LOLC is in compliance with the Corporate Governance requirements of the Colombo Stock Exchange relating to the number of Independent Directors.

The names of the Directors and their profiles are given on pages 22 to 25.

Procedure for As part of the review of Corporate Governance practices and appointment of new procedures begun last year, a Nomination Committee was set up. As Directors there were no vacancies in the Board, the Committee did not face the necessity of making a recommendation to the Board for appointment of a new director.

While no appointments have been made, the Board is always aware of the need for the Company to have Directors who are conscious of their duties and responsibilities and who bring to the Company the benefit of their experience and expertise.

Disclosure of details The appointment of a new Director is disclosed to the Colombo Stock of new Directors to Exchange for dissemination to the public, together with a brief resume shareholders of the said Director. This resume will provide details of the Director’s qualifications and experience. The Central Bank of Sri Lanka is also notified of the appointment and full disclosure is made of other directorates and significant shareholdings.

Enterprise Governance I LOLC I Annual Report 2008/09 | 61 Governance Principle Conformance

Holding of regular Board Board meetings are held every month. As recommended by the BEAUTY OF THE ORDINARY meetings Corporate Governance Committee, the Board papers were reviewed Mushroom - A ray of light which pierced the canopy very briefly at Sinharaja forest brought out the beauty and additional papers requested. The Managing Director/CEO of this otherwise common mushroom. provides the Board with a brief review of the macro environment and current market conditions. Comprehensive board papers are provided, covering not only the performance of the Company but also confirmations of compliance with relevant statute and regulation and risk reviews. Minutes of Meetings of Board Sub committees are also included, so that the whole Board is kept well informed of the affairs of the Company.

Availability of formal The Board is conscious that it is responsible to all stakeholders, schedule of matters including the regulators, for ensuring that the operations of the specifically reserved for Company and of the Group are carried out ethically and in accordance the decision making of with regulations. the board Authority for routine operations has been delegated to board subcommittees or subcommittees comprising Executive Directors and Senior Management.

The Board remains responsible for: · Formulating the strategy, vision, values and ethics of the Company · Appointing the CEO and key senior officers · Approving budgets and targets · Monitoring performance against the budgets and targets · Ensuring that controls are implemented, including an adequate risk management system and monitoring these controls · Ensuring compliance with statutory and regulatory requirements · Obtaining periodic reports on issues in the micro and macro environment which could impact the Company · Approving investments, acquisitions and diversifications · Approving policies and procedures · Approving shareholder communication including interim and annual financial statements

Obtaining of independent Whenever felt necessary, the Board seeks the independent professional professional advice advice of third parties. These include the Company’s lawyers, auditors or tax consultants and such advice is sought at the Company’s expense.

Company Secretary The Company Secretary is a qualified Chartered Secretary, with over ten years experience with the Company, apart from many years experience prior to her joining the Company. The Company Secretary is present at all Board and Board subcommittee meetings. Her advice and support can be sought by any Director, and she is the contact point for any shareholder. She advices the Board on good Corporate Governance practices and requirements, together with relevant statutory and regulatory requirements. The removal of the Company Secretary is a matter for the whole Board.

62 | Enterprise Governance | LOLC | Annual Report 2008/09 Governance Principle Conformance

Independent judgment The Directors take into consideration the information provided by the Management in Board papers and their recommendation. However, in full awareness of the fact that it is the Directors who are answerable for such decisions, the Board critically reviews all such information and recommendations and draw on their expertise and experience to help take decisions.

If any Director should have any interest in a transaction being discussed, he/she discloses it and such disclosure is recorded in the Minutes.

Dedication of adequate At the monthly Board meetings adequate time is devoted to discussion time and effort to enable all Directors to be apprised of the Company’s performance in comparison to agreed targets and conformance with all regulations. Following the Corporate Governance review and the expansion of the Board papers requested, the Board has redesigned certain Board meetings to ensure that there is in-depth discussion of strategy and risk management apart from careful monitoring of performance and compliance. If is felt that an issue needs to be studied in even greater detail, it is referred to a Board Subcommittee or a Management Subcommittee with a report to be submitted subsequently.

Training for Directors While formal training has not been considered necessary, the Board ensures that it stays abreast of market and competitor information, new trends and requirements and potential risks by information provided both by senior management and also from other sources. Chairman and CEO

Clear division of The roles of Chairman and Chief Executive Officer are separate and responsibilities distinct. This ensures a balance of power between the Non-Executive Chairperson and the Executive Managing Director .

Role of the CEO The Managing Director, who also functions as Group CEO, oversees the operational functions of the Company and reports to the Board on Company and Group performance, adherence to agreed policies and procedures, risk mitigation measures and governance and compliance issues.

Role of the Chairman The Non-Executive Chairperson ensures that Directors are provided PURITY WITHIN with the information necessary to assist in decision making and critical Red Water lily - Even though the inception is in mud and murky water this flower which reflects the impermanence of life is fit analysis of Company performance. She encourages all Directors to enough to be picked and offered to the holiest of beings contribute at meetings.

Financial acumen There is a sufficient amount of financial acumen and knowledge available among the Directors. The advice of the auditors and tax consultants is called for when required.

Balance of the Board/ The majority of the Directors are Non-Executive. Reports from the senior independence of management and the Executive Managing Director help to maintain a Directors good flow of information and a system of checks and balances.

All Board subcommittees include at least one of the independent directors and where required by the Corporate Governance requirements of the Listing Rules of the Colombo Stock Exchange, the relevant Committee comprises only Independent Directors.

Enterprise Governance I LOLC I Annual Report 2008/09 | 63 Governance Principle Conformance

Balance of the Board/ The composition of the Audit Committee, the Corporate Governance independence of Committee, the Remuneration Committee and the Nomination Committee Directors (Contd.) are given on pages 89 and the reports of the Committees appear on pages 91 to 96 respectively.

Mr. M.T.L. Fernando has served as a Director for over nine years. Over the course of his illustrious career, Mr. Fernando has served on the Boards of several private and quoted companies, and also with state enterprises. The Board values his expertise and integrity and is satisfied that Mr. Fernando remains independent, despite his years of service.

Mr. R.A. Fernando has just completed nine years on the Board. Mr. Ravi Fernando holds a Postgraduate Certificate in Sustainable Business from Cambridge University and is currently reading for his Ph.D. at PIM on ‘Strategic Corporate Responsibility and Sustainable Business’. His expertise is especially valuable to the LOLC Group as it focuses on sustainable development and environmental responsibility. The Board is satisfied that Mr. Ravi Fernando’s ability to function as an independent Director is not affected by his years of service.

Supply of quality The Board has reviewed the information it receives and has further information refined and enlarged its scope. Reports submitted regularly by Senior Management, including CEOs of subsidiary companies, provide information on performance, compliance and risk. The Board seeks to ensure that focus shifts from micro to macro, so that facts can be viewed in context and areas for concern are highlighted

Availability of Any additional information which the Board seeks is provided by the management information Management. In the event that it cannot be provided immediately, it will be made available by circulation subsequently.

Re-election of Directors With the exception of the Executive Managing Director, all Directors retire by rotation and offer themselves for re-election. The Board considers each Directors’ performance and if thought appropriate, recommends to the shareholders the re-election of a retiring Director. ESSENCE OF LIFE Sunset, Kalpitiya - Just before dying, for a few minutes, Appraisal of Board It is the opinion of the Board that the Company’s performance, and the sun will appear as a ball of fire form the beach at Kalpitiya. This primary source of all life on earth performance the satisfaction of the stakeholders and regulators is a measure of the will present you with this splendid view if you are there effectiveness of the Board. at the right time during these few minutes The Group’s finance company, Lanka ORIX Finance Co Ltd (LOFIN) is the only non-bank to have obtained the approval of the Central Bank of Sri Lanka (CBSL) to operate foreign exchange savings products. LOFIN is also approved by the CBSL to offer shariah compliant Islamic finance products. The Company continues to enjoy funding from both local and foreign banks. The Group’s clientele continue to seek our products and services. The Board feels that all this reflects the standing the Company and the Board has in the eyes of all stakeholders.

The Nomination Committee did not make recommendations on new appointments as there are no vacancies on the Board at present. However, Board performance is being reviewed.

64 | Enterprise Governance | LOLC | Annual Report 2008/09 Governance Principle Conformance

Appraisal of CEO/MD The MD also serves as the Group CEO, and reports to the Board on all operational, financial, risk mitigation and compliance issues of the MASTERING THE ELEMENTS ‘Gini Keli’, Dalada Perahera, Kandy - The traditional art of Company and the Group. It follows therefore that his performance is illuminating the path of the pageant measured against the standards laid down for each of those areas. The profile of the MD is found on page 22. Directors’ Remuneration

Directors’ The Remunerations Committee increased its scope and widened its remuneration policy area of review. Remuneration of Directors and of senior management is being reviewed, in the light of respective skill set, experience and contribution.

All recommendations of this Committee are reviewed by the Board as a whole, to ensure balance and control.

The Remuneration Committee comprises independent Directors. The Non-Executive Chairperson is invited to attend meetings.

The Remuneration Committee Report is on page 89

Disclosure of The Directors remuneration is disclosed on page 89 remuneration Relationship with Shareholders

Constructive use of All shareholders receive the prescribed period of notice of any shareholder shareholder meetings meeting. Shareholder meetings have always been cordial and conflict free. The Board ensures that any shareholder query is responded to. As the senior management is always present at all shareholder meetings, shareholders are free to seek additional clarification.

Should a shareholder be unable to attend, such shareholder has the opportunity to convey his/her views through a proxy. As the Company provides two way proxy forms, all shareholders are able to communicate their wish on any decision which has been submitted for their approval.

Each decision voted on Each item on the agenda is taken up separately for discussion and separately voting. Re-election of Directors are always voted on separately for each such Director.

Procedures for voting For each agenda item, the Chairperson calls for a show of hands on assent and on dissent. The outcome of each decision is then declared by the Chairperson based on the show of hands.

Should a poll be called for, the Auditors will be available to oversee the counting of the poll votes, after which the Chairman will declare the result.

The Board encourages shareholders to actively participate at all shareholder meetings.

Availability of At shareholder meetings the entire Board is present. Therefore, those subcommittee Chairmen Directors who serve as Subcommittee Chairmen are available at such meetings.

Enterprise Governance I LOLC I Annual Report 2008/09 | 65 Governance Principle Conformance

Disclosure of major There have been no such transactions, but should there be any, they SHROUDED IN BLESSING transactions will be disclosed in accordance with the regulations. Maskeliya - The areas surrounding the foothills of the Adams peak, where Lord Buddha is believed to have tread, Enhancing shareholder The Board is deeply committed to enhancing shareholder value is often covered with white carpets of pure mist symbolizing philosophy the advocated value and retaining stakeholder confidence. The Board has always been conservative in lending, prudent in investing and conscious of the need for synergies when diversifying or acquiring new businesses. This has resulted in the Company being one of the few which are not in need of Government support during this time of crisis being faced both locally and internationally. The Group’s finance company has liquidity ratios which are better than satisfactory and more than legally required.

As at 31 March 2009, the Company’s market capitalisation was Rs. 3.3 Bn The share price as at end of trading on 31 March 2008 was Rs. 69.25.

An interim Dividend of Rs. 2.80 per share was paid on 26 June 2008. Financial Reporting

The Company provides shareholders with interim Financial Statements. These Financial Statements are issued within the stipulated timelines. The Annual Report contains comprehensive financial reports. All these Financial Statements are prepared in accordance with the Company’s Act No. 7 of 2007, the Listing Rules of the Colombo Stock Exchange and Sri Lanka Accounting Standards and comprise both Company figures and Group consolidated figures.

All reports required by the Central Bank of Sri Lanka or of the Colombo Stock Exchange are submitted in the manner required and within the prescribed timelines. At its monthly meetings the Board monitors compliance with statutory and regulatory requirements.

All price sensitive information is disclosed promptly.

The Annual Report contains detailed reviews of the operation of the Group.

Declaration by the The Directors’ annual report on the affairs of the Company is found on Directors page 91 to 96

All Directors’ are requested to make regular disclosures of any interests in contracts with companies of which they (or their spouses) are Directors and/or significant shareholders.

Such disclosures are tabled at Board Meetings and recorded in the Minutes.

Directors’ responsibility The statement by Directors’ on their responsibility for preparation and for financial reporting presentation of Financial Statements is on page 97.

Management report Business Impact Report on pages 32 to 43.

Going concern The Board is confident that the business is a going concern. This statement is also included in the Annual Report of the Board of Directors on the Affairs of the Company on pages 91 to 96.

66 | Enterprise Governance | LOLC | Annual Report 2008/09 Governance Principle Conformance

Summoning an EGM if Asset management is carefully monitored and stringently controlled. assets fall below half Therefore, such a situation has not arisen. However, should such a shareholders funds situation arise, the statutory procedure will be complied with. Internal Controls

Periodic review of controls Following the Corporate Governance review, risk reports are now being requested regularly from all senior managers and subsidiary CEOs. It is expected that these will enhance the effectiveness of existing controls and highlight any controls which need to be introduced or further refined.

The Enterprise Risk Management Division reviews controls as a part of its regular audit reviews and these are discussed by the Audit Committee. The Committee will then forward its recommendation to the Board or the Executive Committee for approval and implementation.

In the current financial environment, the Executive Directors have been tasked with asset management and maintenance of liquidity.

Reporting to the The Risk Management review is on page 72. shareholders on risks Audit & Auditors

Audit Committee The Audit Committee comprises three Independent Directors. The Committee is chaired by a person with accounting qualifications and experience. The Chairperson, CEO and CFO are invited to attend Meetings of the Committee. The Audit Committee Charter details the role of the Committee.

The Audit Committee meets quarterly to review the financials and also study reports of the Enterprise Risk Management Division and make recommendations to the Board for implementation by the Executive Managing Director. Should the need arise, additional meetings are held. Minutes of the Audit Committee Meetings are copied to all Directors and tabled at Board Meetings.

Relationship with external The Audit Committee also meets with the External Auditors to review the ADAPTATIONS auditors audits and the objectivity and independence of the Auditors. New cultivation, Knuckles range - Non traditional crop cultivation. Tomatoes replacing paddy, the traditional crop, as it provides a higher income to the farmers The Audit Committee Report is on page 88. Corporate Governance Practices

The Company ensures compliance with the Corporate Governance Rules of the Colombo Stock Exchange. It also benchmarks its governance practices against the code of Corporate Governance for banks and other finance institutions issued by the Central Bank of Sri Lanka, the Code of Corporate Governance issued by the Institute of Chartered Accountants and OECD principles.

Enterprise Governance I LOLC I Annual Report 2008/09 | 67 Governance Principle Conformance

Compliance The Company complies with all requirements of the Central Bank of Sri Lanka applicable to companies registered under the Finance Leasing Act No. 56 of 2000, the Listing Rules of the Colombo Stock Exchange, the Companies Act No. 7of 2007, the Financial Transactions Reporting Act, the Anti Money Laundering Act and all other applicable laws and regulations.

In keeping with world trends, the Company is moving towards enterprise governance, which covers both conformance and performance.

Self-governance initiatives Codes of Ethics have been formulated for Directors and for employees. by the Company The standards and values expected from the practice of these ethics are captured in the bi annual performance appraisals, which means that adherence is rewarded and deviation noted for corrective action.

The Company is a member of The Financial Ombudsman Sri Lanka (Guarantee) Ltd. A Compliance Officer has been appointed for the head office and every branch location. This Officer is available to meet with any client who is dissatisfied with the Company’s service.

The Company has adopted the Voluntary Code on dealings by Directors, CEOs and connected parties issued by the Colombo Stock Exchange. For several years now, such transactions, when they occur, have been disclosed to the CSE for publicising.

The funding decisions of the Company are also influenced by the impact the applicant’s operations have on the environment. As a further development to this, the Company is currently formulating an environmental policy.

The Company complied with the directive of the Central Bank of Sri Lanka to establish a reserve fund.

A Group IT Steering Committee, comprising the Chairperson, Executive Director, Chief Information Officer and Chief Risk Officer meet periodically to review IT developments within the Group and connected REBUILDING controls. This Committee also discusses available technology and Waves - The beauty of these waves breaking on the shores off makes recommendations to the Board on Improving systems. Tangalle hides the havoc they created with the Tsunami and the efforts that went in to rebuilding of the nation The Company was proactive in taking cautionary measures with funding and was one of the first to issue an Anti Money Laundering Policy. This policy, recently reviewed, includes procedures to be followed. Provisions of this policy are built into credit appraisals.

A policy on Corporate Social Sustainability was recently reviewed. With the Group’s increasing focus on sustainability it is envisaged that there will be more initiatives next year.

68 | Enterprise Governance | LOLC | Annual Report 2008/09 Governance Principle Conformance

Relationship with The Board is aware of the environment within which it operates and stakeholders seeks to interact with all its stakeholders for mutual benefit. ENJOY THE JOURNEY The Hamilton Canal - built by the Dutch to transport spices and With the intensifying of the Group’s focus on micro finance, a subsidiary, other tradeware from Chillaw to Colombo, along Muthurajawela is bordered by lush mangroves LOLC Micro Credit Ltd. will be reaching out to support the rural entrepreneur. It is expected that this will lead to development of the rural areas as well as the upliftment of the lifestyle of the individual entrepreneur.

LOFIN has established a Shariah Council, which reviews and endorses all Shariah compliant products offered by the Group. The Group seeks in this way to provide facilities to a section of society which previously did not have access to financial products. These products offered, while economically benefiting them are also religiously acceptable.

LOFIN is looking at providing migrant workers with reliable and secure ways to remit home their hard earned wages for the care of their families here in Sri Lanka. The workers are also offered a measure of control over the money being remitted.

The Group is conscious of the value added by its employees. Long service awards have been set up and the Company is gratified by the number of employees who look on the Company as their employer of choice and have put in years of service ranging from 30% to 75% of the Company’s own lifetime. While keeping in mind the need for liquidity and the conservation of resources (which will be crucial to face turbulent financial times ahead) the Directors are ensuring that remuneration packages remain attractive and that jobs stay secure.

The Group is frequently reminded of the desire of its employees to provide assistance to the wider community, from orphaned children to those caught in both sides of the current armed conflict. To help channel these efforts, the Company is in the process of setting up a dedicated project which will serve as the focal point for all donations and other offers of support. Board Committees

Audit Committee The Audit Committee comprises the following: M.T.L. Fernando - Independent Director (Committee Chairman) M.D.D. Pieris - Independent Director R.A. Fernando - Independent Director The Chairperson, Chief Executive Officer, Chief Financial Officer and Chief Risk Officer are invited to attend meetings.

The Audit Committee meets quarterly to review the interim Financial Statements prior to dispatch. The Committee also meets periodically with the External Auditors, to discuss any issues of concern. Reports submitted by the Chief Risk Officer are discussed, and on occasion the head of the relevant front office or support function Division is also called in, to ensure that an issue is properly understood and that appropriate and timely remedial action can be taken.

Enterprise Governance I LOLC I Annual Report 2008/09 | 69 Governance Principle Conformance

Corporate Governance The Corporate Governance Committee meets every quarter. The new DARE TO VENTURE Committee initiatives introduced, which include monthly or quarterly risk and Moon - Early humans who worshiped the moon never imagined that one of them will walk on it some day. There are those who macro reviews at Board level, are being evaluated for effectiveness and still worship the moon in the deep jungles of the Amazon but possible expansion. the future will belong to those who dream and dare to venture, breaking convention The Committee comprises the following : M.D.D. Pieris - Independent Director (Committee Chairman)

M.T.L. Fernando - Independent Director Mr. R.A. Fernando - Independent Director Mrs. R.L. Nananyakkara (Non-Executive Chairperson) The Executive Director and the CEO are invited to attend meetings. The Corporate Governance Committee, which has a documented charter, reviews the Company’s compliance with all applicable legislation and regulations and ensures that periodic reports are submitted to the Board confirming compliance. The Committee meets quarterly. The Corporate Governance Committee Report is on page 90.

Executive Committee The Executive Committee comprises the following : Mrs. R.L. Nanayakkara - Non-Executive Chairperson (Committee Chairperson ) I.C. Nanayakkara - Executive Deputy Chairman M.D.D. Pieris - Independent Director K.U. Amarasinghe - Executive Director W.D.K. Jayawardena - Managing Director and Group CEO

This Committee, which meets monthly, reviews the performance of all business units. Issues relating to support functions are also taken up for discussion and decision. All Divisional Heads are invited to attend Executive Committee Meetings. The Divisional Heads and their profiles are provided on pages 26 to 31.

The presence of the Heads of all Divisions, both front line and back office functions, ensure that decisions taken have the support of all and have been taken after considering all facets of the issue. The Minutes of these Meetings are tabled at Board Meetings, ensuring that the entire Board is kept informed of the decisions taken.

The Managing Director also chairs weekly management meetings at which performance against goals, set every quarter, are monitored.

70 | Enterprise Governance | LOLC | Annual Report 2008/09 Governance Principle Conformance

Remuneration Committee The Remuneration Committee comprises Independent Directors. The Non-Executive Chairperson and the Cheif Executive Officer are invited to attend meetings. The Remuneration Committee meets annually. The Committee comprises R.A. Fernando - Independent Director (Committee Chairman) M.T.L. Fernando - Independent Director M.D.D. Pieris - Independent Director

The Remuneration Committee at it’s meeting this year expanded it’s scope and made further recommendations to the Board on the remuneration of Executive and Non-Executive Directors and Senior Management.

The Remuneration Committee Report is on page 89.

Nominations Committee The Nomination Committee comprises the following three Independent Directors and one Executive Director: M.D.D. Pieris - Independent Director (Committee Chairman) M.T.L. Fernando - Independent Director R.A. Fernando - Independent Director I.C. Nanayakkara - Executive Deputy Chairman This Committee meets annually to make recommendations to the Board on potential candidates who may be suitable for Board seats. As there have been no vacancies on the Board, no candidates have been identified/recommended .

The Nominations Committee report is on page 89.

CONTINUITY Stilt Fishermen, Southern Coast - Most of these fishermen lost everything they owned in the Tsunami, but they have resumed their livelihoods. Some still engage in ‘stilt fishing’ there are others who own deep sea trawlers now

Enterprise Governance I LOLC I Annual Report 2008/09 | 71 all levels. Thereby decisions at all levels Enterprise Risk We at LOLC strongly are taken with a consciousness of potential risks and rewards, which gives a reasonable believe that the assurance that adequate and effective risk Management ultimate risk mitigation controls are in place to manage mitigation strategy, the risks within levels.

is building an The Enterprise Risk Management (ERM) organisation culture division synergises the resources and the expertise of the Internal Audit, Information where all levels Systems Audit and Risk Management of employees have functions and Risk Management & Audit the required skills Committee (part of the Governance framework) in providing the Board with a and knowledge to reasonable assurance that LOLC’s risk appraise and manage control framework is both effective and consistent in defense against the identified the risk on operations profile of risks. under their purview which will enhance the value-creation ability of LOLC

Enterprise Risk Management Having defined risk as ‘anything which hinders the achievement of our corporate objectives’ and conscious of the myriad of risks and their inter-related nature, LOLC focuses on an Enterprise Level Risk Management Strategy. We strongly believe that with the evolution and expansion of business, the risk management initiatives should be adopted to effectively provide the management with reasonable assurance over strategy delivery, implementation of plans and the control environment. Further we believe that as each business entity is unique, the risk management initiatives should be tailor-made to suit the Risk Management Framework & Strategy organisational dynamics to be effective. The Risk Management Framework of LOLC As such, at LOLC we strive to inculcate a is formulated encompassing the Business culture where conscious appraisement of Units, Sales and Channels and Corporate risk pervades across the organisation, at Solutions whilst keeping the risk ownership

72 | LOLC | Annual Report 2008/09 RAYS OF LIFE Sunrise, Randenigala - The first rays of the morning sun beaming with them. We adopt a defense in-depth Risk Mitigation Model through the clouds and mist over these mountains will be greeted by an army of birds with their pleasing calls that would announce strategy and our risk mitigation controls are the dawn of a new day layered to provide preventive, detective as well as compensating controls addressing both macro and micro-level-risks.

Defence in Depth/Layered Defence Risk Environment

Identified risks are categorised at three levels as depicted above. The ultimate objective of the above strategy is to lower every risk identified to compliance level which in practice means that there are laid down policies, procedures and best practices in order to manage the risk at acceptable level within the risk appetite of the organisation. We practice total quality management concepts at ERM where we constantly try to improve on our approach, reporting mechanism and mitigation

Enterprise Risk Management I LOLC I Annual Report 2008/09 | 73 Self risk assessment by the process owners is an integral part of the management supervision function as the risk ownership remains with the process owner. The control mechanisms formulated are reviewed by ERM for adequacy and consistency thus ensuring that minimum controls are built in FOCUS ON DETAIL to each and every process/activity of the Lindernia -This tiny wild flower found at Hettipola organisation. The second level denotes is one of the 3771 flowering plants found in the country strategies in line with the dynamic business the formal function of risk assessment environment, ensuring that embedded risk undertaken by the Internal Audit/ERM. The controls are both current and are constantly perceived risk assessment is an initiative reviewed for effectiveness. formulated by ERM in order to function as The Risk Management Process at LOLC an indicator of perceived risk levels among stakeholders of a process excluding the Risk Assessment process owner and formal mechanisms are The ERM division adopts a 3600 approach to in place to communicate concerns which risk assessment. includes monthly reporting to ERM; ERM conducts interviews and fraud management initiatives which in turn facilitate execution of a comprehensive risk assessment.

Risk Categorisation & Prioritization LOLC adopts a two dimensional risk categorisation matrix which is customised to profile risks both on qualitative and quantitative aspects. The categorisation and ratings allow us to prioritize risk responses and has a secondary usage as a risk scoring model which ERM uses to decide on allocation of ERM resources and on the audit frequency.

RISK MATRIX

(5) Very High p>80% 5 10 15 20 25 (4) High 60%

80% 4 8 12 16 20 (3) Medium 40%

74 | Enterprise Risk Management | LOLC | Annual Report 2008/09 Risk Score Qualitative Measure Rank Priority for Action 1-3 Negligible/Low Acceptable Risk 4-5 Low/Medium Risk 5 6-8 Medium Risk 4 9-12 High Risk 3 13-20 Critical 2 20> Catastrophic 1

Risk Control and Monitoring Risk Reporting The annual risk review plan of LOLC and ERM conducts its Risk Audits and Reports its subsidiaries is formulated by ERM and to the Audit Committee/Integrated Risk is subjected to a review quarterly in order Management Committee. Reporting to retain a high degree of flexibility which mechanism constitutes a three tier approach enhances the ability of ERM to address high Pre-planned reviews as for the yearly risk areas on a priority basis. y Plan of ERM ADAPTING, SURVIVING Rose-ringed Parakeets - These birds commonly found in y Monthly reviews initiated by ERM Colombo feed on raw rice kept for them by bird friendly home owners. Their adaptability has resulted in their based on emerging risks and changing success as a species business and operational practices

y Investigative and forensics oriented reviews and reviews requested by the management.

Risk Profile of LOLC We maintain a risk registry and the process maps of LOLC including embedded controls in order to clearly identify the risks involved. The following is a broad level risk profile of LOLC and the perceived confidence level of the mitigation strategies adopted by the risk owners. A NATURAL BOUNTY Rubber with a multitude of users, is a main export crop of Sri Lanka, growing in abundance with little attention

Identified control weaknesses require risk owners to formulate mitigation strategies based on recommendations made. The effectiveness of the controls are subsequently reviewed by ERM for consistency.

Enterprise Risk Management I LOLC I Annual Report 2008/09 | 75 Risk Category Risk Primary Impact Secondary Control Confidence Impact Level

THE FIST OF DETERMINATION Financial Liquidity Solvency Sustainability y Maintenance of the High Knuckles Range - The forest reserve that is nestled in this appropriate asset & mountain range is home to many endemic plants and animals liability mix & maturity structure and constant monitoring by ALCO

Interest Rate Profitability Cost of y Maintenance of matching Medium Funds interest rate maturity structure y Negotiating long-term High funding lines y Maintenance of an High appropriate volume of floating rate assets

Balance Sheet Financial Sustainability y Maintenance of High Structure Leverage appropriate asset & liability mix y Asset securitising High y Constant monitoring by High ALCO

Foreign Profitability Liquidity y Maintenance of matching High Exchange FOREX reserves at banks

Income and Profitability Sustainability y Strategic steering of the High Profitability business Structure Risk y Maintenance of a diverse High product portfolio y Diversification of income Medium generating activities

Capital Borrowing Sustainability y Constant monitoring & High Adequacy maintenance of a healthy gearing ratio y Asset securitisation High

Credit Asset QualityProfitability y Credit policy High y Delegated lending limits V. High y Monitoring of credit High concentration y Constant credit V. High monitoring y Aggressive recovery V. High mechanisms y Collateral based lending V. High

Investment Asset Value Return on y Diversified investments Medium Assets y Mark to market & prudent V. High provisioning policies

76 | Enterprise Risk Management | LOLC | Annual Report 2008/09 Risk Category Risk Primary Impact Secondary Control Confidence Impact Level

Operational Failure of Internal Operational Reputation & y Internal control High controls effectiveness Image framework y Internal control reviews V. High y Review by external High auditors

Technology Operational Availability y Implementation of a High effectiveness proper ICT security infrastructure y Recovery strategies High y IT audit reviews High

Mismanagement Financial Reputation & y Fraud management V. High & fraud Image policy & guidelines y Zero tolerance on fraud V. High & abuse y Corporate whistle High blowing hot line & witness protection programme y Management insight High

Business Business Market Share Profitability y Regular review of the High Strategy strategic plan y Aggressive marketing V. High strategy y Market research & High intelligence

Statutory Legal Regulatory Reputation & y Anti money laundering High Image policies y 100% regulatory V. High compliance y Constant monitoring of V. High the legal environment & regulatory requirements y Staff awareness & non- PERSEVERANCE disclosure agreements High Cotton Teal - This male is enjoying a well earned rest after having to fight for hours with two other males to win over Image & Public Reputation Corporate governance V. High his female. In the animal kingdom it’s only the y strongest that is able to pass on his genes reputation confidence policy y Code of ethics V. High y Strategic CSR Medium

Event Disaster Availability Sustainability y Disaster recovery & Medium recovery business continuity planning framework & periodic testing y Reduction of inter- High dependability of branch network & head office

We at LOLC strongly believe that the ultimate risk and manage the risk on operations under their mitigation strategy, is building an organisation purview which will enhance the value-creation culture where all levels of employees have ability of LOLC. the required skills and knowledge to appraise

Enterprise Risk Management I LOLC I Annual Report 2008/09 | 77 The Group acquired Commercial Leasing With the recent Company PLC (CLC) during the first quarter Financial of the year, a move which saw the Group military victory becoming the market leader in the leasing Review as the country industry. During the fourth quarter, the Group spun-off its Micro Credit Business Unit as a returns to normalcy separate company, LOLC Micro Credit Ltd. after three decades, (LOMC). Lanka ORIX Factors Ltd. (LOFAC) the pioneer debt factoring company in LOLC looks forward the country was merged with the Parent to play a vital role Company, LOLC. in the positive economic change, being part of the resurgence and rebuilding of the nation

LOLC Group The financial year saw the Group steer through a period where the global as well as local financial industries witnessed an extremely challenging period. The global recession and tightening of liquidity had a During the year under review, the Group’s negative impact on the local economy with a income increased by 66% to Rs. 9.8 Bn from reduction in foreign investments as well as a Rs. 5.9 Bn recorded during the previous slowdown in exports. year. In addition, the Group reported sales revenue from instalment sales of Rs. 3.5 Bn With the recent military victory as the country during the year. returns to normalcy after three decades, LOLC looks forward to play a vital role in the positive economic change, being part of the resurgence and rebuilding of the nation. LOLC sees great opportunities and potential to partner the best bilateral and multilateral funding institutions in the world who will add this initiative to their development goals and LOLC is geared with its strategies and processes to be the catalyst in taking same to the neediest through the SME and Micro Sector business model. The Group looks forward to this in the coming year and the years to come.

78 | LOLC | Annual Report 2008/09 POWER OF NATURE St. Claire’s Falls - The upper Kotmale Hydro Power Project may However, the high interest rate and high The Group’s Profit Before Tax increased by compromise the beauty of this water fall, but will provide inflationary environment that the Group 5.4% from the previous year to Rs. 1.25 Bn. much needed energy to develop the country operated within had a negative impact on However, due to the taxation charge, profit profitability during the year under review. after tax reduced to Rs. l.l Bn. The Group’s net interest expense increased by 89% to Rs. 6.4 Bn when compared with The lease and loan portfolio of the Group the previous year due to the increase in increased by 51% from Rs. 20.2 Bn to the quantum of borrowings as well as the Rs. 30.5 Bn, contributed to by organic increase in cost of funds. growth as well as acquisition of CLC. The total borrowings of the Group increased by Provisioning for doubtful debt during the year 39% from the previous year to Rs. 31.8 Bn. was Rs. 370 Mn increasing from the previous The deposits canvassed by the Finance year’s provision of Rs. 172 Mn. Company increased the deposit base by 59% to Rs. 5.3 Bn.

Financial Review I LOLC I Annual Report 2008/09 | 79 Lanka ORIX Leasing Co. PLC (LOLC) LOFAC was merged with LOLC during the

PRECIOUS WATER 4th quarter and the financials have been Bopath Ella, Ratnapura - The water fall gets its name from its restated to reflect the impact of the merger. shape, which resembles the Bo- Leaf, the leaf of the Bo-Tree During the year under review, the Company’s strategic investments in subsidiaries, associates and joint ventures, increased to Rs. 3.3 Bn from Rs. 1.3 Bn during the previous year, fuelling the growth of the Group. The increase in strategic investments had a negative impact on the financial performance of the Company as the benefits of the investments are reflected in the consolidated financials.

The Company’s net interest expense increased by 42% to Rs. 4.2 Bn when compared with previous year due to the

GETTING A HEAD START increase in the quantum of borrowings as Fishing Wadduwa - Fishermen heading out to well as the increase in cost of funds. sea on a locally crafted fishing vessel,

The executions of the Company were maintained at the same level as the previous year with new executions of Rs. 12.2 Bn. The aggressive growth seen in the previous year was not seen in the current year, with the change in strategic direction by the Company to concentrate on credit quality of the new portfolio given the possible impact from the economic crisis. The Company’s provisioning for doubtful debt during the year increased to Rs. 200 Mn The income of the Company increased by from Rs. 115 Mn during the previous year, 23% to Rs. 6.1 Bn during the year under reflecting the negative economic conditions review and reported sales revenue from prevailing in the country and the resultant dip instalment sales of Rs. 3.5 Bn. The Company in collections. The Company’s other income was able to report a gross profit of Rs. 503 Mn declined to Rs. 71 Mn from Rs. 261 Mn, from instalment sales.

80 | Financial Review | LOLC | Annual Report 2008/09 primarily due to marked to market losses The Company’s lease and loan portfolio of the Company’s share portfolio, main remained at the same level as the previous contributor being the drop in share price of year. The transfer of the Company’s Micro Peoples Merchant Bank. The resultant Profit Credit Portfolio to LOLC Micro Credit Ltd. Before Tax for the year was Rs. 580 Mn (LOMC) as well as the change in focus and the Profit After Tax for the year was during the second half of the year towards Rs. 504 Mn. The increase in operating maintaining a high asset quality within the expenses and increase in the borrowing cost turbulent economic environment contributed affected the cost to income ratio. towards the lack of growth in the Company’s loan book. In addition, the Company has a factoring portfolio of Rs. 1.2 Bn following the merger of LOFAC.

The increase in interest cost had a negative impact on the Company’s interest cover with the interest cover coming down to 1.14 times BLESSINGS FROM AFAR Sigiriya & Pidurangala - the historically renowned fortress from 1.28 times at the end of the year. kingdom and the naturally fortified mountain temple, an uncommon site only seen from the bund of the Thalkote Tank

Financial Review I LOLC I Annual Report 2008/09 | 81 Although the financial markets contracted during the year and many financial institutions were faced with liquidity problems, the Company was able to source additional financing locally as well as from international funding partners. The Company’s total borrowings increased by 12% from the previous year to Rs. 24.8 Bn. The Company’s debt to equity ratio increased to 4.87 times from 4.68 times by end of the year.

Lanka ORIX Finance Company Ltd. (LOFIN) The financial year completed was a challenging year which saw major changes within the Company. The approval to mobilise foreign currency deposits, setting up of a dedicated Islamic Business Unit (IBU) and launching of the island-wide GREEN ABUNDANCE Valley, Nuwara Eliya - Lush green beauty, co-existing with ATM network were highlights for the year civilization, a true representation of green Sri Lanka changing the landscape for the financial results of the Finance Company. The upgrading of the Company’s credit rating to A-(lka) by Fitch Ratings, during the turbulent year which saw the collapse of a number of financial institutions as well as the down grading of credit ratings of many financial institutions, was another significant achievement by the Company.

The deposit base increased by 59% from Rs. 3.3 Bn to Rs. 5.3 Bn which can be considered the greatest achievement given the challenges faced in the light of the collapse of several finance companies in the country. Savings deposits too saw significant growth, with the savings deposit base growing by 56% when compared with the previous year.

82 | Financial Review | LOLC | Annual Report 2008/09 The income of the Company increased from Rs. 725 Mn to Rs. 1.1 Bn, a 53% growth over last year. The interest costs including deposits UNIQUE increased 85% to reach Rs. 872 Mn, clearly Ceylon Blue Magpie - This endemic species found in the reflecting the impact of the growth in the Sinharaja World Heritage Site has drawn many from all over the world to the country deposit base and in the high interest rates.

ON TOP OF THE WORLD Adam’s-Peak - Those who have the will to make the climb to the peak and endure the extreme cold in the night will be rewarded with the breathtaking beauty that surrounds the peak during sun rise

The Company made provisions against bad The product profile of the Company saw and doubtful debt of Rs. 72 Mn and this was significant changes with the introduction 46% higher than last year. of foreign currency deposits as well as specialised products designed for the IBU. With the expansion of the branch network The lending portfolio saw a shift towards an the operating expenses saw an increase and increased loan portfolio accounting for 64% reached Rs. 245 Mn by the year end. The of the total portfolio. The reduction came resultant Profit Before Tax was Rs. 103 Mn, from leases and hire purchases. marginally higher than last year’s Rs. 100 Mn.

Commercial Leasing Company PLC (CLC) The newest addition to the LOLC Group, completed a very successful year with very positive contributions made to the Group. The Company’s financial year end was changed from December to March in line with the LOLC Group’s financial year end. Further, the Company was de-listed on the 24th of March 2009, with LOLC acquiring further shares, increasing LOLC’s stake to 99.6%.

The Company performed well within the turbulent market conditions and continued to expand its portfolio in Leasing, Hire Purchase

Financial Review I LOLC I Annual Report 2008/09 | 83 and Factoring business. The executions The Micro Credit Portfolio of LOMC for the 15 months were Rs. 4.4 Bn. The consists of agriculture related financing, corresponding executions for the period since self-employment and skill enabled facilitates the acquisition by LOLC were Rs. 3.3 Bn. and many related products.

The funds in use for the factoring business The Company recorded a Profit After Tax of at the year end were Rs. 772 Mn, a growth of Rs. 28 Mn for the two months in operation. 51% over the previous financial year. Lanka ORIX Insurance Brokers Ltd (LOIB) The product mix of the Company at the During the year the Company achieved a year end was primarily leases and hire significant milestone surpassing the purchases; 31% leases, 59% hire purchases Rs. 1 Bn mark in gross written premiums. and 9% factoring receivables. Gross written premium recorded for the last year was Rs. 867 Mn. The Company The Company’s operating expenses were derived Rs. 144 Mn as commission from this Rs. 628 Mn. The Company made a business, an increase of Rs. 36 Mn over the Rs. 80 Mn provision against bad and last year. doubtful debt which includes provisions A FIGHTING CHANCE The Sri Lankan Leopard - an animal threatened with made under the Direction No. 2 of Central extinction from the jungles of Sri Lanka due to loss of Bank and a general provision. habitat and poaching in Yala

The borrowing costs increased significantly and ended the year at Rs. 1.6 Bn.

The resultant Profit After Tax for the Company was Rs. 415 Mn, an increase of Rs. 87 Mn recorded for the financial year end December 2007. A provision of Rs. 99 Mn is set aside as taxes.

The net assets grew to Rs. 1.7 Bn and the debt to equity ratio was of the Company was 3.85 times.

REWARD LOLC Micro Credit Ltd. (LOMC) Blue Wanderer - Photographing butterflies is a test of patience, but offers a worthy reward The Micro Credit Company of LOLC started its independent operations in February, with The Company is pursuing strategies to broad the transfer of the Micro Credit Portfolio from base the corporate business having less the Parent Company, totaling a book of dependency on the Group business. Rs. 2.3 Bn. During the two months up to the year end, the Company executed facilities up to Rs. 389 Mn. The resultant top line was Rs. 149 Mn.

84 | Financial Review | LOLC | Annual Report 2008/09 FUNDAMENTALS Asian Elephant - Fresh water holes at Yala attract many animals particularly during periods of drought. Knowledge of its location would be a life saving factor

Lanka ORIX Securities Ltd. (LOSEC) LOSEC was directly impacted from the global economic meltdown with many large international institutional investors and local investors choosing a ‘cut losses and exit’ During the year, the Company operating strategy rather than an investing or ‘stay expenses increased by 24% to reach and watch’ strategy. The activities in the Rs.130 Mn which is being carefully managed Colombo Stock Exchange were minimal, within the Group expense management further affected by the long-drawn military initiatives. offensive in the North, not seeing revival during the financial year. With the recent The Company recorded a Profit After Tax military victory, the Company can look of Rs.15 Mn. The Company contributed forward to a positive year ahead with new Rs. 22 Mn as royalty fees to the Parent investments and renewed activity in the Company and this was a twofold increase market. from the last year.

The Commission income saw a dip during Lanka ORIX Information Technology Ltd. the year and deteriorated by 51% compared (LOIT) with the previous year. The resultant bottom LOIT completed yet another successful year line was a loss of Rs. 2 Mn. with growth in top line to Rs. 92 Mn from Rs. 74 Mn recorded in the previous financial Touchwood Investments PLC (TIL) year. The Company concentrated in Group Touchwood Investments began the year on business and also has made significant a very positive note with growth strategies investments in infrastructure and human put in place for plantation expansion and resources in preparation for future expansion rapid top line growth. However, the turbulent of external business. The resultant Profit After economic conditions towards the latter half Tax was Rs. 41 Mn. of the year prevented the Company from taking the full benefits from execution of Lanka ORIX Project Development Ltd. (LOPD) these strategies. The Company is yet to realise income and profits and was focusing on reaching The Company’s top line grew by 22% finalisation of many projects undertaken. compared with the previous year to Rs. However, in the interim, the Company made 727 Mn. This includes the fair value of the further losses of Rs. 4 Mn, relatively less than plantations amounting to Rs. 502 Mn, an the last year’s loss of Rs. 14 Mn.

Financial Review I LOLC I Annual Report 2008/09 | 85 Partnership with the Government, required the two investor companies to make initial investments into resurrecting the plantations and the factory. Towards this LOLC has extended project financing of Rs. 208 Mn which will form the equity investment required in Gal Oya Plantations Ltd.

THE BRAVE, RETURN The Company made a loss of Rs. 26 Mn Dawn at Dickwella - Fishermen coming home in with the tide after having been at sea throughout the night increase of 10% over the last year. Plantation for the year, due to operating expenses. It expansion and other related direct expenses is expected that the commencement of full saw a significant increase compared with operations at Gal Oya Plantations will see the previous year in line with the expansion positive cash flows coming in to Gal Oya strategy. The Company made a Rs. 244 Mn Holdings Ltd., soon after the renovations of provision for purchase back guarantees in the factory is completed. line with the commitments to the customers on account of the tree sales, an increase of Sundaya Lanka (Pvt) Ltd. 79% over the previous year. Sundaya reported a turnover of Rs. 9 Mn for the year. However, the net loss for the year The Company recorded a 10% decline in was Rs. 3.4 Mn due to operational expenses. profits compared with the previous year’s Rs. 284 Mn and ended the year at PRASAC Micro Finance Company - Rs. 255 Mn. LOLC’s share of this profit is Cambodia Rs. 74 Mn, an increase of 29% compared with last year. LOLC’s investment in PRASAC, two years ago is giving very positive returns with the excellent performance of the Company Gal Oya Holdings Ltd. with steady growth of top line and bottom The 50:50 joint venture between LOLC and line. The share of profits recorded in LOLC Browns PLC, for the investment in Gal Oya books was Rs. 60 Mn, for the 12 months to Holdings Ltd., the Management Company December 2008. The previous year’s share of Gal Oya Plantations Ltd., formally known of profits was Rs. 30 Mn, for the 9 months to as Hingurana Sugar, the Public Private December 2007.

86 | Financial Review | LOLC | Annual Report 2008/09 Financial Report

Audit Committee Report 88 I Remuneration Committee Report 89 I Nomination Committee Report 89 Corporate Governance Committee Report 90 I Annual Report of the Directors on the Affairs of the Company 91 I Directors’ Responsibility for Financial Reporting 97 Chief Executive Officer’s and Chief Financial Officer’s Responsibility Statement 98 I Independent Auditor’s Report 99 I Income Statements 100 I Balance Sheets 101 Statements of Changes in Equity 102 I Cash Flow Statements 103 I Notes to the Financial Statements 105 I Milestones 140 I Ten Year Summary 142 Summarised Quarterly Statistics 143 I Value Addition 144 I Group Companies 146 I Investor Information 149 I Economic and Financial Indicators 151 Glossary 152 I Notice of Meeting 155 I Form of Proxy Enclosed I Corporate Information Inner Back Cover Audit Committee

Report The Audit Committee comprises the If an issue needs to be discussed in depth, following: the relevant Divisional Head is also invited to attend. M.T.L. Fernando Independent Director (Committee Chairman) The Committee, having thus assessed the Deshamanya M.D.D. Pieris business and control risks prevalent in the Independent Director Company, has advised the Board on action to be taken where weaknesses were observed. R.A. Fernando Independent Director The Audit Committee meets with the External Auditors to discuss audit issues, as well as The composition of this Committee fulfils issues highlighted in the Management Letter, the requirements of the Listing Rules of including the Management response and the Colombo Stock Exchange. Further, the corrective action taken. recommendations of the Code of Corporate Governance for banks and financial The Committee recommends the payment of institutions issued by the Central Bank of fees to the External Auditors and has given Sri Lanka, which recommends that the consideration to the independence of the Chairman of the Committee should possess External Auditors. accountancy qualifications as well as knowledge and experience in accounting The Audit Committee has recommended and auditing is also fulfilled. to the Board of Directors that Messrs Ernst and Young be reappointed as Auditors for The Chairman, Executive Deputy Chairman the financial year ending 31st March, 2010. and the Executive Managing Director are The reappointment of the Audit Firm and invited to attend meetings along with the acceptance of its fee will be subject to the Chief Financial Officer. The Committee met approval of the shareholders at the Annual on eight occasions. General Meeting to be held on 30th June, 2009.

The Audit Committee, which has written terms of reference, reviews matters relating to the Company’s financials and the financial accounting systems, the accounting policies and compliance with Accounting Standards. M.T.L. Fernando Chairman The Audit Committee also reviews internal Audit Committee controls. Internal Audit Reviews are 29 May 2009 periodically submitted by the Chief Risk Officer (CRO) and discussed at meetings to which the CRO is invited.

88 | LOLC | Annual Report 2008/09 Remuneration Committee

Report Following the introduction of the new The policy covers remuneration to Executive Corporate Governance Rules of the and Non-Executive Directors, including the Colombo Stock Exchange, the Remuneration Non-Executive Chairperson and the Executive Committee was reconstituted. The Managing Director/Group CEO, all General Remuneration Committee now comprises and Deputy General Managers in the holding three Independent Directors - company and all its subsidiaries. Under the Mr. R.A. Fernando (Chairman of the terms of this policy, remuneration will be Committee), Mr. M.T.L. Fernando and related to performance and contribution. Deshamanya M.D.D. Pieris. The aggregate remuneration paid to the The Committee initially defined its scope and Executive & Non - Executive Directors purpose as being ‘To ensure the attraction, is Rs. 58 Mn. retention and motivation of LOLC Talent through a competitive remuneration and reward system’. In order to do so, they have initiated a comprehensive salary survey in 2009. The committee reviewed and redrafted the remuneration policy based on currently Ravi A. Fernando available information until the comprehensive Chairman survey information is available to impact the Remuneration Committee 2010 policies. Based on the recommendation 29 May 2009 of the Committee, the Board approved adoption of the policy.

Nominations Committee Report The Nomination Committee comprises up to assist the Board with Board evaluation the following: and a succession plan. Deshamanya M.D.D. Pieris Independent Director (Committee Chairman) The Committee has written terms of reference and at its meeting has deliberated methods Mr. R.A. Fernando of Board evaluation. Independent Director

Mr. M.T. L. Fernando As there is no vacancy on the Board at Independent Director present, the Nomination Committee has Mr. I.C. Nanayakkara not been called upon to assess and Executive Deputy Chairman recommend potential candidates for appointment as Directors. The Board is of the view that the appointing of a Director is a matter that should be deliberated and decided upon by the Board M.D.D. Pieris as a whole. However, it was agreed that, Chairman in line with recommended governance Nomination Committee practices, a Nominations Committee be set 29 May 2009

LOLC I Annual Report 2008/09 | 89 Corporate Governance

Committee The Corporate Governance Committee also necessary to ensure that measures taken comprises the following: to cope with short-term emergencies do not Report Deshamanya M.D.D. Pieris undermine long-term progress or go against Independent Director (Committee Chairman) agreed controls. Mr. R.A. Fernando Newly designed risk review reports now Independent Director cover all operational areas and also all Mr. M.T.L. Fernando support functions, including such key areas Independent Director as Information Technology. These reports Mrs. R.L. Nanayakkara identify risks and detail the measures taken Non-Executive Chairman to mitigate them, or make recommendations for corrective action. The reports also confirm Having pioneered leasing and factoring, compliance with regulator and statutory the Company has strategically increased its requirements. In this way, the Board not range of operations. The Group now offers only monitors governance, it also reinforces a wide portfolio of products and services, the message to the management that good all of which are financial in nature. This governance is required and expected. has two implications. Firstly, the financial services sector is strictly regulated. Secondly, As these reports cover all areas, all Group stakeholder and regulator confidence is of companies are also reviewed by the Holding vital importance, especially given certain Company. This ensures that there is no spectacular collapses of companies in both possibility of distress in one subsidiary going the local and global market. undetected until it adversely impacts the whole group. With this in mind, the Corporate Governance Committee has reviewed the reports submitted This cohesive approach also enables to the Board. Their purpose is to ascertain standards to be upheld across the group. whether the information contained therein is Use of resources is optimised, whether it comprehensive, timely, accurate and focused be human resources, funding or information enough to enable the Board to assess key technology. This also contributes towards areas such as liquidity, extent of liabilities, risk reducing waste, managing cost and mitigation, levels of compliance and reporting increasing productivity. to regulators. While the Company’s key ratios are noted and Accordingly, several changes have been discussed each month, the Board also looks instituted. The Group CEO is now required to at the Group position, to ensure that there is regularly and formally brief the Board on the growth and development overall, even if it is macro environment and the proposed route not indicated in the Company’s figures. the Group will pursue over the short term and the long term. In today’s volatile environment, it The Committee has also reviewed the is prudent to remain agile enough to meet the improvements made, to further enhance them challenges of the changing circumstances, and increase their effectiveness. while not losing sight of the main focus. It is

M.D.D. Pieris Chairman Corporate Governance Committee 29 May 2009

90 | LOLC | Annual Report 2008/09 Annual Report of the Board of Directors The Directors take pleasure in presenting Mr. R.M. Nanayakkara their report together with the audited Non-Executive Director on the financial statements for the year ended Mr. W.D.K. Jayawardena 31st March, 2009. Affairs of the Managing Director - Group CEO PRINCIPAL ACTIVITIES Mr. M. Inoue (appointed w.e.f. 06.02.09)

Company The principal activities of the Company are Mr. H. Ichida (appointed w.e.f. 06.02.09) the provision of financial services, including finance and operating leasing, factoring, Alternate to Mr. M. Inoue mortgage finance, loans and hire purchase. Mr. M. Sekimoto (appointed w.e.f. 06.02.09) Alternate to Mr. H. Ichida In order to better meet client needs, the Mr. Y. Matsuoka (appointed w.e.f. 06.02.09) LOLC Group constantly expands its product range. Group companies now provide Mr. Y. Oshima Shar-iah compliant financing, micro finance Non-Executive Director facilities, fixed and savings deposits, pawning, (resigned w.e.f. 06.02.09) margin trading financing, insurance broking Mr. K. Fushitani and trading in equity and debt securities. Non-Executive Director In keeping with the Group’s movement to (resigned w.e.f. 06.02.09) sustainable development with a greater focus Alternates to Mr. Oshima on environmental responsibility, the Group Mr. T. Mori (appointed w.e.f. 23.04.08 and has sought to improve the productivity and resigned w.e.f. 31.07.08) efficiency of the operations of companies in which it has made strategic investments and Mr. K. Katayama (appointed w.e.f. 31.07.08 which are engaged in reforestation, cultivation and resigned w.e.f. 31.10.2008) and provision of solar power. Mr. Y. Matsuoka (appointed w.e.f. 31.10.08 and ceased w.e.f. 06.02.09) Directorate The Directors of the Company during the year Alternate to Mr. Fushitani under review are as follows: Mr. M. Sekimoto (ceased to be alternate w.e.f. 06.02.09) Mrs. R.L. Nanayakkara Non-Executive Chairperson The profiles of the Directors are given on pages 22 to 25. Mr. I.C. Nanayakkara Executive Deputy Chairman INDEPENDENT DIRECTORS Deshamanya M.D.D. Pieris The Independent Directors are Independent Director Mr. M.T.L. Fernando, Deshamanya Mr. M.T.L. Fernando M.D.D. Pieris and Mr. R.A. Fernando. Independent Director Mr. M.T.L. Fernando has served as a Director Mr. R.A. Fernando for over nine years. Over the course of his Independent Director illustrious career, Mr. Lal Fernando has Mrs. K.U. Amarasinghe served on the Boards of several private Executive Director and quoted companies and also with state enterprises. The Board values his expertise Mr. T.H.M. Wickremasinghe and integrity and is satisfied that Mr. Lal Non-Executive Director Fernando remains independent, despite his years of service.

LOLC I Annual Report 2008/09 | 91 Mr. R.A. Fernando has just completed nine RE-ELECTION OF DIRECTORS years on the Board. Mr. Ravi Fernando holds In terms of Article 84 of the Articles a Postgraduate Certificate in Sustainable of Association of the Company, Messrs Business from Cambridge University and I.C. Nanayakkara and T.H.M. is currently reading for his Ph.D. at PIM on Wickremasinghe retire by rotation. ‘Strategic Corporate Responsibility and Sustainable Business’. His expertise is Mr. Wickremasinghe has communicated especially valuable to the LOLC Group as to the Board that he will not be seeking re- it focuses on sustainable development and election as a Director. The Board thanks environmental responsibility. The Board is Mr. Wickremasinghe for the services he satisfied that Mr. Ravi Fernando’s ability to rendered over his years as a Director. function as an Independent Director is not affected by his years of service. Mr. Nanayakkara will be seeking re-election. The Board of Directors recommends his Accordingly, the Board is of the opinion re-election. that both Mr. Lal Fernando and Mr. Ravi Fernando should be considered Independent In terms of Article 91 of the Articles of Directors. Both Directors meet all other Association of the Company, Mr. H. Ichida qualifying criteria necessary to be viewed as and Mr. M. Inoue retire by rotation and Independent Directors. seek re-election. The Board of Directors recommends their re-election. DIRECTORS’ MEETINGS Board Meetings are held monthly. If a Board The Company has received notices from decision is required before a Meeting, it is shareholders of their intention in terms of obtained by a Circular Resolution. Copies Section 210 of the Companies Act No. 7 of these resolutions, together with copies of of 2007 to propose the re-elections of Minutes of Board subcommittee Meetings are Mrs. R.L. Nanayakkara, Mr. M.T.L. Fernando tabled at Board Meetings, ensuring that all and Deshamanya M.D.D. Pieris, all of whom Directors are kept well informed . are over 70 years of age. The Board of Directors recommends their re-election .

The Directors’ interests in shares as at 31 March 2009 were as follows: As at As at 31.03.2009 31.03.2008 Mrs. R.L. Nanayakkara – – Mr. I.C. Nanayakkara 5,989,550 5,989,550 Deshamanya M.D.D. Pieris – – Mr. M.T.L. Fernando 81,844 76,844 Mr. R.A. Fernando 1,500 1,500 Mrs. K.U. Amarasinghe 5,243,200 5,243,200 Mr. T.H.M. Wickremasinghe – – Mr. R.M. Nanayakkara 14,660,724 14,598,122 Mr. W.D.K. Jayawardena – – Mr. M. Inoue (appointed w.e.f. 06.02.09) – – Mr. H. Ichida (Appointed w.e.f. 06.02.09) – – Mr. K. Fushitani (Resigned w.e.f. 06.02.09) – – Mr. Y. Oshima (resigned w.e.f. 06.02.09) – – Mr. M. Sekimoto (Alternate) – – Mr. Y. Matsuoka (Alternate) – –

92 | Annual Report of the Board of Directors on the Affairs of the Company I LOLC | Annual Report 2008/09 DIRECTORS’ INTERESTS IN CONTRACTS REVIEW OF BUSINESS The Directors have made the declarations Following its purchase of 67% of the stated required by the Companies Act No. 7 of 2007. capital of Commercial Leasing Company These have been noted by the Board, recorded PLC (CLC), the Company, in accordance in the Minutes and entered into the Interest with the provisions of the Take Over and Register which is maintained by the Company. Mergers Code of the Securities and Exchange Commission, made an offer to all the DIRECTORS’ REMUNERATION remaining shareholders for the purchase of The Directors’ remuneration is disclosed the remaining shares and acquired a further on page 89. 30% of the stated capital.

BOARD SUBCOMMITTEES The Board of Directors of CLC then In compliance with regulatory guidelines recommended to the shareholders that and also with best practices, the Board has CLC be de-listed. In order to provide the formed the following subcommittees : remaining shareholders with an exit option, the Company then made a further offer to the the Executive Committee few remaining shareholders. the Audit Committee the Remuneration Committee Currently the Company holds 99.6% of the the Nomination Committee stated capital. the Corporate Governance Committee The Company has sharpened its focus on micro finance by incorporating a subsidiary The Reports of these Committees (except for company, LOLC Micro Credit Ltd. (LOMC) the Executive Committee) can be found on to pursue this area of operations. The pages 88, 89 and 90. Company is delighted that its vision in this area is shared by several foreign In order to ensure speedy response to volatile development financiers. LOMC has invited economic conditions, the Board has tasked the Nederlandse Financierings - the Managing Director/Group CEO with Maatschappij voor Ontwikkelingslanden assets and liability management and liquidity N.V. (FMO) to invest in 20% of the stated management. The MD meets with the key capital of the Company and also provide senior management to ensure that resources significant loans. Other foreign financing is are optimised, liquidity is maintained and risk also being successfully pursued. is recognised and provided for.

DIRECTORS’ RESPONSIBILITY FOR Following focused efforts, the Group IT FINANCIAL REPORTING Steering Committee (comprising the The Directors are responsible for the Chairperson, one of the Executive Directors, preparation of Financial Statements of the the Chief Information Officer, the Chief Company to reflect a true and fair view of the Finance Officer and the Chief Risk Officer) state of its affairs. The Directors are of the has been able to streamline IT development view that the Financial Statements (appearing within the Group and increase automation. on pages 100 to 139) have been prepared in This has further increased the accuracy accordance with the requirements of the Sri and comprehensiveness of management Lanka Accounting Standards, the Companies information. The Chief Information Officer is Act No. 7 of 2007, the Finance Leasing Act tasked with reviewing licensing and IT security. No. 56 of 2000 and all relevant directions of the Central Bank of Sri Lanka.

Annual Report of the Board of Directors on the Affairs of the Company I LOLC I Annual Report 2008/09 | 93 In accordance with the Listing Rules of the Statements are prepared on the basis that Colombo Stock Exchange, interim Financial the Company is a going concern. Statements are dispatched to all shareholders following each of the first three quarters of FINANCIAL STATEMENTS the financial year. The Company sends out The Financial Statements are given on its Annual Report (with a review of the entire pages 100 to 139. financial year) within three months of the financial year end thus making dispatch of last INCOME quarter accounts unnecessary. The income of the Company was Rs. 6,120,691,922 /- (2008 - RESPONSIBILITY STATEMENTS Rs. 4,960,979,140/-). The income of the The Chief Executive Officer’s and Chief Group was Rs. 9,843,453,815/- Financial Officer’s Responsibility for Financial (2008 - Rs. 5,934,772,221/-) Reporting Statement appears on pages 98. The Directors Responsibility for Financial PROFIT Reporting Statement appears on page 97. Despite difficulties faced due to increasing cost of funds, the Company made a profit of GOING CONCERN Rs. 503,952,740 /- (2008 - Rs. 1,059,236,649/-). The Directors believe that the Company is The profit of the Group was in a position to continue its operations in the Rs. 1,055,176,529 /- (2008 - Rs. 1,343,495,401/-) foreseeable future. Accordingly, the Financial

PROFIT AND APPROPRIATIONS 2008/09 2007/08 (Restated) Rs. Rs. Net profit of the Group for the year after providing for all expenses, known liabilities and depreciation of property, plant & equipment 824,180,680 650,107,421

to which income earned on other activities is added 282,660,615 313,375,519

Goodwill on consolidation is added – 131,292,503

share of profit of Associate companies 140,457,638 88,276,885

and income tax and deferred tax on Group Profit has to be added/(deducted) (192,122,404) 160,443,073

leaving the Group with a Profit after taxation of 1,055,176,529 1,343,495,401

from which the amount attributable to minority interest is adjusted (1,022,907) (2,616,118) and transfer to Reserve Fund (48,206,669) (71,692,027)

transfer from retained earnings (32,185,234) –

and deduct the payment of the interim Dividend of Rs. 2.80 per share for 2008/09 on a Stated Capital of Rs. 475,200,000/- (2007/08 Rs. 2.25 per share on a Stated Capital of Rs. 475,200,000/-) (134,718,375) (106,920,000)

leaving a sum of 839,043,344 1,162,267,256

to be carried forward out of the year’s profit which when added to the profit brought forward from previous years of 4,142,813,661 2,980,546,405

leaves an unappropriated profit of 4,981,857,005 4,142,813,661

after these appropriations, the total reserves of the Group stand at 5,536,269,470 4,649,019,458

94 | Annual Report of the Board of Directors on the Affairs of the Company I LOLC | Annual Report 2008/09 SIGNIFICANT ACCOUNTING POLICIES areas, procedures or practices, and The Significant Accounting Polices adopted recommending corrective measures. when preparing these Financial Statements and any changes thereof if applicable are Following the recommendation of the given on pages 105 to 114. Corporate Governance Committee, risk reports are called for from all Group STATUTORY PAYMENTS companies and analysed by the Board of the holding Company. For the year under review, all known statutory payments have been made and all retirement The Risk Management Report on pages 72 to gratuities have been provided for. Further, all 77 and the Enterprise Governance Report on management fees and payments to related pages 60 to 71 give further details. parties for the year under review have been reflected in the accounts. Details are given in COMPLIANCE WITH LAWS AND Note 12 of page 117. REGULATIONS The Company has not engaged in any DONATIONS activity that contravenes any applicable During the year under review, the Company law or regulation. made donations amounting to Rs. 546,125/- (2008 - Rs 118,000/-) CORPORATE GOVERNANCE The Corporate Governance committee AUDITORS meets quarterly and regularly recommends The Auditors, Messrs Ernst and Young retire improvements to existing controls, policies and offer themselves for reappointment. The and procedures. All aspects of risk are being Board recommends their reappointment for reviewed, together with mitigating measures the year 2009/10, at a fee to be decided being taken. upon by the Board.

Details of steps taken in this connection are During the year under review, the given in the Enterprise Governance Report Auditors were paid Rs. 1,975,000/- as found on pages 60 to 71. audit fees. They were paid a further amount of Rs 373,690/- for provision ADOPTION OF APPLICABLE REGULATORY of professional services. AND STATUTORY REQUIREMENTS Following the revision of the Listing Rules As far as the Directors are aware, the of the Colombo Stock Exchange (CSE), the Auditors do not have any other relationship Company has submitted to the CSE the with the Company or any of its subsidiaries required listing undertaking. nor do they have any interest in contracts with the Company or any of its subsidiaries. All group companies have been re-registered under the Companies Act No. 7 of 2007. AUDITOR’S REPORT

The Auditor’s Report appears on page 99. The Board is constantly reviewing risk assessment and management and compliance INTERNAL CONTROLS with regulatory and statutory requirements. The Internal controls are periodically reviewed. introduction of new procedures and additional The Enterprise Risk Management Division reports enhance Board control and serve to periodically submits reports to the Audit remind senior management of the need for Committee, analysing risk in operational strict compliance. It also serves to highlight non-compliance early.

Annual Report of the Board of Directors on the Affairs of the Company I LOLC I Annual Report 2008/09 | 95 The Company complies with all Directions EVENTS OCCURRING AFTER THE and Regulations of the Central Bank of BALANCE SHEET DATE Sri Lanka on management of companies The Company responded to an invitation engaged in leasing. The Group complies by the Central Bank of Sri Lanka (CBSL) to with any such direction or regulation on invest in a percentage of the stated capital leasing and also those applicable to finance of Seylan Bank PLC. Working within very companies. Monthly compliance reports are strict time frames and always conscious of submitted to the Board. the need to maintain confidentiality of price sensitive information, the Company followed SHAREHOLDINGS up its initial response with a bid. The CBSL The stated capital of the Company is is currently reviewing the bids. Rs. 475,200,000/-, divided into 47,520,000 shares. The shareholding structure is given NOTICE OF MEETING on pages 149 to 150, together with the 20 The Notice of Meeting is found on page largest shareholders. During the year, the 155 If you are unable to be present, please share price ranged from Rs. 58/- to Rs. 136/-. complete and return the Form of Proxy. As at the end of trading on 31st March, 2009, the share price was Rs. 69.25. HUMAN RESOURCES During the year under review, the EQUITABLE TREATMENT OF implementation of the BU structure was SHAREHOLDERS strengthened by the physical relocating of The Directors have made every endeavour staff. This has not only enhanced teamwork to ensure the equitable treatment of but also facilitated training, as group all shareholders and are committed to employees are exposed to the whole range maximising shareholder wealth. of the Company’s products and services. Uniformity of practices and procedures Notice of shareholders’ Meetings are sent can be better ensured, while controls are out as required by the Companies Act strengthened. No. 7 of 2007, and by the Company’s Articles of Association. Two way proxies enable all The refurbishment of the Head Office shareholders to indicate their consent or building is nearing completion. The improved dissent on any decision, even if they are environment is having a positive impact on unable to be present at the meeting. the workforce and also lends itself to better security, in terms of physical resources, DIVIDENDS human capital and IT safety needs. An interim Dividend of Rs. 2.80 per share (2008 - Rs. 2.25 ) was paid on 26th June, Remuneration continues to be linked to 2008. Taking into account the general decline performance. Performance appraisals were in businesses both locally and globally, and once more reviewed, to ensure that they enable believing that the LOLC Group needs to be an employee’s performance to be assessed able to immediately honour all commitments, as accurately as possible, with regard to both the Directors are of the view that maintaining qualitative and the quantitative aspects. liquidity is crucial.

Kapila Jayawardena Group Managing Director/ Chief Executive Officer 27 May 2009

96 | Annual Report of the Board of Directors on the Affairs of the Company I LOLC | Annual Report 2008/09 Directors’ Responsibility for Financial The Directors confirm that the Company’s The Directors have taken reasonable steps Financial Statements for the year to to safeguard the assets of the Company, to Reporting 31st March, 2009 are prepared and prevent, deter and detect fraud, and to ensure presented in conformity with the requirements the integrity, accuracy and safeguarding of of the Sri Lanka Accounting Standards, the operational and financial records. Regulations and Directions of the Central Bank of Sri Lanka, the Listing Rules of the The Directors confirm that to the best of their Colombo Stock Exchange, the Finance knowledge, all statutory payments due in Leasing Act No. 56 of 2000 and the respect of the Company and its subsidiaries Companies Act No. 7 of 2007. They believe as at the balance sheet date have been paid that the Financial Statements present a true for, or where relevant, provided for. and fair view of the state of the affairs of the Company and of the Group as at the end of The external Auditors, Messrs Ernst and the financial year. Young, were provided with the opportunity to make appropriate inspections of financial The Directors also accept responsibility for records, minutes and other documents the integrity and accuracy of the Financial to enable them to form an opinion of the Statements presented and confirm that Financial Statements. The Report of the appropriate accounting policies have been Auditors is set out on page 99. selected and applied consistently and reasonable and prudent judgment has been exercised so as to accurately report transactions. Kapila Jayawardena Group Managing Director/ Chief Executive Officer 27 May 2009

LOLC I Annual Report 2008/09 | 97 Chief Executive Officer’s and

Chief Financial The Financial Statements are prepared in The Financial Statements were audited by compliance with the Sri Lanka Accounting M/s. Ernst & Young, Chartered Accountants, Officer’s Standards issued by the Institute of the Company’s External Auditors. The Audit Chartered Accountants of Sri Lanka and the Committee of your Company meets periodically Responsibility requirements of the Companies Act No. 7 with the Internal Auditors and the External of 2007 and any other applicable statutes Auditors to review the manner in which these Statement to the extent applicable to the Company. auditors are performing their responsibilities There are no departures from the prescribed and to discuss auditing, internal control and accounting standards in their adoption. The financial reporting issues. To ensure complete accounting policies used in the preparation independence, the External Auditors and the of the Financial Statements are appropriate Internal Auditors have full and free access to and are consistently applied. the members of the Audit Committee to discuss any matter of substance. The Board of Directors and the management of your Company accept responsibility for It is also declared and confirmed that the the integrity and objectivity of these Financial Company has complied with and ensured Statements. The estimates and judgments compliance by the Auditor with the guidelines relating to the Financial Statements were for the audit of listed companies where made on a prudent and reasonable basis, mandatory compliance is required. It is further in order that the Financial Statements reflect confirmed that all the other guidelines have in a true and fair manner, the form and been complied with. substance of transactions and reasonably present the Company’s state of affairs. To ensure this, the Company has taken proper and sufficient care in installing a system of internal controls and accounting records, Kapila Jayawardena for safeguarding assets and for preventing Group Managing Director/ and detecting frauds as well as other Chief Executive Officer irregularities, which is reviewed, evaluated and updated on an ongoing basis. Our Internal Auditors have conducted periodic audits to provide reasonable assurance that the established policies and procedures of the Company were consistently followed. Sunjeevani Kotakadeniya However, there are inherent limitations Chief Financial Officer that should be recognised in weighing the LOLC Group assurances provided by any system of 27 May 2009 internal controls and accounting.

98 | LOLC | Annual Report 2008/09 Independent Auditor’s Report

HMAJ/TWC/JJ in the financial statements. An audit also includes assessing the accounting principles used and INDEPENDENT AUDITOR’S REPORT TO THE significant estimates made by management, as SHAREHOLDERS OF LANKA ORIX LEASING well as evaluating the overall financial statement COMPANY PLC presentation. Report on the Financial Statements We have audited the accompanying financial We have obtained all the information and statements of Lanka Orix Leasing Company PLC explanations which to the best of our knowledge (“the Company”) and the consolidated financial and belief were necessary for the purposes of statements of the Company and its subsidiaries, our audit. We therefore believe that our audit (‘the Group’) which comprise the balance provides a reasonable basis for our opinion. sheets as at 31 March 2009, and the income statements, statements of changes in equity Opinion and cash flow statements for the year then In our opinion, so far as appears from our ended, and a summary of significant accounting examination, the Company maintained proper policies and other explanatory notes. accounting records for the year ended 31 March 2009 and the financial statements Management’s Responsibility for the give a true and fair view of the Company’s state Financial Statements of affairs as at 31 March 2009 and its profit and Management is responsible for the preparation cash flows for the year then ended in accordance and fair presentation of these financial with Sri Lanka Accounting Standards. statements in accordance with Sri Lanka Accounting Standards. This responsibility In our opinion, the consolidated financial includes: designing, implementing and statements give a true and fair view of the maintaining internal control relevant to the state of affairs as at 31 March 2009 and the preparation and fair presentation of financial profit and cash flows for the year then ended, statements that are free from material in accordance with Sri Lanka Accounting misstatement, whether due to fraud or error; Standards, of the Company and its subsidiaries selecting and applying appropriate accounting dealt with thereby, so far as concerns the policies; and making accounting estimates that shareholders of the Company. are reasonable in the circumstances. Report on Other Legal and Regulatory Scope of Audit and Basis of Opinion Requirements Our responsibility is to express an opinion on In our opinion, these financial statements also these financial statements based on our audit. comply with the requirements of Sections 151(2) We conducted our audit in accordance with and 153(2) to 153(7) of the Companies Act Sri Lanka Auditing Standards. Those standards No. 07 of 2007. require that we plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement.

An audit includes examining, on a test basis, 27 May 2009 evidence supporting the amounts and disclosures Colombo.

LOLC I Annual Report 2008/09 | 99 Income Statements

Group Company For the year ended 31 March 2009 2008 2009 2008 Restated Note Rs. Rs. Rs. Rs.

GROSS REVENUE 3 13,621,721,231 6,248,147,740 9,687,377,538 5,222,232,312

REVENUE Revenue from instalment sales 3,495,606,802 – 3,495,606,802 – Less: cost of sales (2,993,076,288) – (2,993,076,288) – Gross profit 502,530,514 – 502,530,514 –

INCOME 4 9,843,453,815 5,934,772,221 6,120,691,922 4,960,979,139 OPERATING EXPENSES 5 Direct expenses excluding interest costs 6 (497,742,300) (218,144,472) (314,921,094) (174,335,683) Provision for bad and doubtful debts (369,767,923) (171,592,067) (200,446,301) (114,887,215) Staff costs 7 (727,552,967) (521,628,481) (358,807,279) (360,542,736) Depreciation (498,266,606) (319,886,314) (409,933,410) (298,137,043) Other operating expenses 8 (987,292,400) (649,448,292) (624,799,364) (460,937,228) OPERATING PROFIT BEFORE NET INTEREST COST 7,265,362,133 4,054,072,595 4,714,314,988 3,552,139,234 Net interest costs 9 (6,441,181,453) (3,403,965,174) (4,205,473,730) (2,972,056,968) RESULTS FROM OPERATING ACTIVITIES 824,180,680 650,107,421 508,841,258 580,082,266 Other income/(expenses) 10 282,660,615 313,375,519 71,078,814 261,253,173 Negative Goodwill 11 – 131,292,503 – – Share of profit of associate companies 140,457,638 88,276,885 – – PROFIT BEFORE TAXATION 1,247,298,933 1,183,052,328 579,920,072 841,335,439 Taxation 12 (192,122,404) 160,443,073 (75,967,332) 217,901,210 PROFIT FOR THE YEAR 1,055,176,529 1,343,495,401 503,952,740 1,059,236,649

Attributable to: Equity holders of the Company 1,054,153,622 1,340,879,283 503,952,740 1,059,236,649 Minority interest 1,022,907 2,616,118 – – PROFIT FOR THE YEAR 1,055,176,529 1,343,495,401 503,952,740 1,059,236,649

BASIC/DILUTED EARNINGS PER SHARE 13 22.18 28.22

Figures in brackets indicate deductions.

The above Income Statements should be read in conjunction with the Notes, which form an integral part of these Financial Statements, disclosed on pages 105 to 139.

100 | LOLC | Annual Report 2008/09 Balance Sheets

Group Company As at 31 March 2009 2008 2009 2008 Restated Note Rs. Rs. Rs. Rs. ASSETS Cash and cash equivalents 14 1,832,565,294 1,072,750,722 552,835,056 606,030,326 Short-term investments 920,295,148 863,356,920 13,351,058 178,838,916 Rentals receivable on lease assets/hire purchase/others 15 17,193,230,490 11,602,159,331 6,497,919,685 9,984,330,771 Advances and other loans 16 10,297,960,442 8,562,905,852 7,532,245,716 6,742,226,553 Instalment sales 17 2,954,951,809 – 2,954,951,809 – Factoring receivable 1,897,170,734 1,109,135,185 1,138,142,223 1,109,135,185 Inventories 19,572,061 20,884,442 – – Real estate stocks 124,121,566 160,757,548 3,135,535 39,290,372 Advances for margin trading 51,070,162 79,880,328 – – Other current assets 18 2,423,498,281 1,587,243,130 3,636,303,826 1,771,252,175 Investment Securities 19 292,711,686 365,660,795 289,966,285 365,482,970 Investment in term deposits 3,864,491,419 4,362,623,372 2,281,454,487 4,239,553,926 Deferred tax asset 20 548,735,133 563,105,368 539,311,406 562,231,103 Investments in joint venture 21 – – 10,000,000 100,000,000 Investments in associate companies 22 676,420,661 492,585,403 278,190,903 278,190,903 Investments in subsidiary companies 23 20 20 2,997,494,547 911,245,620 Goodwill 151,415,234 – – – Intangible assets 24 144,206,594 – – – Property, plant and equipment 25 2,969,649,409 2,151,209,445 2,603,966,056 2,108,258,683 Total assets 46,362,066,143 32,994,257,861 31,329,268,592 28,996,067,503

LIABILITIES AND EQUITY Liabilities Bank Overdraft 2,750,579,613 1,090,023,468 1,909,632,293 786,837,530 Deposits from customers 26 5,303,920,975 3,339,664,870 – – Short-term borrowings 27 9,792,087,865 7,865,273,046 7,525,259,970 7,555,533,046 Finance lease liabilities 28 612,754,819 961,803,300 612,754,819 961,151,033 Provision for taxation 165,528,410 21,301,187 113,855,355 8,739,146 Long-term borrowings - current 29 6,676,896,050 3,867,594,352 4,442,165,898 3,867,594,352 Trade and other payables 30 2,611,688,796 1,500,815,506 1,212,462,796 1,909,078,611 Long-term borrowings - non-current 29 11,931,366,227 9,102,258,984 10,359,946,685 9,102,258,984 Deferred taxation 351,416,535 15,881,811 – – Retirement benefit obligations 31 74,349,053 51,772,347 51,819,459 42,737,849 Total liabilities 40,270,588,343 27,816,388,871 26,227,897,275 24,233,930,551

Equity Stated capital 32 475,200,000 475,200,000 475,200,000 475,200,000 Reserves 33 554,412,465 506,205,796 529,406,289 494,396,232 Retained earnings 34 4,981,857,006 4,142,813,662 4,096,765,029 3,792,540,720 Equity attributable to equity holders of the Company 6,011,469,471 5,124,219,458 5,101,371,317 4,762,136,952 Minority interest 35 80,008,329 53,649,532 – – Total equity 6,091,477,800 5,177,868,990 5,101,371,317 4,762,136,952 Total liabilities & equity 46,362,066,143 32,994,257,861 31,329,268,592 28,996,067,503

The above Balance Sheets should be read in conjunction with the Notes, which form an integral part of these Financial Statements, disclosed on pages 105 to 139.

The Board of Directors is responsible for the preparation and presentation of these Financial Statements.

The Chief Financial Officer - LOLC Group certifies that the Financial Statements have been prepared in compliance with the requirements of the Companies Act No. 07 of 2007.

Mrs. S.S. Kotakadeniya Chief Financial Officer - LOLC Group

Signed on behalf of the Board

Mrs. R.L. Nanayakkara Mr. W.D.K. Jayawardena Chairperson Group Managing Director/CEO 27 May 2009 Rajagiriya (Greater Colombo)

LOLC I Annual Report 2008/09 | 101 Statement of Changes in Equity

GROUP Attributable to Equity Holders of the Company Stated Subsidiary Revaluation Future Statutory Retained Minority Total Capital Share Reserve Taxation Reserve Earnings Interest Premium Reserve For the year ended 31 March 2009 Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs.

Balance as at 31.03.2007 475,200,000 536,504 – 205,000,000 123,574,424 2,980,546,405 40,061,662 3,824,918,995 Profit for the year – – – – – 1,340,879,283 2,616,118 1,343,495,401 Dividends – – – – – (106,920,000) – (106,920,000) Addition to minority through acquisition of subsidiary – – – – – – 10,971,752 10,971,752 Transfers during the year – – – – 71,692,027 (71,692,027) – – Revaluations during the year – – 105,402,842 – – – – 105,402,842 Balance as at 31.03.2008 475,200,000 536,504 105,402,842 205,000,000 195,266,451 4,142,813,661 53,649,532 5,177,868,990

Profit for the year – – – – – 1,054,153,622 1,022,907 1,055,176,529 Dividends – – – – – (134,718,375) – (134,718,375) Addition to minority through acquisition of subsidiary – – – – – – 25,335,890 25,335,890 Transferred back to retained earnings – – – – – (32,185,234) – (32,185,234) Transfers during the year – – – – 48,206,669 (48,206,669) – – Balance as at 31.03.2009 475,200,000 536,504 105,402,842 205,000,000 243,473,120 4,981,857,005 80,008,329 6,091,477,800

COMPANY Attributable to Equity Holders of the Company Stated Subsidiary Revaluation Future Statutory Retained Minority Total Capital Share Reserve Taxation Reserve Earnings Interest Premium Reserve For the year ended 31 March 2009 Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs.

Balance as at 31.03.2007 475,200,000 – – 205,000,000 115,542,388 2,898,544,546 – 3,694,286,934 Transferred to retained earnings through merger – – – – – 14,284,169 – 14,284,169 Profit for the year – – – – – 1,059,236,649 – 1,059,236,649 Dividends – – – – – (111,073,642) – (111,073,642) Transfers during the year – – – – 68,451,002 (68,451,002) – – Transferred to retained earnings – – – – – – – – Revaluations during the year – – 105,402,842 – – – – 105,402,842 Balance as at 31.03.2008 475,200,000 – 105,402,842 205,000,000 183,993,390 3,792,540,720 – 4,762,136,952

Profit for the year – – – – – 503,952,740 – 503,952,740 Transferred to retained earnings to factoring receivables – – – – – (30,000,000) – (30,000,000) Dividends – – – – – (134,718,375) – (134,718,375) Transfers during the year – – – – 35,010,056 (35,010,056) – – Revaluation during the year – – – – – – – – Balance as at 31.03.2009 475,200,000 – -105,402,842 205,000,000 219,003,446 4,096,765,029 – 5,101,371,317

102 | LOLC | Annual Report 2008/09 Cash Flow Statement

Group Company For the year ended 31 March 2009 2008 2009 2008 Restated Note Rs. Rs. Rs. Rs.

CASH FLOW FROM OPERATING ACTIVITIES Net profit before taxation 1,247,298,933 1,183,052,328 579,920,072 841,335,439 Adjustment for:

(Profit)/Loss on sale of property, plant and equipment (16,173,288) (6,158,934) (9,468,008) (3,176,819) Depreciation 498,266,606 319,886,314 409,933,410 298,137,043 Provision for gratuity 8,146,452 18,448,564 9,235,879 15,797,824 Allowances for doubtful debts 274,320,990 119,014,628 121,115,756 76,585,720 Provision for fall/(increase) in value of investments 180,997,507 (138,353,860) 178,573,279 (136,427,230) Capital gain on treasury bond trading (25,196,300) – (25,196,300) – Investment income (3,175,105) (1,789,404) (28,159,560) (8,659,278) Interest cost 6,612,437,228 3,633,596,534 4,376,729,505 3,290,826,740 Interest income (171,255,775) (229,631,360) (171,255,775) (229,631,360) (Profit)/Loss on sale of investments – (47,744,537) – (47,744,537) Negative Goodwill – (131,235,677) – – Share of profit of equity accounted investees (140,457,638) (88,276,885) – – 7,217,910,677 3,447,755,383 4,861,508,186 3,255,708,103

Operating profit before working capital change 8,465,209,610 4,630,807,711 5,441,428,258 4,097,043,542 (Increase)/Decrease in accounts receivables & others (4,550,833,939) (580,419,322) 1,260,954,321 (1,291,710,514) Change in inventories 1,312,381 (3,447,493) – – Increase/(Decrease) in accounts payables 1,411,882,380 (108,579,785) (846,619,083) 976,122,896 (Increase)/Decrease in real estate stocks 36,635,982 (10,772,430) 36,154,837 7,475,345 (Increase)/Decrease Investment in leases 6,151,356,956 (1,463,786,152) 2,177,476,125 (1,217,757,622) (Increase)/Decrease in factoring account receivable (798,386,414) (615,752,485) (39,357,903) (621,445,221) (Increase)/Decrease Investment in advances and other loans (8,603,212,043) (2,811,783,189) (5,675,538,397) (1,523,839,200) 2,113,964,913 (963,733,145) 2,354,498,158 425,889,226 Interest paid (6,128,877,313) (3,022,107,835) (4,526,732,775) (3,107,052,885) Income tax paid (51,739,684) (156,744,952) (6,186,532) (114,240,753) Gratuity paid (3,278,593) (1,507,264) (1,111,361) (750,800) Net cash used in operating activities (4,069,930,677) (4,144,093,196) (2,179,532,510) (2,796,155,212)

LOLC I Annual Report 2008/09 | 103 Group Company For the year ended 31 March 2009 2008 2009 2008 Restated Note Rs. Rs. Rs. Rs.

CASH FLOW FROM INVESTING ACTIVITIES Investment in subsidiary companies – – (2,086,248,927) (36,244,900) Net cash & cash equivalents on acquisition of subsidiary (1,313,539,634) 10,404,153 – – Investment in equity accounted investees (183,835,258) (216,359,359) – (216,359,359) Investment in joint venture – – 90,000,000 (100,000,000) Purchase of property, plant and equipment (1,106,008,424) (805,358,312) (1,003,347,160) (794,014,472) Net proceeds from short term investments (56,938,228) (458,808,018) 165,487,860 (144,060,251) Net additions to investments 259,010,614 (101,087,928) 654,089,963 (105,278,385) Increase in investment in term deposits 498,131,954 (1,349,244,407) 1,958,099,439 (1,226,174,961) Proceed from the sale of property, plant and equipment 120,057,274 67,542,412 107,174,385 65,869,586 Interest received 171,255,775 229,631,360 171,255,775 229,631,360 Dividend received 2,545,905 1,789,404 28,159,560 8,659,278 Rent received 629,200 – – – Net cash flow from investing activities (1,608,690,820) (2,621,490,695) (84,670,895) (2,317,972,104)

CASH FLOW FROM FINANCING ACTIVITIES Net proceed from short term borrowings (334,616,265) 2,463,914,708 (430,273,076) 2,369,020,304 Net Increase/(Decrease) in lease liability (349,048,481) (69,904,082) (348,396,214) (69,455,109) Net Proceeds from customer deposits 1,964,256,104 1,593,500,130 – – Proceeds from long term loans 8,314,957,324 6,935,999,832 6,515,209,629 6,935,999,833 Repayments of long term loans (4,682,950,382) (4,274,501,532) (4,682,950,382) (4,274,501,532) Dividend paid (134,718,375) (106,920,000) (134,718,375) (106,920,000) Net cash generated from financing activities 4,777,879,925 6,542,089,056 918,871,582 4,854,143,496

Net Increase/(Decrease) in cash & cash equivalents during the year (900,741,573) (223,496,835) (1,175,990,033) (259,983,820) Cash & cash equivalents at the beginning of the year (17,272,746) 206,224,089 (180,807,204) 79,176,616 Cash & cash equivalents at the end of the year (918,014,319) (17,272,746) (1,356,797,237) (180,807,204)

Analysis of Cash & Cash Equivalents at the end of the year Cash at bank and in hand (Note 14.1) 1,832,565,294 1,072,750,722 552,835,056 606,030,326 Bank overdraft (Note 14.2) (2,750,579,613) (1,090,023,468) (1,909,632,293) (786,837,530) (918,014,319) (17,272,746) (1,356,797,237) (180,807,204)

104 | Cash Flow Statement I LOLC | Annual Report 2008/09 Notes to the Financial Statements

1. CORPORATE INFORMATION amounts of assets and liabilities, income 1.1 General and expenses. The estimates and Lanka ORIX Leasing Company PLC is associated assumptions are based a public quoted company incorporated on historical experience and various on 14 March 1980 and domiciled in other factors that are believed to be Sri Lanka. The Consolidated Financial reasonable under the circumstances, the Statements of the Company for the year results of which form the basis of making ended 31 March 2009 comprise of the the judgments about carrying values of Company and its subsidiaries (together assets and liabilities that are not readily referred to as the ‘Group’). apparent from other sources. Actual results may differ from these estimates. The Financial Statements were authorised 2.2 Basis of Preparation for issue by the Directors on 29 May 2009. The Financial Statements are presented 1.2 Principal Activities and Nature in Sri Lanka Rupees which is also the of Operations Company’s functional currency where During the year, the principal activities appropriate the significant Accounting of the Group comprised of leasing, Policies have been disclosed in the hire purchase, loans, operating leases, succeeding Notes. The Financial instalment sales, factoring, insurance Statements are prepared on the broking, accepting deposits, pawn historical cost basis and no adjustment broking, Islamic Financing and assembly has been made for inflationary factors and distribution of solar light systems. affecting the Financial Statements except for revaluation of land. Assets 1.3 Directors’ Responsibility Statement and liabilities are grouped by nature and The Board of Directors takes the listed in an order that reflect their relative responsibility for the preparation and liquidity. These Financial Statements presentation of these Financial are in compliance with the Companies Statements. Act No. 07 of 2007.

2. ACCOUNTING POLICIES Previous period figures and Notes have 2.1 Statement of Compliance been restated and reclassified wherever The Financial Statements of the necessary to conform to the current Company and those consolidated with presentation Note 44. such are prepared in accordance with the Sri Lanka Accounting Standards The specific policies used are laid down by the Institute of Chartered explained below and relate to both the Accountants of Sri Lanka and therefore Consolidated Financial Statements and present fairly the financial position, that of the Company, except as stated financial performance and cash flow of otherwise. the Company. The Accounting Policies have been The preparation of Financial Statements consistently applied by the Company in conformity with SLASs require and are consistent with those used in management to make judgments, the previous year except where the estimates and assumptions that affect Company has during the year adopted the application of policies and reported SLAS 16 (Revised 2006) - Employee Benefits Note 31.

LOLC I Annual Report 2008/09 | 105 Key assumptions concerning the future The interest of the outside shareholders and other key sources of estimation of of the Group is disclosed separately uncertainty at Balance Sheet date that under the heading ‘Minority Interest’. may have a significant risk of causing material adjustments to the carrying (ii) Associates and Jointly amounts of assets and liabilities within Controlled Entities the next financial year, considered in the Associates are those entities in which financials include: the Group has significant influence, but not control, over the financial and · Provision for cost of defined operating policies. Joint ventures are benefit plan (gratuity) using those entities over whose activities the an actuarial valuation. Group has joint control, established by · Deferred tax assets recognised for all contractual agreement and requiring unused tax losses to the extent that it unanimous consent for strategic is probable that taxable profit will be financial and operating decisions. available against which, the losses Significant influence is presumed to exist can be utilised. when the Group holds between 20% and 50% of the voting power of another entity. 2.3 Basis of Consolidation (i) Subsidiaries Associates are accounted for using The Financial Statements of the the equity method (equity accounted Group represent the consolidation investees) and are initially recognised at of the Financial Statements of Lanka cost. The Group’s investment includes ORIX Leasing Company PLC, and its goodwill identified on acquisition, net subsidiaries as disclosed in Note 23. of any accumulated impairment losses. Subsidiaries are entities controlled by The Consolidated Financial Statements the Company. Control exists when the include the Group’s share of the income Company has the power, directly or and expenses and equity movements indirectly, to govern the financial and of equity accounted investees, after operation policies of an entity so as adjustments to align the accounting to obtain benefits from its activities. policies with those of the Group, from In assessing control, potential voting the date that significant influence rights that presently are exercisable or commences until the date that significant convertible are taken into account. influence ceases. When the Group’s share of losses exceeds its interest in an Subsidiaries are consolidated from equity accounted investee, the carrying the date the Parent Company obtains amount of that interest (including any control until such time as control long-term investments) is reduced to nil ceases. Acquisition of subsidiaries and the recognition of further losses is are accounted for using the purchase discontinued except to the extent that method of accounting. the Group has an obligation or has made payments on behalf of the investee. The Group Financial Statements are prepared in accordance with the Jointly controlled entities are accounted Sri Lanka Accounting Standards No. 26 for using proportionate consolidation on Consolidated Financial Statements. method, from the date that significant influence or joint control commences until the date that significant influence or joint control ceases.

106 | Notes to the Financial Statements I LOLC | Annual Report 2008/09 (iii) Business Combinations and contingent liabilities exceeds the All business combinations have been cost of the acquisition of the entity, the accounted for by applying the purchase Group will reassess the measurement method in accordance with the Sri Lanka of the acquiree’s identifiable assets Accounting Standards No. 25 (Revised and liabilities and the measurement 2004) - Business Combinations. of the acquiree’s identifiable assets Applying this method involves the entity and liabilities and the measurement of that obtains control of the other entity the cost and recognise the difference to recognise the fair value of assets immediately to the Consolidated acquired and liabilities and contingent Income Statement. liabilities assumed, including those not previously recognised. (vi) Intagibale Assets Intangible assets acquired separately (iv) Transactions Eliminated on Consolidation are measured as initial recognition Intra-group balances and any unrealised at cost. Following initial recognition gains and losses or income and intangible assets are carried at cost expenses arising from intra-group less any accumulated amortisation and transactions are eliminated in preparing any accumulated impairment losses. the Consolidated Financial Statements. The useful life of intangible assets are assessed to be either finite or indefinite. (v) Goodwill Intangible assets with finite areas are Goodwill represents the excess of the amortised over the useful economic life cost of any acquisition of a subsidiary and assessed for impairment when ever or an associate over the Group’s interest there is an indication that the intangible in the net fair value of the identifiable asset may be impaired. The amortisation assets, liabilities and contingent period and the method for an intangible liabilities acquired. assets with a finite useful life is reviewed at least at each financial year end. Goodwill is initially recognised at cost. The Company will test the goodwill for 2.4 Assets and Bases of their Valuation (i) Cash and Cash Equivalents impairment annually and asses for any indication of impairment to ensure that Cash and cash equivalents comprise its carrying amount does not exceed the of cash in hand and cash at banks. recoverable amount. If an impairment Bank overdrafts that are repayable loss is identified, it is recognised on demand and form an integral part immediately to the Income Statement. of the Group cash management are included as a component of Cash and Carrying amount of the goodwill arising Cash Equivalents for the purpose of the on acquisition of subsidiaries and joint statement of cash flows. ventures is presented as an intangible (ii) Rentals Receivable on Leased Assets, and the goodwill on an acquisition of Mortgage Loans, Hire Purchases and equity accounted investment is Rentals receivable on leased assets are included in the carrying value of the accounted for as finance leases and investment. reflected in the Balance Sheet at balance cost recoverable after eliminating In the Group’s interest in the net fair unearned income and deducting value of the identifiable assets, liabilities pre-paid rentals, rental collections and provision for doubtful debts.

Notes to the Financial Statements I LOLC | Annual Report 2008/09 | 107 Advances and Other Loans to Customers Computation is based on the Direction Advances and other loans to customers No. 1 of 1991 of Section 2 of the Finance comprised of revolving loans and loans Companies Act No. 78 of 1988. with fixed instalments. z Fifty percent (50%) on all receivables (net of unearned income) which are Revolving loans to customers are in arrears for a period of 6 to reflected in the Balance Sheet at 12 months. amounts disbursed less repayments and provision for doubtful debts. Loans z One hundred percent (100%) on all to customers with fixed instalments receivables (net of unearned income) are stated in the Balance Sheet net of which are in arrears for a period of possible loan losses and net of interest, 12 months and more with additional which is not accrued to revenue. specific provisions.

z Additional specific provisions are (iii) Provision for Doubtful Debts made upon management review The Company computes its provisioning on the performance of the lease, for bad and doubtful debts according to hire purchase and loan portfolios. the Central Bank Direction No. 2 of 2006. Facilities that are overdue for 18 months or more and fully provided The specific provisions for doubtful debts have been written off against the are arrived at using the following bases: provisions made:

Lease, hire purchase and loan receivables z The values of the following items held of Lanka ORIX Leasing Company PLC as collateral for a particular advance and LOLC Micro Credit Ltd. have been deducted in arriving at the above provisions: z Twenty percent (20%) of all lease, hire purchase and loan receivables z With regard to vehicles that have (net of unearned income) which are in been repossessed by the Company, arrears for a period of 6 to 12 months. eighty percent (80%) of the valuation obtained during the preceding 6 z Fifty percent (50%) of all lease, hire months from a professional valuer purchases and loan receivables (net of with regard to land and buildings, unearned income) which are in arrears the full value, in case of a primary for a period of 12 to 18 months. mortgage, such value shall not

z One hundred percent (100%) of exceed the value decided by a all lease, hire purchases and loan qualified professional valuer at the receivables (net of unearned income) time of providing the accommodation which are in arrears for a period of 18 months and more, with additional (iv) Factoring Debtors - (Subsidiary) specific provisions on a case-by- Factoring receivables of the Group have case basis. been stated net of specific provisions based on company provisioning policy. High risk Micro products of Lanka ORIX Leasing Any amount uncollectable is written off Company PLC, LOLC Micro Credit Ltd. and against profits. lease, hire purchase and loan receivables of Lanka ORIX Finance Company Ltd. and Further Commercial Leasing Company Commercial Leasing Company PLC. PLC makes a general provision of 0.75% of factoring receivables to absorb any losses arising from unforeseen events.

108 | Notes to the Financial Statements I LOLC | Annual Report 2008/09 (v) Inventories (x) Investment Securities Inventories are stated at the lower of Investments in quoted shares are stated cost and net realisable value. Inventories at their respective market values on an has been valued based on the weighted aggregate portfolio basis. Provision for average cost method and includes fall in market value is also made on an expenditure incurred in acquiring the aggregate portfolio basis for each class inventories and bringing them to their of investment. existing condition and location. Investment in Treasury Bills and (vi) Real Estate Stocks commercial papers are shown at initial Real Estate Stocks of the Company cost plus accumulated interest. represent the purchase value of properties acquired for resale with Investment in non-quoted shares buy-back agreements, less repayments. are stated at cost of acquisition and Real Estate Stocks of Lanka ORIX adjusted for any fall in value, which are Finance Company represent the other than temporary. purchase value of properties acquired and any subsequent expenditure (xi) Receivable from Clients on Share Purchases incurred on such for development. Amounts receivable from clients for shares purchased on behalf of them are (vii) Short-Term Investments stated at net of specific provisioning. Short-term investment comprises of call deposits, interest earning (xii) Other Receivables demand deposits with banks and Other receivable balances are stated securities purchased under repurchase at estimated amounts receivable after agreements (Repos). Call deposits and providing for doubtful receivables. deposits with banks are stated at the amounts to be realised and Repos are (xiii) Property, Plant and Equipment (Other than Operating Lease Assets and Leasehold Vehicles stated at purchase value plus interest and Machinery) accrued on a time proportionate basis. (a) Recognition and Measurement Items of property, plant and equipment (viii) Investments in Term Deposits are measured at cost/revaluation Term deposits are stated at principal less accumulated depreciation/ amount plus interest accrued on a time impairment losses. proportionate basis.

(ix) Investments in Subsidiary Companies Cost includes expenditure that is directly attributable to the acquisition of the In the Parent Company’s Financial asset. The cost of self-constructed Statements, the investments in the assets includes the cost of materials and Subsidiary Companies are reflected at direct labour, any other costs directly cost of acquisition, net of any provision attributable to bringing the asset to for diminution in value other than a working condition for its intended temporary. use, and the costs of dismantling and removing the items and restoring the site Provision made for fall in value of such on which they are located. investments is charged against profits.

Notes to the Financial Statements I LOLC | Annual Report 2008/09 | 109 When parts of an item of property, plant Building 40 years and equipment have different useful Motor Vehicles 4 years lives, they are accounted for as separate Furniture & Fittings 5 years items of property, plant and equipment. Office Equipment 5 years

Gains and losses on disposal of an item Commercial Leasing Company PLC, of property, plant and equipment are a subsidiary company, depreciates determined by comparing the proceeds fixtures and office furniture over 10 years from disposal with the carrying amount and computer equipment over 4 years. of property, plant and equipment and are recognised net within ‘other Lanka ORIX Securities (Pvt) Ltd., a income’ in profit or loss. When revalued subsidiary Company, depreciates assets are sold, the amounts included computers categorised under office in the revaluation surplus reserve are equipment over 3 years and furniture transferred to retained earnings. and fittings over 4 years.

(b) Subsequent Costs Gal Oya Holdings (Pvt) Ltd., a Joint The cost of replacing part of an item Venture Company, depreciates of property, plant and equipment is computers over 4 years and office recognised in the carrying amount of equipment over 8 years. the item if it is probable that the future economic benefits embodied within the Sundaya Lanka (Pvt) Ltd., a subsidiary part will flow to the Group and its cost Company, depreciates motor vehicles can be measured reliably. The carrying over 5 years. Equipments & tools, amount of the replaced part furniture & fittings and computers are is derecognised. The costs of the depreciated over 4 years. day-to-day servicing of property, plant and equipment are recognised in profit (xiv) Operating Lease Assets or loss as incurred. Operating lease assets are motor vehicles and equipments shown under (c) Depreciation property, plant and equipment in the Property, plant and equipment are stated Balance Sheet at cost less accumulated in the Balance Sheet, at cost/revaluation depreciation. less accumulated depreciation together with any incidental expenses thereon. Motor vehicles are depreciated net of The cost includes expenditure that is cost and the estimated residual value directly attributable to the acquisition of over the effective useful life. Residual the asset and any other costs incurred value is the estimated net amount the in bringing the asset to the working Company would currently obtain from condition. disposal of the assets at the end of useful life. Depreciation is provided from the date the asset is available for use up to the (xv) Leasehold Vehicles date it derecognises. The Company and Leasehold vehicles are assets obtained its subsidiaries provide depreciation for on finance leases facilities by the the following assets on the straight line Company for the business of hiring and method over the estimated useful life shown under the property, plant and stated below. Land is not depreciated. equipment in the Balance Sheet at cost less accumulated depreciation.

110 | Notes to the Financial Statements I LOLC | Annual Report 2008/09 These assets are depreciated net of cost and benefits incidental to ownership and the estimated residual value over of the leased items, are disclosed as the effective useful life. finance leases at their cash price and depreciated over the period the Group is (xvi) Leasehold Machinery expected to benefit from the use of the Leasehold machinery are machinery and leased assets. equipments shown under property, plant and equipment in the Balance Sheet The corresponding principal amount at cost less accumulated depreciation. payable to the lessor is shown Depreciation on leasehold machinery is as a liability. Lease payments are computed over the lease period. apportioned between the finance charges and reduction of the lease (xvii) Capital Work-in-Progress liability so as to achieve a constant rate Capital work-in-progress is stated of interest on the outstanding balance at cost. These are expenses of a of the liability. The interest payable over capital nature directly incurred in the the period of the lease is transferred to construction of building. an interest in suspense account. The interest element of the rental obligations 2.5 Foreign Currency Transactions pertaining to each financial year is Transactions denominated in foreign charged to the Income Statement over currencies are converted into Rupees the period of lease. at the monthly average exchange rate applicable for the transactions. Assets (ii) Income Tax and liabilities denominated in foreign The tax rates and tax laws used to currencies are converted into Rupees compute the amount are those that are at the rate of exchange prevailing at enacted or substantively enacted as at the date of the Balance Sheet. Profit or the Balance Sheet date. Accordingly, loss arising on conversion is credited or provision for taxation is made on the debited to the Income Statement. basis of the profit for the year as adjusted for the taxation purposes in accordance 2.6 Liabilities and Provisions with provision of the Inland Revenue Act Liabilities are recognised in the No.10 of 2006 and amendments thereto. Balance Sheet when there is a present The rates used are specified in Note 12 obligation as a result of a past event, the to Financial Statements. settlement of which is expected to result in an outflow of resources embodying (iii) Deferred Taxation economic benefits. Obligations payable Deferred taxation is provided on the at the demand of the creditor or within liability method for temporary differences one year of the Balance Sheet date between the carrying amount of assets are treated as current liabilities in the and liabilities for financial reporting Balance Sheet. Liabilities payable after purposes and the amounts used for one year from the Balance Sheet date taxation purposes. The amount of are treated as non-current liabilities in deferred tax provided is based on the Balance Sheet. the expected manner of realisation or settlement of the carrying amount of (i) Finance Leases assets and liabilities. Property and Equipment on finance leases, which effectively transfer to the Group substantially all of the risk

Notes to the Financial Statements I LOLC | Annual Report 2008/09 | 111 A deferred tax asset is recognised for The gratuity liability is not funded. carried forward unused tax losses to the extent that it is probable that future Defined Contribution Plan - EPF & ETF taxable profit will be available against All employees of the Company are which the asset can be utilised. members of the Employees’ Provident Fund (EPF) and Employees’ Trust Fund The carrying amount of deferred tax (ETF), to which the Company asset is reviewed at each Balance Sheet contributes 12% and 3% of employee date and reduce to the extent that is salaries respectively and charged no longer probable that the related tax against the profits. benefit will be realised. Unrecognised deferred tax asset in relation to 2.7 Income Statement deductible differences, unused tax (i) Gross income represents the gross credits and unused tax losses carried income receivable for the year on forward are reassessed at each Balance all performing contracts, rentals on Sheet date and recognised to the extent operating leases, income on factoring that has become probable that future of client debtors, commission earned taxable profits will allow the deferred tax on insurance premiums, brokerage asset to be recovered. on share transactions and fees for IT services provided. It includes all income Deferred tax liabilities and assets are related to operations such as interest measured at the applicable tax rate on overdue rentals, profit/loss on leases prevailing in the year. Deferred tax asset and loans terminated and collections on and the liabilities in the same entity are contracts written-off. set off in line with provision of prevailing tax laws. (ii) Revenue Recognition (a) Earned Income on Leases (iv) Retirement Benefits The Group follows the financing method Defined Benefit Plan- Gratuity of accounting for lease income. The Company changed the policy to value its gratuity plan on an actuarial The excess of aggregated contract basis and to recognise the gratuity receivable over the cost of the leased liability in terms of the statute for the assets constitutes the total unearned Company and the Group. Towards this income at the commencement of liability, the Company carries a provision a contract. in the Balance sheet. The unearned income is recognised The actuarial valuation is done on an as income over the term of the lease ongoing basis and uses a Projected commencing with the month that the Unit Credit Method. When complying lease is executed in proportion to the with the new SLAS, the Company has declining receivable balance, so as created a transitional liability/(asset). to produce a constant periodic rate of The difference between the actuarial return on the Lessor’s net investment gratuity liability attributed to the past outstanding on the lease. service at the beginning of the year and the provision made in the Balance Sheet prior to adoption of SLAS has created an asset, which is recognised in the current year’s financials.

112 | Notes to the Financial Statements I LOLC | Annual Report 2008/09 Non-performing leases are those (d) Insurance Broking leases where the rentals are overdue Lanka ORIX Insurance Brokers Ltd. and for 6 months and over. Lease income LOIB Financial Services Ltd., derive their accrued is suspended from the date a income from commission on insurance lease is classified as non-performing premiums. Income is accounted for on and credited to the ‘Earned Income in premium collection basis. Suspense’. Thereafter, such income is recognised on cash basis. (e) Brokerage on Share Transaction Lanka ORIX Securities (Pvt) Ltd., earns Profit or loss on leases terminated, brokerage income on the value of share collections on contracts written off, transactions carried out on behalf of its interest on overdue rentals, interest clients. This income is accounted for on on revolving loans, interest earned on an accrual basis. property sale and buy back agreements, interest income on pawn broking are (f) IT Service Fee accounted for on cash basis. Lanka ORIX Information Technology Ltd., earns fee for IT services provided for b) Factoring Group Companies and is accounted for Revenue is derived from two sources, on an accrual basis. Funding and providing Sales Ledger related services. (g) Turnover from Sale of Solar Systems Sundaya Lanka (Pvt) Ltd., earns revenue Funding - Discount income relating to from sale of solar systems and its factoring transactions is recognised at accounted on an accrual basis. the end of a given accounting month. In computing this discount, a fixed rate (h) Royalty Income agreed upon at the commencement of Royalty Income is charged from the the factoring agreement is applied on Group Companies for the usage of the daily balance in the Client’s ‘LOLC’ logo and ORIX brand, usage of Current Account. infrastructure support and is accounted for on accrual basis. Sales Ledger related services - A (i) Treasury Management Fees & Management Fees service charge is levied as stipulated in the Factoring Agreement. Treasury management fee and management Fee collected from Income is accounted for on an subsidiaries is accounted for on accrual basis and deemed earned on accrual basis. disbursement of advances for invoices (j) Other Income factored, except where the account is classified as non-performing. Rent income, non-operational interest income and foreign exchange gains are (c) Securitisation of Lease Receivables (Subsidiary) accounted for on accrual basis. LOLC Funding One Ltd. was established to securitise lease receivables of LOLC Dividend income is recognised when the and to provide a cost-effective method right to receive payment is established. of long-term finance to LOLC. Currently LOLC Funding One Ltd. is dormant. Profit on sales of property, plant and equipment are accounted for on accrual basis.

Notes to the Financial Statements I LOLC | Annual Report 2008/09 | 113 (iIi) The Group Profits are stated after: 2.10 Related Party Transactions (a) Providing for all bad and doubtful debts Transactions with related parties are and depreciation of property, plant and conducted on normal business terms. equipment. The relevant disclosures are given in Note 45 to the Financial Statements. (b) Charging all expenses incurred in the day-to-day operations of the business 2.11 Segmental Reporting and in maintaining the property, plant Segment is a distinguishable component and equipment in a state of efficiency. of the Group that is engaged either in providing products or services (business (iv) Borrowing Costs segment), or in providing products or Borrowing costs are recognised as services within a particular economic expenditure in the period in which environment (geographical segment), they are incurred. However, borrowing which is subject to risks and rewards that costs that are directly attributable to the are different from those of other segments. acquisition, construction or production of qualifying assets that take a substantial In accordance with the Sri Lanka period of time to get ready for its Accounting Standards No. 28 on intended use or sale, are capitalised as Segment Reporting, segmental part of the assets. During the year no information is presented in respect of borrowing cost has been capitalised. the Group. The segment comprises of leasing, hire purchase and other 2.8 Movement of Reserves advances factoring, insurance broking, Movement of reserves is disclosed in the IT services and stock brokering and Statements of Changes in Equity. others are described in Note 38.

2.9. Cash Flow Statements Segment results, assets and liabilities The cash flow statements are prepared include items directly attributable to a using the indirect method as stipulated segment as well as those that can be in SLAS 9 - Cash Flow Statements, allocated on a reasonable basis. Cash and Cash Equivalents for Cash Flow Statements comprise mainly of Segment capital expenditure is the cash in hand, balances at banks and total cost incurred during the period bank overdraft. to acquire segment assets that are expected to be used for more than one period.

114 | Notes to the Financial Statements I LOLC | Annual Report 2008/09 Group Company For the year ended 31 March 2009 2008 2009 2008 Restated Rs. Rs. Rs. Rs.

3. GROSS REVENUE Revenue 3,495,606,802 – 3,495,606,802 – Income 9,843,453,815 5,934,772,221 6,120,691,922 4,960,979,139 Other income 282,660,615 313,375,519 71,078,814 261,253,173 Gross revenue 13,621,721,231 6,248,147,740 9,687,377,538 5,222,232,312

Revenue from instalment sales 3,495,606,802 – 3,495,606,802 – Less:cost of sales (2,993,076,288) – (2,993,076,288) – Gross profit 502,530,514 – 502,530,514 –

4. INCOME Leasing interest income 2,271,869,419 1,586,383,566 1,389,300,901 1,381,745,650 Hire purchases interest income 2,345,112,502 948,165,721 941,003,160 809,056,422 Advances and other loans interest income 2,715,191,638 1,875,691,500 2,119,074,193 1,563,222,581 Deferred instalment income 175,777,795 – 175,777,795 – Operating lease and hire rental income 653,255,496 531,295,664 611,411,113 530,496,056 Overdue interest income 488,791,526 226,819,876 252,073,633 189,345,477 Other operational incomes 276,627,872 248,814,658 242,906,888 234,463,391 Debt factoring 604,072,617 252,649,562 389,144,239 252,649,562 Insurance broking 147,116,705 110,961,106 – – Securities trading/others 161,275,475 162,450,757 – – IT consultancy fee 92,024,245 73,500,000 – – 9,931,115,290 6,016,732,410 6,120,691,922 4,960,979,139 Inter-company income (87,661,475) (81,960,189) – – 9,843,453,815 5,934,772,221 6,120,691,922 4,960,979,139

5. EXPENSES Expenses are stated after including the following; Auditors remuneration and expenses: Audit related 3,785,498 1,730,000 1,975,000 1,175,000 Non - Audit related 393,690 236,758 373,690 216,758 Legal expenses 25,341,687 8,982,510 12,912,490 7,866,217 Donations 784,858 164,800 546,125 118,000

6. DIRECT EXPENSES EXCLUDING INTEREST COSTS VAT on leases/general expenses /VAT on financial services 240,622,790 162,423,892 110,610,221 131,555,945 BTT,debits tax and others 257,119,510 55,720,580 204,310,873 42,779,738 497,742,300 218,144,472 314,921,094 174,335,683

Notes to the Financial Statements I LOLC | Annual Report 2008/09 | 115 Group Company For the year ended 31 March 2009 2008 2009 2008 Restated Rs. Rs. Rs. Rs. 7. STAFF COSTS Salaries and other benefits 662,852,370 464,664,567 316,266,175 317,564,867 Defined contribution to EPF 45,243,316 30,812,280 26,644,180 21,470,220 Defined contribution to ETF 11,310,829 7,703,070 6,661,045 5,367,555 Provision for retiring gratuity 8,146,452 18,448,564 9,235,879 16,140,094 727,552,967 521,628,481 358,807,279 360,542,736

8. OTHER OPERATING EXPENSES Administration cost 577,781,940 393,761,364 304,387,314 214,205,835 Operating and marketing cost 385,642,762 235,890,976 304,779,009 240,874,136 Specific provisions (95,446,932) (92,902,939) (79,330,545) (37,330,961) Specific bad debts written-off 119,314,630 112,698,891 94,963,586 43,188,218 987,292,400 649,448,292 624,799,364 460,937,228

9. NET INTEREST COSTS Overdraft and other short term borrowings 2,813,750,028 1,206,071,606 2,246,161,541 1,231,676,183 Long term borrowings 2,811,988,605 1,833,148,638 1,988,537,258 1,812,573,093 Finance lease interest 142,192,716 157,606,052 142,030,706 157,439,052 Interest on customer deposits 844,505,878 436,770,238 6,612,437,228 3,633,596,534 4,376,729,505 3,201,688,328 Less: Interest income on US$ and EURO deposits (171,255,775) (229,631,360) (171,255,775) (229,631,360) 6,441,181,453 3,403,965,174 4,205,473,730 2,972,056,968

10. OTHER INCOME/(EXPENSES) 10.1 Other Income Rent income 629,200 – – – Profit on sale of property, plant and equipment 16,115,261 6,158,934 9,468,008 3,176,819 Sales proceeds received in excess on refinances 2,534,608 2,745,826 2,534,609 2,745,827 Profit on sale of vehicles 58,027 963,249 – 963,249 Dividends received 1,962,757 1,789,404 28,159,560 12,812,920 Interest received from US$ current accounts, treasury bills, call deposits 228,163,308 78,547,232 7,357,305 6,521,875 Debenture interest income 583,148 – 583,148 – Royalty Income – – 31,631,927 20,862,973 Foreign exchange gain 54,376,893 434,538 54,376,893 – Restructuring fee – – 50,000,000 – Capital gain on bond trading 25,196,300 – 25,196,300 – Reversal of provision for fall in value of investments and others 721,656 19,588,857 – 17,578,002 Appreciation in market value - People’s Merchant Bank shares – 136,929,540 – 136,929,540 Profit on sale of quoted and non quoted shares – 47,744,537 – 47,744,537 Sundry income 132,756,448 17,145,237 40,344,343 10,446,296 Supplier payments unclaimed – (193,203) – (193,203) Due diligence fee – 25,652,174 – 25,652,174 463,097,606 337,506,325 249,652,093 285,241,009

116 | Notes to the Financial Statements I LOLC | Annual Report 2008/09 Group Company For the year ended 31 March 2009 2008 2009 2008 Restated Rs. Rs. Rs. Rs. 10.2 Other Expenses Fall in market price 143,260,527 – 143,260,527 – Loss on sale of quoted and non-quoted shares 8,210,702 58,745 6,630,021 – Provision for fall in value for investment 28,804,621 18,164,536 28,682,731 18,080,311 Foreign exchange loss 161,141 5,907,525 – 5,907,525 180,436,991 24,130,806 178,573,279 23,987,836 282,660,615 313,375,519 71,078,814 261,253,173

The foreign exchange gain was mainly derived from profits earned on foreign currency denominated leases and foreign currency deposits converted in to the reporting currency.

11. NEGATIVE GOODWILL Group Company For the year ended 31 March 2009 2008 2009 2008 Restated Rs. Rs. Rs. Rs. Touchwood Investment Ltd. – 126,117,616 – – Sundaya Lanka (Pvt) Ltd. – 5,174,887 – – – 131,292,503 – –

12. PROVISION FOR INCOME TAX All Group Company operations were taxed at the rate of 35% during the year 12.1 Major component of income tax expense for the years ended 31st March are as follows: Group Company For the year ended 31 March 2009 2008 2009 2008 Restated Restated Rs. Rs. Rs. Rs. Current income tax Current income tax charge 172,939,233 148,931,233 48,234,700 92,968,699 Under provision of current taxes in respect of prior years 4,812,935 5,446,950 4,812,935 2,093,469 Deferred income tax Deferred Taxation Charge/(Reversal) (Note 20) 14,370,236 (314,821,256) 22,919,697 (312,963,378) Income tax expense reported in the income statement 192,122,404 (160,443,073) 75,967,332 (217,901,210)

12.2 A reconciliation between tax expense and the product of accounting profit multiplied by the statutory tax rate is as follows:

Group Company For the year ended 31 March 2009 2008 2009 2008 Restated Restated Rs. Rs. Rs. Rs. Accounting profit before income tax 1,247,298,933 1,183,052,327 579,920,072 841,335,439

Income tax expense at the statutory income tax rate of 35% 436,554,626 414,068,315 202,972,025 294,467,404 Tax effect of other allowable credits (2,709,080,995) (2,282,267,159) (1,690,746,010) (2,005,406,859) Tax effect on losses claimed (24,376,511) (67,005,812) (24,376,511) (45,823,756) Non deductible expenses 2,486,200,990 1,774,761,583 1,587,369,417 1,538,010,988 Social Responsibility Levy 1.5% of tax 2,824,294 – 748,411 851,013 Income tax expense 192,122,404 (160,443,073) 75,967,332 (217,901,210)

Effective income tax rate of the Company for the year 13% (2008 - 26%) Income tax rate of the Group for the year 15% (2008 - 14%) Social Responsibility Levy 1.5% of tax.

Notes to the Financial Statements I LOLC | Annual Report 2008/09 | 117 13. BASIC/DILUTED EARNINGS PER SHARE The calculation of basic earnings per share as at 31 March 2009 is based on the profits attributable to ordinary shareholders and a weighted average number of ordinary shares outstanding during the year ended 31 March 2009 of 47,520,000 (2008: 47,520,000); calculated as follows:

Group

31.03.2009 31.03.2008

Pofit for the year (Rs.) 1,054,153,622 1,340,879,283 Weighted average number of ordinary shares 47,520,000 47,520,000 Earnings per share (Rs.) 22.18 28.22

14. CASH AND CASH EQUIVALENTS 14.1 Cash in hand and favourable bank balances Group Company 31.03.2009 31.03.2008 31.03.2009 31.03.2008 Restated Rs. Rs. Rs. Rs.

Cash in hand 3,275,045 2,438,531 1,116,991 886,635 Balances at banks 1,829,290,249 1,070,312,191 551,718,065 605,143,691 1,832,565,294 1,072,750,722 552,835,056 606,030,326

14.2 Bank overdraft balance Bank overdrafts (2,750,579,613) (1,090,023,468) (1,909,632,293) (786,837,530) (2,750,579,613) (1,090,023,465) 1,909,632,293) (786,837,530) New cash and cash equivalents (918,014,319) (17,272,746) (1,356,797,237) (180,807,204)

15. RENTALS RECEIVABLE ON LEASED ASSETS, HIRE PURCHASE AND OTHERS 15.1 Rental receivable on leased assets Receivable from one to five years Rentals receivable 7,033,321,755 6,265,563,761 3,040,309,142 5,478,902,085 Unearned income (1,782,112,960) (1,416,557,269) (818,983,990) (1,251,672,758) Provision for doubtful debts (45,455,158) – (17,508,882) – Deposits received from lessees (836,136,584) (165,216,186) (101,416,490) (152,546,101) 4,369,617,053 4,683,790,306 2,102,399,780 4,074,683,226 Receivables within one year Rentals receivable 5,257,788,219 3,759,838,736 2,375,360,418 3,215,973,267 Unearned income (1,271,096,051) (1,314,765,873) (558,648,799) (1,139,085,697) Provision for doubtful debts (108,142,914) – (9,427,859) – 3,878,549,254 2,445,072,863 1,807,283,760 2,076,887,570 Overdue rental receivable Rentals receivable 233,828,953 159,605,717 157,158,888 109,262,268 Earned income in suspense (20,274,246) (15,450,985) (17,584,716) (7,162,486) Provision for doubtful debts (103,833,220) (95,339,612) (58,240,063) (55,390,007) 109,721,487 48,815,120 81,334,109 46,709,775 Total Rentals receivable 12,524,938,927 10,185,008,214 5,572,828,448 8,804,137,620 Unearned income (3,053,209,011) (2,731,323,142) (1,377,632,789) (2,390,758,455) Earned income in suspense (28,371,897) (15,450,985) (17,584,716) (7,162,486) Provision for doubtful debts (257,431,292) (95,339,612) (85,176,804) (55,390,007) Deposits received from lessees (836,136,584) (165,216,186) (101,416,490) (152,546,101) Balance as at 31 March 8,349,790,143 7,177,678,289 3,991,017,649 6,198,280,571 Rentals receivable on leased assets to the value of Rs. 19,624,802,733/- (31 March 2008 - Rs. 10,709,542,366/-) have been assigned against bank loans.

118 | Notes to the Financial Statements I LOLC | Annual Report 2008/09 Group Company 31.03.2009 31.03.2008 31.03.2009 31.03.2008 Restated Rs. Rs. Rs. Rs. 15.2 Rentals Receivable on Hire - Purchase Receivable from one to five years Rentals receivable 7,376,974,912 3,940,389,407 1,674,846,119 3,358,629,276 Unearned income (2,226,598,560) (967,475,056) (531,292,607) (827,529,548) Provision for doubtful debts (69,537,727) – 15,064,663 – 5,080,838,625 2,972,914,351 1,128,488,849 2,531,099,728

Receivables within one year Rentals receivable 5,272,661,685 2,383,509,492 1,641,222,104 2,048,832,494 Unearned income (1,546,708,708) (978,273,849) (335,681,264) (835,532,426) Provision for doubtful debts 50,348,180 – 8,111,742 – 3,675,604,797 1,405,235,643 1,297,429,098 1,213,300,068

Overdue rental receivable Rentals receivable 125,155,720 79,376,985 101,099,828 68,756,902 Earned income in suspense (27,081,822) (8,347,557) (22,946,010) (7,455,814) Provision for doubtful debts (44,357,041) (31,495,388) (30,449,798) (26,447,692) 53,716,857 39,534,040 47,704,020 34,853,396

Total Rentals receivable 12,774,792,317 6,403,275,884 3,417,168,051 5,476,218,672 Unearned income (3,773,307,268) (1,945,748,905) (866,973,871) (1,663,061,974) Earned income in suspense (27,081,822) (8,347,557) (22,946,010) (7,455,814) Provision for doubtful debts (164,242,948) (31,495,388) (53,626,204) (26,447,692) Balance as at 31 March 8,810,160,279 4,417,684,034 2,473,621,966 3,779,253,192

15.3 Rentals Receivable on Operating Leases and Hire Total Rentals receivable 2,808,856,604 2,114,619,350 2,808,856,604 2,114,619,350 Unearned income (2,731,879,510) (2,106,204,221) (2,731,879,510) (2,106,204,221) Earned income in suspense (43,697,025) (745,195) (43,697,025) (745,195) Provision for doubtful debts – (872,926) – (872,926) Balance as at 31 March 33,280,069 6,797,008 33,280,069 6,797,008

15.4 Total Receivable on Leased Assets, Hire Purchase and Others Rentals receivable 28,108,587,848 18,702,903,448 11,798,853,103 16,394,975,642 Unearned income (9,558,395,789) (6,783,276,268) (4,976,486,170) (6,160,024,650) Earned income in suspense (99,150,744) (24,543,737) (84,227,751) (15,363,495) Provision for doubtful debts (421,674,240) (127,707,926) (138,803,007) (82,710,625) Deposits received from lessees (836,136,585) (165,216,186) (101,416,490) (152,546,101) Balance as at 31 March 17,193,230,490 11,602,159,331 6,497,919,685 9,984,330,771

Notes to the Financial Statements I LOLC | Annual Report 2008/09 | 119 Group Company 31.03.2009 31.03.2008 31.03.2009 31.03.2008 Restated Rs. Rs. Rs. Rs. 15.5 Provision for Doubtful Debts Balance as at 01 April 127,707,926 84,486,139 82,710,625 25,814,224 Provisions made during the year – Charged against profits 304,280,005 119,014,628 66,406,073 78,790,852 – Written off during the year (10,313,691) (75,792,841) (10,313,691) (21,894,451) Balance as at 31 March 421,674,240 127,707,926 138,803,007 82,710,625

16. ADVANCES AND OTHER LOANS Rentals receivable on loans to customers 10,046,681,545 8,715,324,134 6,899,560,019 6,818,267,517 Capital outstanding of revolving loans 2,146,110,751 1,584,410,829 2,034,132,649 1,584,410,828 Receivables under Textile Debt Recovery Fund scheme 7,202,445 7,202,445 7,202,445 7,202,445 Overdue loan instalments 408,200,785 271,735,744 357,285,466 251,425,436 Earned income in suspense (101,879,843) (48,624,999) (62,937,947) (31,936,976) Unearned loan income (2,048,555,764) (1,920,884,425) (1,604,527,480) (1,853,637,697) Provision for doubtful debts (159,799,477) (46,257,876) (98,469,436) (33,505,000) 10,297,960,442 8,562,905,852 7,532,245,716 6,742,226,553

Less: Provision for Doubtful Debts Balance as at 01 April 46,257,876 26,012,263 33,505,000 19,460,195 Provisions made during the year – Charged against profits 182,558,455 37,355,711 133,981,290 29,481,315 – Written-off during the year (69,016,854) (17,110,098) (69,016,854) (15,436,510) Balance as at 31 March 159,799,477 46,257,876 98,464,436 33,505,000

17. INSTALMENT SALES Rentals receivable on loans to customers 4,088,071,115 – 4,088,071,115 – Overdue instalments 18,849,222 – 18,849,222 – Instalment in suspense (945,822) – (945,822) – Deferred income on instalment sales (1,150,471,368) – (1,150,471,368) – Provision for doubtful debts (551,338) – (551,338) – 2,954,951,809 – 2,954,951,809 –

18. OTHER CURRENT ASSETS Insurance commission receivable 83,246,009 63,838,659 – – Securities clients/ brokers receivable 195,038,400 392,569,640 – – Amount due from subsidiaries – – 2,458,257,133 981,366,965 Finance charges suspended 216,032,318 56,804,225 216,032,318 56,804,225 Other accounts receivable 1,844,303,623 1,030,540,582 902,014,375 714,195,824 VAT refunds due from IRD 24,502,930 43,336,272 – 18,885,161 ACT recoverable – – – – ESC recoverable 60,375,001 153,751 60,000,000 – 2,423,498,281 1,587,243,130 3,636,303,826 1,771,252,175

Above receivables are shown after deducting provisions for doubtful debts.

Finance charges suspended include expenses incidental to obtaining long-term loans such as guarantee fees, structuring fees, placement fees and front end fees. These charges are written-off over the period of corresponding loans as the Directors are of the opinion that these are part of the financing cost of the long-term borrowings.

120 | Notes to the Financial Statements I LOLC | Annual Report 2008/09 19. INVESTMENT SECURITIES Group Company 31.03.2009 31.03.2008 31.03.2009 31.03.2008 Restated Rs. Rs. Rs. Rs. Investment in Bank of Ceylon debentures 29,609,408 – 29,609,408 – Investment - Mudarabah deposit 75,000,000 – 75,000,000 – Investment in REPO investment 3,100,000 – 3,100,000 – Quoted ordinary shares (Note 19.1) 180,889,296 357,120,657 178,326,395 356,942,832 Non-quoted ordinary shares (Note 19.2) 182,500 – – – Acquired properties 3,930,482 8,540,138 3,930,482 8,540,138 Total 292,711,686 365,660,795 289,966,285 365,482,970

19.1 Quoted Ordinary Shares-Company No.of 31.03.2009 31.03.2009 No.of 31.03.2008 31.03.2008 Shares Cost Market Value Shares Cost Market Value Rs. Rs. Rs. Rs.

Brown & Company Ltd. 1,676,600 61,274,065 30,178,800 36,700 34,363,357 33,947,500 Central Finance Co. Ltd. – – – 3,900 937,471 780,000 Chemical Industries (Colombo) Ltd. – – – 137,440 5,767,985 4,638,600 Chemical Industries (Colombo) Ltd. 40 1,679 820 27,500 715,792 653,122 Dialog Telekom Ltd. – – – 831,600 21,432,993 13,929,300 HDFC Bank (par value Rs. 100/-) 47,200 7,749,236 2,395,400 47,200 7,749,236 7,749,236 Housing Development Finance Co. – – – 34,400 1,909,885 4,196,800 Peoples’ Merchant Bank 4,982,953 152,081,734 145,751,375 4,987,953 152,081,734 289,011,274 Property Development Ltd. – – – 67,900 2,823,104 2,037,000 Veyangoda Textiles Mills Ltd. 10,300 262,060 – 10,300 262,060 – Total cost of quoted ordinary shares 221,368,774 178,326,395 228,043,617 356,942,832

Less: Provision for fall in market value Balance as at 01 April (128,899,215) – 7,528,015 – Provision/(Reversal) made during the year 171,941,594 – (136,427,230) – Balance as at 31 March 43,042,379 – (128,899,215) – 178,326,395 178,326,395 356,942,832 356,942,832

Notes to the Financial Statements I LOLC | Annual Report 2008/09 | 121 No. of 31.03.2009 31.03.2009 No. of 31.03.2008 31.03.2008 Shares Cost Market Value Shares Cost Market Value Rs. Rs. Rs. Rs. Quoted Ordinary Shares - Subsidiaries Ahot Properties Ltd. 300 9,150 7,425 300 9,150 12,000 Dialog Telekom Ltd. 9,000 274,491 54,216 9,000 274,491 165,825 Royal Ceramics (Lanka) Ltd. 11,000 300,000 302,500 – – – Asian Hotels Corporation Ltd. 5,000 139,425 123,750 – – – Colombo Drydocks Ltd. 8,400 184,548 480,900 – – – Lanka Ventures Ltd. 10,000 96,168 57,500 – – – DFCC Bank 66 20,028 4,488 – – – Central Finance Ltd. 166 22,472 26,062 – – – Overseas Realty Ceylon Ltd. 113,680 1,664,891 881,020 – – – Lanka IOC Ltd. 10,000 270,000 160,000 – – – HDFC 1,200 264,000 60,900 – – – Seylan Bank Ltd. 72,400 1,104,210 398,200 – – – Sierra Cables Ltd. 5,400 16,200 5,940 – – – Total Cost of Quoted Ordinary Shares 4,365,583 2,562,901 – 283,641 177,825

Less: Provision for fall in Market Value Balance as at 01 April – (105,816) – – 117,609 – Provision/(Reversal) made during the year – (121,890) – – (223,425) – Balance as at 31 March – (227,706) – – (105,816) – 2,562,901 2,562,901 – 177,825 177,825

Quoted Ordinary Shares - Group – 180,889,296 180,889,296 – 357,120,657 357,120,657

19.2 Non-Quoted Ordinary Shares- Company No. of 31.03.2009 No. of 31.03.2008 Shares Cost Shares Cost Rs. Rs.

Indo Lanka Steel Ltd. 200,000 6,000,000 200,000 6,000,000 Lanka Glass Manufacturing Ltd. 3,000,000 3,000,000 3,000,000 3,000,000 Magpek Exports Ltd. 25,000 1,000,000 25,000 1,000,000 Total cost of non-quoted ordinary shares 10,000,000 10,000,000

Less: Provision for fall in value Balance as at 01 April 10,000,000 10,000,000 Provision/(Reversal) made during the year – – Balance as at 31 March 10,000,000 10,000,000 – –

Non-Quoted Ordinary Shares - Subsidiaries Equity Investments Lanka Ltd. 17,250 172,500 – – Credit Information Bureau 100 10,000 – – 182,500 – –

122 | Notes to the Financial Statements I LOLC | Annual Report 2008/09 20. DEFERRED TAX Deferred Tax assets, liabilities and income tax relate to the followings: Company Balance Sheet Income Statement 2009 22008 2009 2008 Restated Restated Rs. Rs. Rs. Rs. Deferred Tax Liability Capital allowances for tax purposes on property, plant and equipment (234,611) 12,015,495 (12,250,106) 12,456,798 Operating Lease Assets 52,848,531 35,927,725 16,920,806 11,664,021 Unamortised VAT (28,770,168) – (28,770,168) – 23,843,752 47,943,220 (24,099,468) 24,120,819

Deferred Tax Assets Defined benefit plans (40,681,839) 14,014,917 (54,696,755) 5,397,908 Capital allowances for tax purposes on Lease Receivables (6,900,532) (41,724,447) 34,823,915 35,979,727 Brought forward Tax losses 610,737,529 637,883,853 (27,146,325) 295,706,562 563,155,158 610,174,323 (47,019,165) 337,084,197 Deferred tax expense (22,919,697) 312,963,378 Net Deferred tax Liability/Asset 539,311,406 562,231,103

Group Balance Sheet Income Statement 2009 2008 2009 2008 Restated Restated Rs. Rs. Rs. Rs. Deferred Tax Liability Capital allowances for tax purposes on property, plant and equipment (7,311,214) 12,084,561 (19,395,775) 11,542,250 Operating Lease Assets 52,848,531 35,927,725 16,920,806 11,664,021 Unamortised VAT (28,770,168) – (28,770,168) – 16,767,149 48,012,286 (31,245,137) 23,206,271

Deferred Tax Assets Defined benefit plans (38,948,385) 14,958,248 (53,906,633) 6,341,238 Capital allowances for tax purposes on Lease Receivables (7,645,736) (41,724,447) 34,078,711 35,979,727 Brought forward Tax losses 612,096,403 637,883,853 (25,787,451) 295,706,562 565,502,282 611,117,654 (45,615,373) 338,027,527 Deferred tax expense – – (14,370,236) 314,821,256 Net Deferred tax Liability/Asset 548,735,133 563,105,368

Notes to the Financial Statements I LOLC | Annual Report 2008/09 | 123 21. INVESTMENT IN JOINT VENTURE Group Company 31.03.2009 31.03.2008 31.03.2009 31.03.2008 Rs. Rs. Rs. Rs. Gal Oya Holdings (Pvt) Ltd. (GHL) Cost of Investment as at 31 March 08 – – 10,000,000 100,000,000 Percentage of ownership – – 50% 50%

Principal activity Plantation Management

The investment in the GHL has been recognised in the Financial Statements on the basis of proportionate consolidation stated capital of GHL was reduced to Rs. 20 Mn (2,000,000 shares of Rs. 10/- each) during the financial year. Accordingly, LOLC investment is Rs. 10 Mn, being 50% of the stated capital, with the balance converted to a loan. As at As at 31 March 2009 31 March 2008

Current Assets 486,279,338 102,669,333 Long-Term Assets 16,609,082 116,463 Current Liabilities 6,861,832 7,810,594 Long-Term Liabilities 512,265,629 – Income 658,326 984,774 Expenses 26,846,771 5,953,246

22. INVESTMENTSIN EQUITY ACCOUNTED INVESTEES Commercial Touchwood PRASAC Micro Insurance Brokers Investments PLC Finance Institution Insurance Forestry Micro Finance Broking Management Services Principal Activity Carrying Amount 49,113,139 474,654,664 152,652,858 Holding 39.25% 29.20% 19.00% Cost 785,040 216,359,359 61,831,544 Profit share recognised 5,735,520 74,347,843 60,374,275 Last published financial statements 31 Dec 2008 31 Mar 2009 31 Dec 2008 Assets 253,715,080 3,148,158,296 6,836,946,750 Liabilities 130,332,233 1,523,539,876 4,627,466,550 Revenue 101,806,381 727,010,387 1,584,228,040 Profit/(Loss) 21,217,154 254,620,476 317,759,345

The reporting date of the financial statements of PRASAC MFI is 31 December, profit share relating to 12 months ended December 2008 is reflected in LOLC financials for 2008/09.

Commercial Insurance Brokers is an investment by Commercial Leasing Company PLC and profit recognised relates to the post acquisition share.

124 | Notes to the Financial Statements I LOLC | Annual Report 2008/09 23. INVESTMENTSIN SUBSIDIARIES Principal No. of Holding Cost No. of Holding Cost Activity Ordinary 31.03.2009 Ordinary 31.03.2008 Shares Shares % Rs. % Rs.

Group Lanka Orient Investment Ltd. No operations 2 100 20 2 100 20

Company LOLC Funding One Ltd. Securitisation of (Par value Rs.100/-) lease receivables 7 100 700 7 100 700 Lanka ORIX Insurance Brokers Ltd. Insurance broking 1,000,000 100 10,000,000 1,000,000 100 10,000,000 LOIB Financial Services (Pvt) Ltd. Investment advice 500,000 100 – 500,000 100 – Lanka ORIX Finance Finance business Company (Pvt) Ltd. and pawn broking 80,000,000 100 800,000,000 80,000,000 100 800,000,000 Lanka ORIX Information Technology Ltd. Software design, development and distribution 2,000,000 100 20,000,000 2,000,000 100 20,000,000 Lanka ORIX Securities (Pvt) Ltd. Stock broking 270,000 30 23,000,000 270,000 30 23,000,000 Lanka ORIX Project Development Ltd. Property and infrastructure 5,200,000 100 52,000,000 5,200,000 100 52,000,000 Sundaya Lanka (Pvt) Ltd. Assembling and distribution of solar systems 624,490 51 6,244,900 624,490 51 6,244,900 Commercial Leasing Company PLC Leasing, hire purchase and factoring 17,315,310 98 1,626,123,927 – – LOLC Micro Credit Ltd. Agro and Micro financing 40,000,000 100 460,125,000 – – 2,997,494,527 911,245,620

Lanka ORIX Factors Ltd., a fully owned subsidiary of Lanka ORIX Leasing Company PLC merged with the Parent Company on 01 February 2009.

LOLC Micro Credit Ltd., a fully owned subsidiary of Lanka ORIX Leasing Company PLC commenced its business operations on 01 February 2009

On 09 May 2008 the Company acquired 66.55% of the shares in Commercial Leasing Company PLC for Rs. 1,102,793,101/-, further 31.26% was acquired in July 2008. Percentage holding as at 31 March 2009 stands at 98.13.

The Company is in the business of leasing, hire purchasing and factoring. During the period the subsidiary contributed a post aquisition profit of Rs. 320,218,884/-.

Notes to the Financial Statements I LOLC | Annual Report 2008/09 | 125 The acquisition had the following effect on the Group’s assets and liabilities on acquisition date:

Recognised values Recognised values Total on acquisition on acquisition as at 30.04.2008 as at 30.06.2008 Rs. Rs. Rs.

Property, Plant and Equipment 300,986,000 313,017,000 – Lease receivables 7,226,410,000 7,256,012,000 – Investments 49,081,618 49,081,618 – Other current assets 728,556,000 768,869,703 Cash and cash equivalents 206,656,996 105,927,297 – Tax payable (79,388,000) (110,741,000) – Retirement benefit obligations (19,174,000) (19,831,000) – Short-term loans (3,462,205,000) (3,287,781,000) – Long-term loans (2,656,966,000) (2,796,177,000) – Trade and other payable (939,096,996) (883,506,000) – Net identifiable assets and liabilities 1,354,860,618 1,394,871,618 – Percentage acquired 66.55% 31.58% – Net assets applicable to Group 901,659,741 440,500,457 1,342,160,198 Intangible assets acquired 144,206,594 – 144,206,594 Positive goodwill on acquisition 56,926,766 94,488,468 151,415,234 Consideration paid, satisfied in cash 1,102,793,101 523,330,826 1,626,123,927 Cash acquired 206,656,996 105,927,297 312,584,293 Net cash inflow/(outflow) (896,136,105) (417,403,529) (1,313,539,634)

Pre-acquisition carrying amounts were determined based on applicable SLASs immediately before the acquisition

24. INTANGIBLE ASSETS Arising from the acquisition of Commercial Leasing Company PLC the Group recognises intangible assets as follows: Brand Value 94,784,945 Customer Base 49,421,649 144,206,594

126 | Notes to the Financial Statements I LOLC | Annual Report 2008/09 25. PROPERTY, PLANT & EQUIPMENT Land & Motor Leasehold Furniture Office Computers Leasehold Assets for Capital Total Building Vehicles Motor & Fittings Equipment & Software Machinery Operating Work-in- Vehicles Lease progress Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs.

Group Cost/Valuation Balance as at 01 April 2008 487,743,267 167,946,669 1,008,230,909 156,784,924 169,320,997 186,807,187 123,343,978 671,746,629 61,144,615 3,033,069,175 Additions 127,460,848 164,240,522 17,887,659 53,954,204 37,143,106 76,438,504 – 602,699,836 26,183,745 1,106,008,424 Disposals – (32,418,287) (63,250,481) – – (1,326,194) (123,343,978) (149,803,923) – (370,142,862) Acquisition of subsidiary 186,936,598 188,644,745 2,608,696 21,136,941 18,449,122 58,597,456 – – – 476,373,558 Transferred from CWIP 37,486,276 – – – – – – – (37,486,276) – Balance as at 31 March 2009 839,626,989 488,413,649 965,476,784 231,876,069 224,913,225 320,516,953 – 1,124,642,542 49,842,084 4,245,308,295

Accumulated Depreciation Balance as at 01 April 2008 10,780,571 66,647,112 244,196,605 62,952,496 105,205,326 111,653,400 107,925,981 172,498,238 – 881,859,729 Charge for the year 7,655,386 80,288,689 141,090,178 31,706,012 17,440,433 48,213,921 15,417,997 156,453,990 – 498,266,606 Depreciation on disposals – (29,229,532) (24,241,063) – – (1,326,195) (123,343,978) (88,118,108) – (266,258,876) Acquisition of subsidiary 6,939,856 92,812,532 2,500,000 11,865,312 11,618,811 36,054,916 – – – 161,791,427 Balance as at 31 March 2009 25,375,813 210,518,801 363,545,720 106,523,820 134,264,570 194,596,042 – 240,834,120 – 1,275,658,886

Written Down Value as at 31 March 2009 814,251,176 277,894,848 601,931,064 125,352,249 90,648,655 125,920,911 – 883,808,422 49,842,084 2,969,649,409 as at 31 March 2008 476,962,696 101,299,557 764,034,304 93,832,428 64,115,671 75,153,786 15,417,997 499,248,391 61,144,615 2,151,209,445

Land & Motor Leasehold Furniture Office Computers Leasehold Assets for Capital Total Building Vehicles Motor & Fittings Equipment & Software Machinery Operating Work-in- Vehicles Lease progress Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs.

Company Cost/Valuation Balance as at 01 April 2008 (Restated) 487,743,267 159,680,058 1,007,204,909 126,774,923 130,625,275 123,206,546 123,343,978 671,746,629 61,144,616 2,891,470,201 Additions 127,460,848 115,583,564 15,639,584 47,333,042 16,454,781 51,991,760 – 602,699,836 26,183,745 1,003,347,160 Disposals – – (57,006,650) – – (1,326,195) (123,343,978) (149,803,923) – (331,480,746) Transferred from CWIP 37,486,276 – – – – – – – (37,486,276) – Balance as at 31 March 2009 652,690,391 275,263,622 965,837,843 174,107,965 147,080,056 173,872,111 – 1,124,642,542 49,842,085 3,563,336,615

Accumulated Depreciation Balance as at 01 April 2008 (Restated) 10,780,571 62,244,784 244,196,606 42,092,816 80,077,098 63,395,424 107,925,981 172,498,238 – 783,211,518 Charge for the year 4,754,337 31,288,304 140,509,733 24,835,603 7,825,065 28,848,381 15,417,997 156,453,990 – 409,933,410 Depreciation on disposals – – (20,986,088) – – (1,326,195) (123,343,978) (88,118,108) – (233,774,369) Balance as at 31 March 2009 15,534,908 93,533,088 363,720,251 66,928,419 87,902,163 90,917,610 – 240,834,120 – 959,370,559

Written Down Value as at 31 March 2009 637,155,483 181,730,534 602,117,592 107,179,546 59,177,893 82,954,501 – 883,808,422 49,842,085 2,603,966,056 as at 31 March 2008 (Restated) 476,962,696 97,435,274 763,008,303 84,682,107 50,548,177 59,811,122 15,417,997 499,248,391 61,144,616 2,108,258,683 z Lands of LOLC were revalued in March 2008 by Mr. G.J. Sumanasena and Mr. S.N. Wijepala independent professional valuers. The total market value of Lands as per the revaluation on the basis of existing use as at March 2008 was Rs. 365,780,000/-. If the Lands were stated on the historical cost basis, the cost of the land would amount to Rs. 327,178,979/- (31 March 2008 - Rs. 260,377,158/-). Company policy is to revalue the lands every 3-5 years.

Notes to the Financial Statements I LOLC | Annual Report 2008/09 | 127 z Motor Vehicles include vehicles used for short-term hire and vehicles held for replacements of Operating Leases. Total net book value of such vehicles as at 31 March 2009 is Rs. 128,068,943/- (31 March 2008 - Rs. 51,716,274 /-). z LOLC has not pledged any of its property, plant & equipment against any liability.

Property plant & equipment of the Group includes assets acquired with the business combination during the financial year. The net book value of such assets as at 31 March 2009 is made up as follows:

Subsidiary Cost Accumulated Net Book Depreciation Value

Commercial Leasing Company PLC 507,501,695 196,161,398 311,340,297

26. DEPOSITS FROM CUSTOMERS Group Company 31.03.2009 31.03.2008 31.03.2009 31.03.2008 Rs. Rs. Rs. Rs.

Deposits maturing within one year 4,720,876,692 2,826,801,429 – – Deposits maturing after one year 583,044,283 512,863,441 – – 5,303,920,975 3,339,664,870 – –

27. SHORT-TERM BORROWINGS Group Company 31.03.2009 31.03.2008 31.03.2009 31.03.2008 Restated Rs. Rs. Rs. Rs.

Commercial papers 1,774,798,835 973,547,200 1,042,441,792 973,547,200 Short-term loans and others 8,017,289,030 6,891,725,846 6,482,818,178 6,581,985,846 9,792,087,865 7,865,273,046 7,525,259,970 7,555,533,046

28. FINANCE LEASE LIABILITIES Group Company 31.03.2009 31.03.2008 31.03.2009 31.03.2008 Rs. Rs. Rs. Rs.

Gross lease rentals payable as at 01 April 1,201,033,499 1,326,765,053 1,200,012,766 1,325,943,757 Leases obtained during the year – 301,273,916 – 301,273,916 Lease rentals paid during the year (474,143,095) (427,204,907) (473,122,362) (427,204,907) Gross lease rentals payable as at 31 March 726,890,404 1,200,834,062 726,890,404 1,200,012,766 Less: Interest in suspense (114,135,585) (239,030,762) (114,135,585) (238,861,733) Net lease liability 612,754,819 961,803,300 612,754,819 961,151,033

Repayable within one year Gross lease rentals payable 393,178,840 465,208,750 393,178,840 464,592,778 Less: Interest in suspense (76,347,571) (127,097,449) (76,347,571) (126,942,252) Net lease liability 316,831,269 338,111,301 316,831,269 337,650,526

Repayable after one year Gross lease rentals payable 333,711,564 735,625,312 333,711,564 735,419,988 Less: Interest in suspense (37,788,013) (111,933,313) (37,788,013) (111,919,481) Net lease liability 295,923,551 623,691,999 295,923,551 623,500,507

128 | Notes to the Financial Statements I LOLC | Annual Report 2008/09 29. LONG-TERM BORROWINGS Group Company 31.03.2009 31.03.2008 31.03.2009 31.03.2008 Restated Rs. Rs. Rs. Rs.

Balance as at 01 April 12,969,853,336 10,308,355,035 12,969,853,336 10,308,355,035 Received during the year 11,589,750,255 6,935,999,833 6,515,209,629 6,935,999,833 Repaid during the year (5,951,341,314) (4,274,501,532) (4,682,950,382) (4,274,501,532) Balance as at 31 March 18,608,262,277 12,969,853,336 14,802,112,583 12,969,853,336

Long-term borrowings - current 6,676,896,050 3,867,594,352 4,442,165,898 3,867,594,352 Long-term borrowings - non-current 11,931,366,227 9,102,258,984 10,359,946,685 9,102,258,984 18,608,262,277 12,969,853,336 14,802,112,583 12,969,853,336

Analysis of non-current portion of long-term borrowings Repayable within 3 years 7,843,847,939 6,865,527,023 6,272,428,396 6,865,527,023 Repayable after 3 years 4,087,518,288 2,236,731,961 4,087,518,289 2,236,731,961 11,931,366,227 9,102,258,984 10,359,946,685 9,102,258,984

30. TRADE AND OTHER PAYABLES Group Company 31.03.2009 31.03.2008 31.03.2009 31.03.2008 Restated Rs. Rs. Rs. Rs.

Accounts payable 2,084,706,234 973,843,976 978,745,731 812,136,892 Creditors for leased equipment 494,942,214 440,582,529 198,406,482 405,098,488 Amount due to subsidiaries – – 33,532,746 689,969,077 Clients payable 9,120,195 64,301,807 – – Insurance premium payable 17,499,841 20,213,040 – – Unclaimed dividends 5,420,312 1,874,154 1,777,837 1,874,154 2,611,688,796 1,500,815,506 1,212,462,796 1,909,078,611

31. RETIREMENT BENEFIT OBLIGATION Group Company 2009 .2008 2009 2008 Rs. Rs. Rs. Rs.

Net Benefit expense Current service cost 9,829,566 18,448,564 6,184,653 15,797,824 Transitional asset recognized during the year (9,766,298) – (2,188,278) – Interest cost on benefit liability 7,885,831 – 5,169,828 – Net benefit expense 7,949,099 17,114,263 9,166,203 15,797,824

Benefit Liability Defined benefit liability 74,349,053 51,772,347 51,819,459 42,737,849 74,349,053 51,772,347 51,819,459 42,737,849

Notes to the Financial Statements I LOLC | Annual Report 2008/09 | 129 Group Company 2009 2008 2009 2008 Rs. Rs. Rs. Rs. Change in the defined benefit obligation are as follows: Defined benefit obligation as of 01 April 69,678,547 34,831,047 42,737,849 27,690,825 Interest cost on benefit liability 7,885,831 5,169,828 - Current service cost 9,829,566 18,448,564 6,184,653 15,797,824 Benefits paid (3,278,593) (1,507,264) (84,593) (750,800) Transitional difference (over provision) recognised during the year (9,766,298) (2,188,278) - Defined benefit liability as of 31 March 74,349,053 51,772,347 51,819,459 42,737,849

Key assumptions used in the above valuation are as follows: Discount Rate 12% 12% Salary increment rate 13% 13%

The unrecognised loss of Rs. 3,978,495/- has not been recognised in the Company financials in line with Company policy.

The total number of employees of the Group as at 31 March, 2009 was, 1,164 and the number of qualifying employees in respect of the above was 1,150 (as at March 2008 - 814 and 1,027 respectively).

32. STATED CAPITAL Group Company 31.03.2009 31.03.2008 31.03.2009 31.03.2008 Rs. Rs. Rs. Rs.

Issued and fully paid At the beginning of the year 47,520,000 of Rs.10/- each 475,200,000 475,200,000 475,200,000 475,200,000 Issued and fully paid – – – – At the end of the year 47,520,000 shares 475,200,000 475,200,000 475,200,000 475,200,000

33. RESERVES Group Company 31.03.2009 31.03.2008 31.03.2009 31.03.2008 Rs. Rs. Rs. Rs.

Share premium of subsidiary 536,504 536,504 – – Future taxation reserve 205,000,000 205,000,000 205,000,000 205,000,000 Statutory reserve 243,473,119 195,266,451 219,003,447 183,993,390 Revaluation reserve 105,402,842 105,402,842 105,402,842 105,402,842 Total Reserves as at 31 March 554,412,465 506,205,796 529,406,289 494,396,232

Subsidiary Share Premium The premium of Rs. 536,504/- has arisen on the date on which shares were issued to the Parent over the par value by subsidiaries. The use of this reserve is restricted to write off preliminary expenses, to charge discounts when debentures are issued at less than par value or to redeem any debentures or preference shares

Future Taxation Reserve The reserve has been created over the years since year 1987 to year 2000 for any future tax liabilities.

Reserve Fund The Company’s reserve fund was created according to the Direction No. 5 of 2006 issued by the Central Bank, under Section 34 of the Finance Leasing Act of No. 56 of 2000.

130 | Notes to the Financial Statements I LOLC | Annual Report 2008/09 34. RETAINED EARNINGS Group Company 31.03.2009 31.03.2008 31.03.2009 31.03.2008 Rs. Rs. Rs. Rs.

Balance brought forward 4,142,813,662 2,980,546,405 3,792,540,720 2,912,828,715 Transferred back to retained earnings (32,185,234) – (30,000,000) – Transfers to statutory reserves (48,206,669) (71,692,026) (35,010,056) (68,451,002) Net profit for the year 1,054,153,622 1,340,879,283 503,952,740 1,059,236,649 Dividends (134,718,375) (106,920,000) (134,718,375) (111,073,642) Balance carried forward 4,981,857,006 4,142,813,662 4,096,765,029 3,792,540,720

34.1 Dividends Group Company 31.03.2009 31.03.2008 31.03.2009 31.03.2008 Rs. Rs. Rs. Rs.

Interim of Rs. 2.80 per share (on a stated capital of Rs. 475,200,000) paid on 30 June, 2008 for 2008/09 134,718,375 106,920,000 134,718,375 111,073,642 134,718,375 106,920,000 134,718,375 111,073,642 Dividend per share – – 2.80 2.25

In terms of the Inland Revenue (Amendment) Act No. 10 of 2006 a Withholding Tax of 10% has been imposed on dividends.

35. MINORITY INTEREST The Minority Interest relates to the Net Assets of Lanka ORIX Securities (Pvt) Ltd., Sundaya Lanka (Pvt) Ltd. and Commercial Leasing Company PLC which is not represented by the Parent Company’s investment.

36. BUSINESS COMBINATIONS THAT WERE EFFECTED DURING THE PERIOD Commercial Leasing Company PLC

Principal Activity Financial Services

Acquisition Date 9th May, 2008 Percentage holding as at 31 March, 2009 98.13% No. of shares 17,315,310 Cost (Rs.) 1,626,123,927 Profit Share recognised (Rs.) 320,218,884 Assets as per last audited statements as at 31 March, 2009 (Rs.) 9,450,887,870 Liabilities as per last audited statements as at 31 March, 2009 (Rs.) 7,775,808,565

Notes to the Financial Statements I LOLC | Annual Report 2008/09 | 131 37. MATURITY ANALYSIS - COMPANY Assets/Liabilities 0-12 Months 12-36 Months 36-60 Months More than Total 60 Months Rs. Rs. Rs. Rs. Rs.

Assets (a) Interest Earning Assets Investments in Govt securities – – – – – Fixed deposits and savings deposits with banks/finance companies 481,909,164 1,009,714,439 665,493,607 124,337,277 2,281,454,487 (b) Loans and Advances Net of Provisions Leasing - Finance and operating leases 1,840,563,829 1,626,535,719 557,198,170 – 4,024,297,718 Hire Purchase and instalment sales 2,402,661,631 2,592,927,943 432,984,201 – 5,428,573,775 Advances and other loans 4,781,693,294 1,857,525,675 893,026,747 – 7,532,245,716 Loans to real estate/housing 3,135,535 – – – 3,135,535 Factoring 1,138,142,223 – – – 1,138,142,223 (c) Non-Interest Earning Assets Cash and bank balances 552,835,056 – – – 552,835,056 (d) Investments in Subsidiary companies – – – 2,997,494,547 2,997,494,547 Associate companies – – – 278,190,903 278,190,903 Joint ventures – – – 10,000,000 10,000,000 Dealing securities 260,356,877 – – – 260,356,877 Debentures/Commercial papers 29,609,408 – – – 29,609,408 Stocks (vehicles/real estates/machineries etc.) 45,698,979 – – – 45,698,979 Short-term investments 13,351,058 – – – 13,351,058 (e) Fixed Assets Property, plant and equipment – – – 2,603,966,056 2,603,966,056 (f) Other Current Assets Other current assets 1,132,347,714 – – – 1,132,347,714 Amount due from subsidiaries 2,458,257,133 – – – 2,458,257,133 Deferred tax asset – 539,311,406 – – 539,311,406 Total assets 15,140,561,903 7,626,015,182 2,548,702,725 6,013,988,782 31,329,268,592

Liabilities & Equity (a) Interest Bearing Liabilities Bank overdrafts 1,909,632,293 – – – 1,909,632,293 Bank loans-short term loans 6,482,818,178 – – – 6,482,813,178 Commercial papers 1,042,441,792 – – – 1,042,441,792 Long-term borrowings 4,442,165,898 6,272,428,618 1,892,709,242 2,194,808,821 14,802,112,580 Finance lease liabilities 316,831,269 295,923,550 – – 612,754,819 (b) Non-Interest Bearing Liabilities Amount due to subsidiaries/associates – – – – – Leased equipment creditors 198,406,482 – – – 198,406,482 Taxation 113,855,355 – – – 113,855,355 Trade and other payables 1,014,056,318 – – – 1,014,056,318 Retirement benefit obligation – – – 51,819,459 51,819,459 (c) Shareholders Funds Shareholders funds excluding redeembale preference shares – – – 5,101,371,318 5,101,371,318 Total liabilities and equity 15,520,207,583 6,568,352,169 1,892,709,242 7,347,999,598 31,329,268,592

132 | Notes to the Financial Statements I LOLC | Annual Report 2008/09 38. SEGMENTAL INFORMATION Leasing, Factoring Insurance IT Services Stock Broking Total Hire Purchase and Broking and Other Other Products Rs. Rs. Rs. Rs. Rs. Rs. 2008/09 Operating profit before interest 6,853,043,041 440,649,663 39,856,082 (46,217,023) (21,969,629) 7,265,362,134 Net Interest cost (6,073,783,915) (350,521,828) (10,776) (2,308) (16,862,626) (6,441,181,453) Other income/(expenses) 250,728,890 3,284,863 9,689,803 – 18,957,059 282,660,615 Share of profit of associate companies – – – – – 140,457,638 Profit before taxation 1,029,988,016 93,412,698 49,535,109 (46,219,331) (19,875,197) 1,247,298,933

2007/08 Operating profit before interest 3,667,255,859 407,323,677 15,851,081 (40,765,389) 4,407,367 4,054,072,595 Net Interest cost (3,196,091,132) (203,277,186) (110,089) (1,913) (4,484,854) (3,403,965,174) Other income/(expenses) 294,609,398 2,863,335 10,751,566 – 5,151,220 313,375,519 Goodwill on consolidation – – – – – 131,292,503 Share of profit of associate companies – – – – – 88,276,885 Profit before taxation 765,774,125 206,909,826 26,492,558 (40,767,302) 5,073,733 1,183,052,328

2008/09 Capital expenditure 1,076,470,080 2,098,010 685,766 11,370,370 15,384,198 1,106,008,424 Depreciation of property, plant and equipment 480,535,822 1,225,041 3,953,899 2,287,041 10,264,803 498,266,606 Provision/(reversal) for doubtful debts and bad debts written-off 256,765,306 104,536,089 – – 32,334,226 393,635,621 Provision/(reversal) for fall in value of investments 27,961,075 – 121,890 – – 28,082,965 Provision for gratuity 6,298,366 – 458,602 521,732 867,752 8,146,452

2007/08 Capital expenditure 799,532,391 1,128,034 1,256,746 3,119,446 5,343,387 810,380,004 Depreciation of property, plant and equipment 302,802,841 1,535,235 4,325,865 2,042,842 9,179,531 319,886,314 Provision/(reversal) for doubtful debts and bad debts written off 163,494,922 8,697,932 16,036,054 – 3,159,111 191,388,019 Provision/(reversal) for fall in value of investments (502,310) – 1,926,630 – – 1,424,320 Provision for gratuity 16,999,159 – 454,460 698,795 296,150 18,448,564

As at 31 March, 2009 Total assets 42,271,554,058 2,448,225,798 178,833,608 130,689,420 1,332,763,257 46,362,066,143 Total liabilities 37,550,989,226 2,031,618,871 76,481,288 23,933,779 587,565,176 40,270,588,343

As at 31 March, 2008

Total assets 30,058,040,809 1,975,198,888 139,964,835 63,142,078 757,911,251 32,994,257,861 Total liabilities 26,740,518,638 561,562,252 60,490,675 3,741,767 450,075,538 27,816,388,871

Notes to the Financial Statements I LOLC | Annual Report 2008/09 | 133 Portfolio Analysis by Customer Segment The total rent receivable to the Group is attributable to: Group 2009 Rs. Mn

Corporate/Public 4,056 9% SME 37,043 83% Micro 3,725 8% Total Receivable 44,824 100%

39. LOANS TO EMPLOYEES (Rs. 20,000/- and above) Group Company 2009 2008 2009 2008 Rs. Rs. Rs. Rs.

Balance as at 01st April 92,252,743 83,670,011 69,852,455 63,546,664 Loans granted during the year 40,069,999 44,391,050 33,533,249 35,603,400 Recoveries during the year (33,250,034) (35,808,318) (26,178,928) (29,297,609) Balance as at 31st March 99,072,708 92,252,743 77,206,776 69,852,455

40. CAPITAL COMMITMENTS The Company as at 31st March, 2009 has a capital commitment of approximately Rs. 140 Mn for the construction of the fleet management workshop.

41. CONTINGENT LIABILITIES Contingent Liabilities exist as at 31st March, 2009 on guarantees given by the Company to Hatton National Bank, in relation to the banking facilities obtained by the Company’s subsidiary Lanka ORIX Insurance Brokers Ltd. (LOIB). The balances outstanding on these facilities as at 31st March, 2009 amounted to Rs. 2,050,000/-.

Contingent Liabilities exist as at 31st March, 2009 on guarantees given by the Company to banks on Letter of Credit opened by the Company for import of equipment and vehicles for execution of leases. The value of LC’s at the year end was Rs. 9,028,500/-.

The Company does not anticipate any material liability to arise out of any contingent event.

42. CONSOLIDATION OF ACCOUNTS WITH THOSE OF THE SUBSIDIARY COMPANY The results of the Company’s subsidiary, Lanka Orient Investments (Pvt) Ltd., incorporated on 27th February, 1986 have not been consolidated with that of the Company in accordance with Section 153 (6) (a) of the Companies Act No. 07 of 2007.

43. EVENTS AFTER THE BALANCE SHEET DATE There have been no material events occurring after the Balance Sheet date that require adjustment to or disclosure in the Financial statements, other than the following:

1. The Company submitted a bid for the purchase of 33 1/3% of Seylan Bank PLC and awaiting decision of the Central Bank of Sri Lanka.

2. The Company has offered to purchase all remaining shares of Commercial Leasing Company PLC at Rs. 90/- per share in line with the de-listing of the Company.

134 | Notes to the Financial Statements I LOLC | Annual Report 2008/09 44. COMPARATIVE INFORMATION IN THE FINANCIAL STATEMENTS HAS BEEN RESTATED AS FOLLOWS: Company Income statement for year ended 31 March 2008 As per last year Prior year Impact due to Restated in financial adjustment merger 2008/09 financial statements Note 44.1 Note 44.2 statements Rs. Rs. Rs. Rs.

Income 4,480,432,084 480,547,056 4,960,979,140 Operating Profit before Net Interest 3,153,837,331 398,301,903 3,552,139,234 Net Interest Cost 2,768,779,783 203,277,185 2,972,056,968 Other Income/(Expenses) 440,602,192 (179,349,019) 261,253,173 Profit before Taxation 825,659,740 15,675,699 841,335,439 Profit after Taxation 977,871,455 72,705,920 8,659,274 1,059,236,649

Balance Sheet as at 31 March 2008 Assets 27,653,040,450 42,705,920 1,300,321,133 28,996,067,503 Liabilities 22,982,399,219 1,251,531,332 24,233,930,551 Equity 4,670,641,231 42,705,920 48,789,801 4,762,136,952

44.1 Prior Year Adjustments Decrease in Factoring receivables (30,000,000) Increase in deferred tax asset 72,705,920 42,705,920

44.2 The restatement of last year financials, is in view of the merger of the fully owned subsidiary Lanka ORIX Factors Ltd., in February 2009.

45. RELATED PARTY TRANSACTIONS 45.1 The Directors of the Company are also Directors of the following Companies in the Group through which they have control.

LOIB LFSL LOFIN LOSEC LOIT LOPD LFOL Sundaya CLC LOMC

Mrs. R.L. Nanayakkara 99999 99 9- 9 Mr. I.C. Nanayakkara 99999 9 - 999 Mr. M.D.D. Pieris 999 - 9 -- --- Mrs. K.U. Amarasinghe 99999 9 --9 - Mr. M.T.L. Fernando 9 --9 - 9 --- Mr. T.H.M. Wickramasinghe - - - 9 ------Mr. W.D.K. Jayawardena 999 - 9 -- 999 Mr. R.M. Nanayakkara - - - 9 ------

Notes to the Financial Statements I LOLC | Annual Report 2008/09 | 135 As at As at 31 March, 2009 31 March, 2008 Rs. Rs.

Amounts due from Subsidiary & Join Venture Companies to Parent LOIB 49,228,418 41,638,773 LOFIN 191,764,934 225,637,470 LOPD 6,772,336 6,448,654 LOSEC 4,778,786 4,854,190 LOIT – 1,866,056 Sundaya 5,064,056 4,831,157 Gal Oya 64,819,452 – LOMC 1,815,122,592 – CLC 320,706,558 – 2,458,257,132 285,276,300

Amount due to Subsidiary Companies from Parent LOIT 33,532,746 28,155,864

Inter-Company Transactions 1. The Company has received following income from subsidiaries: LOSEC LOIB LOIT LOPD Rs. Rs. Rs. Rs.

2007/08 Royalty 10,000,000 9,921,255 – – Operating lease rental income 4,594,206 – – 665,604 14,594,206 9,921,255 – 665,604

LOSEC LOIB LOIT LOPD Rs. Rs. Rs. Rs.

2008/09 Royalty 10,000,000 21,631,927 – – Operating lease rental income 5,403,018 – – 661,475 15,403,018 21,631,927 – 661,475

136 | Notes to the Financial Statements I LOLC | Annual Report 2008/09 2. The Company has paid IT service fee of Rs. 45,000,000/- to LOIT (2007/08 - Rs. 36,000,000/-) 3. The subsidiary companies have the following transactions with other subsidiaries and the parent. 3.1 LOIB has earned Rs. 3,047,893/- (2007/08 - Rs. 1,560,452/-) as insurance commission from premium paid by the following:

2008/09 2007/08 Rs. Rs.

LOLC 2,843,118 1,384,438 LOSEC – – LOFIN 204,775 176,014 3,047,893 1,560,452

3.2 LOIT has received IT service fee as follows: LOIB 4,500,000 4,500,000 LOLC 52,500,000 45,000,000 LOFIN 30,000,000 24,000,000 87,000,000 73,500,000

3.3 Due from LOIB to LFSL Rs. 500,230/- (2007/08 - Due from LFSL to LOIB Rs. 1,727,789/-). 3.4 Due from LOFIN to LOIT - Nil (2007/08 - Rs. 16,000,000/-). 3.5 Due from LOFIN to LOFAC/LOLC Rs. 6,643,285/- (2007/08 - Rs. 6,121,588/-). 3.6 Due from LOIB to LOFIN - Rs. 6,381,863/- (2007/08 - Rs. 6,115,431/-). 3.7 Due from LOIB to LOSEC - Nil (2007/08 - Rs. 239,755/-). 3.8 Due from LOFIN to LOMC - Rs. 114,416/- (2007/08 - Nil). 3.9 Due from LOMC to LOIB - Rs. 23,452/- (2007/08 - Nil).

45.2 Transactions with Key Management Personnel Key Management Personnel include all the members of the Board of Directors of the Group having authority and responsibility for planning, directing and controlling the activities of the Company as well as the subsidiaries, directly or indirectly. z Group has paid fees amounting to Rs. 20,656,598/- for the year 2008/09. (2007/08 - Rs. 12,468,103/-). z Emoluments paid to key management personnel during the year 2008/09 amounted to Rs. 36,901,514/- (2007/08 - Rs. 32,203,919/-). z In addition to the above company has provided the following benefits and facilities:

2008/09 2007/08 Short-term Long-term Total Short-term Long-term benefits benefits benefits benefits Total Rs. Rs. Rs. Rs. Rs. Rs.

Total benefits and facilities 30,401,616 – 30,401,616 11,586,928 7,055,833 18,642,760 z Group has not incurred any amount as Termination benefits or post-employment benefits on account of the key managerial personnel during the year. z Group has not provided leases, loans, advances or other credit facilities in the names of key managerial persons as at 31.03.2009.

Notes to the Financial Statements I LOLC | Annual Report 2008/09 | 137 45.3 Other Related Parties The Company carries out transactions in the ordinary course of its business on arm’s length basis with related parties.

Names of Directors, their relationship, accommodations granted and balance outstanding as at 31 March 2009 are listed below:

Name of Related Party Name of Director Relationship

Ishara Traders Mr. R.M. Nanayakkara Proprietor Mr. I.C. Nanayakkara Director Mrs. K.U. Amarasinghe Director Brown & Co .Ltd. Mrs. R.L. Nanayakkara Chairperson Mr. M.T.L. Fernando Director Mr. I.C. Nanayakkara Director Taprobane Fund Management (Pvt) Ltd. Mrs. R.L. Nanayakkara Director Mr. M.T.L. Fernando Director Mr. I.C. Nanayakkara Director The Colombo Land Exchange Ltd. Mr. I.C. Nanayakkara Director

1. The Group and Company paid Rs. 79,172,762/- and Rs. 66,822,762/- (2007/08 - Rs. 36,772,500/- and Rs. 25,817,500/-) respectively for the supply of lease vehicles to Ishara Traders (Pvt) Ltd.

2. The Company has obtained Rs. 3,148,681,375/- (2007/08 Rs. 700,000,000/- & fully settled on 24 December 2007) loan from Ishara Traders during the year and Rs. 162,272,581/- (2007/08 - Rs. 14,738,356/-) paid as interest - Loan outstanding balance as at 31 March 2009 - Rs. 1,226,102,079/-.

3. The Group and Company paid Rs. 8,168,450/- and Rs. 4,677,700/- for the supply of lease vehicles to Brown & Company Ltd. (2007/08 - Rs. 411,130,700/- for Company).

4. LOLC/LOFAC has advanced Rs. 213,007,500/- to Standard Finance Ltd. and earned Rs. 43,986,679/- (2007/08 - Rs. 11,978,417/-) as interest income and earned Rs. 26,612/- (2007/08 - Rs. 254,155/-) as discount charge income during the year from Mason’s Mixtures Ltd.

5. The Company has granted Rs. 204,690,823/- loan facility to Galoya Holdings (Pvt) Ltd. & earned Rs. 64,819,452/- as interest income during the year 2008/09.

6. Amount due from related party transactions are as follows: Balance outstanding As at As at 31 March, 2009 31 March, 2008 Name of the Company Nature of transactions Rs. Rs.

The Colombo Land Exchange Ltd. Loan Granted 100,250,897 – Brown & Company Ltd. Finance Lease 635,970 1,362,736 Brown & Company Ltd. Loan Granted 290,327,796 – Gal Oya Holdings (Pvt) Ltd. Loan Granted 7,241,886 10,164,210 Gal Oya Holdings (Pvt) Ltd. Finance Lease – 2,443,170 Touchwood Investments PLC Loan Granted 46,861,330 25,074,574 Touchwood Investments PLC Finance Lease 3,713,274 5,506,372 Touchwood Investments PLC Operating Leases 18,011,675 –

138 | Notes to the Financial Statements I LOLC | Annual Report 2008/09 8. Interest Income earned from loans granted to related party transactions as follows: 2008/09 2007/08 Name of the Company Rs. Rs.

Brown & Company Ltd. 24,653,748 13,930,168 Gal Oya Holdings (Pvt) Ltd. 7,019,192 2,188,951 Gal Oya Holdings (Pvt) Ltd. 2,028,571 1,607,910 Touchwood Investments PLC 1,080,223 2,606,339

46. FOREIGN EXCHANGE RISK The Company received approval from Central Bank of Sri Lanka to enter into SWAP agreements to hedge against foreign exchange exposure.

Lanka ORIX Finance Company the fully owned subsidiary of LOLC received approval from Central Bank of Sri Lanka to mobilise Foreign Currency deposits and the Company currently accepts deposits in US Dollars, Great Britain Pounds, EURO and Australian Dollars.

Notes to the Financial Statements I LOLC | Annual Report 2008/09 | 139 Milestones

1980 2002 yThe first to introduce leasing to Sri Lanka yThe first leasing company to be recognised as a Participating Financial Institution for 1992 the Indian Line of Credit yLaunched its first subsidiary LOFAC yBranch office opened in Galle

1995 2003 yFirst branch office opened in Kandy yReceived the first US Dollar Long-term yNegotiated the first long-term Rupee loan Loan from OPEC Fund from FMO yThe first to win the leasing category ‘Award for Excellence in Annual Reports and 1996 Accounts’ conducted by the Institute of yThe first to extend Dollar denominated Chartered Accountants of Sri Lanka leases to BOI companies yNegotiated the third tranche of Long-term Rupee loan from FMO 1997 yBranch offices opened in Nuwara Eliya and yThe first to introduce export factoring Kiribathgoda through LOFAC yBranch office opened in Matara 2004 yEntered into stock broking through LOSEC 1998 yLaunched LOIT, the Information Technology yBranch offices opened in Badulla and arm Rathnapura yThe first to win the Non-Banking Sector Award at the South Asian Federation of 1999 Accountants (SAFA) for Best Presented yLOFAC enters into strategic alliance with Accounts Competition Dunn and Bradstreet yBranch office opened in Gampaha yBranch office opened in Anuradhapura yLaunched its insurance broking subsidiary, 2005 LOIB yThe first leasing company to be ranked among the top 10 Brands by Sting 2000 Consultants Brand Power Index yNegotiated the second tranche of Long- yLaunched LOPD, the project development term Rupee loan from FMO subsidiary yBranch office opened in Kochchikade yLOLC cricket team emerged Mercantile ‘C’ Division Champions 2001 yNegotiated the second tranche of Long- yLaunched its finance subsidiary, LOFIN term US Dollar loan from OPEC Fund Branch offices opened in Kurunegala and y yNegotiated the fourth tranche of Long-term Kaluthara Rupee loan from FMO yNegotiated the long term US Dollar loan from PROPARCO yBranch offices opened in Kegalle, Embilipitiya and Polonnaruwa

140 | LOLC | Annual Report 2008/09 2006 yDairy farmer loans, cultivation loans, yNegotiated the Long-term US Dollar loan business set up loans and skills enable from DEG loans were introduced yNegotiated the Long-term US Dollar loan yPartnered with GTZ for capacity building from OPEC of the micro finance staff, setting up low cost branch network and development of a yBranch office opened in Wattala micro banking system yThe first Regional Expansion to Cambodia through 17.91% holding of PRASAC 2008 yFirst to introduce a branded product yLaunched a lottery for customers with a ‘Guardian’ range from an insurance broker, house as the prize through LOIB yLaunched Western Union Money transfer yWon the leasing category ‘Award for services at LOLC branches Excellence in Annual Reports and yEntered into a joint venture agreement with Accounts’ conducted by the Institute of Agri Tec for manufacture of precipitated silica Chartered Accountants of Sri Lanka for and allied products using rice husk ash 2005/06 yLIOC centers opened in Pilimathalawa, 2007 Seeduwa, Aluthgama, Kadawatha, Ambalangoda, Debarawewa, Beliatta and yBranch offices opened in Chilaw and Talawakele Mahiyangana yLOLC Micro Credit Ltd. was appointed as yRanked among the top 50 brands by the only representative from the private Super Brands sector to the Micro Finance Steering yLaunched the new Strategic Plan for the Committee appointed by Department of Company and its Subsidiaries Development Finance attached to Ministry yOpened the first Hospital Savings Centre in of Finance and Planning Oasis y Won Bronze Award at Effie Awards 2008, in yOpened the first Student Savings Centre at the Financial Services/Products category Royal College - Polonnaruwa ySpin off of Micro Finance Business Unit as yLOFIN operations expanded to Wattala, LOLC Micro Credit Ltd. (LOMC) together Kegalle, Mahiyanganaya, Mount Lavinia with FMO and Chilaw yWon the International Assets and Liability yLOPD received Cabinet sub-committee Management competition held by FMO approval for the project on offshore Sand and DEG Mining, Washing, Sieving and Grading to yJoined with Sri Lanka Post to open up supply construction and related industries Isuru Diriya centers at post offices and ySigned up with LIOC to establish LOLC sub post offices sub branches at LIOC filling stations. yLIOC centers opened in Morawaka and Trincomalee ySet up the Islamic BU with an in-house Shari’ah Supervisory Board

Milestones I LOLC I Annual Report 2008/09 | 141 Ten Year Summary

For the year ended 31st March, (Rs. ‘000) 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Restated COMPANY OPERATING RESULTS Gross income/profit 860,738 938,381 1,062,137 1,130,880 1,401,776 1,566,952 1,908,291 3,034,110 4,960,979 6,623,222 Other operating expenses (239,310) (289,072) (352,377) (415,469) (588,339) (617,719) (621,628) (972,865) (1,408,840) (1,908,907) Operating profit before interest 621,428 649,309 709,760 715,411 813,437 949,233 1,286,663 2,061,245 3,552,139 4,714,315 Interest costs (529,136) (562,269) (566,914) (492,557) (493,338) (532,298) (703,399) (1,442,881) (2,972,057) (4,205,474) Other income/(expenses) 25,933 94,198 69,862 32,679 97,806 145,294 93,449 291,840 261,254 71,079 Income tax expense – – – – – – (12,701) 76,390 217,901 (75,967) Net profit after tax 118,225 181,238 212,708 255,533 417,905 562,229 664,012 986,594 1,059,237 503,953

As at 31 March ASSETS Total assets 5,587,654 5,502,316 5,527,821 5,980,825 7,616,680 8,746,741 13,297,988 20,888,694 28,996,068 31,329,269

LIABILITIES Current liabilities 2,486,632 3,077,791 2,222,274 3,044,815 3,713,713 2,999,461 5,003,038 7,840,922 13,279,129 15,552,646 Non-current liabilities 1,683,013 1,107,767 1,841,339 1,257,849 2,058,618 3,439,150 5,444,697 9,353,485 10,954,802 10,675,251 Total liabilities 4,169,645 4,185,558 4,063,613 4,302,664 5,772,331 6,438,611 10,447,735 17,194,407 24,233,931 26,227,897

SHAREHOLDERS’ FUNDS Share capital & reserves Share capital 118,800 237,600 237,600 237,600 475,200 475,200 475,200 475,200 475,200 475,200 Reserves 1,299,209 1,079,158 1,226,608 1,440,560 1,369,149 1,832,930 2,375,053 3,219,087 4,286,937 4,626,171 Share holders’ funds 1,418,009 1,316,758 1,464,208 1,678,160 1,844,349 2,308,130 2,850,253 3,694,287 4,762,137 5,101,371

INVESTOR RATIOS Bonus issues 10:1 1:1 – – 1:1 – – – – – Gross dividends 26,730 71,280 77,220 77,220 92,664 110,009 142,560 71,280 106,920 133,056 Total assets to shareholders’ funds (times) 4 4 44445 6 66 Return on assets (%) 2 3 44676 6 42 Return on equity (%) 8 14 15 16 24 27 26 30 23 10

OTHER INFORMATION No. of employees 166 170 179 201 259 269 346 414 521 664 No. of branches 6 6 8 9 12 12 16 18 22 26 No. of LIOC branches 0 0 00000 01014 No. of Postal branches 0 0 00000 0 011 No. of subsidiary companies 3 4 55678 8 99 No. of associate companies 0 0 00000 0 22 No. of joint ventures 0 0 00000 0 11

142 | LOLC | Annual Report 2008/09 Summarised Quarterly Statistics

Income Statements (Rs.’000) 2008/09 2007/08 For the 3 months ended June 30 Sept 30 Dec 31 March 31 June 30 Sept 30 Dec 31 March 31

COMPANY

Operating Profit before Interest 879,980 1,112,725 1,127,030 1,594,580 688,794 673,582 901,725 1,288,038 Interest costs (853,047) (1,049,839) (1,021,025) (1,281,563) (543,425) (632,194) (683,299) (1,113,139) Other income/(expenses) 16,384 71,216 (27,091) 10,570 52,912 67,709 296,689 (156,057) Taxation (15,161) (19,652) – (41,154) (48,000) (36,000) (41,093) 270,288 Profit available to shareholders’ of the Company 28,156 114,450 78,914 282,433 150,281 73,097 474,022 289,131

Balance Sheets (Rs.’000) As at June 30 Sept 30 Dec 31 March 31 June 30 Sept 30 Dec 31 March 31

Assets 29,673,348 31,250,667 31,461,465 31,329,269 22,958,188 24,149,170 26,514,031 29,323,361 Liabilities 25,107,607 26,570,474 26,702,358 26,227,897 19,220,540 20,338,425 22,229,265 24,633,930 Net assets 4,565,741 4,680,193 4,759,107 5,101,371 3,737,648 3,810,745 4,284,766 4,689,431 Share capital & reserves 4,565,741 4,680,193 4,759,107 5,101,371 3,737,648 3,810,745 4,284,766 4,689,431 Share capital 475,200 475,200 475,200 475,200 475,200 475,200 475,200 475,200 Reserves 4,090,541 4,204,993 4,283,907 4,626,171 3,262,448 3,335,545 3,809,566 4,214,231

GROUP For the 3 months ended June 30 Sept 30 Dec 31 March 31 June 30 Sept 30 Dec 31 March 31

Operating profit before interest 1,312,673 1,954,086 2,065,321 1,933,282 852,784 896,332 1,161,680 1,143,277 Interest costs (1,178,277) (1,640,181) (1,710,390) (1,912,333) (645,811) (781,669) (863,445) (1,113,040) Other income/(expenses) 35,070 13,341 (31,673) 292,244 29,298 36,263 264,799 (16,984) Goodwill on consolidation –––– –5,175 – 126,118 Share of profit of associate companies 24,303 29,906 28,389 57,860 – – (4,473) 92,750 Taxation (48,053) (77,934) (56,924) (9,211) (48,525) (68,828) (54,446) 332,242 Minority interest (22,002) (5,249) 482 27,791 (9,776) (1,395) (18,295) 32,082 Profit available to shareholders’ of the Company 123,714 273,969 295,205 361,266 177,970 85,878 485,820 591,211

Balance Sheets (Rs.’000) As at June 30 Sept 30 Dec 31 March 31 June 30 Sept 30 Dec 31 March 31

Assets 46,138,261 48,654,109 48,843,150 46,359,550 26,915,804 28,620,658 32,058,118 32,921,552 Liabilities 40,575,227 43,234,136 43,128,453 40,270,588 22,990,310 24,616,746 27,550,092 27,816,389 Net assets 5,563,034 5,419,973 5,714,697 6,088,962 3,925,494 4,003,912 4,508,026 5,105,163 Share capital & reserves 5,563,034 5,419,973 5,714,697 6,088,962 3,925,494 4,003,912 4,508,026 5,105,163 Share capital 475,200 475,200 475,200 475,200 475,200 475,200 475,200 475,200 Reserves & minority interest 5,087,834 4,944,773 5,239,497 5,613,762 3,450,294 3,528,712 4,032,826 4,629,963

The above statements relating to the Company, are as per Published Financials and does not reflect any restatement effected in view of the merger with Lanka ORIX Factors Ltd.

LOLC I Annual Report 2008/09 | 143 Value Addition

2008/09 % 2007/08 % (Restated) Rs. Rs. Company

Value added Income 6,623,222,436 4,960,979,140 Cost of borrowing and services (5,546,086,790) (3,837,104,310) Provisions 200,446,301 114,887,215 Other income 71,078,814 261,253,173 Value added tax 599,707,761 659,754,698 1,948,368,522 2,159,769,915

Distribution of Value added

To Employees 358,807,279 18 360,542,736 17 Remuneration and other benefits 358,807,279 360,542,736

To Government 675,675,093 35 441,653,488 20 Indirect taxes 599,707,761 659,754,698 Direct taxes 75,967,332 (217,901,210)

To Providers of Capital 168,066,056 9 179,524,644 8 Dividends to shareholders 133,056,000 111,073,642 Reserves 35,010,056 68,451,002

To Expansion and Growth 745,820,094 38 1,177,849,648 55 Retained profits 335,886,684 879,712,005 Depreciation 409,933,410 298,137,043 1,948,368,522 100 2,159,769,915 100

144 | LOLC | Annual Report 2008/09 Value Addition

2008/09 % 2007/08 % (Restated) Rs. Rs. Group

Value added Income 10,345,984,329 5,934,772,221 Cost of borrowing and services (8,665,751,999) (4,614,742,071) Provisions 369,767,923 171,592,067 Other income 282,660,615 313,375,519 Goodwill on consolidation – 131,292,503 Share of profits of associate companies 140,457,638 88,276,885 Value added tax 701,576,919 746,258,089 3,174,695,425 2,770,825,213

Distribution of Value added

To Employees 727,552,966 23 521,628,482 19 Remuneration and other benefits 727,552,966 521,628,482

To Government 893,699,323 28 585,815,016 21 Indirect taxes 701,576,919 746,258,089 Direct taxes 192,122,404 (160,443,073)

To Providers of Capital 181,262,669 6 182,765,669 7 Dividends to shareholders 133,056,000 111,073,642 Reserves 48,206,669 71,692,027

To Expansion and Growth 1,372,180,467 43 1,480,616,046 53 Retained profits 873,913,861 1,160,729,732 Depreciation 498,266,606 319,886,314 3,174,695,425 100 2,770,825,213 100

Value Addition I LOLC I Annual Report 2008/09 | 145 Group Companies

Lanka ORIX Finance Company Ltd. (LOFIN) Principal Activity Insurance Broking Date of Incorporation 13 December 2001 Registered Office No. 100/1, Sri Jayewardenepura Mawatha, Stated Capital Rajagiriya, Sri Lanka. Rs. 800,000,000/- (80,000,000 shares) Directors Group Holding Mrs. R.L. Nanayakkara - Chairperson 100% Mr. I.C. Nanayakkara - Deputy Chairman Status of the Company Deshamanya M.D.D. Pieris Unquoted Public Company Mrs. K.U. Amarasinghe Mr. N.D.J. Silva (Retired w.e.f. 26.03.2009) Principal Activities Mr. W.D.K.Jayawardena Finance Business and Pawn Broking, Islamic Financing, Advances for Margin Lanka ORIX Information Technology Ltd. (LOIT) Trading Date of Incorporation Registered Office 5 March 2004 No. 100/1, Sri Jayewardenepura Mawatha, Stated Capital Rajagiriya, Sri Lanka. Rs. 20,000,000/- (2,000,000 shares)

Directors Group Holding Mrs. R.L. Nanayakkara - Chairperson 100% Mr. I.C. Nanayakkara - Deputy Chairman Status of the Company Deshamanya M.D.D. Pieris Unquoted Public Company Mr. J.M. Swaminathan Mrs. K.U. Amarasinghe Principal Activities Mr. B.C.G. de Zylva - Managing Director Software Design, Development and Mr. W.D.K Jayawardena Distribution Mr. R.N. Asirwathan (Appointed w.e.f. 26.11.2008) Registered Office No. 100/1, Sri Jayewardenepura Mawatha, Lanka ORIX Insurance Brokers Ltd. (LOIB) Rajagiriya, Sri Lanka

Date of Incorporation Directors 2 February 1999 Mrs. R.L. Nanayakkara - Chairperson Stated Capital Mr. I.C. Nanayakkara - Deputy Chairman Rs. 10,000,000/- (1,000,000 shares) Mrs. K.U. Amarasinghe Deshamanya M.D.D.Pieris Group Holding Mr. M.T.L. Fernando 100% Mr. F.K.C.P.N. Dias - Managing Director Mr. W.D.K. Jayawardena Status of the Company Unquoted Public Company

146 | LOLC | Annual Report 2008/09 Lanka ORIX Project Development Ltd. Directors (LOPD) Mrs. R.L. Nanayakkara - Chairperson Mr. I.C. Nanayakkara - Deputy Chairman Date of Incorporation Mrs. K.U. Amarasinghe 12 May 2005 Mr. R.D. Tissera Mr. W.D.K. Jayawardena Stated Capital Rs. 52,000,000 - (5,200,000 shares) Commercial Leasing Company PLC (CLC) Group Holding Date of Incorporation 100% 30 April 1998

Status of the Company Stated Capital Unquoted Public Company 176,458,400/- (17,645,840 shares)

Principal Activities Group Holding Property and Infrastructure Development 98.13%

Registered Office Status of the Company No. 100/1, Sri Jayewardenepura Mawatha, Quoted Public Company Rajagiriya, Sri Lanka Principal Activities Directors Leasing, Hire Purchase and Factoring Mrs. R.L. Nanayakkara - Chairperson Registered Office Mr. I.C. Nanayakkara - Deputy Chairman No. 68, Bauddhaloka Mawatha, Mrs. K.U. Amarasinghe Colombo 4, Sri Lanka.

LOLC Micro Credit Ltd. (LOMC) Directors Mrs. R. L. Nanayakkara - Chairperson Date of Incorporation Mr. I.C. Nanayakkara - Deputy Chairman 16 May 2008 Mr. W.D.K. Jayawardena Stated Capital Mrs. K.U. Amarasinghe Rs. 460,125,000/- (40,000,000 shares) Lanka ORIX Securities (Pvt) Ltd. (LOSEC) Group Holding Date of Incorporation 100% 19 December 1990 Status of the Company Stated Capital Unquoted Public Company Rs. 9,000,000/- (900,000 shares) Principal Activities Group Holding Leasing and Finance, Micro Credit Operations 30% Registered Office Status of the Company No. 100/1, Sri Jayewardenepura Mawatha, Private Limited Liability Company Rajagiriya, Sri Lanka.

Group Companies I LOLC I Annual Report 2008/09 | 147 Principal Activity Directors Stock Broking Mrs. R.L. Nanayakkara - Chairperson Mr. I.C. Nanayakkara - Deputy Chairman Registered Office Mr. M.C. Adema No. 42, Sir Mohamed Macan Markar Mr. R.D. Tissera Mawatha, Colombo 3, Sri Lanka. Mr. P.S.T. Loh Mr. T.S.R. Visweswaran Directors Mr. W.D.K. Jayawardena Mrs. R. L. Nanayakkara - Chairperson Mr. I.C. Nanayakkara - Deputy Chairman Mr. T.H.M. Wickramasinghe - Managing Agrisil Holdings Limited Director Date of Incorporation Mrs. K.U. Amarasinghe 23 April 2008 Mr. R.F. Senewiratne (Resigned w.e.f. 11.07.08) Mr. V.S. Premawardhana Stated Capital (Resigned w.e.f. 30.11.08) Rs. 54,000,000/- (1,000,000 shares) Mr. K.A.K.P. Gunawardena Group Holding (Appointed w.e.f. 16.02.09) (50% Joint Venture of Lanka ORIX Project Sundaya Lanka (Pvt) Ltd. Development Limited)

Date of Incorporation Status of the Company 6 June 2005 Unquoted Public Company

Stated Capital Principal Activity Rs. 12,244,900/- (1,224,490 shares) Management Services

Group Holding Registered Office 51% acquired along with the assets of No. 100/1, Sri Jayewardenepura Mawatha, LOFAC, when LOFAC was amalgamated Rajagiriya, Sri Lanka. with LOLC Directors Principal Activities Mrs. R.L. Nanayakkara - Chairperson Manufacturing, assembly and sales of solar Mr. I.C. Nanayakkara - Deputy Chairman power systems Mr. G.R. Wellen (Appointed w.e.f. 16.06.2008) Mr. C.W. Wellen Registered Office (Appointed w.e.f. 16.06.2008) No. 100/1, Sri Jayewardenepura Mawatha, Mr. N.M.C. Mendis Rajagiriya, Sri Lanka (Appointed w.e.f. 29.05.2008) Mr. D. Stephens (Appointed w.e.f. 16.06.08, deceased on 11.10.08)

148 | Group Companies I LOLC | Annual Report 2008/09 Investor Information

1. SHAREHOLDING INFORMATION 1.1 Shareholding as at 31 March, 2009 2008

No. of % of No. of % of Shares Shares Shares Shares

Residents 33,160,368 69.78 33,070,268 69.60 ORIX Corporation 14,256,000 30.00 14,256,000 30.00 Other foreign investors 103,632 0.22 193,732 0.40 47,520,000 100 47,520,000 100

1.2 Analysis of Ordinary Shares as at 31 March, 2009 2008

Range No. of No. of % of No. of No. of % of Shareholders Shares Shares Shareholders Shares Shares

1 - 1,000 1,133 302,395 0.63 1,156 337,813 0.71 1,001 - 5,000 307 708,029 1.49 356 840,803 1.77 5,001 - 10,000 66 488,352 1.03 76 567,067 1.19 10,001 - 50,000 68 1,360,922 2.86 72 1,415,907 2.98 50,001 - 100,000 8 546,220 1.15 10 733,228 1.55 100,001 - 500,000 9 1,915,692 4.03 10 1,952,394 4.11 500,001 - 1,000,000 2 1,324,302 2.79 1 800,200 1.68 Over 1,000,000 Shares 6 40,874,088 86.02 6 40,872,588 86.01 1,599 47,520,000 100 1,687 47,520,000 100

1.3 Categories of Shareholders as at 31 March, 2009

Resident Non-Resident Range No. of No. of % of No. of No. of % of Shareholders Shares Shares Shareholders Shares Shares

1 - 1,000 1,118 296,707 0.62 15 5,688 0.01 1,001 - 5,000 300 691,209 1.45 7 16,820 0.04 5,001 - 10,000 63 466,416 0.98 3 21,936 0.05 10,001 - 50,000 65 1,301,734 2.74 3 59,188 0.12 50,001 - 100,000 8 546,220 1.15 – – – 100,001 - 500,000 9 1,915,692 4.03 – – – 500,001 - 1,000,000 2 1,324,302 2.79 – – – Over 1,000,000 Shares 5 26,618,088 56.02 1 14,256,000 30.00 1,570 33,160,368 69.78 29 14,359,632 30.22

2008

Resident Non-Resident Range No. of No. of % of No. of No. of % of Shareholders Shares Shares Shareholders Shares Shares

1 - 1,000 1,140 331,525 0.70 16 6,288 0.01 1,001 - 5,000 350 824,483 1.74 6 16,320 0.03 5,001 - 10,000 72 534,431 1.12 4 32,636 0.07 10,001 - 50,000 69 1,361,719 2.87 3 54,188 0.11 50,001 - 100,000 9 648,928 1.37 1 84,300 0.18 100,001 - 500,000 10 1,952,394 4.11 – – – 500,001 - 1,000,000 1 800,200 1.68 – – – Over 1,000,000 Shares 5 26,616,588 56.01 1 14,256,000 30 1,656 33,070,268 69.60 31 14,449,732 30.4

LOLC I Annual Report 2008/09 | 149 1.4 Categories of Shareholders as at 31 March, 2009 2008

No. of No. of % of No. of No. of % of Shareholders Shares Shares Shareholders Shares Shares

Individual 1,463 16,987,996 35.75 1,537 17,419,631 36.66 Institutions 136 30,532,004 64.25 150 30,100,369 63.34 Total 1,599 47,520,000 100 1,687 47,520,000 100

2009 2008

No. of % of Issused No. of % of Issused Shares Capital Shares Capital

1. ORIX Corporation 14,256,000 30.00 14,256,000 30.00 2. Mr. R.M. Nanayakkara - Through a Margin Trading Account 12,019,708 25.29 12,019,708 25.29 - In his Own Name 2,123,614 4.47 2,122,114 4.47 3. Mr. I.C. Nanayakkara 5,989,550 12.60 5,989,550 12.60 4. Mrs. K.U. Amarasinghe 5,243,200 11.03 5,243,200 11.03 5. Sri Lanka Insurance Corporation - Life Fund 1,242,016 2.61 1,242,016 2.61 6. DPMC Financial Services (Pvt) Ltd. (A/C No. 01) 806,900 1.70 800,200 1.68 7. Mrs. I. Nanayakkara 517,402 1.09 456,402 0.96 8. DPMC Financial Services (Pvt) Ltd. (A/C No. 02) 321,400 0.68 128,700 0.44 9. Employees’ Trust Fund Board 237,700 0.50 107,900 0.23 10. Mr. G.G. Ponnambalam 208,992 0.44 208,992 0.44 11. HSBC - Mr. C.P. de Silva 200,000 0.42 200,000 0.42 12. HSBC - Mr. R.C. de Silva 200,000 0.42 200,000 0.42 13. HSBC - Mr. C.L. de Silva 200,000 0.42 200,000 0.42 14. Swastika Mills Ltd. 200,000 0.42 200,000 0.42 15. Capital Alliance Holdings Ltd. 197,600 0.42 – – 16. Mr. M. Radhakrishnan 150,000 0.32 150,000 0.32 17. Mr. D.J. Wilson 85,216 0.18 85,216 0.18 18. Mrs. S.N. Fernando 81,844 0.17 – – 19. Miss F.A.J.A. Cader 75,900 0.16 75,900 0.16 20. Hi-Line Tading (Pvt) Ltd. 70,500 0.15 – – 43,357,042 91.24

The Public Sharehoding as at 31 March, 2009 was 15.33%

150 | Investor Information I LOLC | Annual Report 2008/09 Economic and Financial Indicators

December 2005 2006 2007 2008 2009 Economic Growth GDP at Current Market Prices (Rs. Bn) 2,091 2,453 2,939 3,578 4,411 GDP Growth Rate % 5.4 6.2 7.7 6.8 6.0

External Finance Trade Balance - US $ Mn (2,243) (2,516) (3,371) 3,657 (5,871) Balance of Payment (Rs. Mn) (7.5) 48.1 33.5 60.0 (126.0)

Exchange Rates - Rs. US $ Annual Average 101.19 100.5 103.96 110.62 108.33 Year End 104.61 102.12 107.71 108.72 113.14

Rate of Inflation CCPI* Annual Average Change % 9.0 11.0 10.0 15.8 22.6

Money Supply - Percentage change Dec. to Dec. Narrow Money - M1 % 16.6 22.4 12.6 2.7 4.0 Broad Money - M2b % 19.6 19.1 17.8 16.6 8.5

Interest Rates - Per cent per annum at year end Repurchase Rate - Overnight % 7.5 8.8 10.0 10.5 10.5 Reverse Repurchase Rate - Overnight % 9.0 10.3 11.5 12.0 12.0 Treasury Bill Rate 91 Days % 7.25 10.10 12.76 21.30 17.33 364 Days % 7.65 10.37 12.96 19.66 19.12 CB’s** Weighted Average Deposit Rate % 5.3 6.2 7.6 10.3 11.6 CB’s** Weighted Average Prime Lending Rate % 10.2 12.2 15.2 18.0 18.5

Share Market All Share Price Index - ASPI 1,506.90 1,922.20 2,722.40 2,541.00 1,503.00 Market Capitalisation Rs. Bn 382.1 584.0 834.8 820.7 488.8

* CCPI - Colombo Consumers Price Index ** CB - Commercial Bank

LOLC I Annual Report 2008/09 | 151 Glossary

TERMS Gross Dividend Accrual Basis The proportion of profit distributed to Recognising the effects of transactions and shareholders inclusive of tax withheld. events when they occur, without waiting for receipt or payment of cash or cash Gross Portfolio equivalent. Total rental receivable of the advances granted to customers under leasing, hire Associate Company purchase, instalment sales and loan facilities. A Company other than a subsidiary in which the Holding Company has significant Hire Purchase influence over its financial and operating A Hire Purchase is a contract between hirer policy decisions. and financier where the hirer takes on hire a particular article from the financier, with Cash Basis the option to purchase the article at the Recognising the effects of transactions and conclusion of the agreed rental payments. events when receipt or payment of cash or cash equivalent occurs. Interest Cost The sum of monies accrued and payable to Cash Equivalents the sources of borrowed working capital. Short-term highly liquid investments that are readily convertible to known amounts of cash Interest in Suspense and which are subject to an insignificant risk Interest income of non-performing portfolio; in change in value. these interests are accrued but not considered as part of income. Consolidated Financial Statements Financial Statements of a Group presented Lease as those of a single Company. A lease is an agreement whereby the lessor conveys to the lessee in return for a payment Corporate Governance or series of payments the right to use an The process by which corporate entities asset for an agreed period of time. are governed. It covers the way in which power is exercised over the management Minority Interest and direction of entity, the supervision of Part of the net results of operations and of net Executive actions and accountability to assets of a subsidiary attributable to interests owners and others. who are not owned, directly or indirectly through subsidiaries, by the parent. Executions Advances granted to customers under Net Portfolio leasing, hire purchase, instalment sales Total rental receivable excluding interest of and loan facilities. the advances granted to customers under leasing, hire purchase, instalment sales and Finance Lease loan facilities. A lease that transfers substantially all the risk and rewards incident to ownership of Non-Performing Portfolio the asset to the lessee. Title may or may not Facilities granted to customers which are in eventually be transferred. default for more than six months.

152 | LOLC | Annual Report 2008/09 Operating Lease Stated Capital An operating lease is a lease other than a All amounts received by the Company or due finance lease. and payable to the Company (a) in respect of the issue of shares (b) in respect of calls Provision on shares. Amounts set aside against possible losses on net receivable of facilities granted to Subsidiary Company customers, as a result of them becoming Subsidiary is a Company that is controlled partly or wholly uncollectible. (power to govern the financial and operating policies of an enterprise so as to obtain Related Parties benefits from its activities) by another Parties are considered to be related if one Company known as the parent. party has the ability to control the other party or exercise significant influence Substance Over Form over the other party in making financial or The consideration that the accounting operating decisions. treatment and the presentation in Financial Statements of transactions and the events Related Party Transactions should be governed by their substance and A transfer of resources or obligations financial reality and not merely by legal form. between related parties, regardless of whether a price is charged. Value Addition Value of wealth created by providing leasing Residual Value and other related services considering the The estimated amount that is currently cost of providing such services. realisable from disposal of the asset, after deducting estimated costs of disposal, if RATIOS the asset was already of the age and in the Method of Computation and Indicates condition expected at the end of its useful life. Cost to Income Ratio Operating expenses excluding provision for Revenue Reserve bad and doubtful debts as a percentage of Reserves set aside for future distribution and total operating income, net of interest cost. reinvestment. Efficiency of cost management in generating income. Segmental Analysis Analysis of information by segments of an Debt to Equity (Gearing) Ratio enterprise, specifically the different industries Total debts divided by equity. The extent to and the different geographical areas in which which debt contributes to fund total assets, it operates. compared to the contribution from equity.

Shareholders’ Funds (Equity) Dividend Cover Total of issued and fully paid ordinary share Profit attributable to ordinary shareholders capital and reserves. divided by gross dividends of ordinary shares. Number of times dividend is covered by current year’s distributable profits.

Glossary I LOLC I Annual Report 2008/09 | 153 Dividend Per Share (DPS) Non-Performing Facilities Ratio Value of the dividend proposed and paid out Total gross non-performing portfolio divided to ordinary shareholders divided by the by total gross portfolio. Percentage of total number of ordinary shares in issue. Share gross non-performing portfolio against the of current year’s dividend distributable to an total gross portfolio. ordinary share in issue. Price Earning Ratio (PER Ratio) Earnings Per Share (EPS) Market price of a share divided by Earnings Profit attributable to ordinary shareholders Per Share (EPS). Number of years that would divided by the weighted average number of be taken to recoup shareholders’ capital ordinary shares outstanding during the year. outlay in the form of earnings. Share of current year’s earnings attributable to an ordinary share in issue. Return on Assets (ROA) Net profits expressed as a percentage of Interest Cover average total assets. Overall effectiveness Earnings before interest and tax divided by in generating profits with available assets; interest charges. Ability to cover or service earning power of invested total capital. interest charges of the debt holders. Return on Equity (ROE) Market Capitalisation Net profit, less preference share dividends if No. of ordinary shares in issue multiplied by any, expressed as a percentage of average market value of a share. Total market value of ordinary shareholders’ funds. Earning power on all ordinary shares in issue. shareholders’ book value of investment (equity).

Net Asset Value per Ordinary Share Ordinary shareholders’ funds divided by the number of ordinary shares in issue. Book value of an ordinary share.

154 | Glossary I LOLC | Annual Report 2008/09 Notice of Meeting

NOTICE IS HEREBY GIVEN THAT THE ANNUAL GENERAL MEETING of the Company will be held on Tuesday, 30th June, 2009 at 10.00 a.m. at ‘LOLC Auditorium’, No. 100/1, Sri Jayewardenepura Mawatha, Rajagiriya for the following purposes:

1. To receive and consider the Report of the Directors and Statement of Accounts for the year ended 31st March, 2009 with the Report of the Auditors thereon.

2. To re-elect as a Director Mr. I.C. Nanayakkara, who retires by rotation in terms of Article 84 of the Articles of Association of the Company.

3. To re-elect as a Director Mr. H. Ichida, who retires by rotation in terms of Article 91 of the Articles of Association of the Company.

4. To re-elect as a Director Mr. M. Inoue who retires by rotation in terms of Article 91 of the Article of Association of the Company.

5. To re-elect as a Director Mrs. R.L. Nanayakkara, who retires in terms of Section 210 of the Companies Act No. 7 of 2007. As Mrs. R.L. Nanayakkara is over 70 years, Special Notice has been received from a shareholder of the intention to pass a resolution which is set out below in relation to her re-election (see Note 4 below).

6. To re-elect as a Director Mr. M.T.L. Fernando, who retires in terms of Section 210 of the Companies Act No. 7 of 2007. As Mr. M.T.L. Fernando is over 70 years, Special Notice has been received from a shareholder of the intention to pass a resolution which is set out below in relation to his re-election (see Note 5 below).

7. To re-elect as a Director Mr. M.D.D. Pieris, who retires in terms of Section 210 of the Companies Act No. 7 of 2007. As Mr. Pieris is over 70 years, Special Notice has been received from a shareholder of the intention to pass a resolution which is set out below in relation to his re-election (see Note 6 below).

8. To reappoint Messrs Ernst & Young as Auditors for the year 2009/10, at a fee to be decided upon by the Board.

9. To authorise the Directors to make donations.

BY ORDER OF THE BOARD,

Chrishanthi Emmanuel Secretary

29th May, 2009 Rajagiriya (in the Greater Colombo)

LOLC I Annual Report 2008/09 | 155 NOTE: 1. A member entitled to attend and vote at the Meeting is entitled to appoint a Proxy to attend and vote instead of him/her. A Proxy need not be a member of the Company.

2. The completed Form of Proxy should be deposited at the Registered Office of the Company, No. 100/1, Sri Jayewardenepura Mawatha, Rajagiriya, not later than 10.00 a.m. on Sunday, 28th June, 2009.

3. A Form of Proxy accompanies this Notice.

4. Special Notice has been received by the Company from a shareholder of the Company giving Notice of intention to move the following Resolution at the above Annual General Meeting: ‘Resolved that Mrs. R.L. Nanayakkara (a Director retiring) of the Company who is 73 years be and is hereby re-elected a Director of the Company and it is further specifically declared that the age limit of 70 years referred to in Section 210 of the Companies Act No. 7 of 2007 shall not apply to the said Director, Mrs. R.L. Nanayakkara.’

5. Special Notice has been received by the Company from a shareholder of the Company giving Notice of intention to move the following Resolution at the above Annual General Meeting: ‘Resolved that Mr. M.T.L. Fernando (a Director retiring) of the Company who is 83 years be and is hereby re-elected a Director of the Company and it is further specifically declared that the age limit of 70 years referred to in Section 210 of the Companies Act No. 7 of 2007 shall not apply to the said Director, Mr. M.T.L. Fernando.’

6. Special Notice has been received by the Company from a shareholder of the Company giving Notice of intention to move the following Resolution at the above Annual General Meeting: ‘Resolved that Mr. M.D.D. Pieris (a Director retiring) of the Company who is 71 years be and is hereby re-elected a Director of the Company and it is further specifically declared that the age limit of 70 years referred to in Section 210 of the Companies Act No. 7 of 2007 shall not apply to the said Director, Mr. M.D.D. Pieris.’

156 | Notice of Meeting I LOLC | Annual Report 2008/09 Form of Proxy

I/We ...... ………...... of ...... being a member/members of Lanka ORIX Leasing Company PLC hereby appoint ...... of

...... whom failing.

Mrs. Rohini Lettitia Nanayakkara of Colombo or failing her Mr. Ishara Chinthaka Nanayakkara of Colombo or failing him Mr. Malawige Tissaka Lal Fernando of Colombo or failing him Mr. Ravindra Ajith Fernando of Colombo or failing him Mrs. Kalsha Upeka Amarasinghe of Colombo or failing her Mr. Minuwanpitiyage Dharmasiri Dayananda Pieris of Colombo or failing him Mr. Raja Mahinda Nanayakkara of Colombo or failing him Mr. Tushan Harsha Mendis Wickramasinghe of Colombo or failing him Mr. Waduthantri Dharshan Kapila Jayawardena of Colombo

as my/our proxy to represent me/us * ………… and vote on my/our behalf at the Annual General Meeting of the Company to be held on Tuesday, 30th June, 2009 and at any adjournment thereof and at every poll which may be taken in consequence of the aforesaid Meeting. For Against 1. To receive and consider the Report of the Directors and Statement of Accounts for the year ended 31st March, 2009 with the Report of the Auditors thereon. 2. To re-elect as a Director Mr. I.C. Nanayakkara, who retires by rotation in terms of Article 84 of the Articles of Association of the Company. 3. To re-elect as a Director Mr. H. Ichida, who retires by rotation in terms of Article 91 of the Articles of Association of the Company. 4. To re-elect as a Director Mr. M Inoue who retires by rotation in terms of Article 91 of the Articles of Association of the Company. 5. To re-elect as a Director Mrs. R.L. Nanayakkra, who retires in terms of Section 210 of the Companies Act No. 7 of 2007. 6. To re-elect as a Director Mr. M.T.L. Fernando, who retires in terms of Section 210 of the Companies Act No. 7 of 2007. 7. To re-elect as a Director Mr. M.D.D. Pieris, who retires in terms of Section 210 of the Companies Act No. 7 of 2007. 8. To reappoint Messrs Ernst & Young, as Auditors at a remuneration to be fixed by the Directors. 9. To authorise the Directors to make donations.

Dated this ……….………………….. day of June, Two Thousand Nine.

...... Signature of Shareholder NOTE: 1. A Proxy need not be a member of the company. 2. If you wish your Proxy to speak at the Meeting you should insert the words ‘and to speak’ immediately before the word ‘vote’ marked * and initial the alteration. 3. Instructions as to completion appear on the reverse hereof: We hereby certify that the Stamp Duty payable, namely cents 50 in respect of this instrument has been compounded in terms of Section 13 of the Stamp Duty Act No. 43 of 1982.

LOLC I Annual Report 2008/09 INSTRUCTIONS AS TO COMPLETION 1. Please return the completed Form of Proxy after filling in legibly your full name and address, signing on the space provided and filling in the date of signature.

2. The completed Form of Proxy should be deposited at the registered office of the Company, No. 100/1, Sri Jayewardenepura Mawatha, Rajagiriya not less than 48 hours before the time appointed for the holding of the Meeting.

Form of Proxy I LOLC | Annual Report 2008/09 Corporate Information

Name of the Company Badulla Polonnaruwa Lanka ORIX Leasing Company PLC No. 32, Udayaraja Mawatha No. 421, Main Street, Kaduruwela Tel: 055-5760760-3 Tel: 027-5870001, 027-5670880 Country of Incorporation Tel/Fax: 055-2230900, 055-2230899 Fax: 027-2224999 Sri Lanka Chilaw Ratnapura Legal Form No. 89, Kurunegala Road No. 240A, Colombo Road A quoted public company with limited liability Tel: 032-5676880-3, Tel: 045-5440100-2, 045-2230054 Date of Incorporation Fax: 032-2223267 Fax: 045-2230056 14th March 1980 Embilipitiya Wattala No. 335, Ratnapura Road Company Registration No. No. 503, Negombo Road Tel: 047-5670880-3 PQ 70 Tel: 011-5355880-3 Fax: 047-2261825 Fax: 011-2931360 Stock Exchange Listing Galle Wellawatte The ordinary shares of the Company are No. 71/21, Sri Gnanobasha Mawatha, No. 116A, Galle Road listed on the Colombo Stock Exchange of Oroppuwatta Tel: 011-5555880-4 Sri Lanka Tel: 091-5458860-3, 091-2232580/2 Fax: 034-5555885 Principal Activities Fax:091-2232583 Located at LIOC Filling Stations Finance Leases, Hire Purchase, Gampaha Morawaka, Trincomalee, Pilimatalawa, Consumer Finance, Operating Leases, No. 58B, Queen Mary’s Road Seeduwa, Aluthgama, Kadawatha, Fleet Management, Loans, Factoring Tel: 011-5353582-3, 011-5353597-8 Ambalangoda, Debarawewa, Beliatta, Company Secretary Tel/Fax: 033-2234771 Thalawakelle, Panadura, Padukka, Batticaloa, Ms. Chrishanthi S. Emmanuel, FCIS Fax: 033-2234772 Deraniyagala Horana Auditors Located at Post Offices No. 192 C, Ratnapura Road Ernst & Young, Chartered Accountants Bulathsinhala, Elpitiya, Balangoda, Tel: 034-5626880-3 Melsiripura, Kuliyapitiya, Godakawela, Lawyers Fax: 034-2265514 Eheliyagoda, Padaviya, Thambuththegama, Julius & Creasy Kalutara Divulapitiya, Nikaweratiya Nithya Partners No. 546, Galle Road, Kalutara South Board of Directors Registrars Tel: 034-5588860-3 Mrs. R.L. Nanayakkara - Chairperson SSP Corporate Services (Pvt) Ltd. Fax: 034-2224280-2 Mr. I.C. Nanayakkara - Deputy Chairman No. 101, Inner Flower Road, Colombo 3. Desamanya M.D.D. Pieris Kandy Mr. M.T.L. Fernando Bankers No. 202/3, Katugastota Road Mr. R.A. Fernando Bank of Ceylon, Standard Chartered Bank, Tel: 081-2213315-9, 081-5741010-8 Mrs. K.U. Amarasinghe Citi Bank N A , Hatton National Bank, Fax: 081-4472614 Mr. T.H.M. Wickramasinghe Hongkong & Shanghai Banking Corporation, Kiribathgoda Mr. R.M. Nanayakkara National Savings Bank, Deutsche Bank, No. 101, Kandy Road Mr. W.D.K. Jayawardena - Managing Director Nations Trust Bank, Commercial Bank of Tel: 011-5510520-1, 011-5510523-4 and Group CEO Ceylon, NDB Bank, Public Bank of Berhad, Fax: 011-2907950 Mr. M. Inoue (appointed w.e.f. 06.02.09) Sampath Bank, Seylan Bank, Union Bank, Mr. H. Ichida (appointed w.e.f. 06.02.09) ICICI Bank, MCB Bank, State Bank of India, Kochchikade Mr. K. Fushitani (resigned w.e.f. 06.02.09) Indian Overseas Bank, Indian Bank No. 60/1, Regal Building, Chilaw Road Mr. Y. Oshima (resigned w.e.f. 06.02.09) Tel: 031-2276121-3, 031-5318682, Mr. M. Sekimoto (Alternate to Mr. Fushitani Registered Office 031-5310240, 031-5310008 up to 06.02.09) No. 100/1, Sri Jayewardenepura Mawatha, Fax: 031-5319580 (Alternate to Mr. M. Inoue from 06.02.09) Rajagiriya, Sri Lanka Kurunegala Alternates to Mr. Y. Oshima Telephone: 011-5880880 No. 18, Mihindu Mawatha Mr. Mori (from 23.04.08 to 31.07.08) Fax: 011-2865606 (Gen.) Mr. K. Katayama (from 31.07.08 to 31.10.08) Tel: 037-5260330, 037-222191-2 011-2865612 (Mkt.), 2865642 (Fin.) Mr. Y. Matsuoka (from 31.10.08 to 06.02.09) Fax: 037-2220372 Website: www.lankaorix.com Mr. Y. Matsuoka (Alternate to Mr. H. Ichida Kegalle w.e.f. 06.02.09) Head Office No. 108 A & 106, Main Street No. 100/1, Sri Jayewardenepura Mawatha, Corporate Management Tel: 035-5880880-3 Rajagiriya, Sri Lanka Kithsiri Gunawardena - Chief Operating Fax: 035-2223972 Tel: 011-5880880 Officer & Chief Legal Officer Fax: 011-2865606 (Gen.) Matara Sunjeevani Kotakadeniya - Chief Financial Officer No. 387A, Anagarika Dharmapala Mawatha, Anura Dharmaprema - Corporate Executive Union Place Pamburana Officer - Recoveries No. 323, Union Place, Colombo 2 Tel: 041-2227300-2, 041-5419900-1, Jacqueline Lord - Chief HR Officer Tel: 011-5333801, 011-5358117 041-5419985-6 Jayantha Kelegama - Chief Credit Officer Fax: 011-2303166 Fax: 041-2227303 Rohan Perera - Group Treasurer Sharmini Wickremasekera - Chief Risk Officer Colombo 7 Mount Lavinia Conrad Dias - Chief Information Officer/ No. 79, C.W.W. Kannangara Mawatha No. 459C, Galle Road Managing Director - LOIT Tel: 011-5039943-7, 5034141, 5034140, Tel: 011-5552880-3, 011-2715749 Krishan Thilakaratne - Chief Executive Officer - 5018229, 011-2665780-2 Fax: 011-2715741 Auto Finance Fax: 011-4723376 Mahiyangana Ravi Tissera - Chief Executive Officer - Micro Finance Colombo 3 No. 43, Kandy Road, Miyugunagama Brindley de Zylva - Managing Director/CEO - LOSEC (Head Office) Tel: 055-5676880, 055-5676882, 055-2257301 Lanka ORIX Finance Co. Ltd. No. 42, Sir Mohamed Macan Markar Mawatha Fax: 055-2257300 Tel: 011-5335225 Sanjiv Keerthiratne - Chief Executive Officer - Nuwara Eliya Fax: 011-5365725 Lanka ORIX Insurance Brokers Ltd. No. 72, Tharanga Building, Park Road Tushan Wickramasinghe - Managing Director - Anuradhapura Tel: 052-5720720-2, 052-2224071-2 Lanka ORIX Securities (Pvt) Ltd. No. 7/488, Maithripala Senanayake Mawatha Fax: 055-2224070 Gunendra Jayasena - General Manager Tel: 025-2224921-2, 025-5810810-4 Ventures Produced by: Smart Media Printed Aitken Spence Printing Fax:025-2224923 Nimal Mendis - CEO- LOPD Dr. H.S.D. Soysa - General Manager/CEO - Commercial Leasing Company PLC