THE FINANCE COMPANY PLC

THE PIONEER OF SRI LANKAN FINANCIAL SERVICE EXCELLENCE

ANNUAL REPORT 2017/2018

THE PIONEER OF SRI LANKAN FINANCIAL SERVICE EXCELLENCE

A company built on heritage, trust and experience which has evolved over the years to become a leading corporate with diversified business interests that enjoy market leadership status. We are The Finance Company, Sri Lanka‘s oldest finance company responsible for introducing some of the most sought after customer conveniences in savings/ fixed deposits, leasing and hire purchase, gold loans, property development & housing. Being the market leader in Real Estate, we have contributed towards increasing the land ownership of the country. A company where relationships have stood the test of time and grown into successful partnerships.

THE FINANCE COMPANY PLC Contents

OVERVIEW 03 01 Vision & Mission Statement 04 02 Financial Highlights 05 03 Chairman’s Message 06 04 Chief Executive Officer’s Review 08 05 Board of Directors 10 06 Senior Management 14

MANAGEMENT DISCUSSION AND ANALYSIS 15 07 Review of Operations 16 08 Report of The Directors 21 09 Corporate Governance 25 10 Risk Management Framework of TFC 44 11 Report of The Integrated Risk Management Committee 47 12 Report of The Human Resource Management & Remuneration Committee 48 13 Audit Committee Report 49 14 Report of The Related Party Transactions Review Committee 51 15 Statement of Directors’ Responsibilities in Relation To Financial Statements 52 16 Directors’ Statement on Internal Control 53

FINANCIAL REPORTS 54 17 Independent Auditor’s Report 55 18 Statement of Comprehensive Income 58 19 Statement of Financial Position 59 20 Statement of Changes in Equity 60 21 Statement of Cash Flows 61 2017 22 Notes to The Financial Statements 62 2015

ANNEXURES 113 2014 2018 23 Ten Year Summary 114 2016 24 Shareholder’s Information 115 25 Branch Network 118 26 Service Centres 122 27 Notice of Meetings 124 28 Form of Proxy 125 29 Corporate Information 127 OVERVIEW Overview OVERVIEW 2014 2015 2016 Senior Management Board ofDirectors Chief Executive Review Officer’s Chairman’s Message Financial Highlights Vision &MissionStatement 3 2017 OVERVIEW 2018 04 08 06 05 14 10

OVERVIEW The Finance Company PLC Annual Report 2017 | 2018

Vision & Mission Statement

OUR MISSION “To be the premier Financing Company of the masses” OUR VISION “To improve the quality of the living standards of the people by facilitating capital formation and advance consumption MISSION VISION whilst encouraging savings”

VALUES

OUR VALUES  Safe and secure  Honest and responsible  Innovative and team-spirited professionals  Global and caring  A good neighbour  High level of dedication

4 Financial Highlights Liquid Assets requirement against Times Interest Cover Times Ratios Non -VotingOrdinaryShares Voting OrdinaryShares Market ValueofShares Net Assets perShare (Rs.) perShareDividends (Rs.) Earnings perShare (Basic) (Rs.) Information perOrdinaryShare Deposits Gross Loans Advances and Total Assets Financial Positionattheyearend(Rs.Mn) Operating Loss before Income Tax Gross Income Performance fortheYear(Rs.Mn)

TOTAL ASSETS GROSS INCOME Value Financial ofthe end atthe Year (Rs.) Lowest value recorded during Financial the Year (Rs.) valueHighest recorded during Financial the Year (Rs.) Value Financial ofthe end atthe Year (Rs.) Lowest value recorded during Financial the Year (Rs.) valueHighest recorded during Financial the Year (Rs.) (Rs. Mn) (Rs. Mn) 20000 25000 10000 15000 4000 2000 3000 5000 1000 0 0 2015/16 2015/16

23,884 3,463 2016/17 2016/17 21,826 3,925 2017/18 2017/18 23,562 3,563 5

DEPOSITS GROSS LOANS FinanceThe Company PLC AND ADVANCES 2017/2018 Rs. (Rs. Mn) (Rs. Mn) 30,408 (90.24) (1,794) 23,562 20000 28000 35000 16000 12000 14000 16,419 21000 4000 8000 (11.18) 3,563 7000 4.60 4.60 5.20 0.05 2.00 0.58 2.20 2.30 0 0 - 2015/16 2015/16

18,346 29,466 2016/2017 2016/17 Rs. 2016/17

16,713 (89.80) 28,563 (1,293) 21,826 (8.06) 28,563 16,713 3,925 10.20 Annual Report 2017 |2018 Annual Report 4.60 0.07 4.70 0.66 4.40 2.20 1.80 2017/18 - 2017/18 16,419 30,408 (Restated) 2015/2016 Rs. 23,884 29,466 (2,535) (15.80) (81.78) 18,346 3,463 17.40 8.00 3.00 6.50 5.90 0.27 0.01 2.10 -

ANNEXURES FINANCIAL REPORTS MANAGEMENT DISCUSSION AND OVERVIEW ANALYSIS The Finance Company PLC Annual Report 2017 | 2018

Chairman’s Message

I warmly welcome you to the 78th Annual General Meeting Board, with the assistance of CBSL held several discussions of The Finance Company PLC. Being the pioneer in the with the parties concerned and the recovery effort is still Non-Banking Finance sector of the country TFC has made progressing. Lack of documents on many transactions on its contribution in several areas for the development of the historical legacy issues is the main challenge faced by the country in its journey of 78 years. Board.

On behalf of my colleagues of the Board I wish to express Disposal of Investment Properties my sincere gratitude to the Governor of Central Bank of Sri Lanka, the members of the Monetary Board of the Central One of the most significant events took place during the Bank, Director and staff of the Department of Supervision year under review was getting the ownership of Frances of Non Bank financial Institutions of CBSL for the assistance Road Residencies transferred to the company as the owner rendered in carrying out the affairs of the company. of the Title. This was an asset which was under another former Ceylinco entities and was transferred after clearing During the year under review the Board took several steps up some complex legal issues. The company had found a successfully towards in the efforts of revival of the company. prospective buyers for this property for Rs.575 Million and It should be acknowledged that the Board faced an uphill the disposal will be finalised shortly after resolving a new task in implementing these steps in a manner towards challenge arose after properly completing the title transfer the revival of the company. The Board also has restricted to TFC. new Real Estate Projects and will concentrate on the core business area. The disposal of the two International schools managed as a 100% owned subsidiary was initiated during the year under Recovery Action on Group Borrowings review. The company called for Expressions of Interest As I mentioned in my last annual report message, one (EOI) from interested investors and received a satisfactory of the most challenging tasks the board had during the response. The potential buyer with highest offer has been year under review was to initiate action on recovering the selected and the transaction is expected to be finalised loans granted to former Ceylinco Group companies. The shortly after the approval by CBSL. It is also important to

6 the yearthe 2018/2019. sincerely that wehope will be able to deliver results during as well asinternationally. process The continues I and process withprospective ofengaging investors locally companythe assistance withthe ofCBSLhasinitiated a a significantcapitalinfusionis required. Towards this order to move forward turnaround and company, the companyThe hasanegative Bn.In worthofRs.14.4 net Capital Infusion employees ofTFC. a concentrated by effort Board, the all and Management operating and admin cost hascome down by Rs.153 Mn, pleasing to note thatcompared to previous the year, the to recover our dues after following due the process. It is performing loans Iamconfident and that we willbeable CEO/ED is taking appropriate to actions recover non- the TFC aswell. executive The team management ledby the faceda whole increased NPL levels impacted results the of challengingThe economic climate as where industry the termlong three to five Year repayment arrangements. markets financial the loans whilstthe products and carry which is38.6% was mainlydueto rising interest costs in yearthe review. under year The onyear increase loss ofthe companyThe recorded loss ofRs.1,794 anet Mnduring Financial Performance raised amount the and isRs.11Mn. parents.the Thismatter since hasbeenoutstanding 2009 past inthe bybuilding supposedlyfunded donationsof the hasbeendeveloped land ofthe large portion withaschool situated within schoolthe premises whilst in Wennapuwa a Wennapuwa. property The access inGallehasno road and two occupied properties by Sussex College inGalleand BoardThe also took after actions many to meetings dispose also jobsecurity soughtby teachers the school. ofthe endeavours to address concerns the by parents the and bring inby new the owners. TFC TISwillmake and itsbest future children educationoftheir thatcould impact and note concerns the raised by parents the ofstudentsonthe Chairman’s Message 7 Colombo August 01, 2018 Chairman Wasantha Kumarasiri, OBE company.of the working closely withallstakeholders for greater the good operations Ilookforward ofTFC. to asuccessful 2018/19, knowledge to thisverychallenging taskofreviving the commitment in providing invaluabletheir and time Sub-Committee Chairman Directors the and for their Board ofDirectors. Finally, my appreciation alsoto the forand arobust maintaining relationship withthe rendered to guide companythe in properthe direction for greater the commitment has dedicationhe and to Executive Director/ CEO Mr. NimalJ.B Mamaduwa, Furthermore, Iwishto extend my specialappreciation progression. corporation commitment and extended towards TFC’s the allstaffmembers and Senior Management for their TFCInstitutions, officialsofthe members Union, ofthe ofNon-BankFinancial ofSupervision Department the Centralthe BankofSri Lanka, Director the staffof and I express my sincere appreciation to Governor the of Finance Sri Lanka for 2017. brands inSri Lanka according to Rankings the by Brand TFChelped to beplaced place 72nd inthe top among 100 have placed TFC trustonusthe their Brand which has deposit holders, customers stakeholders all other and who In conclusion Itake to thisopportunity thankallourloyal operationsbusiness company. ofthe much-needed significantcapital to turn around the to asuitableinvestor find willbeable who to infusethe my fellow board members are taking every required effort of Ceylinco Group. As Chairman the company ofthe and towards recovery ofloans given to former group companies legacythe disposing assets mechanismand implemented considering strong the foundation we have laidinterms of company ofthe fortunes next inthe financial year boardThe ismaking to itsbestefforts turnaround the Way forward 2018/19 The FinanceThe Company PLC Annual Report 2017 |2018 Annual Report

ANNEXURES FINANCIAL REPORTS MANAGEMENT DISCUSSION AND OVERVIEW ANALYSIS The Finance Company PLC Annual Report 2017 | 2018

Executive Director / Chief Executive Officer’s Review

I am happy to make the Chief Executive Officer’s review of Mn as a special private share placement subject to the The Finance Company PLC in the annual report for the year approval of CBSL. Our financial forecast suggests that any 2017/18. investor can recover their investment in two years purely on share price improvement in addition to the net profits The Monetary Board of the Central Bank of Sri Lanka (CBSL) to be gained. at the meeting held on December 9, 2016 decided to re- constitute the Board of Directors of The Finance Company Commercialization/ Disposal of PLC in terms of the powers vested on the Monetary Board Non Earning Assets under the Finance Business Act. No.42 of 2011. Accordingly the new Board of Directors assumed duties of The Finance During the period under review we have been able to Company PLC with effect from January 01, 2017 with a view dispose four excess vehicles used by the Company in to ensuring the stability of the Company an protecting the order to cut down costs. We were able to realize Rs.16.4 interest of all the stakeholders of the Company. Mn approximately out of the sale proceeds of the vehicles making a profit of 12.4 Mn out of these transactions. Capital Infusion/Potential Investor We have also been able to rent out few floors owned by During the year under review seeking a Strategic Investor us in the Ceylinco House Building in Fort to government to the Company had been the main priority by the board departments and the excess floor areas not utilized by of directors. We have with the concurrence of the Central our branches in Jaffna, Ja-Ela, Kuliyapitiya, Kandy and Bank of Sri Lanka been communicating with number Moratuwa have been rented out. of Potential Investors and at least ten Non Disclosure

Agreements (NDA’s) have been executed with potential In addition to the above we have also been taking efforts strategic investors. In order to attract an investor, the Board to dispose some of the Mega properties owned by the and the Management have prepared a financial plan to Company at Frances Road Wellawatte, Hunupitiya-Wattala, be provided to potential investors. The company is seeking Ambalanthota and Moratuwa Furniture Arcade. Although a Strategic Investor or Investors who could invest US$125

8 operation dueto loyal the customer base. setbacks we have beenableto business maintainthe in negative interest net margins. However, despite these Company losses are monthly the and inevitable dueto gap lackas the ofcapitalhasbecome aserious issueto the restrictions untilsuch asuitableinvestor time isfound throughout branch the network to issubject certain It isrelevant to state operations business thatthe staff aswell. office staff, we are taking steps to resizehead the office unprofitable now.right With the inbranch/headreduction reduce numberofbranches the /Service centres which are to reduce wage verification costs. Afurther isinprogress to branch resizing staffand branch the staffnumbers inorder by 150numbers in2017. We are currently multi skilling Headand Office we have beenable to reduce staff the As astep towards proposed the rationalization ofbranches HeadBranches and Office Rationalization CBSL. Twoand schools to willbesubject prior the approval ofthe toIt ispertinent state saleofallMegaproperties thatthe biddershortly.highest disposal process intendand schools the disposing to the Payagala.TIS) Galleand We have already through gone the steps to two disposethe schools (The International School- on clearing legalissues.Further, the we have alsotaken couldproperties next bedisposedwithinthe few months cleared before disposal wethe and are confident that these Hunupitiya legalbarriers certain properties have to be we have received confirmed offers for Frances Road and Executive Director /ChiefExecutive Review Officer’s 9 Colombo August 01, 2018 Executive Director/Chief Executive Officer Nimal J.B Mamaduwa past. wewhom could have not achieved many milestones inthe hardworking, committed staffmembers atalllevels without continueand patronage. Finally Ithankourenthusiastic, I alsowishto thankourshare holders for loyalty their SJMS Associates. My sincere gratitude alsogoesto ourexternal auditors M/s of Central BankofSri Lanka for professional the guidance. Governors Director the and Non-BankFinancial Supervision appreciation to Governor,the Deputy Governors, Assistant guidancetheir inspiration. and Ialsowishto express my Mr. Wasantha Kumarasiri fellow the and Directors for My sincere appreciation goesto Board the Chairman Appreciations The FinanceThe Company PLC Annual Report 2017 |2018 Annual Report

ANNEXURES FINANCIAL REPORTS MANAGEMENT DISCUSSION AND OVERVIEW ANALYSIS The Finance Company PLC Annual Report 2017 | 2018

Board of Directors and their Profiles

Mr. B.A. Wasantha Kumarasiri Chairman Dr. W.G. Karunadasa Independent Non-Executive Director Independent Non-Executive Director Mrs. Shashika Naguruge 1 Mr. Nimal J B Mamaduwa Company Secretary 5 Mr. M.K.D.W. Amarasinghe Executive Director 6 Independent Non-Executive Director Chief Executive Officer 4 2 Mr. Rathnasiri Siriwardhane Independent Non-Executive Director 3

1. Mr. B.A. Wasantha Kumarasiri - Chairman / Independent Non-Executive Director

2. Mr. Nimal J B Mamaduwa - Executive Director/Chief Executive Officer

3. Mr. Rathnasiri Siriwardhane - Independent Non-Executive Director

4. Mr. M. K.D.W. Amarasinghe - Independent Non-Executive Director

5. Dr. W.G. Karunadasa - Independent Non-Executive Director

6. Mrs. Shashika Naguruge - Company Secretary

10 Board of Directors Profiles their and Mr. NimalJBMamaduwa 02. Independent Non-Executive Director Chairman Wasantha KumarasiriMr. B.A. 01. Chief Executive Officer Executive Director Management InstituteManagement ofUK.(FCMI). Fellow Institute Memberofthe ofCredit aFellow (FICM)and Management Chartered Institute ofthe aDiplomainBankManagement He holds ofBankers ofSri Lanka a and presently Vice the President Institute ofthe ofCredit Sri Management Lanka (SLICM). of Associationmember the of Professional Bankers (APB) in yearthe is 2014/2015.He Financialthe Ombudsman Sri Lanka (Guarantee) Limited, anexecutive and council He was alsoaDirector Sri ofthe Lanka Banks’ Association (Guarantee) Limited and of HDFC Bankwhich tillDecember held positionhe 2015. 2013, was he untilOctober held he InJanuary 2012. appointed General /CEO Manager Executive Officer/General ofSanasaDevelopment Manager Bank PLC, which position to Deputy General in2005 Manager 2006 inJune and dutiesasChief assumed he Sanasa Development BankPLC General asAsst. (Credit) Manager was and elevated areas ofCredit, Development Banking Operations. and HeleftHNBin2003 joined and duringand his29years many hasheld atHNBhe ofservice seniorpositionsinthe commercial development and banking. Hestarted hisbanking career atHNBPLC Mr. Mamaduwa isaSeniorProfessional Banker withover 40years experience in Executiveas the Director/ ChiefExecutive Officer. Appointed to Board the Finance ofThe 2017 Company 01st January PLC effective from University ofSydney, Australia, aDegree Extension Programme. Sri Lanka ofCPA amember and Australia. studiesatthe further Healsohasdone Sri Jayawardenapura ofInstitute isamember and ofChartered Accountants of Mr. Kumarasiri University the aB.Com holds of (Special)degree from Limited was and Corporation the Accountant atSri Lanka Cashew Corporation. Barlow Industries, Project Accountant atProspect Electricity, CEO and atSeeds(Gte.) Manager, World Wildlife Fund (US)Kikori Project, Financial Controller/Acting GMat of Financial Controller/CFO atToyota Tsusho, Finance Development Business and governance and management ofState Enterprises. MrKumarasiri position the alsoheld thispositionuntilAprilHe held 2015 significantimprovements hasmade and inthe Director, Managing the IPBC to bring similarreforms to State other the Enterprises. PNG through National decisionExecutiveof the the Council (NEC) appointed himas years. Considering successful NationalAirline ofthe management government the of rendered services the for Aviation position He the of Business. held and CEO for seven Queen’s Awards ofOfficer Most ofthe Excellent Order British ofthe Empire “OBE” for CEO the became Airline same ofthe inApril Mr. 2006. Kumarasiri was recognized with Finance ofAirNiuginiLimited, NationalAirline ofPapua New Guinea inApril 2004 and Trust. Mr. Kumarasiri State the joined Enterprises sector General asthe Manager Papua New Guinea (PNG) incharge ofallState Enterprises General the under Business formeris the Director Managing Corporation PublicBusiness ofIndependent (IPBC), Mr. Kumarasiri ispresently Chairman the ofRapid Pick Taxies Enterprise Ltd. (Pvt) He Chairmanas the Board. ofthe Appointed to Board the Finance ofThe 2017 Company 1stJanuary PLC effective from 11 The FinanceThe Company PLC Annual Report 2017 |2018 Annual Report

ANNEXURES FINANCIAL REPORTS MANAGEMENT DISCUSSION AND OVERVIEW ANALYSIS The Finance Company PLC Annual Report 2017 | 2018

Board of Directors and their Profiles

03. Appointed to the Board of The Finance Company PLC effective from 01st January 2017 Mr. Rathnasiri Siriwardhane as an Independent Non Executive Director. Independent Non-Executive Director Prior to joining The Finance company Mr Siriwardhane was the General Manager/CEO of Regional Development Bank for a long period of 16 years. Mr Siriwardhane counts over 35 years of experience in the Banking industry holding various senior positions. He has gained a wide experience in working with institutions such as Bank of Ceylon, Hatton National Bank, Sanasa Development Bank, Sri Lanka Export Development Board, Public Bank of Malaysia and Sri Lanka and National Development Trust Fund etc. Presently he is the National Consultant/Coordinator for the Millennium Challenge Corporation Sri Lanka Project attached to the Prime Minister’s Office.

Mr Siriwardhane holds a B.Sc.(Special) Degree in Business Administration from the University of Sri Jayawardenapura, a Post Graduate Diploma in Community & Regional Development from the University of Colombo. He is an Associate Member of the Institute of Bankers of Sri Lanka.

04. Appointed to the Board of The Finance Company PLC effective from 01st January 2017 Dr. W.G.Karunadasa as an Independent Non Executive Director. Independent Non Executive Director Dr Karunadasa currently is the Group Chief Internal Auditor (on Contract basis) at EAP Holdings Ltd. He counts over 32 years of Post Qualification experience in various large commercial establishments in the capacity of Very Senior Management positions including Bank of Ceylon (headed the Internal Audit / Investigation Department) & HDFC Bank of Sri Lanka. He joined The Finance Company PLC in year 1988 and at the time of his retirement in year 2001 he was the Deputy Finance Director of the Company and also held Directorships in its many sister Companies in Ceylinco Consolidated.

Dr Karunadasa holds a Doctorate in Business Administration in Financial Management (DBA) from Universidad San Juan De La Cruez Costa Rica, America Central and Masters of Business Administration degree from the Post Graduate Institute of Management of University of Sri Jayewardenepura. He is a Fellow member of the Institute of Chartered Accountants of Sri Lanka and has obtained a Certificate in General Management in National University of Singapore and a certificate in Strategy and Management in Banking from International Development Ireland Limited, Dublin Ireland. Dr Karunadasa is a Registered Company Secretary. He also holds a Diploma in Investment, Treasury and Risk Management from the Institute of Bankers of Sri Lanka and also a Certified Information Systems Auditor CISA (USA).

12 Board ofDirectors Profiles their and Director Independent NonExecutive Mr. M.K.D.W. Amarasinghe 05. from the University the ofColombo.from Sri Jayawardenapura. Mr. Amarasinghe hasaDiplomainForensic obtained Medicine University the of aMasters alsohasobtained and ofPublicAdministration from University same the Universitythe ofColombo Masters and from ofLaw (LL.M.) Mr. Amarasinghe is an Attorney-at-Law from aBachelor holds and of Laws (L.L.B.) crimes entire ofthe Director and Island Criminal ofthe Investigation Department. Mr. AmarasingheDepartment key hasheld positionssuch asDirector incharge of years experience During Police inthe being histenure Department. Police atthe Mr. Amarasinghe isaformer Deputy Inspector General ofPolice hasover and 35 NonExecutiveas anIndependent Director. Appointed to Board the Finance ofThe 2017 Company 01st January PLC effective from 13 The FinanceThe Company PLC Annual Report 2017 |2018 Annual Report

ANNEXURES FINANCIAL REPORTS MANAGEMENT DISCUSSION AND OVERVIEW ANALYSIS The Finance Company PLC Annual Report 2017 | 2018

Senior Management

1. Mr. Sujeewa Gunasekara 13. Mr. Saman Prasanna Deputy General Manager – Collections Assistant General Manager – Opertions

2. Mr. Chandrasiri Vithanage 14. Mr. Pushpamal Bandara Deputy General Manager - Real Estates / Special Projects PCM (SLIM) Chief Manager – Operations 3. Mr. Ajith Karunathilaka Attorney-at-law & NP, Comm. for Oaths 15. Mr. U.A.S. Thushara Dip. In IR & Lab.Law, Bsc, MAAT, Deputy General Manager – Legal Exe. Cert. In Mkt. Chief Manager – Operations 4. Mr. Nishantha Liyanage MBA (UK), B Com (Sp), 16. Mr. Kapila Wedagedara National Dip. In Personnel Mgt, BA Econ (sp), PGDBM, Head of Human Resources Ad. Nat. Dip.In HRM Chief Manager – Operations 5. Mr. Anuruddha Ranaweera MIT, BCS, CIIT, Dip. in Com.Sc, Dip. In Network 17. Ms. Anoma Nilanthi Assistant Genreal Manager – IT BSc Mkt. Mgt (sp), Ad. Dip. In Cred. Mgt. 6. Mr. M.D. Chandrasiri Chief Manager – Deposits B Com (Sp) Assistant General Manager – Operations 18. Mr. Rajendran Vinothkumar Bsc Pub. Mgt (sp), AMIM (SL), 7. Mr. Keerthi Waidyaratne ACPM (SL), Dip. In Com. Acct. MBA (PIM), AIB, DTRM (IBSL), DABF (IBSL), Senior Manager – Pawning Dip. In Mgt. Acct. (CIMA), Assistant General Manager - Risk & Compliance 19. Ms. Shashika Naguruge LLM (UK), Attorney-at-law, 8. Mr. Kosala Wimalasiri N.P, Comm. for Oaths, Dip. In Mgt, Dip. In HRM, Company Secretary Member of CAPM Assistant General Manager – Operations 20. Ms. Niluka Sandamali BSc. Bus. Ad. (sp), ACA 9. Mr. Sriyantha Janakaratne Chief Internal Auditor MAAT Chief Manager – Operations 21. Mrs. S.A.M. Dushyantha Seelarathne B.sc. Accountancy (Sp), ACA, DISSCA 10. Mr. Pradeep Moses Acting Chief Financial Officer MAAT Senior Manager – Treasury

11. Mr. Nalin Rajakaruna MBA, BSc Mkt. (sp), PGDM (CIM - UK) Assistant General Manager – Operations

12. Ms. Asha Munasinghe Dip. in Mkt. Assistant General Manager – Operations

14 Analysis Discussion And Management Directors’ Statement onInternal Control To Financial Statements Statement ofDirectors’ ResponsibilitiesinRelation Committee Related ofThe Report Party Transactions Review Audit Committee Report Remuneration Committee HumanResource ofThe Report & Management Committee Integrated ofThe Report RiskManagement FrameworkRisk Management ofTFC Corporate Governance Directors ofThe Report Review ofOperations 15 MANAGEMENT DISCUSSION AND The FinanceThe Company PLC ANALYSIS Annual Report 2017 |2018 Annual Report 44 48 49 47 25 53 52 16 51 21

ANNEXURES FINANCIAL REPORTS MANAGEMENT DISCUSSION AND OVERVIEW ANALYSIS The Finance Company PLC Annual Report 2017 | 2018

Review of Operations

Sri Lankan Economy Loans (NPL) ratios. Capital adequacy ratios and liquidity ratios of the sector remained at healthy levels. The GDP growth fell to 3.1 percent in 2017 from the growth of sector resilience was improved by the notable decline in 4.5 percent recorded in 2016. Agriculture related activities borrowing during the period as deposits sourced the funds recorded a contraction of 0.8 percent against the backdrop for banking sector expansion. of adverse weather conditions that continued from 2016, while a slowdown in economic activity in both services The Licensed Finance Companies (LFCs) and Specialised and industrial sectors was observed. Industry related Leasing Companies (SLCs) sector performance moderated activities, accounting for 26.8 percent of real GDP, grew during the year with low credit growth, declining profitability by 3.9 percent in 2017. The growth in industrial activities and increase in non-performing loans. The slowdown in the was primarily supported by manufacturing activities, sector was mainly due to fiscal and macro prudential policy construction activities, and mining and quarrying. Services measures taken to curtail importation of motor vehicles, activities, which accounted for 56.8 percent of real GDP, moderate economic growth and natural calamities such grew by 3.2 percent in 2017, on a year-on-year basis, driven as floods and drought conditions that prevailed in 2017. by the expansion in financial service activities, wholesale The Central Bank initiated key prudential measures with and retail trade, and other personal service activities. The much consideration on reviving the companies with growth in services activities was supported by the notable weak financial positions. Financial markets remained growth of 9.4 percent in financial services. volatile during 2017, in line with the changing local and global economic environment. The regulatory framework Despite the tight monetary policy stance maintained by governing the financial system was further strengthened the Central Bank, the sharp acceleration in food inflation during the year introducing prudential measures with a caused by weather related supply disruptions resulted in view to enhancing the safety and resilience of the financial unanticipated upward movements in headline inflation. sector in Sri Lanka. Revisions to Value Added Tax (VAT) and Nation Building Tax (NBT), and higher commodity prices in the global market The sector expanded in 2017, with an asset growth of 11.8 also contributed to high levels of inflation. Accordingly, percent, representing 7.9 percent of Sri Lanka’s financial headline inflation, as measured by the year-on-year change system. By the end of 2017, the sector comprised of 45 in both the National Consumer Price Index (NCPI, 2013=100) LFCs and 6 SLCs. During the year, two amalgamations and the Colombo Consumer Price Index (CCPI, 2013=100) were completed between Chilaw Finance PLC merging experienced twin peaks, initially in the first quarter of 2017 with Richard Peiris Finance Ltd. and Isuru Leasing Co. and then in the last quarter On an annual average basis, Ltd. merging with Central Finance PLC. LFCs and SLCs NCPI based headline inflation accelerated to 7.7 percent by contributed to economic activities and development end 2017, compared to 4.0 percent recorded at end 2016, throughout the year by enhancing services provided to while CCPI based annual average inflation accelerated to customers and expanding its branch network. By end 6.6 percent by end 2017, compared to 4.0 percent at end 2017, there were 1,362 branches and 781 other outlets 2016. of the LFCs and SLCs sector. Out of total branches, 920 branches (67 percent) were concentrated outside of the Financial Sector Developments Western Province. The total asset base of the sector grew moderately by Rs. 143 billion during the year reaching Rs. Financial sector showed improved performance as the 1,355 billion by end 2017, at a growth rate of 11.8 percent, supportive prudential measures continued to preserve compared to the 21.7 percent growth reported in 2016. stability of the financial system in 2017. The banking sector The assets base of the sector mainly consisted of loans continued to expand with improved business operations and advances and accounted for 78 percent of the total and risk management practices with the implementation assets which contributed to 66 percent of the assets of timely and appropriate regulatory measures during growth. Finance leases accounted for 50 percent of the the year. Further, the quality of the banking sector assets loans and advances followed by other secured loans which improved as reflected in the decline in Non-Performing accounted for 40 percent. Customer deposits became

16 sector increased ataslower rate recording thanin2016, a 2017.deposits asatend interest net The income ofthe borrowings,deposits and 15.0 and percent of savings statutory minimum requirement of10.0 percent oftime 2016.The liquid asset to deposits ratio was well above the assets ratio 7.1 increased to percent 8.9 percent from in sector. of the activities As aresult, liquidassetsto the total to Rs. 15.4 billion in 2016 due to contraction the of lending surplusThe liquidassetsincreased during 2017 compared stipulatedthe minimumrequirement ofRs.91.1 billion. during 2017 showed asurplus ofRs.35.5 billionasagainst overallThe statutory liquidassetsavailable sector inthe which was only 1.0 percent total ofthe sector. assetsofthe investment inlisted shares billion, was minimalatRs.14.2 yearthe exposure asthe to equity market form inthe of margin. Equity risk sector ofthe remained low during sectorof the enabledto maintainapositive interest net maturity profile interest ofthe bearing liabilities assetsand decreased. prevailing The negative mismatch inthe secondthe year, halfofthe interest rate risk sector ofthe gradual withthe Along decrease ininterest rates towards foreign and portfolio currency denominated exposures. a minimalmarket risk dueto lower the exposure to trading formade NPLs. LFCs The SLCs and continued to experience billiondueto42.2 increase the specificprovisions inthe total loan lossprovisions increased by Rs.7.4 billionto Rs. NPLs decline and growth inthe loan ofthe portfolio. The percent5.3 reported in2016 dueto increase the ingross grossThe NPL ratio increased to 5.9percent in2017 from nationwide drought slowing and down economy. ofthe due to floods thatoccurred the during first the halfof 2017, Rs. 65.9billionby billionin2017 (24 Rs.12.9 percent) mainly Gross non-performing loans (NPLs) increased portfolio to previous year. to negative the growth of1.7 percent recorded inthe 2016 savings and depositsgrew by 35.3percent compared percent compared to growth the of11.1 percent year inthe growth of 10.4 percent in 2016.Time deposits grew by 29.2 29.4 percent to Rs.686.7 billionin2017,compared to the customerthe depositsgrew The depositmobilisation. by expansion mixasthe funding was largely through funded percent,12.5 respectively. sector The exhibited ashiftinthe borrowings capitalaccounted and for 29.2 percent and 50.7 percent total ofthe sector. liabilitiesofthe Sector ofliabilitiesin2017 accounted and majorportion the for Review ofOperations 17 adverse shocks. during year, the resilience the enhancing to any perceived overall capitallevel well above minimumrequirement the to increase the instaffcosts. sector The its maintained affecting adversely towards sector profitability, mainly due while non-interest expenses alsoincreased by 21.9percent, to increase the indefault charges charges, service other and Non-interest income increased by 20.3 percent mainlydue marginally to 7.7 7.9 percent percent in2017 from in2016. interest income asapercentage ofaverage assets)declined percent. As aresult, interest net margin sector ofthe (net compared to growth the ofinterest income onlyby 22.6 due to increase the ininterest expenses by 33.1% percent, growth of11.5percent to Rs.102.7 billion.Thiswas mainly the nationalinterest.the normal and of businesses operations ofsuch borrowers in nationalpolicyof the adopted to facilitate rehabilitation the weather conditions connected and circumstances interms to borrowers have who beenaffected byadverse floods, where LFCs SLCs and were allowed to grant concessions concerns. Acircularsupervisory was issuedinMay 2017, imposed on LFCone due to repeated non-compliance of of LFCssupervision SLCs. and Further, cap was alending were imposedonnon-compliances identifiedthrough minimum corewith the capitalrequirement. Penalties was imposedonallLFCs SLCs, and which comply didnot by 2021. A cap ondepositsborrowingsand 01 January 2019, Rs.2.0 billion billionby 2020 Rs.2.5 and 01 January Rs.1.5billionby billion by 2018, 01 January 01 January core Rs.400millionto Rs.1.0 capitalwas increased from internal externaland shocks. Accordingly, minimum the sector increasing and capacity the to absorb unexpected basis, inview ofstrengthening capitalpositionofthe the for LFCs was increased to be completed on a staggered year 2017. Further, minimumcore the capitalrequirement credit facilities nationalbudget proposal withthe in line for prudential direction was issuedto revise LTV the ratio for increasing customer the confidence sector. inthe new A stability the of enhancing sector ofthe soundness and and ofLFCs regulatoryand SLCs and framework aim with the prudential policy measures to strengthen supervisory the During year the 2017, Central the Bankinitiated several New RegulationsImposed The FinanceThe Company PLC Annual Report 2017 |2018 Annual Report

ANNEXURES FINANCIAL REPORTS MANAGEMENT DISCUSSION AND OVERVIEW ANALYSIS The Finance Company PLC Annual Report 2017 | 2018

Review of Operations

Company Performance Interest Expense Interest Expense

Gross Income (Rs. Mn) 5000 Gross Income 4000 (Rs. Mn) 4000 Interest 3000 Expense (Rs. Mn)

3000 2000 4,308 3,766 Gross Income 3,454 (Rs. Mn) 1000 2000

0 3,563 3,925 3,463 2015/16 2016/17 2017/18 1000

The Interest Expense has increased to Rs. 4,308 Mn in the 0 current year than Rs. 3,766 Mn in the previous financial 2015/16 2016/17 2017/18 period. This increase was mainly due to the increase in interest rates of the public deposit liabilities during the year. The interest expenses on the CBSL Liquidity Support Loan too have increased to Rs.560 million in the year 2017/2018 The Company’s Gross Income has decreased to Rs. 3,563 from Rs. 527 Mn in the year 2016/17. Mn during the year from Rs. 3,925 Mn in the year 2017/18. This decrease of 9.2% was mainly due to the decrease of Net Interest Expenses interest income from Loans and Receivables, Overdue

Interest and Other Operating Income, amounting to Rs. Interest Interest Net Interest 361 Mn during the year. Company has not carried out a Income Expense Expense (Rs. Mn) (Rs. Mn) (Rs. Mn) revaluation of investment of Properties and the decrease 2017/2018 3,347 (4,308) (960) in other Operating Income was mainly due to that reason. Rent income generated by the company was increased 2016/2017 3,376 (3,766) (389) by 54% since idle buildings/office space were rented 2015/2016 3,252 (3,454) (202) out to third parties. The net trading income showed an improvement of Rs. 20 Mn during the year than the Net Interest Expense FY 2016/17. This was mainly due to the sale of shares of (Rs. Mn) Citizens Development Business Finance PLC and the Mark 5000 to Market Gain on the quoted shares of Richard Peiris and 4500 Company PLC, Millenium Housing PLC and on Free Lanka 4,308 4000 3,766 Capital Holdings PLC. Despite a decrease in the investment 3,454 3500 volumes the interest income on loans and receivables has 3,347 3,376 decreased only 0.8% due to the high interest rates that 3000 3,252 prevailed in the market. 2500

2000 2015/16 2016/17 2017/18 Interest Interest Income Expense

18 Operating Expenses previousMn inthe financial year. Expenses ofRs.960Mninthisfinancial year thanRs.389 interest rates a had negative resulting impact a Net Interest Decrease investment inthe volumes increase and inthe Review ofOperations to maincausesfor bethe lossesthisyear aswell. to lending and related in pastthe years, parties continued account assetssuch yielding ofnon- asinvestments made average of1.5% (December 31,2017) .The cost holding on 31st March 2018 which was industry thanthe slightlyhigher CompanyThe NPL anet maintained ratio of2.06% asat 2 rentals forbeen made loans which were inarrears for more than compared to FY2016/2017. Thisisbecause;provisions have Rs. 408Mnfor year the thisisanincrease and ofRs.154 mn impairmentThe charge onloansother receivablesand was Company. legal ownership hasbeencleared transferred and to the relation to Francesthe Road property as this property’s reversalbecause ofthe ofRs.508Mnimpairment in 244 impairment Mn. The charge for Year the hasdecreased decrease impairment inthe charge during year the by Rs. was yearthe Mn.Consequently, Rs.228 2016/17 there was a amounted to Rs. 16 Mn whilst impairmentthe charge for impairmentThe reversal for loans assets other and Impairment for Assets Loans Other and expenses decreased had by Rs.153 Mnduring 2017/2018. comparedWhen to total FY2016/2017 the the operating (Rs. Mn) 2000 1000 1500 500 0 2015/16

1,506 Operating Expenses 2016/17

1,210 2017/18

1,057 (Rs. Mn) Expenses Operating 19 Loans Advances and increase oflossesbefore income tax. on Investment areproperties main the reasons for the customers recognition non the and ofrevaluation gain FY2016/2017.in the increase The inInterest expense to increased to Rs.1, 793 compared Mn when to Rs.1,293Mn LossThe before Income Tax during year the hasbeen Loss before Tax Income 347 Mn)during current the year. ofprovision) (net portfolio decreased alsohad by 35%( Rs. by 17.8% (Rs. 522 Mn) during yearthe 2017/2018. Leases year 2017/2018. However, personal the loans have increased provision) hasdecreased by 14% (Rs.736 Mn)during the such personal asthe loans. Hire Purchase of (net portfolio consists ofHire Purchase, Leases products other and during year the 2017/2018. Company’s The Loan Portfolio NetLoansThe Advances and decreased had by Rs.757 Mn (Rs. Mn) The FinanceThe Company PLC 10000 12000 4000 8000 6000 2000 0 2015/16

11,850 Loans Advances and 2016/17

9,907 Annual Report 2017 |2018 Annual Report 2017/18

9,149 (Rs. Mn) Advances Loans and

ANNEXURES FINANCIAL REPORTS MANAGEMENT DISCUSSION AND OVERVIEW ANALYSIS The Finance Company PLC Annual Report 2017 | 2018

Review of Operations

Product Mix ‘2017/2018 Product Mix ‘ 2016/2017 Product Mix 2017/18 Product Mix 2016/17

Leasing 5.82% Leasing 8.31%

Hire Purchase 40.90% Hire Purchase 44.70%

Personal Loan 11.31% Personal Loan 8.70%

Pawning 3.01% Pawning 1.40%

Land Housing 4.47% Land Housing 5.09%

Group Term Loan 15.70% Group Term Loan 14.48%

Other 18.79% Other 17.55%

Future Prospects

Directors of the Company are currently in the process of negotiating with prospective investors to bring in a fresh capital infusion to the Company.

20 the previousthe year. for year the March ended 31,2018 itscomparison and with followingThe isanextract Profit ofthe and Loss Account PROFITS ANDAPPROPRIATIONS Annual Report. Review ofoperations isgiven onpages 16to 20 ofthe REVIEW OFOPERATIONS comparedactivities to previous the financial year. There majorchange hasbeenno to principal the business Financial other and Real and Services Estate Business. Purchase, Leasing, Personal Loans, ofDeposits Mobilizing PrincipalThe Company ofthe activities continued to beHire PRINCIPAL ACTIVITIES 2007.June Company’s The NumberisPQ1. Re-Registration Registered Companies the under No7of2007 Act on4th Liability Company in Sri Lanka on May 30, was 1940 and Re- CompanyThe was incorporated as a Public Limited Exchange. Governance Colombo rulesofthe listing the and Stock thereto, recommended BestPractices onCorporate Governance) Direction No 3 of 2008 its and amendments No42 Act Business of2011, Finance Companies (Corporate to be bymade Companiesthe 7 Act of 2007, Finance March contains report The 31,2018. disclosures the required Financial Statements Company ofthe for year the ended shareholders together Report their Audited withthe DirectorsThe have pleasure inpresenting to the Report of the Directors ofthe Report Balance to becarried forward availableAmount for appropriation Less Un-appropriated lossbrought forward comprehensiveOther income for year the Realization ofrevaluation surplus onproperty, equipments plantand Net lossafter taxation Less Provision for taxation profits onthe for the year Net lossbefore taxation 21 Company dates onthe indicated below: followingThe persons were appointed asDirectors ofthe Mr. NJBMamaduwa Executive Director Mr. MKDWAmarasinghe Mr. RSiriwardhane Dr. WGKarunadasa Mr. BAWKumarasiri NonExecutiveIndependent Directors followingThe were directors the asatMarch 31,2018 DIRECTORATE Mr. BAWKumarasiri Mr. NJBMamaduwa Executive Director Mr. MKDW Amarasinghe Mr. RSiriwardhane Chairman Dr. WGKarunadasa The FinanceThe Company PLC Non Executive Directors Independent 2017/2018 (22,295,781) (22,295,781) (20,511,887) Rs. '000 (1,793,956) (1,793,956) 10,061 Annual Report 2017 |2018 Annual Report - Appointment January 01, 2017 January 01, 2017 January January 01, 2017 January 01, 2017 January 01, 2017 January Date of 2016/2017 Rs. '000 (20,511,887) (20,511,887) (19,251,825) (1,293,483) (1,293,483) 29,135 4,286 -

ANNEXURES FINANCIAL REPORTS MANAGEMENT DISCUSSION AND OVERVIEW ANALYSIS The Finance Company PLC Annual Report 2017 | 2018

Report of the Directors

RETIREMENT BY ROTATION OR OTHERWISE Category wise staff (2017/2018) The Directors namely Mr. B A W Kumarasiri, Dr. W G No. Employed as Karunadasa Mr. M K D W Amarasinghe, Mr. R Siriwardhane Name of the Level of Staff and Mr. N J B Mamaduwa have been appointed by the at 31.03.2018 Monetary Board under the provisions of section 25 of the Senior Management 23 Finance Business Act No 42 of 2011 and as such will not Managers 116 be retiring under Article 24(2) of the Company’s Article of Association as informed by the regulator. Assistant Managers 118 Executives 214 DIRECTORS’ SHAREHOLDING AS AT MARCH 31, 2018 Junior Executive 70 The following are the shareholdings of the Directors of the Clerical & Allied 109 Company Minor 12 Non Ordinary Worker Name Voting Grand Total 662 Shares Shares Shares Mr. B A W Kumarasiri Nil Nil Nil Category wise staff 2017/2018 Dr. W G Karunadasa 4,620 Nil Nil Nil Nil Nil Mr. M K D W Senior Management 3% Amarasinghe Managers 18%

Mr. N J B Mamaduwa Nil Nil Nil Assistant Managers 18% Mr. R. Siriwardhane Nil Nil Nil Executives 32% Junior Executive 11%

Clerical & Allied 16% DIRECTORS’ EMOLUMENTS Minor 2% The Directors emoluments are disclosed in Note 46.2.2 to the Financial Statements found in Page 108 of the Annual Report.

HUMAN RESOURCES

The Company has 662 employees engaged in the head office and the Branches Island wide as at March 31, 2018. The Company adopts a recruitment policy that offers equal career opportunities with non-discrimination on gender, race or religion. Thereby the Company has been able to retain the staff with the right Skill, knowledge and attitude who has contributed towards overcoming the crisis situation.

22 Report of the Directors ofthe Report 18 -24 30 &Above Grand Total 55 &Above 40 -54 25 -39 Grand Total Below 5 5 to 9 10 to 14 15 to 19 20 to 24 25 to 29 Length of Service inyears ofService Length Age ofStaffinYears Service Analysis 2017/2018 Service Service AnalysisService 2017 /2018 Age Analysis Age analysis 30 &Above 25 to 29 20 to 24 15 to 19 10 to 14 5 to 9 Below 5 5&Aoe 1% 41% 55 &Above 49% 40 -54 9% 25 -39 18 -24 No. ofStaff No ofStaff 264 662 662 273 143 321 70 24 58 77 77 10 7 23 Annual Report. 115 to 117 of the Shareholders is disclosed on pages from analysisThe ofShareholders twenty the and Major held byheld publicasatMarch the 31,2018 are given below: numberofshareholdersThe percentage the and ofshares SHARE HOLDING review.under There was change no to stated the capitalduring year the STATED CAPITAL Report. Financial Statements appearing inpage 93 Annual ofthe during year the review under issetoutinNote 29to the capital expenditureThe onProperty Equipment Plant and PROPERTY PLANT ANDEQUIPMENT Branches Grand Total Services Support Public Percentage by held the Number ofShareholders Name The FinanceThe Company PLC Staff Distribution Staff Distribution Staff Distribution Staff Annual Report 2017 |2018 Annual Report Ordinary Ordinary (Voting) Shares 73.09% 9,640 rnhs 76% 24% Support Services Branches No ofStaff Ordinary Ordinary Shares Voting) (Non- 100% 5,514 500 662 162

ANNEXURES FINANCIAL REPORTS MANAGEMENT DISCUSSION AND OVERVIEW ANALYSIS The Finance Company PLC Annual Report 2017 | 2018

Report of the Directors

DIVIDENDS ACCOUNTING POLICIES

The Company will not be paying a Dividend for the year There have been no changes in the Accounting Policies ended 31st March 2018. adopted by the Company since the last Balance Sheet date.

RESERVES AUDITORS

The movement of reserves is shown on Notes 36 to 38 to The Accounts for the year under review have been audited the Financial Statements appearing on page 101 of the by M/s SJMS Associates, Chartered Accountants. The Annual Report. Auditors have been paid a fee of Rs 2,376,000/- as Audit Fee for the financial year ended March 31, 2018 which has been INTEREST REGISTER approved by the Board.

The Company maintains an Interest Register in Compliance The Audit Committee has recommended to appoint new with the Companies Act No. 7 of 2007. The details of the Auditors of the Company in place of the retiring Auditors Shareholdings of Directors have been disclosed in this M/s SJMS Associates for the financial year ending March report. 31st 2019 and that the Directors are authorized to determine their Remuneration. GOING CONCERN

A statement relating to the going concern is disclosed in Note 2.6.1 to the Financial Statement appearing on By Order of the Board page 63 of the Annual report. THE FINANCE COMPANY PLC

CONTRIBUTION TO CHARITIES

The Company has not made any contribution to charity organizations for the financial year ended March 31, 2018.

CORPORATE GOVERNANCE Mr. B.A.W. Kumarasiri Chairman The Corporate Governance practice followed by the Company is given on pages from 25 to 43 to the Annual Report.

RELATED PARTY TRANSACTION DISCLOSURE

In terms of Section 9.3.2d of the Listing Rules of the Colombo Stock Exchange there were no non-recurrent or Mr. N .J. B. Mamaduwa recurrent Related Party Transactions that exceeded 10% Executive Director of the equity or 5% of the total Assets, whichever is lower entered by any Director or Key Management Personnel and the Company has complied with the requirements of the listing rules of the Colombo Stock Exchange. The Report of the Related Party Transactions Review Committee is found on page 51 of the Annual Report. Mrs. Shashika Naguruge Company Secretary POST BALANCE SHEET EVENTS

Subsequent to the date of the Balance Sheet no August 01, 2018 circumstances have occurred which would require any Colombo disclosure in the Financial Statements.

24 we do. withavalue-driven impartiality and approach to everything with aculture ofresponsibility, accountability, transparency confidencetrust and inallourstakeholders that we operate robust governance has enable us to win the framework acompanyBeing which deals withpublicdeposits, the in which company the operates. best interest ofourshareholders aswell communities asthe application ofbestpractices which enablesusto inthe act Finance Co.PLC always gives to importance utmost the With aheritage of78 years reliability oftrustand The GOVERNANCE FRAMEWORK GOVERNANCE REPORT Corporate Governance shareholder value. continuity,business performance sustaining enhancing and tofundamental earn stakeholder which iscritical trust, to corporate governance believe and thatsuch standards are of TFC we are committed to standards highest the of As we continue onourjourney to reclaim lostglory the Statement ofCompliance Approach to Compliance Adherence and Our Governance Process Stakeholders Engagement Leadership Effective & Ethical 25 with complied throughout year the provisions withthe of, Companyof the to wishes confirm thatthe Company has which are Board The detailedinthisreport. ofDirectors compliance highlightsofand documents, policies and to standardsThese are enshrined inourgovernance charters, The FinanceThe Company PLC ™ ™ ™ ™ ™ ™ ™ ™ ™ ™ and other statutory/regulatory other and bodies. statutory payment obligationsto Government the Companies No.7Act of 2007 satisfiedand all its has complied with all requirements the under to bestofitsknowledge the belief, and Company the BoardThe ofDirectors to alsowishes confirm that, Corporate Governance (Pages 25to 43) to extent the hereinafter disclosed inthisreport. Colombo Rulesofthe Listing Stock Exchange (CSE), Corporate Governance Rulesembeddedinthe Accountants ofSri Lanka (CA Sri Lanka) Commission ofSri Lanka (SEC) Chartered the and issued jointlyby Securities the Exchange and Code ofBestPractice onCorporate Governance No.and 6of2013 Direction No. 3of2008 by asamended No. 4of2008 F inance Companies (Corporate Governance) Development Evaluation & Ongoing Annual Report 2017 |2018 Annual Report

ANNEXURES FINANCIAL REPORTS MANAGEMENT DISCUSSION AND OVERVIEW ANALYSIS The Finance Company PLC Annual Report 2017 | 2018

Corporate Governance

™™ Articles of Association ™™ Code of Best Practice on Corporate Governance issued jointly by SEC and CA ™™ Corporate Governance Charter Sri Lanka ™™ Code of Business Conduct & Ethics ™™ Finance Companies (Corporate Governance) ™™ Communication Policy Directions issued by CBSL

™™ Operational policies, guidelines and manuals ™™ Listing Rules of the CSE

™™ Risk Management procedures and processes ™™ Finance Business Act No. 42 of 2011

™™ Anti - money laundering / KYC policy ™™ Companies Act No.7 of 2007

™™ Securities and Exchange Commission of Sri Lanka Act No. 36 of 1987 (as amended.)

Policies and Procedures

Board of Legal and Directors and Regulatory Committees Framework

Corporate Governance

Transparency Organizational and Hierarchy Accountability

Monitoring and Internal Controls

™™ External Auditor’s Certification on Compliance with Finance Companies

™™ Corporate Governance Rules

™™ External Audit

™™ Internal Audit

26 HAS ULTIMATE THE BOARD Corporate Governance strategy, risk performance. financial and management ultimate responsibility for companies’the governance, company’sthe ofAssociation. Board The Articles bears provisionswith the applicablelegislationaswell ofthe as mandateThe is reviewed periodically to ensure compliance reference are provided by Central the BankofSri Lanka. available to objectives. these meet Board’s The terms of company,of the ensures and thatadequate resources are in setting strategic the vision, direction long-term and goals teamManagement including Executive the Director/ CEO BoardThe provides leadership sound to Senior the Composition Roleand The Board ofthe Refer: Board ofDirectors, (Page 21-Directorate) 1.1. 1. DirectorsOf the are Non-Executive Independent Directors GOVERNANCE REPORT The BoardandCommittees EFFECTIVE ANDETHICALLEADERSHIP ETHICAL BEHAVIOUR. HIGH STANDARDS OF RESPONSIBILITY FOR

THE PERFORMANCE RESPONSIBLE FOR COMPANY ADHERESTO ENSURING THAT THE COMPANY ANDIS AND AFFAIRS OFTHE 27 management against Key against management Performance Indicators. on corporatejudgment affairs performance the and of five) ensures Board thatthe isable to exercise objective ChiefExecutiveas the Officer ofthe company outof (one There Executive isonlyone Director Board inthe acts who company willface initsfuture. Boardof the isappropriate given challenges the the perspectives. size The composition and continuity fresh and BoardThe demonstrates a good balance between nextin the three years. byneeded companythe in pursuing its strategic objectives sector, Investigations litigationexposures and which willbe leadership exposures government inthe private and shows agoodbalance between international local and 01, 2017 byon January Central the BankofSri Lanka compositionThe Board ofthe which was appointed technologyservices, Investigation and litigation. and accounting re-structuring, business auditing, and financial Background professions Board ofthe include banking, challengingand debate around boardroom the table. deliberationsthe Board, ofthe which facilitates constructive Director range brings ofskills aparticular expertise to and BoardThe hasdiversity ofskills knowledge and each and No of Directors The FinanceThe Company PLC 0.0 2.0 0.5 2.5 1.0 1.5 Board Directors Skills &Experience

Banking

Accounting & Auditing Sectors

Financial Services 2017 |2018 Annual Report

Invetigation, legal & Law Enforcement

Business Re-Structuring

ANNEXURES FINANCIAL REPORTS MANAGEMENT DISCUSSION AND OVERVIEW ANALYSIS The Finance Company PLC Annual Report 2017 | 2018

Corporate Governance

The Combined Years of Director Expereince The role of the Committees 70 To discharge its stewardship and fiduciary responsibilities 60 in an effective and timely manner, the Board delegates authority to Board committees and enables them to oversee 50 specific responsibilities based on clearly documented and defined terms of reference. 40 The terms of reference of each committee sets out its role, Years 30 responsibilities, scope of authority, composition, terms of reference and procedures. 20 The committees report to the Board through their 10 respective chairman and minutes of all committee Financial Services Financial Banking 0 & Auditing Accounting Business Re-Structuring meetings are submitted to the Board. Each committee has Sectors direct access to management and has the power to obtain independent advice as it deems necessary.

Integrated Risk Management Board Audit Committee (BAC) Committee (IRMC)  Three members, all of whom are  Six members: Two Non-Executive Non-Executive Directors Directors and Four Key Management  Two out of the three members are Personnel Non-Executive Independent Directors  Chairman of IRMC is a Non-Executive Independent Director BAC’s main areas of oversight include, IRMC’s main areas of oversight include,  Financial reporting  Risk governance  Internal and external audit  Risk appetite  Compliance with legal and regula  Risk policy framework tory requirements BOARD OF  Risk management  Internal controls and governance. DIRECTORS  Risk monitoring and compliance

Human Resource Management Related Party Transaction & Remuneration Review Committee (RPTRC) Committee (HRMRC)  Three members, all of whom are  Three members, all of whom are Non-Executive Independent Directors Non-Executive Directors  RPTRC’s main areas of oversight  Two out of the three members, are include, Non-Executive Independent Directors ▶ Related Party Transactions Policy and monitoring procedures HRMRCs main areas of oversight include, ▶ Disclosure of Related Party  Organisational Structure Transactions  Remuneration Policy ▶ Avoidance of conflicts of interests  Selection of Directors and Key Management Personnel  Succession planning.

KEY AREAS OF FOCUS Monitoring responsibilities delegated Determine company’s values and to committees with a view of standards and ensuring that ensuring proper and effective obligations to all stakeholders are oversight and control of company’s understood and met. activities.

Develop succession plans for KMPs and Review Management Company’s strategic Ensure effectiveness of other key staff Performance and business plan. governance practices. categories

28 31/03/2018 (Page 21-Directorate) Table 1:Board ofDirectors for period the 01/04/2017- 1.2. Corporate Governance Before Board Meetings Directorships/Significant Positions. Committee Meetingsandtheirother Directors’ AttendanceatBoardand ™ ™ ™ ™ ™ ™ ™ ™ ™ ™ advice whenevertheyrequire. Directors havethediscretiontoobtainindependent manner. information inrespectofagendaitemsatimely Directors are provided with comprehensive out andallowsforflexibilitywhenitisneeded. The agenda of Board meetings is carefully thought Directors tofacilitatemeaningfulparticipation. scheduled inadvanceconsultationwiththe All Boardandcommitteemeetingsare the Boardaddressesallkeyissuesonatimelybasis. Monthly Boardmeetingsareheldtoensurethat BOARD MEETINGS 29 At every meeting operational governance and issues.. a regular basis to discuss key topics covering strategic, Board ofthe Meetings itscommittees and are on held purpose single the ofresurrecting company. the various sectors have who from gottogetherindividuals for presentThe Board ofDirectors consist of experienced 1.3. ™ ™ ™ ™ ™ ™ ™ The FinanceThe Company PLC ™ ™ ™ ™ ™ ™ ™ Management Board MeetingsandEngagementwith are compliedwith. and ensures that applicable rules and regulations The CompanySecretaryattendsBoardmeetings the affairsofCompany. other regulations,whichmayhaveanimpacton corporate governance,tax,accounting,listingand on impendingchangesinmarketconditions Regular updatesareprovidedtotheBoard opportunity todiscussspecificareaswiththem. meetings toensurethattheDirectorshave themselves availableforattendanceatBoard Heads ofrespectivebusinessunitsmade trends anddevelopments. performance of the company as well as on industry update ontheoperationsandfinancial The CEOgivesacompleteandcomprehensive committee meetings. detailed updateonkeymattersdiscussedatthe Chairperson of each Board committee provides a relating totheGroup. engage inmeaningfuldiscussionsonkeyissues The Boardmemberscomewellpreparedand all DirectorsatBoardmeetings. The Chairman encourages open dialogue between Annual Report 2017 |2018 Annual Report

ANNEXURES FINANCIAL REPORTS MANAGEMENT DISCUSSION AND OVERVIEW ANALYSIS The Finance Company PLC Annual Report 2017 | 2018

Corporate Governance

BOARD MEETINGS

Frequent & Effective Engagement between the Board and the Management

™™ The Board is regularly updated by the Management on the performance and prospects of the Group.

™™ Board approvals for matters of exigency can be obtained through circulation of written resolutions.

™™ Ad-hoc meetings are held whenever the necessity arises.

™™ The Management provides the Board with detailed financial performance reports of the Group on a monthly basis.

™™ Directors have direct access to senior management to obtain any additional information to make informed

No Direction Status

CORPORATE GOVERNANCE - DIRECTION NO 03 OF 2008

1 THE RESPONSIBILITIES OF THE BOARD OF DIRECTORS

1.1 a). Approving and overseeing the finance company’s strategic objectives Compliant and corporate values and ensuring that such objectives and values are communicated throughout the finance company

b). Approving the overall business strategy of the finance company, The Board approves the overall including the overall risk policy and risk management procedures and business strategy including mechanisms with measurable goals, for at least immediate next three the overall risk policy and risk years. management procedures and ensures that the strategic c). Identifying risks and ensuring implementation of appropriate system objectives and corporate to manage the risks prudently values are communicated. In addition the Board has d). Approving a policy of communication with all stakeholders, including taken appropriate initiatives depositors, creditors, share holders, and borrowers. to cover the following aspects: - Ensure the adequacy & Integrity of the company’s e). Reviewing the adequacy and the integrity of the finance company’s internal control system & MIS internal controls systems and management information systems. - Key Management personnel at Board level has been identified f). Identifying and Designating key management personnel, who are in the appropriate fields who in a position to (i) significantly influence policy (ii) direct activities are in a position to significantly and (iii) exercise control over business activities, operations and risk influence policy, direct activities management. & exercise control over the g). Defining the areas of authority and key responsibilities for the board business operations and risk and for the key management personnel management. - Ensuring that the Key Management Personnel have h). Ensure that there is appropriate oversight of the affairs of the finance an oversight of the affairs of the company by key management personnel, that is consistent with the company that is consistent with finance company’s policy

30 Corporate Governance 1.5 1.4 1.3 1.2 No firmly itsauthority under decision to ensure direction thatthe control and finance ofthe company is BoardThe shall have formal schedule of matters specially reserved to it for quorum for relevant the item agenda Board atthe Meeting has substantialinterest, isinterested, becounted shallnot he and inthe to a matter inwhich orany he ofhisrelatives oraconcern inwhich he voting onany BoardDirector Resolution in relation shall abstain from company directors to relevant assistthe director(s) to discharge dutiesto the the shall resolve to provide separate professional independent advice to appropriate circumstances, finance atthe company's Boardexpense. The upon responsible request, to professional seekindependent advice in There shall be a procedure determined by Boardthe to enable directors, chiefthe executive officer with inline paragraph (g)ofthisdirection. approve and define and functions the responsibilities ofthe chairman and BoardThe chairman shall appoint the chief the and executive officer and p). o). n). m). l). k). j). i). finance company’s policy company by key personnel, management thatisconsistent withthe Ensure thatthere isappropriate oversight affairs of the finance ofthe forand key the personnel management areas the Defining ofauthority and key responsibilities boardfor the management. (iii)exerciseand control over operations activities, business risk and in apositionto (i)significantlyinfluence policy (ii)directactivities key Designating and Identifying personnel, management are who Exercising duediligence hiring inthe oversight and ofexternal auditors Understanding regulatory the environment towards corporate objectives policies, establish of lines communication monitorand progress regularlyMeeting key withthe personnel management to review for key personnel management Ensuring finance thatthe company hasanappropriate succession plan ofchangesimplementation where necessary the of conflicts ofinterest determination (iii)the and of weakness and of appointment key personnel management (ii) management the ofdirectors election and including nomination selection, (i)the and Periodically effectiveness the assessing ofit’s governance practices, Direction 31 The FinanceThe Company PLC Compliant interest resolutions inwhich they have voting in from abstained Compliant -Directors have N/A during Financial the Year Compliant Compliance. review to or progress monitor a monthly/quarterly basis to personnelmanagement on Directors Key the meet Board/Executive -The capacity atalllevels. has beenformulated to ensure & continues training programs for key position management - Preparing asuccession plan environment regulatory the progress &alsounderstanding communication &monitoring of of policies&establishlines companythe policy -Reviewing Annual Report 2017 |2018 Annual Report Status

ANNEXURES FINANCIAL REPORTS MANAGEMENT DISCUSSION AND OVERVIEW ANALYSIS The Finance Company PLC Annual Report 2017 | 2018

Corporate Governance

No Direction Status

1.6 The Board shall, if it considers that the finance company is, or is likely to be, N/A unable to meet its obligations or is about to become insolvent or is about to suspend payments due to depositors and other creditors, forthwith inform the Director of the Department of Supervision of Non-Bank Financial Institutions of the situation of the finance company prior to taking any decision or action.

1.7 The Board shall include in the finance company's annual report, an annual Compliant corporate governance report setting out the compliance with this Direction

1.8 The Board shall adopt a scheme of self-assessment to be undertaken by Compliant each director annually, and maintain records of such assessments.

1.9 The Board shall have formal schedule of matters specially reserved to it for Compliant decision to ensure that the direction and control of the finance company is firmly under its authority

2 MEETINGS OF THE BOARD

2.1 The Board shall meet at least twelve times a financial year at approximately Compliant monthly intervals. Obtaining the Board's consent through the circulation of written or electronic resolutions/papers shall be avoided as far as possible

2.2 The Board shall ensure that arrangements are in place to enable all directors Arrangements are in place to include matters and proposals in the agenda for regular Board meeting for all the directors to Include where such matters and proposals relate to the promotion of business and matters/proposals in the agenda the management of risks of the finance company for regular Board meetings as Board papers prepared by the relevant directors are circulated prior to Board meeting

2.3 A notice of at least 7 days shall be given of a regular Board meeting to Compliant provide all directors an opportunity to attend. For all other Board meetings, a reasonable notice shall be given

2.4 A director who has not attended at least two - thirds of the meetings in Compliant the period of 12 months immediately preceding or has not attended the immediately preceding three consecutive meeting held, shall cease to be a director. Provided that participation at the directors' meeting through an alternate director shall, however, be acceptable as attendance

2.5 The Board shall appoint a company secretary whose primary responsibilities Compliant shall be to handle the secretarial services to the Board and shareholder meetings and to carry out other functions specified in the statutes and other regulations.

2.6 If the chairman has delegated to the company secretary the function of The agenda for Board meeting is preparing the agenda for a Board meeting, the company secretary shall be prepared by Company Secretary responsible for carrying out such function. under the advice of Chairman

2.7 All directors shall have access to advice and services of the company Compliant secretary with a view to ensuring that Board procedures and all applicable laws, directions, rules and regulations are followed

32 Corporate Governance 3.4 3.3 3.2 3.1 3 2.9 2.8 No c). b). a). director: A non-executive director beconsidered shallnot ifsuch independent total ofthe fourth numbers ofdirectors. non-executiveof independent directors of Boardthe shall be at least one date the threeofthisDirection, number the yearsWith from effect from executive directors chief shallbethe executive officer ofthe company. numberofdirectorshalf ofthe Board. ofthe Insuch anevent, ofthe one provided numberofexecutive thatthe directors exceed shallnot one- financeof the company (hereinafter referred to asan “executive director”) finance company may beappointed, electednominated or asadirector toSubject transitional the provisions contained herein, anemployee of a by such director upto date the ofthisDirection. executivenon director shallbeinclusive total ofthe period served ofservice executive director exceed shallnot years. nine total The period inoffice ofa thanadirectorother positionofchief the holds who executive officer or paragraph ofthisDirection total the 5(1) period ofadirector ofservice toSubject transitional the provisions contained herein to subject and 13 than more not and 5 than less be not shall Board the on directors toSubject transitional the provisions contained herein, numberof the COMPOSITION OFTHEBOARD and confirmationsand heads ofdivisional outitsdutieswithduecarecarrying prudence; and explanations(d) the issues ofcontention ordissentwhich may illustrate Board the whether was matters considered by Board; the (c) fact-finding the the discussionsand of data informationand used by Boardthe in its deliberations; (b) the Board shallclearly meeting contain orrefer to following: the (a)asummary with duecare prudence and inperforming minutes itsduties.The ofa minutes,the as to Boardthe whether it is possible to acted from gather Minutes of Board shall be recorded meetings in sufficient detail so that notice by any director minutes shallbeopenfor atany inspection reasonable onreasonable time, companyThe minutes shallmaintainthe secretary ofBoard such meetings immediately preceding asdirector; appointment the has beenemployed by finance the company during the two year period sheet; finance ofthe funds company asshown initslastaudited balance ofwhichoutstanding exceeds time atany particular capital 10%ofthe company asdescribed inparagraph 9 hereof, aggregate value asdirector,appointment any transactions business finance with the duringhas orhad period the oftwo years immediately preceding his paid financeor 10%ofthe upcapitalofanother company; has shares exceeding paid ofthe finance upcapitalofthe 2% company Direction 33 The FinanceThe Company PLC Compliant Compliant Compliant Compliant mitigation ofrisk care &prudence including carried outitsdutieswithdue illustrate Board thatthe has contention ordissentwhich issuesof discussions and information, fact finding contain sufficientdata, BoardThe minutes meeting Compliant Annual Report 2017 |2018 Annual Report Status

ANNEXURES FINANCIAL REPORTS MANAGEMENT DISCUSSION AND OVERVIEW ANALYSIS The Finance Company PLC Annual Report 2017 | 2018

Corporate Governance

No Direction Status

d). has a relative, who is a director or chief executive officer or a key management personnel or holds shares exceeding 10% of the paid up capital of the finance company or exceeding 12.5% of the paid up capital of another finance company.

e). represents a shareholder, debtor, or such other similar stakeholder of the finance company;

f). is an employee or a director or has a share holding of 10% or more of the paid up capital in a company or business organization:

I). iwhich has a transaction with the finance company as defined in paragraph 9, aggregate value outstanding of which at any particular time exceeds 10% of the capital funds as shown in its last audited balance sheet of the finance company; or

II). in which any of the other directors of the finance company is employed or is a director or holds shares exceeding 10% of the capital funds as shown in its last audited balance sheet of the finance company; or

III). in which any of the other directors of the finance company has a transaction as defined in paragraph 9, aggregate value outstanding of which at any particular time exceeds 10% of the capital funds, as shown in its last audited balance sheet of the finance company.

3.5 In the event an alternate director is appointed to represent an independent No alternate Director have been non-executive director, the person so appointed shall also meet the criteria appointed to the Board during that apply to the independent non-executive director. the year under review

3.6 Non-executive directors shall have necessary skills and experience to bring Compliant an objective judgment to bear on issues odd strategy, performance and resources

3.7 With effect from three years from the date of this Direction, a meeting of Compliant the Board shall not be duly constituted, although the number of directors required to constitute the quorum at such meeting is present, unless at least one half of the number of directors that constitute the quorum at such meeting are non-executive directors.

3.8 The independent non-executive directors shall be expressly identified Compliant as such in all corporate communications that disclose the names of directors of the finance company. The finance company shall disclose the composition of the Board, by category of directors, including the names of the chairman, executive directors, non-executive directors and independent non-executive directors in the annual corporate governance report which shall be an integral part of its Annual Report.

3.9 There shall be a formal, considered and transparent procedure for the Compliant appointment of new directors to the Board. There shall also be procedures in place for the orderly succession of appointments to the Board.

3.10 All directors appointed to fill a casual vacancy shall be subjected to election Compliant by shareholders at the first general meeting after their appointment

34 Corporate Governance 6.3 6.2 6.1 6 5.2 5.1 5 4.2 4.1 4 3.11 No among membersamong Board. ofthe between chairman the chief the and executive officer the and relationships business, financial, material/relevantfamily orother relationship(s)], ifany, chiefthe executive officer nature the and ofany relationship [including chairman ofthe name the be anintegral and ofitsAnnualReport, part BoardThe shalldisclose initscorporate governance which shall report, disclosed finance inthe company's AnnualReport SeniorDirector designationofthe The element. independent shall be Director withsuitablydocumented terms ofreference to ensure agreater shall designate non-executive anindependent director Senior asthe chairman non-executive anindependent isnot director, board the chairmanThe -executive shallbeanon director. casewhere Inthe the 1,2009. January commencing from beperformed shallnot and by person same the and one after the 3years rolesThe of chairmanthe chiefand executive officer shall be separated to ensure thatthey remain relevant to finance ofthe needs the company BoardThe shallreview delegationprocesses the inplace onaperiodic basis ability Board ofthe to asawhole discharge itsfunctions. an extend thatsuch delegationwould or significantlyhinder reduce the executive officer, executive director or key personnel, management to BoardThe delegate shallnot any matters to aboard committee, chief Auditing Standards No. Act, 15of1995. Entitiesin as SpecifiedBusiness terms Sri ofthe Lanka Accounting and any equivalent other positioninmore than10companies thatare classified company. Provided thatsuch director office hold shallnot ofadirector or corporate, including associate companies subsidiaries and finance ofthe equivalentother positioninmore than20 companies/societies/bodies A director ofafinance companyhold officenot shall asadirector or any 70age year serveasdirector shallnot ofafinance company. toSubject transitional the provisions contained herein, aperson over the THE CHAIRMANANDCHIEFEXECUTIVEOFFICER DELEGATION OFFUNCTIONS CRITERIA TOASSESSTHEFITNESSANDPROPRIETYOFDIRECTORS relating to relevant the director’s disagreement Board, withthe ifany. such resignation orremoval, including limited butnot to information regarding resignation the director ofthe orremoval reasons the and for of Non-Bank Financial InstitutionsCentralof the Bank of Sri Lanka, shareholdersthe Director the notify ofSupervision and Department ofthe If adirector office, Board resigns the orisremoved shallannounce to from Direction 35 The FinanceThe Company PLC Compliant Compliant Compliant Compliant Boardof the orreduce hinder not ability the authority which inamanner will BoardThe delegates its Compliant Compliant Compliant Annual Report 2017 |2018 Annual Report Status

ANNEXURES FINANCIAL REPORTS MANAGEMENT DISCUSSION AND OVERVIEW ANALYSIS The Finance Company PLC Annual Report 2017 | 2018

Corporate Governance

No Direction Status

6.4 The chairman shall: (a) provide leadership to the Board; (b) ensure that the Compliant Board works effectively and discharges its responsibilities; and (c) ensure that all key issues are discussed by the Board in a timely manner.

6.5 The chairman shall be primarily responsible for the preparation of the The agenda for Board meeting is agenda for each Board meeting. The chairman may delegate the function prepared by company secretary of preparing the agenda to the company secretary. under the advice of Chairman

6.6 The chairman shall ensure that all directors are informed adequately and in Compliant a timely manner of the issues arising at each Board meeting.

6.7 The chairman shall encourage each director to make a full and active The Chairman enlightens contribution to the Board’s affairs and take the lead to ensure that the the directions on matters of Board acts in the best interests of the finance company. importance at Board Meeting and encourages the directors to express their views

6.8 The chairman shall facilitate the effective contribution of non-executive Compliant directors in particular and ensure constructive relationships between executive and non-executive directors.

6.9 Subject to the transitional provisions contained herein, the chairman, shall The Chairman does not get not engage in activities involving direct supervision of key management involved in executive functions personnel or any other executive duties whatsoever.

6.10 The chairman shall ensure that appropriate steps are taken to maintain Compliant effective communication with shareholders and that the views of shareholders are communicated to the Board.

6.11 The chief executive officer shall function as the apex executive-in-charge The Chief Executive Officer is of the day-to-day-management of the finance company’s operations and in-charge of the day to day business. operations

7 BOARD APPOINTED COMMITTEES

7.1 Every finance company shall have at least the two Board committees set Compliant - The Audit out in paragraphs 8(2) and 8(3) hereof. Each committee shall report directly Committee , Integrated Risk to the Board. Each committee shall appoint a secretary to arrange its Management Committee, meetings, maintain minutes, records and carry out such other secretarial Nominal Committee, HRM & functions under the supervision of the chairman of the committee. The Remuneration Committee, Board shall present a report on the performance, duties and functions of ALCO, Credit Committee, RPTRC each committee, at the annual general meeting of the company. are the Board appointed Sub- Committees

36 Corporate Governance AUDIT COMMITTEE f e d c b a No The followingThe shallapplyinrelation to Audit the Committee: ordination between auditors where more auditor thanone isinvolved. relevant accounting principles co- (iii)the obligations;and reporting and preparation (ii)the reporting; statements offinancial accordance in with management’s the and Act the issued under internal controls over financial finance ofthe (i) anassessment company’s compliance with Directions with externalthe auditors nature the including: scopeand audit, of the committeeThe shall,before auditcommences, the finalise discussand iii). ii). i). committee the services, non-audit shallconsider: external auditor’s independence orobjectivity inrelation to provision the of externalthe auditor’s independence orobjectivity. the assessing When provisionthe by anexternal auditor impair doesnot services ofnon-audit requirements so, Indoing guidelines. and committee the shallensure that thatareaudit services permitted relevant the under statutes, regulations, Boardof the ofanexternal engagement onthe auditor to provide non- committee The shalldevelop apolicy implement and approval withthe in accordance withapplicablestandards bestpractices. and independence objectivity and effectiveness the and auditprocesses ofthe committee The shallreview monitor and external the auditor’s date the completionexpiry ofthree ofthe previous ofthe years term. from for re-engaged auditbefore isnot the audit partner the particular that the exceed shallnot ofanauditpartner engagement that the five years, and period, auditfee any and resignation auditor, ordismissalofthe provided relevant applicationofthe the accounting standards; service (iv)the and Centralof the to time (iii) time; issuedto Bankguidelines auditors from provided incompliance relevant withthe statutes; implementation (ii)the with: of external(i) appointment the the auditor for to audit services be committeeThe shallmake recommendations onmatters inconnection directors. Board The members appointed to committee the shall be non-executive possesses qualificationsand experienceaccountancy in and/or audit. chairmanThe of committeethe shall be a non-executive director who auditor. pose any threat to objectivity the and/or independence external ofthe fee the and levels inaggregate and individually relative to auditor, the nature the whether related the services, non-audit ofthe fee levels and provision the of such by services externalresulting the from auditor; to objectivity the and/or independence conduct inthe audit ofthe therewhether are safeguards inplace to ensure thatthere threat isno provider services; non-audit ofthe skills the whether experience and auditor ofthe make itasuitable Direction 37 The FinanceThe Company PLC Compliant Company provide to services non-audit the ExternalThe auditor didnot Compliant Compliant Compliant Annual Report 2017 |2018 Annual Report Status

ANNEXURES FINANCIAL REPORTS MANAGEMENT DISCUSSION AND OVERVIEW ANALYSIS The Finance Company PLC Annual Report 2017 | 2018

Corporate Governance

No Direction Status

g The committee shall review the financial information of the finance Compliant company, in order to monitor the integrity of the financial statements of the finance company, its annual report, accounts and periodical reports prepared for disclosure, and the significant financial reporting judgments contained therein. In reviewing the finance company’s annual report and accounts and periodical reports before submission to the Board, the committee shall focus particularly on: (i) major judgmental areas; (ii) any changes in accounting policies and practices; (iii) significant adjustments arising from the audit; (iv) the going concern assumption; and (v) the compliance with relevant accounting standards and other legal requirements.

h The committee shall discuss issues, problems and reservations arising The letters submitted by the from the interim and final audits, and any matters the auditor may wish external auditors & the response to discuss including those matters that may need to be discussed in the thereto has been considered by absence of key management personnel, if necessary. the Audit Committee

i The committee shall review the external auditor’s management letter and Compliant the management’s response thereto.

j The committee shall take the following steps with regard to the internal Compliant audit function of the finance company:

i). Review the adequacy of the scope, functions and resources of the internal audit department, and satisfy itself that the department has the necessary authority to carry out its work;

ii). Review the internal audit programme and results of the internal audit process and, where necessary, ensure that appropriate actions are taken on the recommendations of the internal audit department;

iii). Review any appraisal or assessment of the performance of the head and senior staff members of the internal audit department;

iv). Recommend any appointment or termination of the head, senior staff members and outsourced service providers to the internal audit function;

v). Ensure that the committee is apprised of resignations of senior staff members of the internal audit department including the chief internal auditor and any outsourced service providers, and to provide an opportunity to the resigning senior staff members and outsourced service providers to submit reasons for resigning;

vi). Ensure that the internal audit function is independent of the activities it audits and that it is performed with impartiality, proficiency and due professional care;

k The committee shall consider the major findings of internal investigations The committee follows up and management’s responses thereto; on any major findings of internal investigations and the management responses

38 Corporate Governance r q p o n m l No overseeing finance the company’s relations withthe external auditor. appropriate follow-up to and action key asthe act representative bodyfor place for fair the investigation independent and of such matters for and Accordingly, committee the shallensure thatproper arrangements are in improprieties internal in financial reporting, control matters. orother finance company may, in confidence, raise concerns aboutpossible committee The shall review arrangements by which employees of the committeeof the meetings. head internal ofthe shallrecord auditfunction) keep and detailedminutes to secretary The committee the may (who company bethe orthe secretary atsuch member individual meetings. committee year; inthe held meetings (iii)detailsofattendance and ofeach auditcommittee; ofthe activities details ofthe numberofaudit (ii)the disclose inaninformative Board The AnnualReport, shall,inthe way, (i) responsibilities. shallrecorddiscussed and itsconclusions indischarging itsdutiesand committee The regularly, shallmeet withduenotice ofissuesto be management’sand responses thereto; committee The shallconsider ofinternal majorfindings the investigations iv). iii). ii). i). committee The shallhave: directors present. being committee external withthe shallmeet auditors executive the without invitationthe committee. ofthe However, atleast once the insixmonths, members chief the and executive officer may alsoattend upon meetings externalof the auditors may normally attend Board Other meetings. chiefThe finance officer,the chief internal auditorand a representative with relevant experience to attend, ifnecessary. authority to obtain external professional advice toand invite outsiders full access to information; and resourcesthe which to itneeds doso; reference; explicit authority to investigate into any matter within its terms of Direction 39 The FinanceThe Company PLC report toreport Director Managing the immediate investigation and Division to out carrying directed to Internal Audit control matters orother are internal financial reporting reported by employee regarding Compliant -Any improprieties Audit Committee recordsSecretary minutes the of Compliant Company -The Compliant reviewthe during financial the year under CommitteeThe 11times met responsesmanagement internal investigations the and on any of majorfindings committeeThe follows up Compliant Boardthe attend by invitation Auditors members other and of Head ofInternal Audit, External ChiefFinancialThe Officer, Annual Report 2017 |2018 Annual Report Status

ANNEXURES FINANCIAL REPORTS MANAGEMENT DISCUSSION AND OVERVIEW ANALYSIS The Finance Company PLC Annual Report 2017 | 2018

Corporate Governance

No Direction Status

INTEGRATED RISK MANAGEMENT COMMITTEE:

a The committee shall consist of at least one non-executive director, CEO and Compliant key management personnel supervising broad risk categories, i.e., credit, market, liquidity, operational and strategic risks. The committee shall work with key management personnel closely and make decisions on behalf of the Board within the framework of the authority and responsibility assigned to the committee.

b The committee shall assess all risks, i.e., credit, market, liquidity, operational Compliant and strategic risks to the finance company on a monthly basis through appropriate risk indicators and management information. In the case of subsidiary companies and associate companies, risk management shall be done, both on the finance company basis and group basis.

c The committee shall review the adequacy and effectiveness of all Compliant management level committees such as the credit committee and the asset-liability committee to address specific risks and to manage those risks within quantitative and qualitative risk limits as specified by the committee.

d The committee shall take prompt corrective action to mitigate the effects Compliant of specific risks in the case such risks are at levels beyond the prudent levels decided by the committee on the basis of the finance company’s policies and regulatory and supervisory requirements.

e The committee shall meet at least quarterly to assess all aspects of risk Compliant management including updated business continuity plans.

f TThe committee shall take appropriate actions against the officers Compliant responsible for failure to identify specific risks and take prompt corrective actions as recommended by the committee, and/or as directed by the Director of the Department of Supervision of Non-Bank Financial Institutions of the Central Bank of Sri Lanka.

g The committee shall submit a risk assessment report within a week of The Company has a Compliance each meeting to the Board seeking the Board’s views, concurrence and/or Officer to carry out the specific directions. compliance function

h The committee shall establish a compliance function to assess the Compliant finance company’s compliance with laws, regulations, directions, rules, regulatory guidelines, internal controls and approved policies on all areas of business operations. A dedicated compliance officer selected from key management personnel shall carry out the compliance function and report to the committee periodically.

40 Corporate Governance 8.3 8.2 8.1 8 No c). b). a). favorable“more treatment” shallmean: constituents finance ofthe company. purposeFor the ofthis paragraph, favorable “more party treatment” thanthatisaccorded to similar other transactions witharelated thatwould inamanner party grant such BoardThe shallensure finance thatthe company in not engage does d). c). b). a). following:be the transactionsThe witharelated thatare party covered inthisDirection shall f). e). d). c). b). a). be considered as"related for purpose the parties" ofthisDirection following withthe person, particularly and categories ofpersons shall who any transaction finance ofthe company withanythat may arise from BoardThe shall take steps necessary the to avoid any conflicts of interest RELATED PARTYTRANSACTIONS terms granted normal inthe course withunrelated ofbusiness parties; trade lossesand/or waiving fees/commissions, thatextends beyond the Providing preferential treatment, such asfavorable terms, covering comparable transaction withan unrelated comparable counterparty; ratelending orpaying arate ofinterest exceeding rate the paid for a Charging ofalower rate ofinterest finance thanthe company’s best maturity of5years ormore. company’s share witharemaining debtinstruments capitaland collateral investments and by made such related finance inthe party total the accommodation,computed cash the by from deducting as determined by Board. the “total The accommodation” net shallbe a prudentpercentage finance ofthe company’s regulatory capital, Granting of“total accommodation” net to arelated party, exceeding give benefits to such related party. proprietary, sensitive confidential or otherwise information that may financethe company any and related which party may lead to share creating information and lines or reporting maintaining flows between finance the company, from services those obtaining providing servicesnon-financial or the finance financial to company or borrowings investments, and Creating liabilitiesto finance the company inthe form of deposits, Granting accommodation, financethe company, has substantialinterest A shareholder owns who shares exceeding paid 10%of the upcapitalof company A relative ofadirector orakey personnel management finance ofthe A key personnel management to finance the company A director finance ofthe company Any associate company finance ofthe company finance ofthe A subsidiary company Direction 41 The FinanceThe Company PLC treatment to related parties avoid transaction withfavorable BoardThe has taken steps to necessityThe arisen hasnot Year Compliant during Financial the Annual Report 2017 |2018 Annual Report Status

ANNEXURES FINANCIAL REPORTS MANAGEMENT DISCUSSION AND OVERVIEW ANALYSIS The Finance Company PLC Annual Report 2017 | 2018

Corporate Governance

No Direction Status

d). Providing or obtaining services to or from a related-party without a proper evaluation procedure;

e). Maintaining reporting lines and information flows between the finance company and any related party which may lead to share proprietary, confidential or otherwise sensitive information that may give benefits to such related party, except as required for the performance of legitimate duties and functions.

9 DISCLOSURES

The Board shall ensure that at least the following disclosures are made in Compliant the Annual Report:

a). A statement to the effect that the annual audited financial statements have been prepared in line with applicable accounting standards and regulatory requirements, inclusive of specific disclosures.

b). A report by the Board on the finance company’s internal control mechanism that confirms that the financial reporting system has been designed to provide a reasonable assurance regarding the reliability of financial reporting, and that the preparation of financial statements has been done in accordance with relevant accounting principles and regulatory requirements.

c). The external auditor’s certification on the effectiveness of the internal control mechanism in respect of any statements prepared or published after March 31, 2010.

d). Details of directors, including names, transactions with the finance company.

e). Fees/remuneration paid by the finance company to the directors in aggregate, in the Annual Reports published after January 1, 2010.

f). Total net accommodation as defined in paragraph 9(4) outstanding in respect of each category of related parties and the net accommodation outstanding in respect of each category of related parties as a percentage of the finance company’s capital funds.

g). The aggregate values of remuneration paid by the finance company to its key management personnel and the aggregate values of the transactions of the finance company with its key management personnel during the financial year, set out by broad categories such as remuneration paid, accommodation granted and deposits or investments made in the finance company.

h). A report setting out details of the compliance with prudential requirements, regulations, laws and internal controls and measures taken to rectify any non-compliance.

42 Corporate Governance No j). i). corporate governance after published reports 1,2011. January directions rulesand and Board issuedby annual Monetary inthe the externalThe ofthe auditor’s certification compliance withthe Act address such concerns. together measures withthe public, taken by finance the company to Institutions, ifsodirected Board by Monetary to the bedisclosed to the of Non-Bank Financial Directorthe of Supervision Department of the directions rulesand and thathave Act, the beencommunicated by financethe company’snon or compliancerisk management, with A statement concerns regulatory ofthe onlapsesin supervisory and Direction 43 The FinanceThe Company PLC Annual Report 2017 |2018 Annual Report Status

ANNEXURES FINANCIAL REPORTS MANAGEMENT DISCUSSION AND OVERVIEW ANALYSIS The Finance Company PLC Annual Report 2017 | 2018

Risk Management Framework of TFC

OVERVIEW Financial Risk Management

Continuing business activities without concern about The Company has exposure to the following risks from the Risk Management Strategies and Procedures is an financial instruments: unavoidable risk for a financial institution. Taking risk is an integral part of the finance business, it is not surprising that Credit Risk financial institutions have been practicing Risk Management Liquidity Risk ever since there have been financial institutions the industry Market Risks could not have survived without it. The only real change is the degree of sophistication now required to reflect the Operational Risks more complex and fast-paced environment. Continuing increases in the scale and complexity of financial institutions and in the pace of their financial transactions demand that Credit Risk they employ sophisticated Risk Management Techniques Credit risk is the risk of financial loss to the Company if a and monitor rapidly changing risk exposures. At the same customer or counterparty to a financial instrument fails to time, fortunately, advances in Information Technology have meet its contractual obligations. Exposure to credit risk arises lowered the cost of acquiring, managing and analyzing basically from lending the Company’s loans and receivable data, and have enabled considerable and ongoing advances balances. Each branch of the Company is responsible for in Risk Management at leading institutions worldwide. managing and analysing the credit risk for each new client Risk is the main cause of uncertainty in any Organization. by assessing the credit quality of the customer, considering Thus, companies increasingly focus more on identifying its financial position, past experience and other factors. risks and managing them before they even affect the Further those assessments need to be sent to the Credit business. The ability to manage risk will help companies Review Committee for final approvals before granting the act more confidently on future business decisions. Their facility. In addition, for material advances, the Executive knowledge of the risks they are facing will give them Director (Operations)’s approval obtained. various options on how to deal with potential problems. Liquidity Risk RISK GOVERNANCE Liquidity risk is the risk that the Company will encounter The Finance Company PLC believes that productive difficulty in meeting its contractual obligations associated Compliance and Risk Management begins with productive with financial liabilities. As other financial companies, Risk Governance and ensure well diversified Compliance the Company is vulnerable to liquidity risk resulting from and Risk Management Policies and Procedures can assets and liability mismatch. The Treasury Division of the mitigate the major types of risks at an acceptable level. The Company primarily tasked to monitor daily requirement Board of Directors is primarily responsible for the overall risk of liquidity to meet daily liquidity obligations. The Treasury management and for approving the Compliance and Risk Division invests any surplus cash in interest bearing Management Strategies and Principles of the Company. financial instruments with appropriate maturities to meet The Compliance and Risk Management Division is mainly above mentioned daily liquidity obligations. In addition, responsible for implementing and maintaining risk related the Asset and Liability Management Committee (ALCO) procedures to ensure an independent control process is is responsible for managing and controlling the overall maintained. The division works closely with the Integrated liquidity of the Company and assess the impact of strategic Risk Management Committee (IRMC) to ensure that decisions on the Company liquidity. procedures are compliant with the overall Compliance and Risk Management Framework. Otherwise division is The liability of the Company to attract new deposits and responsible for monitoring compliance with risk principles, renew a significant percentage of the maturing deposits polices and limits across the Company. permits it to manage the associated liquidity risk.

Each Branch Manager has accepted guidelines which are Note no 41 to the Financial Statements discloses responsible for the independent control of risks, including the maturity analysis of the Company’s assets and monitoring the risk of exposure against limits and the liabilities. assessment of risk of new product types and structured transactions.

44 Rs.16 rate Bnand sensitive Bn. liabilitiesofRs.29.3 CompanyThe possessesinterest rate sensitive assetsof constant. given change in interest rates keeping all variablesother Company’s Statement of Comprehensive Income due to a March 2018 thatdemonstrate to possibleimpact the Given below is a Sensitivity Analysis carried out as at 31st Interest Rate Sensitivity Analysis movements. payments, to thus helping various ascertain interest rate Company’son the liabilities,terms assetand ofinterest risk by analysing rate trends sensitivity and level based Company. Company The interest the ismanaging rate flows orthe fair the of instruments financial value ofthe Interest Rates resulting inadverse to impact future cash Interest Rate Risk may arise due to in the fluctuations Interest Rate Risk tomanagement mitigate onsuch impact the risks. identify, measure, monitor market report and risks to the CommitteeManagement (IRMC)isprimarily responsible to rates, equity prices orcommodity prices. Integrated The Risk to market conditions such asforeign exchange rate, interest Market risk risk isthe Company thatthe alossdue willincur Market Risk Risk Management FrameworkRisk Management of TFC statement Sensitivity/Effect to Income Liabilities Effect onRate sensitive Effect onRate sensitive Assets Market Rates up to interest the by 0.5% effect Rs. ‘000 74.54 74.54 45 presented inNote No47.1 exposed to interest rate risk asat31stMarch 2018 is Company’sThe Financial Assets Financial and Liabilities posed to Interest Rate Risk Financial Assets Financial and Liabilitiesex changed. deposit and volumes *lending The are** to be remain un- foreseeable future market* The rates are changed not materially inthe fixedbasis liabilities pricing thatbothassetand rates are ona interestThe rates movement have beenapplied on the basis. Assumptions: -

Market Rates drop by 0.5% effect to The FinanceThe Company PLC the interestthe (74.54)

Rs. ‘000 146.72 72.17

Income/(Expenses) Market Rates up by 1.0% effect to the interestthe (293.43) (144.35) Rs. ‘000 149.09 Annual Report 2017 |2018 Annual Report by 1.0% effect to the Market Rates drop interest income/ (expenses) (149.09) Rs. ‘000 293.43 144.35 -

ANNEXURES FINANCIAL REPORTS MANAGEMENT DISCUSSION AND OVERVIEW ANALYSIS The Finance Company PLC Annual Report 2017 | 2018

Risk Management Framework of TFC

Commodity Price Risk

Commodity price risk caused by the fluctuations in the prices of commodities. Given the significant of gold backed loans fluctuations in the gold prices could have an adverse impact on earnings. Gold price risk could arise from either of adverse movement in the world prices and exchange rates. The company mitigates the risks by constantly adjusting advance offered per gold sovereign in line with the gold market prices.

Operational Risk

Operational risk is the possibility of losses incurred to the Company from internal processes, personal, technology, infrastructure and external factors legal and regulatory requirements. These would expose the Company to fines, penalties, direct and indirect financial loss, brand or reputational damage, negative impact on customer satisfaction. The Integrated Risk Management Committee (IRM) is responsible to identify those above operational risks on monthly basis, measure, monitor and report to the management to mitigate the impact on such risks.

46 Executive Director/ CEO Mamaduwa Mr. N.J.B. Chairman Committee ofthe Dr. W.G. Karunadasa followingthe members. IntegratedThe Committee RiskManagement comprises of Membership Governance) Direction No.03 of2008. to provisions the Finance ofthe Companies (Corporate Committee scope ofthe The functions the and conform objectivesthe responsibilities the and Committee. ofthe scopewithin the Terms ofthe ofReferences which setsout IntegratedThe Committee RiskManagement functions CommitteeRisk Management Integrated ofThe Report risks over aperiod oftime. profile and measurestook monitorto mitigate and these considered product the wiserisk rating risk monthly and to mitigate any possiblerisk faced. Committee The also control mechanism was introduced inkey areas inorder main concerns.the With regard to Operational Risks, a dual strategic, HumanResource, operational ITrisks and being risksthe operational inthe areas including liquidity, the During year the review under committee the identified COMMITTEE REPORT OFTHE INTEGRATED RISKMANAGEMENT March 31,2018 attendance the and was asfollows: Committee were duringheld financial the year ended Two Integrated ofthe meetings RiskManagement Committee ofthe Meetings Committee CompanyThe to Secretary asthe acts Secretary the AGM Compliance. Riskand ED/CEO Mamaduwa Mr. N.J.B. Chairman Committee ofthe Dr. W.G. Karunadasa &PositionName Attendance 2/2 2/2 47 By Order Board ofthe regularly.Meetings review. minutes The Committee ofthe are tabledatBoard of Reference for IRMCommittee the during year the under CommitteeThe also deliberated reviewed and Terms the 25to 43 AnnualReport. ofthe on pages from Corporate Governance Framework Company ofthe found membersThe committees ofthese are inthe mentioned Colombo August 01, 2018. Chairman ofIntegrated Committee RiskManagement Dr. W.G. Karunadasa FinanceThe Company PLC The FinanceThe Company PLC Annual Report 2017 |2018 Annual Report

ANNEXURES FINANCIAL REPORTS MANAGEMENT DISCUSSION AND OVERVIEW ANALYSIS The Finance Company PLC Annual Report 2017 | 2018

Report of The Human Resource Management & Remuneration Committee

Membership

The HR & Remuneration Committee functions with the Terms of References which sets out the objectives and the responsibilities.

The Composition of the Human Resource Management and Remuneration Committee is as follows:

Mr. B.A.W. Kumarasiri Chairman/ Independent Non-Executive Director

Mr. N.J.B. Mamaduwa Executive Director /CEO

The Company Secretary acts as the Secretary to the Committee.

Meetings of the Committee

The Human Resource Management and Remuneration Committee met eleven times during the year ended March 31, 2018 and the attendance of the members at these meetings are given below:

Name & Position Attendance Mr. B.A.W. Kumarasiri 11/11 Chairman of the Committee Mr. N.J.B. Mamaduwa 11/11 ED/CEO

The Head of Human Resources attends these meetings by invitation. The Minutes of the committee meetings are tabled at the Board Meetings.

By Order of the Board

The Finance Company PLC

B.A. Wasantha Kumarasiri Chairman of Human Resource Management and Remuneration Committee

August 01, 2018. Colombo

48 are tabled atBoard Meetings. by meetings these invitation. minutes The meetings ofthe CEO,the In addition, CFO External the and Auditors attend a regular basis. toreports Board the ofDirectors matters onpertinent on relating functions and to internal external and it auditand its general oversight internal offinancial reporting, controls Audit Committee is responsible to Boardthe of Directors in company. staffofthe the and management Board The the seek any information from necessary asdeemed that arise are addressed timely. itisauthorized And to developments to amendments and financial regulations Directors isreviewed and periodically to ensure thatnew Committee Charter which was approved by Board the of responsibility Committee of the in is the defined Audit formally constituted scope functions, The and in1998. AuditThe Committee Finance ofThe Company PLC was CommitteeRole ofthe Audit Committee Report given tablebelow. inthe review attendance the and Committee ofthe is Member’s AuditThe Committee during times nine met year the under Meetings with over 30years ofpost- qualification experience. Member ofarecognized professional accounting body Non-Executive isanIndependent who Director, isaFellow chairmanThe of Audit Committee, Dr. W G Karunadasa Committee. BoardThe to Secretary asthe acts Secretary Audit the Chief Internal Auditor Non-ExecutiveIndependent Director Mr. M.K.D.W. Amarasinghe Non-ExecutiveIndependent Director Chairman Committee ofthe Dr. W.G. Karunadasa AuditThe Committee comprises following ofthe members. Composition Committee ofthe IND/NED Mr. M.K.D.W. Amarasinghe Chairman Committee ofthe IND/ NED Dr. W.G. Karunadasa &PositionName Attendance 8/9 9/9 49 Committee. governs composition, the role Audit ofthe functions and Colombo Rulesofthe Listing and Stock Exchange further CentralThe Bank Direction on Corporate Governance remuneration. Auditors approvaland of terms and of engagement re-appointment removaland on appointment, of External CommitteeThe makes recommendations to Board the takes action. necessary Internalthe External and Auditors, reviews and reports their considers and audit function recommendations by made CommitteeThe the defines responsibility of internal the Company.within the is empowered and audit functions to review any activity CommitteeThe also monitors internalthe externaland ensuring thatagoodfinancial systemreporting isin place. operation effectiveness and Internal ofthe Control Systems CommitteeThe reviews functions other amongst the F requirements Internal ofthe Audit Department. approved Committee The same. resource also assessedthe Internalthe Audit planfor following the financial year and CommitteeThe reviewed adequacy the coverage and of where applicable. recommended corrective measures be implemented attention to effectiveness internal ofthe controls and performancethe internal ofthe paid and auditfunction During year the review, under Committee the reviewed Internal Audit Central BankofSri Lanka (CBSL)Directions. No.Act 42 of2011 requirements reporting other and under rules,Companieslisting No. Act 07 of2007, Finance Business Colombo obligationsunder reporting Stock Exchange (CSE) CommitteeThe compliance alsoassessed the offinancial Stock Exchange for and newspaper publication. Board,discussed withthe prior to itsrelease to Colombo the standards/Sri Lanka Standard Financial and Reporting policies, its compliance with Sri Lanka Accounting processesof the consistency the and accounting ofthe quarterlythe Financial Statements to ensure reliabilitythe adopted by Company the preparation inthe annualand the CommitteeThe hasreviewed itsfinancial systemreporting Financial Reporting unctions of the Committee ofthe unctions The FinanceThe Company PLC Annual Report 2017 |2018 Annual Report

ANNEXURES FINANCIAL REPORTS MANAGEMENT DISCUSSION AND OVERVIEW ANALYSIS The Finance Company PLC Annual Report 2017 | 2018

Audit Committee Report

Further Committee monitored the Compliance level with the requirements of all Regulatory Authorities.

The Committee discussed issues arising from Internal Audit and Investigation reports and ensured that the Executive Management has taken appropriate action as recommended by the Internal Audit.

External Audit

The Committee reviewed the Audited Financial Statement with the External Auditors. The Committee also reviewed the management letter issued by the External Auditors together with the management responses there to.

The Audit Committee has recommended to the Board to appoint new auditors of the Company in place of the retiring auditors M/s SJMS Associates for the financial year ending March 31, 2019.

By Order of the Board

The Finance Company PLC

Dr. W.G. Karunadasa Chairman of Audit Committee

August 01, 2018. Colombo

50 Head ofLegal attend by meetings the invitation. ChiefFinancialThe Officer, Head of Compliance &Riskand Non-ExecutiveIndependent Director Mr. Rathnasiri Siriwardhane Non-ExecutiveIndependent Director Mr. M.K.D.W. Amarasinghe Non-ExecutiveIndependent Director Dr. W.G. Karunadasa Executive Director/ ChiefExecutive Officer Mamaduwa Mr. N.J.B. Chairman Non-Executive /Independent Director Mr. B.A.W. Kumarasiri as atMarch 31,2018. RPTRCThe Committee consists of followingthe members Membership Company entering when into Related Party Transactions. Shareholders are asawhole taken into account by the objectiveThe ofRPTRC isto ensure interests thatthe of 01, 2016. January was mandatory made from Commission ofSri Lanka. RPTRC ofthe establishment The Party Transactions issued by Securities the Exchange and Stock Exchange Code the and ofBestPractice onRelated ColomboRules Listing of the of Regulation9 the of Review Committee (RPTRC) 2015 in terms on December 14, BoardThe Related the established Party Transactions Review Committee Related ofThe Report Party Transactions Scope Transactions took place during thisperiod. year March ended 31,2018 asthere were Related no Party RPTRCThe were Meeting during held not financial the Meetings ™ ™ ™ ™ ™ ™ Shareholders Company. ofthe by Company the require approval the Board ofthe or Determining RPT whether thatare to be entered into overseeing existing procedures. policiesand Party Transaction Company ofthe reviewing and and Adopting procedures policiesand to review Related Stock Exchange. exempted by 9.5 Section rulesofColombo ofListing Transactions of Companythe except explicitly those Reviewing inadvance allproposed Related Party 51 By Order Board ofthe Colombo August 01, 2018 Related Party Transaction Review Committee Chairman B.A.W. Kumarasiri FinanceThe Company PLC ™ ™ ™ ™ The FinanceThe Company PLC ™ ™ ™ ™ detailed manner. applicable rules/regulations are and inatimely made disclosures asrequired Annualreport inthe by the Ensuring immediate the market disclosures and committee to review approve and proposed the RPT committee may recommend creation the ofaspecial If there isany potential conflict inany RPT the to Committee. the purpose ofproviding information concerning RPT the is requested to dosoby Committee the for express the which isarelated orshe he party, unlesssuch director participate inany discussionofaproposed RPT for Ensuring Director thatno Company ofthe shall party. follow dealings initsongoing relevant withthe related for guidelines establishes to SeniorManagement If RPT are (Re-current ongoing RPT) committee the Annual Report 2017 |2018 Annual Report

ANNEXURES FINANCIAL REPORTS MANAGEMENT DISCUSSION AND OVERVIEW ANALYSIS The Finance Company PLC Annual Report 2017 | 2018

Statement of Directors’ Responsibilities in Relation to Financial Statements

The Directors are required by the relevant statutory provisions to prepare financial statements for each financial year, which gives a true and fair view of the state of Affairs of the Company for that period. For the period under review the statutory provisions are in the Companies Act No.07 of 2007. Finance Leasing Act No.56 of 2000 and the Finance Business Act No.42 of 2011 in preparing the financial statements appropriate accounting policies have been selected and applied consistently and prudent judgment and estimates have been made. The applicable Sri Lanka Accounting Standards have been followed and explained in the notes to Financial Statements.

The Directors are responsible for ensuring that the Company keeps sufficient Accounting records to disclose with the reasonable accuracy of the Financial position of the Company and to ensure that the Company’s Financial Statements comply with the provisions of the Companies Act No. 07 of 2007, Financial Leasing Act No.56 of 2000 Sri Lanka Accounting Standards and the Finance Business Act No. 42 of 2011.

The Directors are also responsible to ensure that reasonable measures are taken to safe guard the assets of the Company at all times. In this context they have established appropriate system of internal controls with a view to preventing and detecting of frauds and other irregularities.

The Directors confirm that the financial reporting system of the Company has been designed to provide reasonable assurance regarding the reliability of financial reporting and preparation of financial statements for external purposes in accordance with the Sri Lanka Accounting Standards & Regulatory requirement of the Central Bank.

By Order of the Board

The Finance Company PLC

N J B Mamaduwa Executive Director/ Chief Executive Officer

August 01, 2018 Colombo

52 Reporting. The process The Reporting. isregularly reviewed by Board. the includes system the ofInternal Control over Financial significant risks faced by the Company thisprocess and process evaluating for identifying, the managing and Board The anongoing hasestablished losses orfraud. information financial and and records against financial or assurance material against misstatement ofmanagement can onlyprovide reasonable assurance absolute butnot PLC. Accordingly, Company’s the internal control system of internal controls mechanism of FinanceThe Company Directors isresponsible for adequacy the effectiveness and Internal Control over Board The Financial of Reporting. 6 of2013, Board the ofDirectors present on thisreport Direction No. 3of2008 by asamended Direction the No. Finance 10(2)(b)ofthe section withthe In line Companies Board’s Responsibility Directors’ Statement onInternal Control Lanka. regulatoryand requirements Central ofthe BankofSri inaccordancedone withSri Lanka Accounting Standards Financial Statements for external purposes hasbeen and reliability preparation the and ofFinancial Reporting of todesigned provide reasonable assurance regarding the System Financialthe Reporting Company ofthe hasbeen aboveBased onthe processes, Board the confirms that Confirmation Boardby the effectively efficiently. and process to comply new withthese requirements more toneed improve further automated financial reporting external auditors. Company The hasalsorecognized the based recommendations onthe by made internal the and required new the under Sri Lanka Accounting Standards, recognition, measurement, classification disclosures and to existing processes to comply withrequirements of relevantthe processes allrequirements embedding in CompanyThe process isinthe upgrading offurther suitability effectiveness ofdesignand basis. onanon-going by Internal the Company ofthe Audit Department for Company. inturn These are checked observedand being accounts disclosures and Financial ofthe Statements ofthe System over connected Financial Reporting, withsignificant Internal the Inassessing Financial Reporting. Control system ofthe documentation the ofInternal Control over iscontinuouslymanagement process inthe ofenhancing topertaining Internal Control over The Financial Reporting. Board’s ofthe implementation procedures policiesand Board assiststhe management The inthe Reporting effectiveness Internal ofthe Controls onFinancial Key Processes inplace to Review designand the 53 Colombo August 01, 2018 Chief Executive Officer Mamaduwa N.J.B. Chairman -Audit Committee W.G. Karunadasa Chairman B.A.W. Kumarasiri FinanceThe Company PLC By order Board, ofthe steps would betaken to infuture. them rectify by External the Auditors willbeconsidered appropriate and Controls over mattersThe Financial Reporting. addressed process adopted by Directors the system onthe ofInternal ExternalThe Auditors have submitted onthe acertification External Auditors Certification The FinanceThe Company PLC Annual Report 2017 |2018 Annual Report

ANNEXURES FINANCIAL REPORTS MANAGEMENT DISCUSSION AND OVERVIEW ANALYSIS The Finance Company PLC Annual Report 2017 | 2018

Financial Reports

FINANCIAL REPORTS Independent Auditor’s Report 55 Statement of Comprehensive Income 58 Statement of Financial Position 59 Statement of Changes in Equity 60 Statement of Cash Flows 61 Notes to The Financial Statements 62

54 The Finance Company PLC Annual Report 2017 | 2018

Independent Auditor’s Report

INDEPENDENT AUDITOR’S REPORT TO THE SHAREHOLDERS OF THE FINANCE COMPANY PLC

REPORT ON THE AUDIT OF THE FINANCIAL STATEMENTS

Qualified Opinion

We have audited the financial statements of The Finance properties (Wennapuwa) without prior approval OVERVIEW Company PLC (“the Company”), which comprise the from the Company in 2005. Hence, the ownership statement of financial position as at 31 March 2018, and of the above investment properties cannot be the statement of profit or loss and other comprehensive established and the adequacy of the amount of income, statement of changes in equity and statement obligations in respect of the mortgage loans cannot of cash flows for the year then ended, and notes to the be ascertained. Furthermore, the Company has not financial statements, including a summary of significant carried out a valuation of Investment Properties in accounting policies. the current year nor a management assessment In our opinion, except for the possible effects of the has been performed to assess changes in the fair matters described in the basis of a qualified audit opinion value as required by paragraph 55 of Sri Lanka paragraph, the accompanying financial statements give a Accounting Standards (LKAS) 40. – ‘Investment true and fair view of the financial position of the Company Properties’. as at 31 March 2018, and of its financial performance and 3. As stated in Note 27 to the financial statements, cash flows for the year then ended in accordance with Sri the Company has recognized other assets net ANALYSIS Lanka Accounting Standards. of impairment loss amounting to Rs. 252,452,198 as of 31st March 2018. The said amount includes Basis for Qualified Opinion unidentified and unreconciled long outstanding balances amounting to Rs. 128,075,076 for which 1. The company holds 91.77% of the ownership of AND DISCUSSION MANAGEMENT impairment has not been considered in accordance TFC Homes (Private) Limited and holds 20% or with Sri Lanka Accounting Standards (LKAS) 36 more of the equity shares in 26 other companies. – ‘Impairment of Assets’. Accordingly, the loss for However, the Company has not presented the year ended 31st March 2018 is understated by consolidated financial statements as per Sri Rs. 128,075,076. Further, the carrying value of other Lanka Financial Reporting Standards (SLFRS) 03 assets as of 31st March 2018 are overstated by Rs. - ‘Business Combinations’ and has not accounted 128,075,076. for investments in associates as per Sri Lanka Accounting Standards (LKAS) 28 - ‘Investments 4. As stated in note 33 to the financial statements, in Associates and Joint Ventures’, due to the non- other payables include loans of Ceylinco Group of availability of financial statements in relation to the Companies transferred to the company prior to said investments.

2009 amounting to Rs. 262,258,001, for which no FINANCIAL REPORTS documentary evidence is available to ascertain the 2. As stated in note 28 to the financial statements, name of creditors, existence and adequacy of the Investment Properties include 7 properties liabilities recognized as at the year end. In addition occupied by Ceylinco Sussex College (Sussex to the above, other payables include unidentified College) from year 2005 amounting to Rs. and unreconciled long outstanding balances 1,039,160,000. Subsequently, Sussex College had amounting to Rs. 336, 947,668. obtained loans amounting to Rs. 97,843,294 from Wayamba Rural Bank, Commercial Bank and 5. As disclosed in Note 44 to the financial statements, Seylan Bank by mortgaging 5 properties, and the the Company’s total liabilities exceeded its total respective banks had filed legal action against assets by Rs. 14, 476,503,678 (2017: Rs. 14,405,020,161). the Company due to non-settlement of loans by Further, as explained in detail in note 45 to the Sussex College. Moreover, Seylan Bank has sold one financial statements, the Company has not of the mortgaged properties in 2015 (Kuliyapitiya) complied with certain directions issued by CBSL ANNEXURES to an outside party, but the Company has not relating to the minimum core capital requirement derecognized the asset reflected at Rs. 19,000,000 and capital adequacy ratio. Hence, there is a from the books of account. In addition, Sussex significant doubt on the ability of the company to College has constructed a building in one of the continue as a going concern. P.E.A. Jayewickreme, M. B. Ismail, Ms. S. L. Jayasuriya, G. J. David, Ms. F. M. Marikkar, Ms. M. S. J. Henry, R. H. M. Minfaz, Ms. S.Y. Kodagoda 55 The Finance Company PLC Annual Report 2017 | 2018

Independent Auditor’s Report

6. As stated in note 22 to the financial statements, report, we have determined that there are no other key the Company has granted gold mortgaged loans audit matters to communicate in our report. amounting to Rs. 324,163,395 as at 31st March 2018. However, the Company has not performed any Other information independent valuation of the pawned articles to Management is responsible for the other information. The ascertain the value of the said articles. Therefore, other information comprises the information included we are unable to determine the condition of the in the Annual report but does not include the financial gold stock and the adequacy of the impairment statements and our auditor’s report thereon. The Annual provided in respect of the said mortgaged loans. report is expected to be made available to us after the date 7. The Company has not recognized deferred taxation of this auditor’s report. in the financial statements. Further, the company Our opinion on the financial statements does not cover has not provided the deferred tax impact on the the other information and we will not express any form Revaluation of Property, Plant and Equipment and of assurance conclusion thereon. In connection with the fair value of Investment properties in respect of our audit of the financial statements, our responsibility prior periods. We are unable to quantify the impact is to read the other information identified above when on the non-recognition of the deferred tax liability it becomes available and, in doing so, consider whether due to the unavailability of sufficient information. the other information is materially inconsistent with the 8. As stated in note 22 to the financial statements financial statements or our knowledge obtained in the the company has recognized allowances for audit, or otherwise appears to be materially misstated. impairment, according to the Central Bank of Sri When we read the annual report, if we conclude that there Lanka guidelines (CBSL) which is not in line with the is a material misstatement therein, we are required to requirements of LKAS 39- ‘Financial Instruments: communicate the matter to those charged with governance Recognition and Measurement’. We cannot and request them to take necessary connective action. ascertain the impairment allowance required due to the insufficient information. Further, no impairment allowances have been made on mortgaged land Responsibilities of management and those charged with governance for the financial statements and buildings related to non-performing loans. The latest valuation reports have not been obtained to Management is responsible for the preparation of financial assess the required impairment allowance and we statements that give a true and fair view in accordance with are unable to quantify the misstatement due to Sri Lanka Accounting Standards, and for such an internal unavailability of the latest valuation reports. control, as management determines is necessary to enable the preparation of financial statements that are free from We conducted our audit in accordance with Sri Lanka material misstatement, whether due to fraud or error. Auditing Standards (SLAuSs). Our responsibilities under those standards are further described in the Auditor’s In preparing the financial statements, management is Responsibilities for the Audit of the Financial Statements responsible for assessing the Company’s ability to continue section of our report. We are independent of the Company as a going concern, disclosing, as applicable, matters in accordance with the Code of Ethics issued by CA Sri related to going concern and using the going concern Lanka (Code of Ethics), and we have fulfilled our other basis of accounting unless the management either intends ethical responsibilities in accordance with the Code to liquidate the Company or to cease operations, or has no of Ethics. We believe that the audit evidence we have realistic alternative but to do so. obtained is sufficient and appropriate to provide a basis for Those charged with governance are responsible for our opinion. overseeing the Company’s financial reporting process.

Key audit matters Auditor’s responsibilities for the audit of the financial Key audit matters are those matters that, in our professional statements judgment, were of most significance in our audit of the Our objectives are to obtain reasonable assurance about financial statements. Key audit matters are selected from whether the financial statements as a whole are free from the matters communicated with those charged with material misstatement, whether due to fraud or error, governance, but are not intended to represent all matters and to issue an auditor’s report that includes our opinion. that were discussed with them. In addition to the matter Reasonable assurance is a high level of assurance, but is described in the Basis for Qualified Opinion section of our not a guarantee that an audit conducted in accordance

56 The Finance Company PLC Annual Report 2017 | 2018

Independent Auditor’s Report

with SLAuSs will always detect a material misstatement We communicate with those charged with governance when it exists. Misstatements can arise from fraud or regarding, among other matters, the planned scope and error and are considered material if, individually or in the timing of the audit and significant audit findings, including aggregate, they could reasonably be expected to influence any significant deficiencies in internal control that we the economic decisions of users taken on the basis of these identify during our audit. financial statements. We also provide those charged with governance As part of an audit in accordance with SLAuSs, we exercise with a statement that we have complied with ethical professional judgement and maintain professional requirements in accordance with the Code of Ethics OVERVIEW skepticism throughout the audit. We also: regarding independence, and to communicate with them all relationships and other matters that may reasonably ™™ Identify and assess the risks of material be thought to bear on our independence, and where misstatement of the financial statements, whether applicable, related safeguards. due to fraud or error, design and perform audit procedures responsive to those risks, and obtain From the matters communicated with those charged with audit evidence that is sufficient and appropriate governance, we determine those matters that were of most to provide a basis for our opinion. The risk of not significance in the audit of the financial statements of the detecting a material misstatement resulting current period and are therefore the key audit matters. We from fraud that is higher than for one resulting describe these matters in our auditor’s report unless law from error, as fraud may involve collusion, forgery, or regulation precludes public disclosure about the matter intentional omissions, misrepresentations, or the or when, in extremely rare circumstances, we determine override of internal control. that a matter should not be communicated in our report because the adverse consequences of doing so would ™™ Obtain an understanding of internal control relevant ANALYSIS reasonably be expected to outweigh the public interest to the audit in order to design audit procedures benefits of such communication. that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the Report on Other Legal and Regulatory Requirements effectiveness of the Company’s internal control. AND DISCUSSION MANAGEMENT As required by Section 163 (2) of the Companies Act No. ™™ Evaluate the appropriateness of accounting 07 of 2007, we have obtained all the information and policies used and the reasonableness of accounting explanations that were required for the audit and, so far estimates and related disclosures made by as appears from our examination, except for the matters management. (1) to (8) referred in basis for qualified audit opinion ™™ Conclude on the appropriateness of the paragraph, proper accounting records have been kept by management’s use of the going concern basis the Company. of accounting and, based on the audit evidence CA Sri Lanka membership number of the engagement obtained, whether a material uncertainty exists partner responsible for signing this independent auditor’s related to events or conditions that may cast report is 1828. significant doubt on the Company’s ability to FINANCIAL REPORTS continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence SJMS ASSOCIATES obtained up to the date of our auditor’s report. Chartered Accountants However, future events or conditions may cause the Company to cease to continue as a going concern. 30th July 2018

™™ Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements ANNEXURES represent the underlying transactions and events in a manner that achieves fair presentation.

57 The Finance Company PLC Annual Report 2017 | 2018

Statement of Comprehensive Income

2018 2017 As at 31st March Notes Rs. Rs.

Gross Income 6 3,563,873,594 3,925,140,201

Interest Income 7 3,347,426,956 3,376,795,387 Interest Expenses 8 (4,308,081,039) (3,766,336,444) Net Interest Expenses (960,654,083) (389,541,058)

Fee and Commission Income 9 80,781,507 87,674,557 Fee and Commission Expenses 10 (9,620,236) (13,395,314) Net Fee and Commission Income 71,161,272 74,279,243

Net Trading Income 11 22,969,861 2,935,390 Other Operating Income 12 112,695,270 457,734,867 Total Operating Income/ (Loss) (753,827,681) 145,408,443

Impairment (Charge)/ Reversal for Loans and Other Assets 13 16,746,138 (228,862,094) Net Operating Loss (737,081,543) (83,453,651)

Personnel Expenses 14 (613,167,251) (706,040,129) Other Operating Expenses 15 (443,706,931) (503,988,964) Total Operating Expenses (1,056,874,181) (1,210,029,093)

Operating Loss before Value Added Tax on Financial Services (1,793,955,724) (1,293,482,743) Value Added Tax on Financial Services - - Loss before Income Tax (1,793,955,724) (1,293,482,743)

Income Taxation 16 - - Loss for the Year (1,793,955,724) (1,293,482,743)

Other Comprehensive Income Revaluation on Land and Buildings 1,716,216,928 - Actuarial Gain on Defined Benefit Plans 10,061,239 4,286,334 Net Gain/ (Loss) on Re-measuring Available-for-Sale Financial Assets (3,805,960) 3,583,682 Other Comprehensive Income for the Year, Net of Taxes 1,722,472,207 7,870,016 Total Comprehensive Loss for the Year (71,483,517) (1,285,612,727)

Basic Loss per Share 17.1 (11) (8) Dividend per Share 17.2 - -

The Accounting Policies and Notes from Pages 62 to 112 form an integral part of these Financial Statements.

58 The Finance Company PLC Annual Report 2017 | 2018

Statement of Financial Position

2018 2017 As at 31st March Note Rs. Rs.

ASSETS Cash and Cash Equivalents 18 480,200,644 354,211,496 Financial Investment - Held for Trading 19 72,861,416 85,778,913 Loans and Receivables - Hire Purchases 20 4,377,538,417 5,113,988,913 Loans and Receivables - Leases 21 634,954,850 982,294,286

Loans and Receivables - Others 22 4,136,745,099 3,810,245,139 OVERVIEW Financial Investment - Loans and Receivables 23 226,694,903 10,758,512 Financial Investment - Held to Maturity 24 4,838,223,624 4,863,471,236 Financial Investment - Available-for-Sale 25 1,391,269,342 1,201,483,132 Investments in Real Estate 26 1,299,653,826 986,525,296 Other Assets 27 254,647,934 167,420,540 Investment Properties 28 1,861,369,585 1,941,369,585 Property, Plant and Equipment 29 3,988,242,921 2,308,909,759 Total Assets 23,562,402,560 21,826,456,809 LIABILITIES Financial Liabilities due to Customers 30 30,408,151,870 28,563,191,405 Interest bearing Borrowings 31 5,124,570,818 4,844,600,871

Deferred Revenue 32 1,544,493,370 1,799,912,587 ANALYSIS Other Payables 33 961,690,180 1,023,772,107 Current Tax Liabilities 34 - - Total Liabilities 38,038,906,238 36,231,476,969

SHARE HOLDERS’ FUNDS AND DISCUSSION MANAGEMENT Stated Capital 35 4,010,180,756 4,010,180,756 Statutory Reserve Fund 36 659,910,000 659,910,000 Other Reserves 37 3,149,186,682 1,436,775,714 Accumulated Loss 38 (22,295,781,116) (20,511,886,630) Total Shareholders' funds (14,476,503,678) (14,405,020,160) Total Liabilities and Shareholders' funds 23,562,402,560 21,826,456,809 Net Asset Value per Share (90.24) (89.80) Commitments and Contingencies 31,500,000 42,650,000

I certify that the Financial Statements have been prepared in compliance with the requirements of the Companies Act No. 07 of 2007. FINANCIAL REPORTS

Kokila Perera Chief Financial Officer

The Board of Directors is responsible for the preparation and presentation of these Financial Statements. Approved and Signed for and on behalf of the Board, on 30th July 2018. ANNEXURES

B.A.W. Kumarasiri Nimal J.B.Mamaduwa Chairman Executive Director/CEO

The Accounting Policies and Notes from Pages 62 to 112 form an integral part of these Financial Statements.

59 The Finance Company PLC Annual Report 2017 | 2018

Statement of Changes in Equity - Rs. 7,870,016 Total Equity 1,722,472,207 (1,793,955,724) (1,293,482,743) (13,119,407,433) (14,405,020,160) (14,405,020,160) (14,476,503,677) Rs. 4,286,334 10,061,239 29,134,987 Earnings Retained (1,793,955,724) (1,293,482,743) (22,295,781,115) (19,251,825,208) (20,511,886,630) (20,511,886,630) - - - - - Rs. 4,812,195 4,812,195 4,812,195 4,812,195 General General Reserve - - - Rs. 113,776,903 (3,805,960) 113,554,626 117,360,586 117,360,586 3,583,682.40 Available for Sale Reserve for Other Reserves - - - - Rs. Fund 1,716,216,928 1,343,737,920 1,314,602,933 1,314,602,933 3,030,819,861 tion Reserve tion Reserve (29,134,987.34) Loan Redemp Loan ------Rs. Fund serve 659,910,000 659,910,000 659,910,000 659,910,000 Statutory Re Statutory - - - - - Rs. Stated Capital 4,010,180,756 4,010,180,756 4,010,180,756 4,010,180,756 Balance as at 01st April 2016 April as at 01st Balance Total Comprehensive Loss for the Year for Loss Comprehensive Total Transfer of Realized Reserves of Realized Transfer Other Comprehensive Income for the for Income Other Comprehensive Period Balance as at 31st March 2017 Balance as at 01st April 2017 Total Comprehensive Loss for the Year for Loss Comprehensive Total Other Comprehensive Income for the for Income Other Comprehensive Period Balance as at 31st March 2018 part Statements. of these from Financial an integral and Notes Policies 112 form 62 to The Accounting Pages

60 The Finance Company PLC Annual Report 2017 | 2018

Statement of Cash Flow

2018 2017 Year ended 31st March Note Rs. Rs.

Cash Flows from/ (used in) Operating Activities Loss for the Year (1,793,955,725) (1,293,482,743)

Adjustments for: Non Cash Items included in Loss Before Tax 39.1 (64,463,241) (121,571,620) OVERVIEW Changes in Operating Assets 39.2 477,308,163 2,285,307,349 Changes in Operating Liabilities 39.3 1,792,334,934 (808,916,116) Dividends Received (25,648,255) (15,952,794) Net Cash Flows from/(used in) Operating Activities 385,575,875 45,384,077

Cash Flows from/ (used in) Investing Activities Acquisition of Property, Plant and Equipment (10,400,618) (3,272,483) Proceeds from Sale of Property, Plant and Equipment 7,795,957 121,461,224 Proceeds from / (Invested in) Financial Investments - Loans & Receivable (215,936,391) 200,145,078 Interest Received from Financial Investment - Held to Maturity 398,506,688 398,506,689 Proceeds from / (Investment in) Financial Investment - Available-for-Sale (193,592,169) (514,913,552) Proceeds from / (Investment in ) Investment Properties - (796,937)

Dividends Received 25,648,255 15,952,794 ANALYSIS Net Cash Flows from Investing Activities 12,021,723 217,082,812

Cash Flows from/ (used in) Financing Activities Settlement of Long Term Borrowings (261,175,259) (280,795,448) MANAGEMENT DISCUSSION AND DISCUSSION MANAGEMENT Settlement of Short Term Borrowings 5,891,409 (7,803,716) Net Cash Flows (used in)/ from Financing Activities (255,283,850) (288,599,164) Net (Decrease)/ Increase in Cash and Cash Equivalents 142,313,749 (26,132,275)

Cash and Cash Equivalents and Bank Overdrafts at the Beginning of the Year 18.3 83,324,931 109,457,206 Cash and Cash Equivalents and Bank Overdrafts at the End of the Year 18.3 225,638,679 83,324,931

The Accounting Policies and Notes from Pages 62 to 112 form an integral part of these Financial Statements. FINANCIAL REPORTS ANNEXURES

61 The Finance Company PLC Annual Report 2017 | 2018

Notes to the Financial Statements

1. CORPORATE INFORMATION Act No. 42 of 2011 and amendments thereto. These Financial Statements also provide appropriate 1.1 General disclosures as required by the Listing Rules of the Colombo Stock Exchange. The Finance Company PLC (“the Company”) is a public quoted company incorporated on 30 2.2 Basis of Measurement May 1940 with limited liability and domiciled in Sri Lanka. The Company is registered under “The Financial Statements of the Company have the Finance Business Act No 42 of 2011 and re- been prepared on the historical cost basis, except registered under the Companies Act No 07 of for the following material items in the Statement 2007. The Company is registered as a Non Banking of Financial Position.“ Financial Institution under the Central Bank of Sri ™™ Held-for-Trading Investments are measured Lanka. The Company’s registered corporate office at Fair Value. and principal place of business is located at 97, Hyde Park Corner, Colombo 02. ™™ Available-for-Sale Investments are measured at Fair Value. The Company does not have an identifiable parent of its own. ™™ Freehold Land and Buildings and Investment Properties are measured at cost The staff strength as at 31st March 2018 was 662 ( at the time of acquisition and subsequently 741 as at 31st March 2017). at revalued amounts.

1.2 Principal Activities and Nature of Operations ™™ Liability of Defined Benefit Obligation is recognised as the present value of the The principal activities of the Company continued Defined Benefit Obligation. to be accepting deposits, finance leasing and hire purchase financing, granting personal loans, pawning and real estate development and sale on 2.3 Functional and Presentation Currency outright and easy payment schemes. The Financial Statements are presented in Sri Lankan Rupees, which is the Company’s 1.3 Approval of Financial Statements by the functional and presentation currency. All financial Board of Directors information presented in Sri Lanka Rupees is The Financial Statements of the Company for the rounded to the nearest Rupee unless otherwise year ended 31st March 2018 were authorized for stated. issue by the Board of Directors on 30th July 2018. 2.4 Materiality and Aggregation

2. BASIS OF PREPARATION In compliance with Sri Lanka Accounting Standard 2.1 Statement of Compliance - LKAS 01, (Presentation of Financial Statements),

The financial statements of the Company, each material class of similar items is presented which comprise the Statement of Financial separately in the Financial Statements. Items of Position, Statement of Profit or Loss and Other dissimilar nature or functions too are presented Comprehensive Income, Statement of Changes separately unless they are immaterial. in Equity, Statement of Cash Flows, Notes to the Financial Statements have been prepared and 2.5 Comparative Information presented in accordance with Sri Lanka Accounting The Comparative Information is re-classified Standards (SLFRSs and LKASs) laid down by the wherever necessary to conform to the current Institute of Chartered Accountants of Sri Lanka year’s presentation in order to provide a better and in compliance with the requirements of the presentation. Companies Act No 7 of 2007. The presentation of the Financial Statements is also in compliance with the requirements of the Finance Business

62 The Finance Company PLC Annual Report 2017 | 2018

Notes to the Financial Statements

2.6 Significant Accounting Judgments, Estimates 2.6.2.1 Impairment Losses of Loans and Receivables and Assumptions The Company reviews its individually significant In the application of the Company’s Accounting loans and advances at each Statement of Financial Policies, which are described in Note 3, the Position date to assess whether an impairment Directors are required to make judgements, loss should be provided for in the Statement estimates and assumptions about the carrying of Profit or Loss and Comprehensive Income. amounts of assets and liabilities that are not readily In particular, the Management’s judgement is apparent from other sources. The estimates and required in the estimation of the amount and OVERVIEW associated assumptions are based on historical timing of future cash flows when determining the experience and other factors that are considered impairment loss. These estimates are based on to be relevant. Actual results may differ from these assumptions of the number of factors and actual estimates. results that may differ, resulting in future changes The estimates and underlying assumptions to the impairment loss recognised. are reviewed on an ongoing basis. Revisions Loans and receivables that have been assessed to accounting estimates are recognized in the individually and found not to be impaired and all period in which the estimate is revised if the individually insignificant loans and receivables revision affects only that period or in the period are assessed collectively, by categorizing them of the revision and future periods if the revision into group of assets with similar characteristics, to affects both current and future periods. determine whether an impairment loss should be made due to incurred loss events for which there ANALYSIS 2.6.1 Going Concern is objective evidence, but the effects of which are not yet evident. The collective assessment The Directors have made an assessment of the takes into account data from loan portfolio and Company’s ability to continue as a going concern judgements in effect of concentrations of risks

and are satisfied that it has the resources to AND DISCUSSION MANAGEMENT and economic data. continue in business for the foreseeable future based on the extended financial support of Sri Lanka Depositors Insurance Fund of Central Bank 2.6.2.2 Impairment of Financial Instruments - Available of Sri Lanka through a loan of Rs. 6 billion at a lower for Sale interest and past experience of the Board. Also, the The Company also provides an impairment loss Directors of the Company are negotiating with on the Available for Sale Equity Investments prospective investors to introduce a fresh capital when there has been a significant or prolonged infusion to the Company where the decisions decline in the fair value below their cost. In making are held with the prospective investors (with the a judgement on “significant” or “prolonged”, concurrence of CBSL). Therefore, the Management the Company evaluates among other factors, is not aware of any material uncertainties that FINANCIAL REPORTS historical share price movements and duration may cast significant doubt upon the Company’s and extent to which the fair value of an investment ability to continue as a going concern. As a result, is below its cost. the Financial Statements continue to be prepared on a going concern basis. We draw your attention to the note 44 in the Financial Statements 2.6.2.3 Defined Benefit Obligation regarding the Going Concern. The cost of the defined benefit plans are determined using an actuarial valuation using 2.6.2 Key Sources of Estimation Uncertainty assumptions about discount rates, future salary increases and mortality rates. Due to the long The following are the key assumptions concerning term nature of these plans, such estimates are the future, and other key sources of estimation subject to significant uncertainty. ANNEXURES uncertainty at the date of Financial Position, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year.

63 The Finance Company PLC Annual Report 2017 | 2018

Notes to the Financial Statements

2.6.2.4 Useful lives of Property, Plant and Equipment 3. SIGNIFICANT ACCOUNTING POLICIES - STATEMENT OF FINANCIAL POSITION “The Company reviews the residual values, useful lives and depreciation method at each 3.1 Financial Instruments - Initial Recognition, reporting date. Judgement by the management Classification and Subsequent Measurement is required in the estimation of these values, rates and methods and hence these are subject to uncertainty.“ 3.1.1 Date of Recognition All Financial Assets and Liabilities except “Regular way trades” are initially recognised on the trade 2.6.2.5 Real Estate Stocks date i.e. the date that the Company becomes The Directors have estimated the recoverability a party to the contractual provisions of the of these assets based on the prevailing market judgement. Regular way trades means purchases prices and other operating circumstances based or sale of financial assets that require delivery of on their judgement. assets within the time frame generally established by regulation or convention in the market place. 2.7 Changes in Accounting Policies

In accordance with LKAS 8 Accounting Policies, 3.1.2 Initial Measurement of Financial Instruments Changes in Accounting Estimates and Errors, The classification of Financial Instruments at adjustment if any, recognized in the Statement of initial recognition depends on their purpose and Profit or Loss and Comprehensive Income for the characteristics and the management’s intention current period and the periods prior are restated in acquiring them. All Financial Instruments are accordingly. measured initially at fair value plus transaction costs, except in the case of Financial Assets and 2.8 Segment Reporting Financial Liabilities recorded at fair value through The Company’s segmental reporting is based on, Profit or Loss. Financial Segment, Real Estate Segment, Treasury Segment, Investments in Shares Segment 3.1.3 “Day 1” Profit or Loss and Investment Properties Segment. Financial Segment includes loans and other services When the transaction price differs from the offered to customers. Real Estate Segment fair value of other observable current market includes the sale of lands and houses. Treasury transactions in the same instrument, or based Segment includes investments of surplus funds in on a valuation technique whose variables debt securities, financing, services to institutional include only data from observable markets, the lenders. Investments in Shares Segment includes Company recognises the difference between the investments in shares, units and mutual funds. transaction price and fair value (a Day 1 Profit or Loss) over the tenor of the financial instrument Management monitors the operating results of using the Effective Interest Rate (EIR) method. its business segments separately for the purpose In cases where fair value is determined using of making decisions about allocating resources data which is not observable, the difference and performance evaluation. Income Taxes and between the transaction price and model value overhead expenses are managed on an entity is only recognised in the income statement when basis and are not allocated to operating segments. the inputs become observable, or when the instrument is derecognised.

64 The Finance Company PLC Annual Report 2017 | 2018

Notes to the Financial Statements

3.1.4 Classification and Subsequent Measurement of d. Available for Sale Financial Assets

Financial Assets Available for sale Financial Assets are non derivative After initial recognition, a Financial Asset is financial assets that were designated as Available- classified into one of the following four categories. for-Sale or not classified in any of the previous categories. The Company’s unquoted/quoted a. At fair value through profit or loss: equity investments in this category are intended i. Held for Trading; or to be held for an indefinite period of time and may be sold in response to needs for liquidity or

ii. Designated at fair value through Profit or Loss. OVERVIEW in response to changes in the market conditions. b. Held to Maturity Initially Available-for-Sale financial assets are c. Loans and Receivables; recognised at cost plus any directly attributable

d. Available-For-Sale. transaction costs. Subsequently such investments are valued at fair value less any impairment. Any a. Financial Assets at Fair Value through Profit unrealised gains or losses are recognised directly or Loss in equity through Other Comprehensive Income in the “Available-for-Sale Reserve”. On disposal, A Financial Asset is classified at fair value through any cumulative gain or loss already recognised Profit or Loss if it is classified as held for trading in equity will be transferred to the Statement or upon initial recognition as designated by the of Comprehensive Income. The losses arising Company at fair value through Profit or Loss. from the impairment of such investments are A Financial Asset is classified in this category if

recognised in “Impairment for Loans and Others” ANALYSIS acquired principally for the purpose of selling in the Statement of Comprehensive Income. in the short term. The Company manages such investments and makes purchases and sale decisions based on their fair value in 3.1. 5 Impairment of Financial Assets carried at MANAGEMENT DISCUSSION AND DISCUSSION MANAGEMENT accordance with the Company’s documented Amortised Cost risk management or investment strategy. At the end of each reporting period the company Any changes in fair value is recognised in the assesses whether there is objective evidence that Statement of Comprehensive Income. a financial asset or group of financial assets is impaired. If there is an objective evidence that an b. Held to Maturity Financial Assets impairment loss has been incurred, the amount Held to Maturity financial assets are non derivative of impairment is measured as the difference financial assets with fixed or determinable between the financial asset’s carrying amount payments and fixed maturity and the Company and its present value of estimated cash flows has the positive intent and ability to hold to (excluding future credit losses that have not

maturity. Initially Held to Maturity financial assets been incurred) discounted at the financial asset’s FINANCIAL REPORTS are recognised at fair value plus any directly original effective interest rate. If no objective attributable transaction costs. Subsequently evidence of impairment exists for an individually Held to Maturity financial assets are measured assessed financial asset, whether significant or not, at the amortised cost using the effective interest it will be included in a group of assets with similar method, less impairment losses. credit risk characteristics and collectively assessed for any impairment. The carrying amount of the c. Loans and Receivables asset is reduced through the use of an allowance account. The amount of loss is recognised in Loans and Receivables are non-derivative financial the Statement of Comprehensive Income. Any assets with fixed or determinable payments that reduction in previously recognised impairment are not quoted in an active market. Such assets are losses are reversed through the allowance account recognised initially at fair value plus any directly ANNEXURES to the Statement of Comprehensive Income. attributable transaction costs. Subsequently Loans and Receivables are measured at the amortised cost using the effective interest method, less any impairment losses.

65 The Finance Company PLC Annual Report 2017 | 2018

Notes to the Financial Statements

3.1.6 Impairment of Financial Assets carried at Cost Financial assets are transferred out of the

Unquoted equity financial instruments are carried Available-for Sale category to the Loan and at cost because its fair value cannot be reliably Receivables category where they would have met measured, the amount of impairment loss is the definition of a Loan and Receivable at the date measured as the difference between the carrying of reclassification and the Company has the intent amount of financial asset and the present value and ability to hold the assets for the foreseeable of estimated future cash flows discounted at the future or until maturity. current market rate of return for a similar financial Held-to-Maturity assets are reclassified to asset. Such impairment losses are not reversed as the Available-for Sale category if the portfolio per LKAS 39 - “Financial Instruments : Recognition becomes tainted following the sale of other than and Measurement”. an insignificant amount of Held-to Maturity assets prior to their maturity. 3.1.7 Impairment of Available-for-Sale Financial Financial assets are reclassified at their fair value Instruments on the date of reclassification. For financial assets When there is an objective evidence that an reclassified out of the Available-for-Sale category Available-for-Sale Financial Asset is impaired, any into Loans and Receivables, any gain or loss on cumulative losses that had been recognised in those assets recognised in Shareholders’ Equity other Comprehensive Income will be reclassified prior to the date of reclassification is amortised to from Equity to the Statement of Comprehensive profit or loss over the remaining life of the financial Income. asset, using the effective interest method.

3.1.8 Classification and Subsequent Measurement of 3.1.10 Derecognition of Financial Assets and Financial Financial Liabilities at amortised cost Liabilities Financial Instruments issued by the Company

that are not designated at fair value through 3.1.10.1 Financial Assets profit or loss, are classified as Financial Liabilities A Financial Asset is derecognised when the at amortised cost. After initial recognition, such contractual right to receive cash flows from the financial liabilities are subsequently measured asset expire, or transfers the rights to receive the at amortised cost using the Effective Interest contractual cash flows of the financial asset which Method (EIR). The EIR amortisation is included means that all the substantial risks and rewards of in the Statement of Comprehensive Income as ownership of the financial asset are also transferred ‘Interest Expenses’. . If the Company retains the right to receive cash flows but assumes a contractual obligation to pay 3.1.9 Reclassification cash flows to one or more recipients a separate Reclassification of financial assets, other than as asset or liability is recognised. set out below, or of financial liabilities between

measurement categories are not permitted 3.1.10.2 Financial Liabilities following initial recognition. A Financial Liability is derecognised from the A non derivative financial asset Held for Trading Statement of Financial Position when and only that would have met the definition of Loans and when the obligation specified in the contract is Receivables (if the financial asset had not been discharged or cancelled or expires. required to be classified as held for trading at initial recognition) may be reclassified at Fair Value through the Profit or Loss category, if the entity has the intention and ability to hold the financial asset for the foreseeable future or until maturity.

66 The Finance Company PLC Annual Report 2017 | 2018

Notes to the Financial Statements

3.1.11 Determination of Fair Value as ‘Finance Leases’. Amounts receivable under finance leases are included under ‘Loans and Fair value is the amount at which an asset could Receivables - Leases’ in the Statement of Financial be exchanged or a liability settled between Position after deduction of initial rentals received, knowledgeable willing parties in an arm’s length unearned lease income and the accumulated transaction. When available the Company impairment losses. The present value of lease measures the fair value of an instrument using payments, discounted at the rate of interest active quoted prices available from the stock implicit in the lease, is recognised as a receivable. exchange, dealer, broker, industry group, pricing OVERVIEW The difference between the total receivable under services or regulatory agencies. If a market of a the finance lease and the present value of the total financial instrument is not active, the Company lease payments is recognised as unearned finance establishes fair value by using a valuation income, which is allocated to leased periods to technique. Valuation techniques include using reflect a constant periodic rate of return. recent arms length market transactions between knowledgeable willing parties if available, reference to the current fair value of another 3.2.2 Finance Leases - Company as a Lessee instrument that is substantially the same, Assets leased by the Company which substantially discounted cash flow analysis and option pricing transfers all the risks and rewards associated models. The selected valuation technique makes with ownership other than the legal title, are maximum use of market inputs and relies as little classified as ‘Finance Leases’. Amounts payable as possible on Company specific inputs. under finance leases are included under ‘Other ANALYSIS Borrowings’ in the Statement of Financial Position 3.1.12 Offsetting after deduction of initial rentals paid. The present Financial assets and liabilities are offset and value of lease payments discounted at the rate the net amount presented in the Statement of of interest implicit in the lease, is recognised AND DISCUSSION MANAGEMENT Financial Position when the Company has a legal as a payable. The difference between the total right to set off the recognised amounts and it instalments payable under the finance lease and intends either to settle on a net basis or to realise the present value of the total lease payments is the asset and settle the liability simultaneously. recognised as unpaid finance expense, which is allocated to leased periods to reflect a constant Income and expenses are presented on a net basis periodic interest cost. only when permitted under Sri Lanka Accounting Standards, or for gains and losses arising from a group of similar transactions such as in the 3.3 Investments in Real Estate company’s trading activity. Investments in real estate comprise investments in lands and housing projects that are held for FINANCIAL REPORTS 3.2 Leases sale in the ordinary course of the business. They are measured at the lower of cost or net realisable The determination of whether an arrangement value. The cost comprises all costs of purchase, is a lease, or it contains a lease, is based on the costs of conversion and the costs incurred in substance of other arrangements and requires bringing them to their present location and an assessment of whether the fulfilment of an condition. Net realisable value is the estimated arrangement is dependent on the use of a specific selling price in the ordinary course of the business asset or assets and the arrangement conveys a less the estimated costs of completion necessary right to use the asset. to make the sale.

3.2.1 Finance Leases - Company as a Lessor ANNEXURES

Assets leased to customers which substantially transfers all the risks and rewards associated with ownership other than legal title, are classified

67 The Finance Company PLC Annual Report 2017 | 2018

Notes to the Financial Statements

3.4 Investment Properties reliably. The carrying amount of the replaced part

Investment Properties are properties held either will be derecognised. to earn rental income or capital appreciation or The costs of day to day servicing of property, plant both but not for sale in the ordinary course of and equipment are recognised immediately in the business, used in the supply of services or for Profit or Loss. administration purposes.

Investment properties are initially recognised 3.5.1.1 Cost Model at cost and subsequently carried at fair value, determined annually when fair value differs The Company applies the Cost Model to all materially from its carrying value. Fair Value is Property, Plant & Equipment except for freehold determined by independent professional valuers or leasehold land and buildings and records at on the highest value and best use basis. Changes cost of purchase together with any incidental in fair values are recognised in profit or loss in the expenses thereon, less accumulated depreciation year which they arise. and any accumulated impairment losses. The cost of major renovations and improvements is capitalised and the carrying amounts at the 3.5.1.2 Revaluation Model replaced components are recognised in profit or loss. The cost of maintenance, repairs and minor The Company applies the Revaluation Model for improvements is recognised in profit or loss when the entire class of freehold or leasehold land and incurred. buildings for measurement after initial recognition On disposal of Investment Property, the difference at cost. Subsequently, such properties are carried between the disposal proceeds and the carrying at revalued amounts, being their fair value at amount is recognised in profit or loss. the date of revaluation, less any subsequent accumulated depreciation on buildings and 3.5 Property, Plant and Equipment any accumulated impairment losses charged

Property, Plant and Equipment are tangible items subsequent to the date of valuation. that are held by the Company for provision of Property, Plant and Equipment are revalued every services, for rentals to others or for administrative five years when the fair value of a revalued asset purposes and are expected to be used in more does not differ materially from its carrying amount. than one period. When the fair value of the revalued assets differs materially from its carrying amount, a further

3.5.1 Basis of Measurement revaluation is made even before five years.

Property, Plant and Equipment is initially On revaluation of assets, any increase in recognised at its cost. Cost includes expenditure the carrying amount is recognised in Other that is directly attributable to the acquisition Comprehensive Income and accumulated in or construction of the asset and costs incurred equity under the Property Revaluation Reserve or subsequently to add to, replace part of, or service used to reverse a previous revaluation decrease it. The cost of self constructed assets includes the to the same asset, which was charged to the cost of materials and direct labour, any other costs Statement of Comprehensive Income. Any directly attributable to bringing the assets to a decrease in the carrying amount is recognised as working condition for its intended use and the an expense in the Statement of Comprehensive costs of dismantling and removing the items and Income or debited in the Other Comprehensive restoring the site on which they are located. Income to the extent of any credit balance existing in the Property Revaluation Reserve to the same The cost of replacing a part of an item of property, asset. plant and equipment is recognised in the carrying amount when it is probable that the future On subsequent disposal or retirement of revalued economic benefits embodied within the part will property, plant and equipment, any balance flow to the Company and its cost can be measured remaining in the Property Revaluation Reserve is transferred directly to retained earnings.

68 The Finance Company PLC Annual Report 2017 | 2018

Notes to the Financial Statements

3.5.1.3 Reclassification to Investment Property 3.6 Cash and Cash Equivalents

When the use of property changes from owner- Cash and cash equivalents comprise of cash in occupied to investment property, the property hand, balances with banks, call deposits held in is remeasured at fair value and reclassified banks, other short term highly liquid investments as investment property. Any gain arising on with maturities of three months or less with an remeasurement is recognised in profit or loss to insignificant risk in change in value and bank the extent that it reverses a previous impairment overdrafts.

loss on the specific property, with any remaining OVERVIEW gain recognised in other comprehensive income 3.7 Impairment of non-financial assets and presented in Revaluation Reserve in equity. All Non-Financial Assets are reviewed at each Any loss is recognised immediately in profit or loss. reporting date to determine whether there is any indication of impairment. If any such indication 3.5.2 Capital Work in Progress exists, then the asset’s recoverable amount is estimated. An impairment loss is recognised if the These are expenses of a capital nature directly carrying amount of an asset exceeds its estimated incurred in the construction of buildings and recoverable amount. system development awaiting capitalization. These are stated in the Statement of Financial The recoverable amount of an asset is the greater Position at cost. of its value in use and its fair value less costs to sell. In assessing value in use, the estimated ANALYSIS future cash flows are discounted to their present 3.5.3 Depreciation value using a pre-tax discount rate that reflects Depreciation is calculated over the depreciable current market assessments of the time value of amount, which is the cost or valuation amount money and the risks specific to the asset. For the MANAGEMENT DISCUSSION AND DISCUSSION MANAGEMENT of the asset less its residual value. Depreciation purpose of impairment testing, assets that cannot is recognised in profit or loss on a diminishing be tested individually are grouped together into balance method over the estimated useful lives of the smallest group of assets that generates cash each Property, Plant and Equipment. inflows from continuing use that are largely Assets held under finance leases are depreciated independent of the cash inflows of other assets.

over the shorter of the lease term and their useful Impairment losses recognised in prior periods are lives on the same basis as owned assets. assessed at each reporting date for any indications No depreciation is charged on Lands. that the loss has decreased or no longer exists. An impairment loss is reversed if there has been The rates of depreciation for the current and a change in the estimates used to determine

comparative periods are as follows: FINANCIAL REPORTS the recoverable amount. An impairment loss Class of Asset Depreciation rate is reversed only to the extent that the asset’s carrying amount does not exceed the carrying Buildings 2.5% p.a. amount that would have been determined, net Furniture and Fittings 10% p.a. of depreciation or amortisation, if no impairment Office Equipments 10% p.a. loss had been recognised. Motor Vehicles 20% p.a.

Depreciation of an asset begins when it is available 3.8 Provisions for use and ceases at the earlier of the date that Provisions are recognised when the Company has the asset is classified as held for sale and the date a present obligation (Legal or Constructive) as a

that the asset is derecognised. result of a past event, it is probable that an outflow ANNEXURES

Depreciation methods, useful lives and residual of resources embodying economic benefits will values are reviewed at each financial year end be required to settle the obligation and a reliable and adjusted if appropriate. estimate can be made of the amount of the obligation.

69 The Finance Company PLC Annual Report 2017 | 2018

Notes to the Financial Statements

3.9 Financial Guarantees 3.11.2 Defined Benefit Plans

Financial Guarantees are contracts that require A Defined Benefit Plan is a post employment the Company to make specified payments to benefit plan other than a Defined Contribution reimburse the holder for a loss it incurs because Plan. The liability recognised in the Statement a specified debtor fails to make payment when of Financial Position is the present value of the due in accordance with the terms of a debt defined benefit obligation at the reporting date. instrument. Financial guarantee liabilities are recognised initially at their fair value, and the 3.11.2.1 Gratuity Fund initial fair value is amortised over the life of the financial guarantee. The financial guarantee The Company makes contributions to a privately liability is subsequently carried at the higher of managed Gratuity Fund for each employee based the amortised amount and the present value of on most recent actuarial valuation on gratuity any expected payment when a payment under liability. The obligation is calculated using the the guarantee has become probable. Financial “Projected Unit Credit Method”. Any Actuarial guarantees are included within other liabilities. Gains or Losses arising are recognized immediately in the Other Comprehensive Income. However Financial Guarantees and Commitments to according to the Gratuity Act No. 12 of 1983, the provide a loan at a below-market interest rate liability for payment to an employee arises only are subsequently measured at the higher of the after completion of five years continued service. amount determined in accordance with LKAS 37 - ‘Provisions, Contingent Liabilities and Contingent Assets’ and the amount initially recognised less, 3.11.3 Short-Term Employee Benefits when appropriate, cumulative amortisation Short-term employee benefit obligations are recognised in accordance with LKAS 18 - ‘Revenue’. measured on an undiscounted basis and are expensed as the related service is provided. A 3.10 Deferred Revenue liability is recognised for the amount expected

The benefit of a government loan at a below- to be paid under short-term cash bonus if the market rate of interest is treated as a government Company has a present legal or constructive grant, measured as the difference between obligation to pay this amount as a result of proceeds received and the fair value of the past service provided by the employee and the loan based on prevailing market interest rates. obligation can be estimated reliably. This benefit is recognised in profit or loss on a systematic basis over the period of the loan. 3.12 Equity Any transaction costs of an equity transaction 3.11 Employee Benefits are accounted as a deduction from equity (net of any related income tax benefit) to the extent they are incremental costs directly attributable to 3.11.1 Defined Contribution Plans the equity transaction. Changes in the fair value A Defined Contribution Plan is a post employment of an equity instrument are not recognised in the benefit plan under which the Company pays fixed Financial Statements. contributions into a separate entity and will have no legal or constructive obligation to pay further amounts. Contributions to a defined benefit plan are recognised as a “Personal Expenses” in the Statement of Comprehensive Income in the period during which services are rendered by employees. Accordingly the Company contributes 12%-15% and 3% of gross emoluments of employees to Employees’ Provident Fund and Employees’ Trust Fund respectively.

70 The Finance Company PLC Annual Report 2017 | 2018

Notes to the Financial Statements

4. SIGNIFICANT ACCOUNTING POLICIES 4.1.3.1 Profit on Lands Sold under Easy Payment Facility - RECOGNITION OF INCOME AND Profit on lands sold under the easy payment facility EXPENSES is recognized once the easy payment agreement is signed. In making their judgment, the Directors 4.1 Revenue Recognition considered the detailed criteria for the recognition Revenue is measured at the fair value of the of revenue from the sale of goods set out in LKAS 18 consideration received or receivable and ‘Revenue’ and, in particular, whether the Company represents the net of discounts, returns and value had transferred to the buyer the significant risks OVERVIEW added taxes. The Company recognises revenue and rewards of ownership of the lands sold under when the amount of revenue can be measured the easy payment facility. Following the detailed reliably, when it is probable that the future quantification of the Company’s loan losses in economic benefits will flow to the Company and respect of lands sold under easy payment, and when specific criteria has been met for each of the the agreed limitation on the customer’s ability Company’s activities as described below. to discontinue the loan facility, the Directors are satisfied that the significant risks and rewards 4.1.1 Interest Income and Interest Expenses have been transferred and that recognition of the profits on lands sold under the easy payment Interest income or expense is recognised facility in the current year is appropriate. using effective interest method for all financial instruments measured at amortised cost. Effective

interest rate is the rate that exactly discounts 4.1.4 Dividend Income ANALYSIS estimated future cash receipts or payments Dividend Income is recognised when the through the period of the financial instrument. shareholders right to receive payment is The carrying amount of the financial asset or established. MANAGEMENT DISCUSSION AND DISCUSSION MANAGEMENT financial liability is adjusted if the Company

revises its estimates of receipts or payments. The 4.2 Expenditure Recognition adjustment is recorded as ‘Interest Income’ for Expenses are recognised in the Statement of Profit financial assets and ‘Interest Expense’ for financial or Loss and Comprehensive Income on the basis of liabilities. a direct association between the cost incurred and the earning of income. All expenditure incurred in 4.1.2 Fees and Commission Income and Expenses the running of the business and in maintaining The Company earns fees and commission income the Property, Plant and Equipment in a state of from a diverse range of services it provides to efficiency has been charged to the Statement of its customers. Fees and Commission expense Profit or Loss and Comprehensive Income on the FINANCIAL REPORTS relate mainly for services the Company receives basis of ‘function of expenses’ method. on transactions. Such income or expense is

recognised as revenue or expense as the services 4.2.1 Taxation are provided or received. 4.2.1.1 Current Taxation

The provision for Income Tax is based on the 4.1.3 Real Estate Income elements of the income and expenses reported Real Estate Income represents the excess of sale in the Financial Statements and computed in value over the cost of the land or property sold. accordance with the provisions of the Inland Cost of the land or property includes the purchase Revenue Act No. 10 of 2006 and amendments cost, development expenses, selling expenses and made subsequently. Current income tax assets and liabilities for the current and prior years are ANNEXURES borrowing cost incurred up to the completion of recognised at the amount expected to be recovered development. from or paid to the taxation authorities. The tax rates used to compute the amount are enacted or substantively enacted by the reporting date.

71 The Finance Company PLC Annual Report 2017 | 2018

Notes to the Financial Statements

4.2.1.2 Deferred Taxation accounting depreciation and income tax, adjusted for the depreciation allowance computed on Deferred Tax is provided on temporary differences prescribed rates. between the tax bases of Assets and Liabilities and their carrying amounts for financial reporting 4.3 Borrowing Cost purposes at the reporting date. Deferred tax liabilities are recognised for all taxable temporary As per the LKAS 23 ‘Borrowing Costs’, the Company differences and deferred tax assets are recognised capitalizes borrowing costs that are directly for all deductible temporary differences, carry attributable to the acquisition, construction or forward of unused tax credits and unused tax production of a qualifying asset as part of the losses, to the extent that it is probable that taxable asset. A qualifying asset is an asset which takes profits will be available against which the deferred a substantial period of time to get ready for its tax asset can be utilised. The carrying amount of intended use or sale. Other borrowing costs are deferred tax assets is reviewed at each reporting recognised in the profit or loss in the period in date and reduced to the extent that it is no longer which they occur. probable that sufficient taxable profit will be available to allow all or part of the deferred tax 4.4 Events after the Reporting Period asset to be utilised. All material events after the reporting date have Deferred Tax Assets and Liabilities are measured been considered and where necessary adjustment at the tax rates that are expected to apply when made in the Financial Statements. the asset is realised or the liability is settled, based on the tax rates that have been enacted or 4.5 Earnings per Share (EPS) substantively enacted at the reporting date. Basic EPS is calculated by dividing the profit or Current Tax and Deferred Tax relating to items loss attributable to ordinary shareholders of the recognised directly in Equity are recognised in the Company by the weighted average number of Statement of Equity and not in the Statement of ordinary shares outstanding during the period. Comprehensive Income. Diluted EPS is calculated by adjusting the profit

Since the management is of the opinion that no or loss attributable to ordinary shareholders taxable profits will be available immediately to and the number of ordinary shares outstanding utilize the deductible temporary differences, a for the effects of all dilutive potential ordinary deferred tax asset has not been recognized. shares, which comprise share options granted to employees.

4.2.1.3 Economic Service Charge (ESC) 4.6 Cash Flow Statement ESC is payable on the liable turnover at specified The cash flow statement has been prepared by rates as per the provision of the Economic Service using ‘The Indirect Method’ in accordance with Charge Act No. 13 of 2006 and subsequent the LKAS 7 Statement of Cash Flows, whereby amendments thereto. ESC is deductible from the gross cash receipts and gross cash payments income tax liability. Any unclaimed ESC can be of operating activities, finance activities and carried forward and set off against the income tax investing activities have been recognised. Cash liability as per the provisions in the Act. and cash equivalents comprise short term, highly liquid investments that are readily convertible to 4.2.1.4 Value Added Tax on Financial Services known amounts of cash and are subject to an

Value Added Tax on Financial Services is calculated insignificant risk of changes in value. The cash and in accordance with the provisions of the Value cash equivalent include cash in hand, balances Added Tax Act. No 14 of 2002 and amendments with banks, placements with banks, money at call thereto. The base for the computation of Value and short notice. Added Tax on Financial Services is the accounting profit before emoluments paid to employees,

72 The Finance Company PLC Annual Report 2017 | 2018

Notes to the Financial Statements

5. ACCOUNTING STANDARDS Sri Lanka Accounting Standard 16 (SLFRS 16) - Leases

5.1 New Accounting Standards issued but not yet This standard sets outs the principles for the effective recognition, measurement, presentation and The Institute of Chartered Accountants of Sri Lanka disclosure of leases and provides a single lessee has issued the following new Accounting Standards accounting model requiring lessees to recognise that have an effective date in the future and have assets and liabilities for all leases other than short not yet been applied in preparing the financial term leases (lease term is 12 months or less) and OVERVIEW statements for the year ended 31st March 2018. leases for which the underlying asset has a low Pending a detailed review, the financial impact value although accounting for lessors remains is not reasonably estimated as at the date of substantially similar to the current practice. publication of these financial statements. This standard is effective for the annual periods beginning on or after 01st January 2019.

Sri Lanka Accounting Standard 9 (SLFRS 9)– Financial Instruments

This standard applies to classification and measurement of financial assets and liabilities. This standard was issued in 2012 and is effective for financial periods beginning on or after 01st January 2018. ANALYSIS

This standard impacts classification and measurement of financial assets and liabilities as well as impairment of financial assets. MANAGEMENT DISCUSSION AND DISCUSSION MANAGEMENT The company is in the process of assessing the impacts arising out of above standards. The company will adopt the above standards on the said effective dates.

Sri Lanka Accounting Standard 15 (SLFRS 15) – Revenue from Contracts with Customers

The objective of this Standard is to establish the principles that an entity shall apply to report useful information to users of Financial Statements about FINANCIAL REPORTS the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. SLFRS 15 Introduces a five-step approach for revenue recognition from contracts with customers and replaces all other currently applicable revenue Standards and related interpretations.

This standard is effective for the annual periods beginning on or after 01st January 2018. ANNEXURES

73 The Finance Company PLC Annual Report 2017 | 2018

Notes to the Financial Statements

For the year ended March 31

2018 2017 For the year ended 31st March Rs. Rs.

6. GROSS INCOME 3,563,873,594 3,925,140,201

Analysis of Gross Income Interest Income 7 3,347,426,956 3,376,795,387 Fees and Commission Income 9 80,781,507 87,674,557 Net Trading Income/ (Loss) 11 22,969,861 2,935,390 Other Operating Income 12 112,695,270 457,734,867 Total Gross Income 3,563,873,594 3,925,140,201

7. INTEREST INCOME Cash and Cash Equivalents 101,092 112,932 Loans and Receivables - Hire Purchases 963,691,623 1,141,204,078 Loans and Receivables - Leases 142,739,726 167,585,840 Loans and Receivables - Others 1,253,186,474 1,111,762,482 Financial Investments - Loans and Receivables 31,439,878 18,163,083 Financial Investments - Held to Maturity 398,506,689 398,506,689 Financial Investments - Available-for-Sale 113,513,081 79,497,330 Over Due Interest 188,829,176 235,601,360 Deferred Int. Income/CBSL Liquidity Loan 32 255,419,217 224,361,593 Total Interest Income 3,347,426,956 3,376,795,387

8. INTEREST EXPENSES Due to Customers 3,728,104,650 3,213,092,300 Due to Banks 19,196,362 23,397,432 Other Borrowings 604,844 2,531,313 CBSL Liquidity Support Loan 560,175,183 527,315,400 Total Interest Expenses 4,308,081,039 3,766,336,444

9. FEES AND COMMISSION INCOME Loans and Receivables - Customers 67,023,136 70,104,218 Insurance Commissions 13,758,372 17,570,338 Total Fee and Commission Income 80,781,507 87,674,557

10. FEES AND COMMISSION EXPENSES Loans and Receivables - Customers 9,620,236 13,309,534 Incentives - Deposits - 85,780 Total Fee & Commission Expenses 9,620,236 13,395,314

11. NET TRADING INCOME/ (LOSS) Net Mark to Market Gain/ (Loss) 19,035,479 (1,520,666) Dividend Income 4,292,255 5,352,794 Net Loss on Disposal (357,873) (896,737) Total Net Trading Income 22,969,861 2,935,390

74 The Finance Company PLC Annual Report 2017 | 2018

Notes to the Financial Statements

For the year ended March 31 2018 2017 For the year ended 31st March Rs. Rs.

12. OTHER OPERATING INCOME Real Estate Income 48,554,665 73,395,633 Recovery of Loans Written Off 4,062,633 12,624,915

Gain/ (Loss) on Disposal of Property, Plant and Equipment 6,529,361 24,129,565 OVERVIEW Rent Income 18,205,013 11,833,367 Other Income 13,987,598 12,409,389 Dividend Income from Available for Sale Financial Investments 21,356,000 10,600,000 Net Changes in Fair Value of Investment Properties - 312,741,998 112,695,270 457,734,867

13. IMPAIRMENT FOR LOANS AND OTHER ASSETS Impairment Charge/(Reversal) of Loans and Receivables - Hire Purchase 5,893,315 58,372,445 Impairment Charge/(Reversal) of Loans and Receivables - Lease 64,482,393 633,975 Impairment Charge/(Reversal) of Loans and Receivable - Others 408,963,285 255,022,733 Impairment Charge/(Reversal) of Other Receivables 12,524,411 - ANALYSIS Impairment Charge/(Reversal) of Real Estate (508,609,542) (77,022,172) Impairment Charge/(Reversal)of Property, Plant & Equipment - (8,144,887) (16,746,138) 228,862,094 MANAGEMENT DISCUSSION AND DISCUSSION MANAGEMENT 14. PERSONNEL EXPENSES Salaries and Wages 305,794,278 382,839,798 Defined Contribution Plan Expenses - Employees' Provident Fund 42,627,170 50,326,876 - Employees Trust Fund 9,238,069 10,920,274 Defined Benefit Plan Expenses - Gratuity Trust Fund 14.1 22,076,606 22,471,122 - Pension Fund 612,306 708,987 Amortisation of Prepaid Staff Expenses - 82,553

Staff Welfare 20,786,639 18,490,335 FINANCIAL REPORTS Travelling and Other Expenses 212,032,182 220,200,184 613,167,251 706,040,129

DEFINED BENEFIT PLAN EXPENSES - GRATUITY TRUST 14.1 FUND PROVISION CHARGE FOR THE YEAR Current Service Cost 16,598,011 19,496,972 Interest on Obligation 39,437,362 37,673,064 Expected Return on Plan Assets (33,958,767) (34,698,914) 22,076,606 22,471,122 ANNEXURES

75 The Finance Company PLC Annual Report 2017 | 2018

Notes to the Financial Statements

For the year ended March 31

2018 2017 For the year ended 31st March Rs. Rs.

15. OTHER OPERATING EXPENSES Directors' Fees and Travelling 4,345,000 7,145,511 Auditor's Remuneration 2,408,000 4,003,073 Professional and Legal Fees 15,355,069 16,335,305 Depreciation of Property, Plant and Equipment 46,017,788 52,490,680 Office Administration and Establishment expenses 335,576,817 382,162,539 Advertising and Promotional expenses 21,876,128 11,518,930 Selling and Other Expenses 18,128,128 30,332,926 443,706,931 503,988,964

16. INCOME TAX (EXPENSE)/ REVERSAL

16.1 The Company is not liable for Income Tax as per Inland Revenue Act No 10 of 2006 due to the taxable losses incurred during the Current Financial Year. (Refer Note 16.1.1 for the detailed reconciliation on income tax)

16.1.1 Reconciliation of the Accounting Profit to Income Tax Expense

A reconciliation between the Taxable Income and the Accounting Profit multiplied by income tax rate for the years ended 31st March 2018 and 2017 is given below:

2018 2017 As at 31st March Rs. Rs.

Accounting Loss Before Income Tax (1,793,955,724) (1,293,482,743)

Tax at the Applicable Rate of 28% (502,307,603) (362,175,168) Tax Effect on Disallowable Expenses 135,856,577 97,597,525 Tax Effect on Allowable Expenses (92,246,738) (89,646,729) Tax Effect on Exempted Income 3,815,608 (11,624,406) Income Tax for the Year - -

Statutory Tax Rate 28% 28% Effective Tax Rate 0% 0%

16.2 Deferred Tax Expense / (Income)

The Company has not recognized deferred tax as at 31st March 2018 since it is not expected that taxable profits will be available immediately to utilize such deductible temporary differences.

76 The Finance Company PLC Annual Report 2017 | 2018

Notes to the Financial Statements

For the year ended March 31

17. LOSS PER SHARE / DIVIDEND PER SHARE

17.1 Basic Loss per Share

Basic loss per Share has been calculated by dividing the loss for the year attributable to equity holders of the Company by the weighted average number of ordinary shares in issue during the year, as LKAS 33 - Earnings per

Share. OVERVIEW

2018 2017 As at 31st March Rs. Rs.

Amount used as the Numerator Loss Attributable to Ordinary Shareholders (Rs) (1,793,955,724) (1,293,482,743)

No. of Ordinary Shares used as the Denominator Weighted Average Number of Ordinary Shares in issue. 160,419,365 160,419,365

Basic Loss per Share (Rs) (11.18) (8.06) ANALYSIS Net Assets (14,476,503,678) (14,405,020,160)

Net Assets per Share (Rs.) (90.24) (89.80) MANAGEMENT DISCUSSION AND DISCUSSION MANAGEMENT

17.2 Dividend per Share

The Board of Directors has not recommended a dividend for the year ended 31st March 2018 due to losses brought forward from the previous year and the loss incurred during the year under review. FINANCIAL REPORTS ANNEXURES

77 The Finance Company PLC Annual Report 2017 | 2018

Notes to the Financial Statements

Rs. Rs. 72,861,416 Total Total 226,694,903 634,954,850 1,391,269,342 480,200,644 4,377,538,417 4,136,745,099 4,838,223,624 5,124,570,818 16,158,488,294 30,408,151,870 35,532,722,689 ------Rs. Rs. for Sale for Available 1,391,269,342 1,391,269,342 5,124,570,818 30,408,151,870 Amortised cost 35,532,722,689 ------Rs. Rs. Held to Maturity through Value Fair 4,838,223,624 4,838,223,624 profit or loss profit - - - Rs. Loans & Loans 226,694,903 634,954,850 4,377,538,417 4,136,745,099 ortised cost 9,375,933,269 Receivables/ am - Receivables/ ------Rs. 72,861,416 72,861,416 Trading Held for ------Rs. 480,200,644 480,200,644 Equivalents Cash & Cash Cash Financial Liabilities Customers Liabilities due to Financial Interest Bearing Loans and Borrowings Loans Bearing Interest Total Financial Liabilities March, 2018 st As at 31 Analysis of Financial Instruments by Measurement Basis Financial Inst ruments are measured on an ongoing basis either at fair value or amortised cost. The summary of Significant Accounting Policies describes how each category of financial instruments is measured and income expenses, including fair value gains losses, are recognized. The following table analyses the carrying amounts of financial instruments by category as defined in - LKAS 39 (Financial Instruments: Reco gnition & Measurement) u nder headings of the Statement Financial Position. Financial Assets Financial Equivalents & Cash Cash Trading - Held for Investment Financial Loans and Receivables - Hire Purchases - Hire and Receivables Loans Loans and Receivables - Leases - Leases and Receivables Loans Loans and Receivables - Others and Receivables Loans Financial Investment - Loans and Receivables - Loans Investment Financial Financial Investment - Held to Maturity - Held to Investment Financial Financial Investment - Available-for-Sale Investment Financial Total Financial Assets Financial Total For the year ended March 31 ended March the year For

78 The Finance Company PLC Annual Report 2017 | 2018

Notes to the Financial Statements Rs. Rs. Total Total 10,758,512 85,778,913 354,211,496 982,294,286 5,113,988,913 1,201,483,132 3,810,245,139 4,863,471,236 16,422,231,628 4,844,600,871 33,407,792,275 28,563,191,405 28,563,191,405 ------OVERVIEW Rs. Rs. for Sale for 1,201,483,132 Available 1,201,483,132 4,844,600,871 33,407,792,275 Amortised cost 28,563,191,405 ------Rs. Rs. Held to Maturity through Value Fair 4,863,471,236 4,863,471,236 profit or loss profit - - - Rs. 10,758,512 ANALYSIS Loans & Loans 982,294,286 5,113,988,913 3,810,245,139 ortised cost 9,917,286,850 Receivables/ am - Receivables/ ------MANAGEMENT DISCUSSION AND DISCUSSION MANAGEMENT Rs. 85,778,913 85,778,913 Trading Held for ------Rs. 354,211,496 354,211,496 Equivalents Cash & Cash Cash Total Financial Liabilities Interest Bearing Loans and Borrowings Loans Bearing Interest Financial Liabilities Customers Liabilities due to Financial FINANCIAL REPORTS March 2017 st ANNEXURES As at 31 Financial Investment - Held for Trading - Held for Investment Financial Loans and Receivables - Hire Purchases - Hire and Receivables Loans Financial Assets Financial Equivalents & Cash Cash Loans and Receivables - Leases - Leases and Receivables Loans Loans and Receivables - Others and Receivables Loans Financial Investment - Loans and Receivables - Loans Investment Financial Financial Investment - Held to Maturity - Held to Investment Financial Financial Investment - Available-for-Sale Investment Financial Total Financial Assets Financial Total For the year ended March 31 ended March the year For

79 The Finance Company PLC Annual Report 2017 | 2018

Notes to the Financial Statements

For the year ended March 31

2018 2017 For the year ended 31st March Rs. Rs.

18. CASH AND CASH EQUIVALENTS

18.1 Favourable Cash in Hand 15,165,437 15,053,118 Balances with Banks 463,535,207 337,658,378 Call Deposits 1,500,000 1,500,000 Total 480,200,644 354,211,496

Call Deposit of Rs. 1,500,000/- is under lien for Visa Debit Card Operation at Seylan Bank.

18.2 Unfavourable Bank Overdrafts 31 (254,561,965) (270,886,566) Total (254,561,965) (270,886,566)

18.3 Total Cash and Cash Equivalents for Cash Flow Statement 225,638,679 83,324,931

19. FINANCIAL INVESTMENTS - HELD FOR TRADING Equity Securities - Quoted 19.1 62,125,416 75,138,913 Mutual Funds 19.2 10,736,000 10,640,000 Total 72,861,416 85,778,913

80 The Finance Company PLC Annual Report 2017 | 2018

Notes to the Financial Statements 59 71,379 123,123 154,000 908,895 2,131,350 Value Value 2,705,577 1,895,400 1,895,400 15,842,120 2,856,000 13,710,770 18,144,225 Market Market 8,880,000 26,433,033 29,880,225 22,470,000 - - - - 90 39,437 753,911 231,005 2017 OVERVIEW Cost Cost 2,397,418 2,397,418 14,239,142 15,199,443 7,904,500 31,301,880 37,823,615 14,175,000 2,000,000 21,584,473 23,397,380 - - 45 117 410 16,616 10,000 56,249 24,300 350,000 204,000 1,651,900 1,420,900 3,298,950 1,200,000 No of Shares ------81,000 157,686 238,686 5,115,240 Value Value 2,815,200 21,144,320 Market Market 19,793,700 26,259,560 12,600,000 35,208,900 ------ANALYSIS 39,437 39,437 2018 Cost Cost 14,239,142 7,904,500 31,301,880 37,823,615 2,000,000 21,584,473 23,397,380 MANAGEMENT DISCUSSION AND DISCUSSION MANAGEMENT ------45 410 204,000 1,651,900 1,420,900 3,298,950 1,200,000 No of Shares FINANCIAL REPORTS ANNEXURES Seylan Bank PLC - Non voting Bank PLC Seylan PLC SMB Leasing Beverage, Food & Tobacco Sector Lanka of Sri Company Distilleries Pan Asia Banking Corporation PLC Corporation Banking Asia Pan Citizens Development Business Finance PLC-Non Voting PLC-Non Business Finance Development Citizens Equity Securities - Quoted Bank, Finance & Insurance Sector PLC NDB Insurance Aviva Ceylinco Insurance PLC Insurance Ceylinco PLC Business Finance Development Citizens Diversified Holdings Sector Holdings PLC Capital Lanka Free PLC & Company Peiris Richard Trading Sector PLC Lanka Motors United Land & Property Sector PLC Millennium Housing developers 19.3) (Note PLC Company Estate Housing & Real City PLC Developments Seylan Ceylinco FINANCIAL INVESTMENTS - HELD FOR TRADING (CONTD.) 19.1 19.

81 The Finance Company PLC Annual Report 2017 | 2018

Notes to the Financial Statements 13 233 5,340 5,340 4,400 244,183 154,200 154,200 684,413 243,950 680,000 Value Value 75,138,913 Market Market 85,778,913 10,640,000 10,640,000 - 36 309 18,450 18,450 336,132 335,823 154,200 154,200 346,873 346,909 2017 Cost Cost 3,200,000 3,200,000 87,578,047 90,778,047 15 50 44 300 4,100 2,000 51,400 No of Shares ------270 270 418,000 418,000 Value Value 62,125,416 72,861,416 Market Market 10,736,000 10,736,000 ------309 309 346,873 346,873 2018 Cost Cost 72,712,114 69,512,114 3,200,000 3,200,000 - - - - - 15 2,000 No of Shares Mutual Funds Fund and Income Growth Eagle Sub Total Total Central Industries PLC Industries Central Tangerine Beach Hotels PLC Hotels Beach Tangerine PLC Lanka Lubricants Chevron Plantation Sector Plantations PLC Udapussellawa Power & Energy Sector PLC Power Panasia Sub Total The Kingsbury PLC Manufacturing Sector - Non voting PLC Wide Blue Diamond World Equity Securities - Quoted (Contd…) Hotel & Travel Sector FINANCIAL INVESTMENTS - HELD FOR TRADING (CONTD…) The Company holds 24.66% of shares the City Housing & Real Estate Co PLC (CH RE) as at 31st March 2018. Though this constitutes more than 20% its on investments the to dispose had decided Company the of The Directors & RE. CH in the investment over influence no significant was there holding, share & Associates in Investment LKAS 28- as per Method on Equity accounted not and for Trading as Held treated is investment the said Therefore 4th May 2017. Joint Ventures. 19.2 19.1 19.3 19.

82 The Finance Company PLC Annual Report 2017 | 2018

Notes to the Financial Statements

For the year ended March 31

2018 2017 For the year ended 31st March Rs. Rs.

20. LOANS AND RECEIVABLES - HIRE PURCHASE Gross Loans and Receivable 5,934,997,492 6,660,297,333 Less : Allowance for Individual Impairment (1,043,951,841) (1,045,613,584) OVERVIEW Allowance for Collective Impairment (513,507,235) (500,694,835) Net Loans and Receivable 4,377,538,417 5,113,988,913

Hire Purchase Rentals Receivable within One Year from the 20.1 Reporting Date Rental Receivable 3,972,298,375 4,267,990,233 Unearned Interest Income (731,891,038) (766,989,843) Allowance for Impairment (850,346,074) (812,820,526) Net Receivable 2,390,061,263 2,688,179,864

Hire Purchase Rentals Receivable after One Year but before Five 20.2 Years from the Reporting Date Rental Receivable 3,383,245,230 3,821,795,288 ANALYSIS Unearned Interest Income (694,476,620) (671,068,852) Allowance for Impairment (705,585,315) (731,498,096) Net Receivable 1,983,183,295 2,419,228,341 MANAGEMENT DISCUSSION AND DISCUSSION MANAGEMENT 20.3 Hire Purchase Rentals Receivable after Five Years Rental Receivable 5,855,566 8,620,898 Unearned Interest Income (34,021) (50,391) Allowance for Impairment (1,527,687) (1,989,798) Net Receivable 4,293,858 6,580,708

21. LOANS AND RECEIVABLES - LEASES Leasing - Vehicles and Equipment 1,140,622,364 1,419,741,036 Leasing - Properties 28,588,168 31,745,844

Gross Loans and Receivable 1,169,210,532 1,451,486,880 FINANCIAL REPORTS Less : Allowance for Individual Impairment (341,149,961) (302,256,861) Allowance for Collective Impairment (193,105,722) (166,935,733) Net Loans and Receivable 634,954,850 982,294,286

Lease Rentals Receivable within 21.1 One Year from the Reporting Date Rental Receivable 877,499,239 909,393,818 Unearned Interest Income (82,307,224) (131,003,800) Allowance for Impairment (363,352,742) (251,614,284) Net Receivable 431,839,273 526,775,735 ANNEXURES

83 The Finance Company PLC Annual Report 2017 | 2018

Notes to the Financial Statements

2018 2017 For the year ended 31st March Rs. Rs.

Lease Rentals Receivable after One Year but before Five Years 21.2 from the Reporting Date

Rental Receivable 451,630,154 819,863,879 Unearned Interest Income (80,293,133) (151,348,365) Allowance for Impairment (169,677,665) (216,097,391) Net Receivable 201,659,355 452,418,123

Lease Rentals Receivable after Five Years 21.3 from the Reporting Date Rental Receivable 2,682,843 4,600,311 Unearned Interest Income (1,346) (18,964) Allowance for Impairment (1,225,275) (1,480,919) Net Receivable 1,456,221 3,100,429 634,954,850 982,294,286

22. LOANS AND RECEIVABLES - OTHERS Gross Loans and Receivable 22.1 9,314,428,968 8,601,298,989 Less : Allowance for Individual Impairment (4,228,555,847) (3,991,674,611) Allowance for Collective Impairment (949,128,022) (799,379,240) Net Loans and Receivable 4,136,745,099 3,810,245,139

22.1 Gross Loans and Receivables Personal Loans against Time Deposits 1,217,265,521 1,015,795,721 Personal Loans 2,237,378,554 1,916,653,668 Pawning 324,163,395 160,647,018 Housing Loans 326,080,753 391,551,230 Rakshana Warama Loans 36,377,708 42,077,384 Service Financing 88,659,028 95,920,171 Easy Payment Loans on Lands 244,002,523 365,185,709 Agreement to Sell 7,641,574 7,641,574 Education Loan 36,001,004 39,112,173 Land Finance 266,446,303 238,599,901 Agro Loans 68,279,477 75,100,384 Top Up Loans 104,017,860 66,815,603 Rataviru Loans 56,523,800 126,209,479 Term Loans - Ceylinco Group Companies 4,289,304,507 4,052,033,232 Sundry Loans 12,286,962 7,955,743 9,314,428,968 8,601,298,989

Other Loans and Receivable within One Year 22.2 from the Reporting Date Rental Receivable 9,069,120,262 8,303,427,499 Unearned Interest Income (315,389,189) (359,505,137) Allowance for Impairment (5,071,103,679) (4,674,608,397) Net Receivable 3,682,627,394 3,269,313,965

84 The Finance Company PLC Annual Report 2017 | 2018

Notes to the Financial Statements

For the year ended March 31

2018 2017 For the year ended 31st March Rs. Rs.

Other Loans and Receivable after One Year but before Five Years 22.3 from the Reporting Date Rental Receivable 688,881,336 796,593,479 Unearned Interest Income (152,913,749) (165,866,070) Allowance for Impairment (101,879,332) (111,724,902) OVERVIEW Net Receivable 434,088,255 519,002,508 Other Loans and Receivable after Five Years 22.4 from the Reporting Date Rental Receivable 24,878,102 26,849,089 Unearned Interest Income (147,794) (199,872) Allowance for Impairment (4,700,857) (4,720,551) Net Receivable 20,029,450 21,928,666 4,136,745,099 3,810,245,139 Movements in Provision for Impairment Movement in Provision for individually Significant Impairment Opening Balance 5,339,545,056 5,068,572,812 Additional Impairment - Prior Year Adjustment Charge / (Write Back) to the Income Statement 274,111,942 274,524,132 ANALYSIS Write Off during the Year - (3,774,333) Write Off during the Year - -

Other Movements 650 222,445 AND DISCUSSION MANAGEMENT Closing Balance 5,613,657,648 5,339,545,056

Movement in Provision for Collective Impairment Opening Balance 1,467,009,808 1,427,605,947 Charge / (Write Back) 188,731,170 39,403,862 Write Off during the Year - - Other Movements during the Year - - Closing Balance 1,655,740,979 1,467,009,808 23. FINANCIAL INVESTMENTS - LOANS AND RECEIVABLES

Time Deposits in Banks 226,694,903 10,758,512 FINANCIAL REPORTS Total 226,694,903 10,758,512 24 FINANCIAL INVESTMENTS - HELD TO MATURITY Government Securities - Treasury Bonds 4,838,223,624 4,863,471,236 4,838,223,624 4,863,471,236 The Treasury Bonds have been pledged against the Rs. 6Bn CBSL loan.

25 FINANCIAL INVESTMENTS - AVAILABLE FOR SALE Equity Securities - Unquoted 25.1 127,677,422 131,483,382 Government Securities 1,263,591,919 1,069,999,750

Total 1,391,269,342 1,201,483,132 ANNEXURES

Government Securities consist of Investment in Treasury Bills of Rs. 1,195,520,065 which is pledged against the CBSL 6Bn loan.

85 The Finance Company PLC Annual Report 2017 | 2018

Notes to the Financial Statements ------Value Value Market Market 109,677,419 168,887 750,000 750,000 500,000 500,000 Cost Cost 11,416,703 1,500,000 1,000,000 2,500,000 5,000,000 5,000,000 6,000,000 8,000,000 15,465,906 10,000,000 38,042,804 25,000,000 As at 31-03-2017 As - 75,000 75,000 50,000 50,000 182,000 150,000 100,000 250,000 600,000 800,000 1,475,871 1,000,000 1,000,000 1,000,000 2,500,000 8,000,000 No of Shares ------Value Value Market Market 105,764,146 168,887 750,000 750,000 500,000 500,000 Cost Cost 11,416,703 1,500,000 1,000,000 2,500,000 5,000,000 5,000,000 6,000,000 8,000,000 15,465,906 10,000,000 38,042,804 25,000,000 As at 31-03-2018 at 31-03-2018 As - 75,000 75,000 50,000 50,000 182,000 150,000 100,000 250,000 600,000 800,000 1,475,871 1,000,000 1,000,000 1,000,000 2,500,000 8,000,000 No of Shares Ceylinco CISCO Cash Management & Transit Company Ltd. Company Management & Transit Cash CISCO Ceylinco Ceylinco Cisco Ranaviru Services (Pvt) Ltd Ranaviru Cisco Ceylinco Ceylinco Coloured Stones (Pvt) Ltd Stones Coloured Ceylinco Property International Consolidated Ceylinco (Pvt.) Ltd. Development Equity Securities - Unquoted PLC Co. Finance Asian Asian Investment & Factoring (Pvt) Ltd (Non voting) (Non voting) (Pvt) Ltd & Factoring Investment Asian CEG Education Group Holdings (Pvt)Ltd. Group Education CEG Ltd Co. Communication - Global Ceycom (Pvt) Ltd. Co. Electronics Cey-Energy Pre.Shares (Pvt) Ltd. Co. Electronics Cey-Energy Ceyhomes Credit & Investment Ltd. & Investment Credit Ceyhomes Ceylinco Bio Tech Ltd Bio Tech Ceylinco Nations Building Society Ltd. (Units) Ltd. Nations Building Society Ltd Building Society Ceylinco Ltd. Capital Ceylinco (Pvt.) Ltd. Co. Investment Capital Ceylinco (Pvt) Ltd Company Cellular Ceylinco Financial Investments - Available for Sale (Contd.) 25.1 For the year ended March 31 ended March the year For 25.

86 The Finance Company PLC Annual Report 2017 | 2018

Notes to the Financial Statements ------1,797,253 Value Value Market Market - 1,009 50,000 1,411,110 416,667 245,277 250,000 250,000 500,000 500,000 500,000 200,000 OVERVIEW Cost Cost 9,125,000 5,812,480 1,804,920 1,500,000 6,100,000 1,000,000 1,000,000 1,000,000 1,000,000 3,500,000 4,750,000 3,000,000 2,000,000 4,000,000 10,000,000 5,000,000 As at 31-03-2017 As - 1,000 12,154 5,000 41,667 24,999 25,000 48,999 50,000 50,000 101,080 180,492 150,000 610,000 100,000 100,000 100,000 320,000 550,000 475,000 850,000 300,000 200,000 400,000 2,785,714 500,000 1,300,000 1,000,000 No of Shares ------2,162,414 Value Value Market Market - ANALYSIS 1,009 50,000 1,411,110 416,667 245,277 250,000 250,000 200,000 500,000 500,000 500,000 Cost Cost 9,125,000 5,812,480 1,804,920 1,500,000 6,100,000 1,000,000 1,000,000 1,000,000 1,000,000 3,500,000 4,750,000 3,000,000 2,000,000 4,000,000 10,000,000 5,000,000 MANAGEMENT DISCUSSION AND DISCUSSION MANAGEMENT As at 31-03-2018 at 31-03-2018 As - 1,000 5,000 12,154 41,667 24,999 25,000 48,999 50,000 50,000 101,080 180,492 150,000 610,000 100,000 100,000 100,000 320,000 550,000 475,000 850,000 300,000 200,000 400,000 2,785,714 500,000 1,300,000 1,000,000 No of Shares - FINANCIAL REPORTS ANNEXURES Ceylinco International Reality (Pvt). Ltd. Reality International Ceylinco Ltd. Co. Trading International Ceylinco Ltd. Corporation Leasing Ceylinco Ltd. Ceylinco Mgt. & Acc. Services Ltd. Ceylinco (Pvt) Net Assist Ltd Ceylinco (Pvt.) Ltd. Invention Niranjan Ceylinco Ltd. (Private) Pensions Ceylinco (Pvt.) Ltd. Technology PLC Ceylinco Class A (Vot Corp.Ltd. Investment Sharing Profit Ceylinco ing) (Pvt) Ltd Prosperity Ceylinco (Pvt) Ltd Renewables Ceylinco MBSL Savings Bank Ltd. MBSL Savings Ltd Properties Housing & Commercial Seylan Ceylinco Ceylinco Design & Project Management Co. (Pvt) Ltd Management Co. Design & Project Ceylinco Ceylinco Fashion Trend Limited Trend Fashion Ceylinco Co.(Pvt).Ltd. & Consultancy Financial Ceylinco Ceylinco Employees Sports Complex (Pvt) Ltd Sports Complex Employees Ceylinco (Pvt) Exports Ltd Foliage Ceylinco (Pvt) Ltd International Freight Ceylinco Ltd. Co. Credit Grameen Ceylinco Ltd. Hairdresers Ceylinco (Pvt) Ltd and Swiftcare Home Nursing Ceylinco Ltd. Homes International Ceylinco Ceylinco Hotels Ltd. (Ordinary Non Voting shares) (Ordinary Non Voting Ltd. Hotels Ceylinco (Ordinary Shares) Ltd. Hotels Ceylinco Shares) (Preference Ltd. Hotels Ceylinco Ltd. Lanka Credit Standard

87 The Finance Company PLC Annual Report 2017 | 2018

Notes to the Financial Statements ------200,000 Value Value 7,226,659 Market Market 10,000 49,000 2,713,141 250,000 750,000 630,000 500,000 500,000 200,000 200,000 Cost Cost 1,644,359 6,175,000 1,482,000 3,602,097 6,000,100 4,799,999 1,000,000 5,300,000 2,500,000 6,030,000 3,900,000 5,000,000 5,000,000 1,069,438 29,379,247 35,563,848 99,050,000 As at 31-03-2017 As - 100 500 5,000 4,900 61,750 35,682 66,550 25,000 50,000 50,000 20,000 20,000 20,000 48,000 120,000 600,010 369,200 655,000 250,000 500,000 500,000 3,571,002 550,000 1,640,000 2,950,000 10,335,000 No of Shares ------200,000 Value Value 6,968,813 Market Market 10,000 49,000 2,713,141 250,000 750,000 630,000 200,000 200,000 500,000 500,000 Cost Cost 1,644,359 6,175,000 1,482,000 3,602,097 6,000,100 1,000,000 4,799,999 2,500,000 5,300,000 6,030,000 3,900,000 5,000,000 5,000,000 1,069,438 29,379,247 35,563,848 99,050,000 As at 31-03-2018 at 31-03-2018 As - 100 500 5,000 4,900 61,750 35,682 66,550 25,000 20,000 20,000 20,000 50,000 50,000 48,000 120,000 600,010 369,200 655,000 250,000 500,000 500,000 3,571,002 550,000 1,640,000 2,950,000 10,335,000 No of Shares Class B (Non Voting Shares) Class B (Non Voting Entrust Ltd. Ceylinco Tax & Financial Consultants (Pvt.) Ltd. (Pvt.) Ltd. Consultants & Financial Tax Ceylinco Ltd. & Tours Travels Ceylinco Ltd. Universal Ceylinco Ltd. Co. Capital Venture Ceylinco (Non Voting) (Pvt) Ltd & Brokers Consultant F & G Real Ceylinco Vocational Training Pvt.Ltd. Training Vocational Ceylinco (Pvt.) Ltd. . Com E Ceylinco (Pvt) Ltd House Consortium Finance Ceylinco Worldwide Trading (Pvt) Ltd Trading Worldwide Ceylinco Services (Pvt) Ltd Telemedical Ceywin Ltd. Company Card Credit Golden Key Class A (Pvt). Ltd.- Lanka Agro Green Class B (Non Voting) (Pvt). Ltd.- Lanka Agro Green IC & CS Software Solutions (Pvt) Ltd Software IC & CS - (ARATU (Pvt.) Ltd. & Views News Independent Financial WA) International College of Business & Technology Ltd of Business & Technology College International Services (Pvt) Ltd & Corporate Consultancy International Knowle ((Pvt.) Ltd. - 8% non Cumulative Preference Shares Preference non Cumulative - 8% ((Pvt.) Ltd. Knowle Shares Ord. Ltd. Middleway Middleway Ltd. Pre. Shares Pre. Ltd. Middleway (Pvt) Ltd Premiums Ltd. San Michele Seilaani Ltd. Ltd. Investments Seraka South Asian Travels Ltd Ltd Travels South Asian (Pvt.) Ltd Agro TFC

88 The Finance Company PLC Annual Report 2017 | 2018

Notes to the Financial Statements ------Value Value Market Market 12,582,050 131,483,382 297,800 400,000 OVERVIEW Cost Cost 1,500,000 4,864,300 5,400,000 2,000,000 110,127,252 4,000,000 131,483,382 473,271,092 35,000,000 (451,914,962) As at 31-03-2017 As 2,978 48,643 40,000 150,000 200,000 400,000 1,755,000 10,040,000 No of Shares ------Value Value Market Market 12,582,050 127,677,423

ANALYSIS 297,800 400,000 Cost Cost 1,500,000 4,864,300 2,000,000 5,400,000 4,000,000 121,429,623 127,677,423 473,271,092 35,000,000 (467,023,292) MANAGEMENT DISCUSSION AND DISCUSSION MANAGEMENT As at 31-03-2018 at 31-03-2018 As 2,978 48,643 40,000 150,000 200,000 400,000 1,755,000 10,040,000 No of Shares FINANCIAL REPORTS The Finance & Guarantee Co. Ltd. Co. & Guarantee The Finance ANNEXURES TFC Agricultural Credit Services Ltd Credit Agricultural TFC The Finance Property Fund Co. Ltd.(Non Voting) Ltd.(Non Co. Fund Property The Finance Shares) (Ordinary Non Voting The Sitar (Pvt) Ltd TFC Homes (Pvt) Ltd (not in commercial operation) (not in commercial Homes (Pvt) Ltd TFC The Sitar (Pvt) Ltd Ltd Foliage Tropical Bureau Information Credit Provision for Impairment for Provision Fair Value Adjustment Value Fair The above Investments are carried at cost less permanent decline in value determined individually for each investment. The Company holds 91.77 % and 50% of the shares TFC Homes (Private) Limited Ceylinco Pension (Pvt) Ltd respectively. also 20% or more of the shares in 26 companies other than two referred to above. However, since financial statements such are not available and there no commercial operations or is significant influence in the of such companies also as provision Financial Separate and ‘Consolidated - 27 LKAS per as Companies these investments, such of value in decline permanent for made been already has Statements’ and as per LKAS.28 - ‘Investments in Associates’ Joint Ventures have not been given effect to these Companies. 25.2 25.3

89 The Finance Company PLC Annual Report 2017 | 2018

Notes to the Financial Statements

For the year ended March 31

2018 2017 For the year ended 31st March Rs. Rs.

26 INVESTMENTS IN REAL ESTATE Lands 559,729,021 734,484,239 Housing Projects 802,943,516 823,669,309 1,362,672,536 1,558,153,549 Allowance for Impairment (63,018,710) (571,628,252) Total 1,299,653,826 986,525,296

27 OTHER ASSETS Deposits 9,665,627 9,105,091 Advances 346,320 1,165,070 Prepayments 125,622,965 114,676,925 Staff Advances 13,054,925 14,384,333 Other Receivables 514,225,939 436,706,963 662,915,776 576,038,382 Allowance for Impairment (408,267,843) (408,617,843) Total 254,647,934 167,420,540

28 INVESTMENT PROPERTIES Opening Balance 1,941,369,585 1,692,280,650 Additions / Gain on Revaluation - 313,538,935 Disposals / Transfers (80,000,000) (64,450,000) Closing Balance 1,861,369,585 1,941,369,585

Investment properties with a carrying amount of Rs. 413,500,000 (2017 - Rs. 413,500,000) have been mortgaged to secure term loan facilities.

90 The Finance Company PLC Annual Report 2017 | 2018

Notes to the Financial Statements - Rs. (Loss) (Loss) 5,000,000 13,000,000 21,000,000 19,000,000 41,000,000 10,000,000 23,500,000 26,000,000 (13,935,000) - Net Re-val uation Gain / Rs. 78,120,000 8,000,000 19,000,000 64,500,000 63,000,000 65,000,000 80,000,000 316,000,000 253,540,000 106,000,000 - Reval Total ued Amount OVERVIEW 2017 Rs. Land 8,000,000 12,000,000 78,000,000 55,000,000 52,000,000 Revalued Revalued 63,000,000 65,000,000 92,000,000 80,000,000 amount of 195,000,000 - - - - 120,000 Rs. 9,500,000 7,000,000 Building 14,000,000 Revalued Revalued 121,000,000 amount of 201,540,000 - - Rs. ANALYSIS Net Re- 5,000,000 13,000,000 valuation 21,000,000 19,000,000 41,000,000 23,500,000 26,000,000 Gain /(Loss) (13,935,000) - Rs. MANAGEMENT DISCUSSION AND DISCUSSION MANAGEMENT Total Amount 78,120,000 8,000,000 Revalued 19,000,000 65,000,000 63,000,000 64,500,000 253,540,000 106,000,000 316,000,000 - 2018 Rs. Land 8,000,000 12,000,000 Revalued 78,000,000 amount of 55,000,000 52,000,000 65,000,000 63,000,000 92,000,000 195,000,000 - - - - Rs. 120,000 9,500,000 Building 7,000,000 Revalued 14,000,000 amount of 121,000,000 201,540,000 FINANCIAL REPORTS - - - 48 6,710 3,000 3,000 11,740 11,740 62,155 62,155 Feet 10,640 10,640 29,500 29,500 Square A0-R0-P5 A2-R1-P12 A2-R1-P12 A0-R3-P0 A0-R3-P0 A8-R0-P0 Extent A0-R0-P16 A2-R0-P6.9 A1-R0-P37.6 A1-R2-P26.5 A1-R2-P26.5 A0-R0-P30.1 A0-R0-P30.1 A1-R1-P27.24 A21-R1-P20.9 A21-R1-P20.9 A0-R3-P29.35 A0-R3-P29.35 A2-R0-P31.38 A2-R0-P31.38 A0-R0-P25.68 A0-R0-P25.68 A0-R3-P29.25 A0-R3-P29.25 A0-R0-P29.64 ANNEXURES Details Investment Properties as at 31 March Wewelkanaththe Watta, Watta, Wewelkanaththe Henegama, Horana Anwalaowita, Marapone, Marapone, Anwalaowita, Kegalle Dambugahawatta Hokandara Nagahawatta, North, Kaduwela Godwilahena, Kanadulla, Kuliyapitiya * Madinagewatta, Sapumal Pedesa, Galle. Kumbalwalla, Aluthwatte, Kadirana , Kadirana Aluthwatte, Negombo Under Constructions Sussex User : Ceylinco College Bulugahatanne, Kurunegala Hewapola, Gampaha Bandarawatte, Sussex User: Ceylinco Collage No. 42, Uyan Watte, 42, Uyan No. Kandy Polgolla, Under Constructions Sussex User : Ceylinco College ** Road, Divulpitiya (Land Only) Pepiliyana, Nugegoda As at 31st March As 28.1

91 The Finance Company PLC Annual Report 2017 | 2018

Notes to the Financial Statements Rs. (Loss) (Loss) 3,000,000 32,399,998 73,777,000 59,000,000 312,741,998 - Net Re-val uation Gain / Rs. 10,000,000 251,597,585 424,612,000 - Reval Total 202,000,000 ued Amount ,941,369,585 - 2017 Rs. Not Land only) 10,000,000 (Building Revalued Revalued amount of Applicable 107,000,000 817,000,000 - Rs. 94,122,000 Building 144,373,147 Revalued Revalued 50,600,000 95,000,000 139,140,000 107,224,438 amount of 140,750,000 1,124,369,585 Rs. Net Re- 3,000,000 valuation 32,399,998 73,777,000 59,000,000 Gain /(Loss) 302,741,998 Rs. Total Amount Revalued 10,000,000 251,597,585 424,612,000 202,000,000 ,861,369,585 - 2018 Rs. Not Land only) (Building Revalued 10,000,000 amount of Applicable 107,000,000 737,000,000 - Rs. Building Revalued 94,122,000 amount of 144,373,147 50,600,000 95,000,000 139,140,000 107,224,438 140,750,000 1,124,369,585 - 3,681 3,681 1,883 3,735 3,735 2,088 2,088 4,058 Feet 35,750 35,750 30,536 30,536 Square - A1-R3-P3 A1-R3-P3 A0-R0-P15 A4-R3-P30 A4-R3-P30 Extent A1-R3-P3.18 A1-R3-P3.18 A0-R0-P14.5 A0-R0-P5.28 A0-R0-P10.25 Investment Properties as at 31 March (Contd…) 1/15 share of Cey. Building 1/15 of Cey. share Mw, Janadhipathi No 69, 1 Fort, Colombo The International The International - Payagala Ltd School(Pvt) The International School School The International - Galle (Pvt) Ltd Total * Kolinjadiya Wennappuwa * Kolinjadiya Muhandiramge Watta, Watta, Muhandiramge Ratnapura Batugedera, Batugedara, Kuruduhena, Ratnapura The Investment Property valuations for the year ended 31st March 2017 was carried out by Mr. R.T.K. Sirisena, an Independent qualified valuer in Sri Lanka. valuer in Sri an Independent qualified Sirisena, R.T.K. Mr. out by carried was 2017 ended 31st March the year for valuations Property The Investment a sum of Rs. 7 Mn and 4 Mn for 2018 disposed in April Galle was Kumbalwalla, , Sapumal Pedesa, and Madinagewatta , Wennappuwa of Kolinjadiya * Properties respectively. to 28.04.2016, 1964/60 dated notification No. and transferred as per the Gazette the Government by acquired Nugegoda was Pepiliyana, Road, at Divulapitiya ** Property the year. during account receivable compensation government As at 31st March As 28.1

92 The Finance Company PLC Annual Report 2017 | 2018

Notes to the Financial Statements Rs. 3,272,483 Total 10,400,618 46,017,788 870,198,511 (8,144,887) 52,490,680 (17,166,090) 842,194,345 (46,459,921) (15,899,494) 840,080,217 840,080,217 1,716,216,928 (143,791,580) 3,148,989,976 3,148,989,976 4,858,441,432 3,988,242,921 3,289,509,073 2,308,909,759 ------115,093 621,275 621,275 118,044 Rs. 736,368 936,366 503,230 6,161,366 OVERVIEW 5,225,000 5,225,000 5,225,000 5,424,998 4,603,725 Buildings ------Leasehold Rs. Land 8,287,500 2,087,500 2,087,500 2,087,500 10,375,000 2,087,500 10,375,000 - - - Rs. 5,811,128 Motor 21,363,122 8,742,984 (1,410,374) 79,510,670 79,510,670 159,841,251 69,433,633 90,796,755 117,923,734 (17,150,104) (15,888,165) 28,436,189 (51,894,393) 107,946,859 107,946,859 (45,745,674) - - - ANALYSIS Rs. (210,532) 9,414,183 (306,705) 1,869,007 Office (5,120,189) 21,254,538 23,727,186 777,711,561 585,725,142 585,725,142 181,708,365 606,979,681 567,328,677 779,273,863 779,273,863 193,548,721 Equipment 788,688,046 - MANAGEMENT DISCUSSION AND DISCUSSION MANAGEMENT (11,329) 992,161 Rs. (15,986) 986,435 (59,340) (90,483) 5,459,752 4,979,300 (1,614,324) Fittings 38,671,435 188,101,538 188,101,538 145,432,581 145,432,581 189,071,987 187,199,860 141,646,494 150,400,552 42,668,957 Furniture & Freehold - - - - 411,316 Rs. (444,375) 14,792,210 14,442,713 13,857,729 42,648,278 28,790,548 28,790,548 Buildings 583,099,716 583,099,716 (9,000,000) 554,309,167 591,688,400 830,548,278 247,448,562 787,900,000 ------Rs. FINANCIAL REPORTS Land (82,500,000) 1,565,755,500 1,483,255,500 1,483,255,500 1,459,544,500 1,483,255,500 2,942,800,000 2,942,800,000 ANNEXURES Carrying amount as at Carrying 31-03-2017 Carrying amount as at 31-03-2018 Balance as at 31st March 2018 as at 31st March Balance Disposals During the Year Disposals During Depreciation Charge for the Year for Charge Depreciation Balance as at 01st April 2017 April as at 01st Balance Balance as at 31st March 2017 as at 31st March Balance Disposals During the Year Disposals During Provision Made / (Reversed) for for Made / (Reversed) Provision Impairment Depreciation Charge for the Year for Charge Depreciation Accumulated Depreciation / Impairment Depreciation Accumulated 2016 April as at 01st Balance Balance as at 31st March 2018 as at 31st March Balance Disposals during the year Disposals during Additions during the year during Additions Revaluation during the year during Revaluation Balance as at 01st April 2017 April as at 01st Balance Balance as at 31st March 2017 as at 31st March Balance Disposals during the year Disposals during Additions during the year during Additions Cost / Valuation 2016 April as at 01st Balance PROPERTY PLANT AND EQUIPMENT a) b) 29.

93 The Finance Company PLC Annual Report 2017 | 2018

Notes to the Financial Statements

29.1 Land and Buildings are stated at revalued amounts as of the reporting date. The respective valuations had been carried out by an independent professional valuer in the year 2017/2018.

29.2 Property, Plant and Equipment Pledged as Securities for Liabilities

Land and buildings have not been mortgaged as at the year end to secure permanent overdraft facilities from the bank.

29.3 Fully Depreciated Property, Plant and Equipment

Property, Plant and Equipment includes fully depreciated assets amounting to Rs. 326,614,080 (31st March 2017 - Rs.315,652,272) at cost as at the Statement of Financial Position date.

29.4 Contractual Commitments for the Acquisition of Property, Plant and Equipment

Land and building located on 315, New Kandy Road, Pittugala, Malabe has been acquired with agreement to sell. Currently there is a dispute for the property and the matter is in the Supreme Court. Other than that, the Company does not have any significant contractual commitments for acquisition of Property, Plant and Equipment as at the Statement of Financial position date.

29.5 If Land and Buildings were measured using the cost model, the carrying amount would be as follows.

31st March 2018 31st March 2017 Land Buildings Land Buildings

Cost 1,566,794,132 526,069,624 1,566,794,132 526,069,624 Less:- Accumulated Depreciation/ Impairment - (79,878,311) - (78,653,235) Net Amount 1,566,794,132 446,191,313 1,566,794,132 447,416,389

94 The Finance Company PLC Annual Report 2017 | 2018

Notes to the Financial Statements 2.51 1.26 2.10 0.71 1.48 1.44 5.62 2.39 7.77 3.54 2.69 0.32 2.68 9.85 3.98 2.89 2.64 0.76 2.48 16.53 26.35 As a % of Total NBV 6,576 14,335 15,386 71,958 42,614 53,626 29,269 54,593 25,605 50,963 50,368 58,747 54,349 80,845 48,608 30,000 114,200 157,665 335,573 535,000 200,003 Value OVERVIEW 2,030,283 (Rs.000) Net Book 15,800 21,000 81,000 55,000 55,000 24,700 92,000 64,000 60,000 46,000 113,000 84,000 115,000 251,000 125,000 103,000 160,000 104,000 356,000 529,000 Total 1,292,000 3,746,500 (Rs.000) - - 5,425 4,500 8,600 11,000 11,000 13,000 10,300 71,000 17,000 25,500 35,500 25,500 28,500 23,000 25,000 66,000 45,000 793,325 153,000 214,500 (Rs.000) Amount Building Revalued ANALYSIS 10,375 16,500 14,400 99,500 78,500 35,000 24,500 74,500 72,400 59,000 69,000 96,000 42,000 70,000 64,000 44,000 185,000 160,000 376,000 285,000 Land 2,953,175 1,077,500 (Rs.000) Amount Revalued Revalued − MANAGEMENT DISCUSSION AND DISCUSSION MANAGEMENT 6,521 3,160 4,216 3,372 8,010 3,282 2,782 4700 5,885 6,893 7,077 6,950 5,500 3,070 3,600 16,931 4,496 25,631 12,450 26,750 (Sqr ft.) Building 12 23 20 8.3 4.7 21.5 13.9 16.5 12.6 47.1 9.25 25.8 8.23 4.75 4.92 211.5 11.78 11.84 14.75 19.68 23.25 72.75 24.25 Extent (perches) FINANCIAL REPORTS Location ANNEXURES TOTAL 194, Dehiwala Galle Road, 315, New Kandy Road, Pittugala, Malabe Pittugala, Road, Kandy 315, New 97, Hyde park corner, Colombo 02 Colombo corner, park Hyde 97, 59 F/A, Bandaranayake Mawatha, Rathnapura Mawatha, Bandaranayake 59 F/A, 214, Highlevel Road, Nugegoda Road, 214, Highlevel 169, Anagarika Dharmapala Mawatha, Matara Mawatha, Dharmapala Anagarika 169, 293, Old Galle Rd, Moratuwa 293, 50, Madampe Road, Kuliyapitiya Madampe Road, 50, Raja Bojun Restaurant , Kandy Bojun Restaurant Raja Kegalle Road, 171, Colombo 281, D.S.Senanayake Veediya, Kandy Kandy Veediya, 281, D.S.Senanayake 202, Kalutara Main Street, 159, Colombo Road, Ja-Ela Road, Colombo 159, 249, Power House Road, Jaffna House Road, Power 249, 159A, Colombo Road, Ja-Ela 141, Ratnapura Road, Horana Road, Ratnapura 141, 55, R.A.De55, 04 Colombo Mel Mawatha, 32, Havelock Road, Galle Road, 32, Havelock Mawatha, Bauddhaloka 99/2, 99, Gampaha 28, Havelock Road, Galle 53A, Chilaw Road, Puttlam 7/9, Udayaraja Mawatha, Badulla Mawatha, Udayaraja 7/9, 120, Main Street, Ampara Main Street, 120, 123, Main Street, Ambalanthota 123, Main Street, Land and Buildings as at 31st March 2018 29.6

95 The Finance Company PLC Annual Report 2017 | 2018

Notes to the Financial Statements

For the year ended March 31

30 FINANCIAL LIABILITIES DUE TO CUSTOMERS Time Deposits 28,946,132,598 27,112,696,129 Savings Deposits 1,462,019,273 1,450,495,276 30,408,151,870 28,563,191,405

31 INTEREST BEARING BORROWINGS Bank Overdrafts 254,561,965 270,886,566 Short Term Loans 47,342 47,342 Refinance Borrowings 21,070,173 37,450,807 CBSL Liquidity Support Loan 31.2 4,848,891,338 4,536,216,155 5,124,570,818 4,844,600,871

31.1 Summary of borrowing arrangements

Description Lending Institution Facility Amount Interest rate Security

Commercial Bank 100,000,000.00 13.25% P.A Fixed Deposits- Bank Overdrafts Rs.110 Mn (Permanent) Seylan Bank 100,000,000.00 13.91% P.A Fixed Deposits- Rs.112 Mn Investment Proper- Commercial Bank AWPLR+2.5% ties Investment Proper- Long Term Loans Seylan Bank 16% ties Investment Proper- Wayamba Rural Bank 21% ties Refinance Borrowings 4% CBSL Credit Lines 3% first 5 years CBSL Liquidity Support Rs. 2.3Bn mortgage Loan TB rate - 1% of future receivables after 5 years & Rs. 4.2Bn Treasury Bonds

31.2 Liquidity Support Loan

On 15th December 2014, the Company received a loan of Rs 6 Billion at a concessionary interest rate from Sri Lanka Depositors Insurance Fund of the Central Bank of Sri Lanka as a liquidity support loan. The loan is repayable in 10 years with a grace period of five years for the capital and the interest is payable from the thirteenth month.

Using prevailing market interest rates for an equivalent loan of 12%, the fair value of the loan is estimated at Rs 3,744,353,357. The difference of Rs 2,255,646,643 between the gross proceeds and the fair value of the loan is the benefit derived from the lower interest loan and is recognised as deferred revenue (see note 32). An interest expenses amounting to Rs. 560,175,183 was recognised on this loan in 2017/2018 (2016/2017 Rs.527,315,400).

96 The Finance Company PLC Annual Report 2017 | 2018

Notes to the Financial Statements

For the year ended March 31

2018 2017 For the year ended 31st March Rs. Rs.

32 DEFERRED REVENUE Balance at the Beginning of the Year 1,799,912,587 2,024,274,180 Deferred Income Recognised During the Year - - Amortisation of Deferred Income During the Year (255,419,217) (224,361,593) OVERVIEW Balance at the End of the Year 1,544,493,370 1,799,912,587

The benefits received from a lower interest loan from the Central Bank of Sri Lanka has been recognised as deferred revenue.

33 OTHER PAYABLES Payable on Debentures 1,981,217 1,981,217 Trade Payables 25,503,867 39,974,546 Retirement Benefit Obligation-Gratuity 33.1 54,984,741 42,969,374 Retirement Benefit Obligation-Pension 33.2 (91,872,906) (91,872,906) Accrued Expenses & Payables 230,883,996 245,613,234

Advances Received from Customers 129,369,070 181,289,156 ANALYSIS Provisions 610,840,195 603,817,486 Total 961,690,180 1,023,772,107 MANAGEMENT DISCUSSION AND DISCUSSION MANAGEMENT Employee Retirement Benefit Obligation

33.1 Gratuity Trust Fund

An actuarial valuation of the Gratuity Trust Fund was carried out as at 31st March 2018 by Mr M Poopalanathan of Messrs Actuarial And Management Consultants (Pvt) Ltd, a firm of professional actuaries. The valuation method used by the actuaries to value the Fund is the “Projected Unit Credit Method”, the method recommended by the Sri Lanka Accounting Standard (LKAS 19) “Employee Benefits”.

The assets of the Fund, which are independently administered by the Trustees as per the provision of the Trust Deed are held separately from those of the Company.

2018 2017 FINANCIAL REPORTS For the year ended 31st March Rs. Rs.

Amounts Recognised in the Statement of Financial Position are a. as follows Present Value of Gratuity Obligation - Funded 205,108,939 266,343,270 Present Value of Gratuity Obligation - Unfunded 54,984,741 42,969,374 Total present value of obligations 260,093,680 309,312,644 Fair Value of Plan Assets (205,108,939) (266,343,270) Present Value of Net Obligations / (Surplus) 54,984,741 42,969,374 Unrecognised Actuarial Losses - -

Recognised Liability/(Asset) for Defined Benefit Obligations 54,984,741 42,969,374 ANNEXURES

The Company is expecting to cover the above net obligation by way of increased future contributions to the Gratuity Trust Fund and accordingly the Company recognised a net payable of Rs.54,984,741 (2016/2017 42,969,374) to the trust fund as the present value of the reduction in future contributions which is disclosed under Note 33 “Other Payables”.

97 The Finance Company PLC Annual Report 2017 | 2018

Notes to the Financial Statements

For the year ended March 31

2018 2017 For the year ended 31st March Rs. Rs.

b. Plan Assets Consist of the Following

Fixed Assets 53,114 58,893 Fixed Deposits 179,134,098 196,568,799 Treasury Bills 83,587,060 85,339,378 Net Current Assets / (Liabilities) (57,665,333) (15,623,800) 205,108,939 266,343,270

c. Movement of Present Value of Gratuity Obligation Opening Balance 309,312,644 313,942,201 Current Service Cost 16,598,011 19,496,972 Interest Cost 39,437,362 37,673,064 Benefits Paid/ Payable by the Plan (51,105,643) (51,798,724) Actuarial (Gains) / Losses (54,148,694) (10,000,869) Closing Balance 260,093,680 309,312,644

d. Movement in Fair Value of Plan Assets Opening Balance 266,343,270 289,157,615 Contributions Paid/ (Refunded) to/ (from) the Plan - - Benefits Paid/ Payable by the Plan (51,105,643) (51,798,724) Expected Return on Plan Assets 33,958,767 34,698,914 Actuarial Gains /(Loss) (44,087,455) (5,714,535) Closing Balance 205,108,939 266,343,270

e. Actuarial Assumptions Discount Rate (% per annum) 10.68% 12.75% Expected Return on Plan Assets as at the Beginning of the Year 12.05% 12.55% Future Salary Escalation Rate 9.00% 12.50%

Sensitivity Analysis A Sensitivity Analysis is done in order to illustrate the significance of the Discount Rate & Salary Escalation Rate assumed in the valuation conducted as at 31 March 2018.

Present Value of Variable changed (while all other assumptions remain unchanged) Defind Benefit Obligation Rs.

One percentage point Increase (+1%) in Discount Rate (11.68%) 252,388,702 One percentage point Decrease (-1%) in Discount Rate (9.68%) 268,319,907 One percentage point Increase (+1%) in Salary/Wage Escalation Rate (10.00%) 269,246,165 One percentage point Decrease (-1%) in Salary/Wage Escalation Rate (8.00%) 251,383,547

98 The Finance Company PLC Annual Report 2017 | 2018

Notes to the Financial Statements

For the year ended March 31

2018 2017 For the year ended 31st March Rs. Rs.

33.2 Pension Trust Fund Contributions 612,306 708,987

The above fund is managed under the conditions of Trust Deed No. 7358. The Company should make special OVERVIEW contributions to the pension fund if there is an additional need.

33.3 Pension Trust Fund

An actuarial valuation of the Pension Trust Fund was carried out as at 31st March 2016 by Mr M Poopalanathan, Messrs Actuarial And Management Consultants (Pvt) Ltd, a firm of professional actuaries. The valuation method used by the actuaries to value the Fund is the “Projected Unit Credit Method”, the method recommended by the Sri Lanka Accounting Standard (LKAS 19) “Employee Benefits”.

The assets of the Fund, which are independently administered by the Trustees as per the provision of the Trust Deed are held separately from those of the Company.

2018 2017 For the year ended 31st March Rs. Rs. ANALYSIS Amounts Recognised in the Statement of Financial Position are a. as follows; Present Value of Pension Obligation - Funded 42,747,736 42,747,736

Present Value of Pension Obligation - Unfunded - - AND DISCUSSION MANAGEMENT Total present value of obligations 42,747,736 42,747,736 Fair Value of Plan Assets (134,620,642) (134,620,642) Present Value of Net Obligations / (Surplus) (91,872,906) (91,872,906) Unrecognised Actuarial Losses - - Recognised Liability/(Asset) for Defined Benefit Obligations (91,872,906) (91,872,906)

b. Plan Assets Consist of the Following Fixed Deposits 114,746,041 114,746,041 Re-Purchase Agreements 16,300,459 16,300,459

Receivables & Repayments 3,829,086 3,829,086 FINANCIAL REPORTS Cash & Cash Equivalents (254,944) (254,944) Net Current Assets / (Liabilities) - - 134,620,642 134,620,642

c. Movement of Present Value of Pension Obligation Opening Balance 42,747,736 42,747,736 Transition Liability - - Current Service Cost - - Interest Cost - -

Benefits Paid/ Payable by the Plan - - ANNEXURES Actuarial (Gains) /Losses - - Closing Balance 42,747,736 42,747,736

99 The Finance Company PLC Annual Report 2017 | 2018

Notes to the Financial Statements

For the year ended March 31

2018 2017 For the year ended 31st March Rs. Rs.

d. Movement in Fair Value of Plan Assets Opening Balance 134,620,642 134,620,642 Contributions Paid/ (Refunded) to/ (from) the Plan - - Benefits Paid/ Payable by the Plan - - Expected Return on Plan Assets - - Actuarial Gains / (Loss) - - Closing Balance 134,620,642 134,620,642

e. Actuarial Assumptions Discount Rate 12.00% 12.00% Future Salary Escalation Rate 10.00% 10.00%

33.4 The actuarial valuation for the pension fund has not been carried out for the current year since there is no significant change in the Pension obligation and plan assets as at 31st March 2018. Therefore, the valuation of year 2016 has been taken as the most recent valuation for the curent year. As at the year end the Total Plan Assets was Rs. 136,646,413 which consists of Fixed Deposits of Rs. 133,237,912 , Receivables & Prepayments of Rs.3,176,420 and Cash & Cash Equivalents of Rs. 232,081.

33.5 Full provision has been made for the investment in Entrust Securities PLC amounting Rs. 264,921,026 (Employees Provident Trust Fund (EPTF) – Rs. 180,243,166, Gratuity Trust Fund (GTF) – Rs. 73,386,047 and Pension Trust Fund (PTF) - Rs. 11,291,813) as at 31st March 2018.

2018 2017 For the year ended 31st March Rs. Rs.

34 CURRENT TAX LIABILITIES Opening Balance - - Current Tax Liability Setoff Against ESC Receivable - - Adjustment for Over Provision - - - - Tax Paid - -

35 STATED CAPITAL The Stated Capital Comprises of 57,966,232 issued and fully paid Ordinary Shares (Quoted) 1,985,649,426 1,985,649,426 100,000,000 issued and fully paid non voting Ordinary Shares (Quoted) 2,000,000,000 2,000,000,000 2,453,133 issued and fully paid Worker Shares (Unquoted) 24,531,330 24,531,330 4,010,180,756 4,010,180,756

100 The Finance Company PLC Annual Report 2017 | 2018

Notes to the Financial Statements

For the year ended March 31

2018 2017 For the year ended 31st March Rs. Rs.

36 STATUTORY RESERVE FUND Opening Balance 659,910,000 659,910,000 Transferred During the Year - - OVERVIEW Closing Balance 659,910,000 659,910,000

36.1 Deposit Liability 29,343,090,067 28,649,539,684 Capital Funds (17,620,878,165) (15,836,983,679) Capital Funds to Deposit Liability -60.05% -55.28%

Net Loss for the Year (1,793,955,724) (1,293,482,743) Requirement as per Direction No. 1 of 2003 Amount Transferred to Statutory Reserve Fund - -

37. Other Reserves Revaluation Reserve 37.1 3,030,819,861 1,314,602,933

Available-for-Sale Reserve 37.2 113,554,626 117,360,586 ANALYSIS General Reserve 4,812,195 4,812,195 Total 3,149,186,682 1,436,775,714

The Company maintains the General Reserve to retain funds for MANAGEMENT DISCUSSION AND DISCUSSION MANAGEMENT future expansion.

37.1 Revaluation Reserve Opening Balance 1,314,602,933 1,343,737,920 Realised/ Recognized Revaluation on Disposal of Freehold Land and - (29,134,987) Buildings Revaluation of Land & Buildings 1,716,216,928 - Closing Balance 3,030,819,861 1,314,602,933

37.2 Available for Sale Reserve Opening Balance 117,360,586 113,776,903 FINANCIAL REPORTS Net Gains/( Loss)on Re-measuring Available-for-Sale - Financial Investments (3,805,960) 3,583,682 Closing Balance 113,554,626 117,360,586

38 ACCUMULATED LOSSES Opening Balance (20,511,886,630) (19,251,825,208) Realized Revaluation on Disposal of Freehold Land and Buildings - 29,134,987 Total Comprehensive Income Loss for the Year (1,793,955,724) (1,293,482,743)

Actuarial Gains/ (Loss) on Retirement Benefit Obligations 10,061,239 4,286,334 ANNEXURES Closing Balance (22,295,781,116) (20,511,886,630)

101 The Finance Company PLC Annual Report 2017 | 2018

Notes to the Financial Statements

For the year ended March 31

2018 2017 For the year ended 31st March Rs. Rs.

39. NOTES TO THE CASH FLOW STATEMENT 39.1 Non Cash Items included in Profit / (Loss) Before Tax Net Mark to Market Gain/ (Loss) on Held-for-Trading (19,035,479) 1,520,666 Gain/ (Loss) on Sale of Property, Plant and Equipment (6,529,361) (24,129,565) Net Changes in Fair Value of Investment Properties - (312,741,998) Net Gain/ (Loss) on Disposal of Financial Investments Held-for-Trading - 896,737 Interest Income - Held to Maturity (398,506,689) (398,506,689) Interest Expense - CBSL Liquidity Support Loan 180,000,000 180,000,000 Depreciation 46,017,788 52,490,680 Amortization of TB Premium 25,247,613 23,531,682 Deferred Revenue of CBSL Liquidity Support Loan (255,419,217) (224,361,593) Deferred Expenses on CBSL Liquidity Support Loan 380,175,183 347,315,400 Impairment of Loans and Other Losses (16,746,138) 228,862,094 Interest Expense on Reverse Repo 333,059 3,550,967 Total (64,463,241) (121,571,620)

39.2 Changes in Operating Assets Financial Investments - Held for Trading 31,952,976 111,794,063 Loans and Receivables - Hire Purchases 730,557,181 1,278,179,791 Loans and Receivables - Leases 282,857,043 72,922,473 Loans and Receivables - Others (735,463,246) 278,289,306 Investments in Real Estate 195,481,012 540,379,943 Other Assets (28,076,804) 3,741,774 477,308,163 2,285,307,349

39.3 Changes in Operating Liabilities Financial Liabilities due to Customers 1,844,960,466 (903,199,653) Other Payables (52,625,532) 94,283,537 Total 1,792,334,934 (808,916,116)

40 FAIR VALUE OF FINANCIAL INSTRUMENTS

Financial Instruments Recorded at Fair Value

The following is a description of how fair values are determined for financial instruments that are recorded at fair value using valuation techniques. These incorporate the Company’s estimate of assumptions that a market participant would make when valuing the instruments.

Financial Investments – Available for Sale

Available for Sale financial assets (primarily consist of unquoted equities and Government Debt Securities) are valued using valuation techniques or pricing models. These assets are valued using models that use observable data. Government debt securities are valued using the yield curve published by the Central Bank of Sri Lanka and unquoted equities are valued at net asset basis as at the reporting date.

102 The Finance Company PLC Annual Report 2017 | 2018

Notes to the Financial Statements

Trading Assets Measured at Fair Value

Trading assets measured at fair value are the quoted equities. For quoted equities the Company uses quoted market prices in the active market as at the reporting date.

Determination of Fair Value and Fair Value Hierarchy

For all financial instruments where fair values are determined by referring to externally quoted prices or observable pricing inputs to models, independent price determination or validation is obtained. In an inactive market, direct observation of a traded price may not be possible. In these circumstances, the Company uses alternative market OVERVIEW information to validate the financial instrument’s fair value, with greater weight given to information that is considered to be more relevant and reliable.

Fair values are determined according to the following hierarchy:

Level 1 - Quoted Market Price (unadjusted): financial instruments with quoted prices for identical instruments in active markets.

Level 2 - Valuation Technique using observable inputs: financial instruments with quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in inactive markets and financial instruments valued using models where all significant inputs are observable.

Level 3 - Valuation Technique with significant unobservable inputs: financial instruments valued using valuation techniques where one or more significant inputs are unobservable ANALYSIS The following table shows an analysis of financial instruments recorded at fair value by level of the fair value hierarchy:

As at 31st March 2018 Level 1 Level 2 Level 3 AND DISCUSSION MANAGEMENT

Financial Investment - Held for Trading 72,861,416 - - Financial Investment - Available-for-Sale Equity Securities - Unquoted - - 127,677,422 Government Securities - REPOs 1,263,591,919

As at 31st March 2017 Financial Investment - Held for Trading 85,778,913 - - Financial Investment - Available-for-Sale FINANCIAL REPORTS Equity Securities - Unquoted - - 131,483,382 Government Securities - REPOs 1,069,999,750 ANNEXURES

103 The Finance Company PLC Annual Report 2017 | 2018

Notes to the Financial Statements - 1,500,000 10,758,512 85,778,913 352,711,496 131,483,382 167,420,540 986,525,296 982,294,286 5,113,988,913 Total as at Total 31-03-2017 31-03-2017 1,023,772,107 1,023,772,107 1,941,369,585 3,810,245,139 5,974,198,973 4,863,471,236 1,069,999,750 6,644,513,458 2,308,909,759 28,563,191,405 36,231,476,969 15,852,257,837 35,207,704,862 21,826,456,809 - 100% 100% 1,500,000 72,861,416 127,677,422 961,690,180 961,690,180 226,694,903 1,263,591,919 254,647,934 634,954,850 478,700,644 31-03-2018 31-03-2018 Total as at Total 1,861,369,585 1,299,653,826 3,988,242,921 4,377,538,417 8,083,153,747 4,136,745,099 4,838,223,624 6,666,868,453 15,479,248,812 30,408,151,870 38,036,710,503 23,562,402,560 37,075,020,323 ------2% 49% 3,010,305 5,762,696 5 Years 5 Years 58,672,298 58,672,298 24,460,348 618,382,607 867,705,148 618,382,607 677,054,905 More than More 6,717,317,654 1,861,369,585 3,988,242,921 4,838,223,624 4,871,456,973 11,588,774,627 11,588,774,627 ------3% 15% 11,131,433 11,131,433 71,928,647 104,511,638 46,307,423 46,307,423 464,551,372 Between Between 640,991,658 652,123,091 652,123,091 1,321,668,740 3 to 5 Years 5 Years 3 to 5,867,976,163 5,821,668,740 4,500,000,000 ------12% 14% 97,811,505 97,811,505 430,158,193 257,159,840 257,159,840 301,907,676 Between Between 1,506,997,351 1 to 3 Years 3 Years 1 to 3,013,162,664 4,617,971,520 2,223,015,692 4,520,160,015 3,212,241,400 3,212,241,400 2,955,081,560 ------15% 40% 3 to 12 3 to 313,461,315 Months 292,131,387 122,475,365 166,909,061 Between Between 190,985,950 1,112,163,484 (103,197,093) (103,197,093) 222,000,000 1,774,027,725 15,220,411,572 3,275,100,270 3,588,561,585 15,031,477,277 15,323,608,665 - - - - 31% 19% 91,199,161 1,500,000 Up to Up to 72,861,416 63,661,983 41,182,040 4,694,903 367,739,715 3 Month 127,677,422 572,045,172 784,083,506 862,096,047 862,096,047 478,700,644 1,803,587,195 1,263,591,919 3,736,618,351 11,653,296,344 4,520,701,856 4,520,701,856 10,423,460,582 10,791,200,297 Maturity Analysis Interest Bearing Liabilities Bearing Interest Customers Liabilities due to Financial and Borrowings Loans Bearing Interest Total Non-Interest Bearing Liabilities Bearing Non-Interest Other Payables Liabilities Tax Current Total Total Liabilities Percentage Interest Earning Assets Earning Interest Equivalents and Cash Cash Loans and Receivable - Hire Purchase - Hire and Receivable Loans - Leases and Receivable Loans - Others and Receivable Loans and Receivables - Loans Investment Financial Financial Instruments - Held to Maturity Instruments - Held to Financial Financial Instruments - Available for Sale for Instruments - Available Financial Total Assets Earning Non-Interest Equivalents and Cash Cash Trading Instruments - Held for Financial Financial Instruments - Available for Sale for Instruments - Available Financial Investments in Real Estate in Real Investments Deposits and Other Prepayment Properties Investment Property, Plant and Equipment Property, Total Assets Total Percentage As at 31st March As 41.

104 The Finance Company PLC Annual Report 2017 | 2018

Notes to the Financial Statements

42. COMMITMENTS AND CONTINGENT LIABILITIES

42.1 Litigation against the Company

Provision for Litigation has been made in the accounts for Rs. 2,743,163.25 payable Nations Trust Bank (NTB) as per the District Court order as at 7th June 2004. Further, the company is negotiating with NTB for waive off the interest payable on the above and cost of litigation. Other than this, litigation is a common occurrence in the finance industry due to the nature of the business. Based on the professional advice, the Company makes adjustments to the Financial Statements. In the opinion of Professionals, litigations which are against the Company, are related OVERVIEW to the normal course of business and will not have a significant impact on the reported financial result or future operations of the Company.

42.2 Guarantees Issued

The Company had issued guarantees amounting to Rs. 31,500,000 as at 31st March 2018 (Rs. 42,650,000 as at 31st March 2017) to third parties on behalf of the customers by securing deposits in the normal course of business.

42.3 Assets Pledged as Securities

Value of Lending Balance as at Assets Institution Nature of Facility 1st March 2018 Pledged Nature of Assets ANALYSIS Term Loan 12,250,000 100,000,000 Investment Properties Commercial Bank of Ceylon PLC Permanent 100,000,000 110,000,000 Financial Investments- Available for Overdraft Sale (Investment in FDs) MANAGEMENT DISCUSSION AND DISCUSSION MANAGEMENT Term Loan 15,593,294 19,000,000 Investment Properties Seylan Bank PLC Permanent Financial Investments- Available for 100,000,000 112,000,000 Overdraft Sale (Investment in FDs) Wayamba Co. Coperative Rural Term Loan 70,000,000 119,000,000 Investment Properties Bank Central Bank of Refinance Loan 20,997,351 - CBSL Credit Lines Sri Lanka Financial Investments-Held to 4,150,000,000 4,800,000,000 Maturity (Treasury Bond) Central Bank of Liquidity Support Sri Lanka Loan Future Receivables

1,850,000,000 2,300,000,000 FINANCIAL REPORTS

43. EVENTS AFTER THE REPORTING PERIOD

Subsequent to the reporting date, no circumstances have arisen which would require adjustments to or disclosure in the Financial Statements.

44. GOING CONCERN

During the year the company incurred a net loss of Rs. 1,793,955,724 (2017 - Rs. 1,293,482,743) and as at the reporting date, the Company’s total liabilities exceeded its total assets by Rs. 14,476,503,678 (2017 - Rs. 14,405,020,161).

With financial support given by the Sri Lanka Depositors Insurance Fund of the Central Bank of Sri Lanka (CBSL), ANNEXURES and as the Directors of the Company are currently in the process of negotiating to obtain fresh capital to the company where the decisions are being held with potential investors (with the concurrence of CBSL), the Board of Directors is of the view that it is appropriate to adopt the going concern assumption in the preparation of financial statements for the year ended 31st March 2018.

105 The Finance Company PLC Annual Report 2017 | 2018

Notes to the Financial Statements

45. NON-COMPLIANCE WITH DIRECTIONS ISSUED BY CENTRAL BANK OF SRI LANKA (CBSL)

The Company could not comply with the following directions issued by the CBSL under the provisions of the Finance Business Act No. 42 of 2011.

Finance Companies (Minimum Core Capital) Direction No. 2 of 2017

Every finance company should continue to maintain an unimpaired core capital at a level not less than Rs. 1,000 million with effect from 01st January 2018. The minimum core capital as at year end was Rs. 17,620,878,165 negative.

Finance Companies (Risk Weighted Capital Adequacy Ratio) Direction No. 2 of 2006

Every finance company shall, subject to the provisions of the Finance Companies (Minimum Core Capital) Direction No. 1 of 2006, at all times, maintain its capital (adjusted for the items that may be specified by the Director) at a level not less than 10 percent of its risk weighted assets with the core capital constituting not less than 5 percent of its risk weighted assets, computed as per instructions issued by the Director.

Due to the erosion of capital and continuous decline in the risk-weighted asset base, the Company has failed to comply with section 3 of the cited Direction by not maintaining a core capital and total capital at 5% and 10%, respectively. As at 31st March 2018 the ratios were 106.75% and 106.99% negative respectively.

Finance Companies (Capital Funds) Direction No. 1 of 2003

Every finance company shall :–

a. maintain a reserve fund; and

b. transfer to such reserve fund out of the net profits of each year, after due provision has been made for Taxation and Bad and Doubtful Debts :–

i. so long as the capital funds are not less than twenty five (25) percent of total deposit liabilities, a sum equal to not less than five (5) percent of the net profits;

ii. so long as the capital funds are less than twenty five (25) percent of total deposit liabilities, but not less than ten (10) percent thereof, a sum equal to not less than twenty (20) percent of the net profits; and

iii. so long as the capital funds are less than ten (10) percent of the total deposit liabilities, a sum equal to not less than fifty (50) percent of the net profits.

As the Company has incurred a net loss of Rs. 1,793,955,724 for the year 2017/18, no transfer has been made during the year, which is fully described in Note no 36 in the Financial Statements.

Finance Companies (Capital Funds) Direction No. 1 of 2003

Every finance company shall maintain capital funds which shall not at any time be less than ten (10) percent of its total deposit liabilities.

The Company’s capital funds to the total deposit liability as at 31st March 2018 was - 57.86%.

Finance Companies (Liquid Assets) Direction No. 4 of 2013

Every finance company shall maintain a minimum holding of liquid assets as defined in Section 74 of the Finance Business Act, No. 42 of 2011 which shall not, at the close of the business on any day, be less than the total of :

i. Ten (10) percent of :–

a. The outstanding value of the time deposits received by the finance company and accrued interest payable at the close of the business on such a day; and

b. The face value of non-transferable certificates of deposit issued by the finance company and accrued interest payable at the close of the business on such a day; and

106 The Finance Company PLC Annual Report 2017 | 2018

Notes to the Financial Statements

ii. Fifteen (15) percent of the outstanding value of savings deposits accepted by such company and accrued interest payable at the close of the business on such a day.

The value of liquid assets held by the company as at 31st March 2018 was Rs. 156,768,139.81 against the requirement of Rs. 3,112,907,698.75.

Finance Companies (Liquid Assets) Direction No. 4 of 2013

Every finance company shall at all times maintain assets in the form of Sri Lanka Government Treasury Bills, Sri Lanka Government Securities and the Central Bank of Sri Lanka Securities equivalent to seven and a half OVERVIEW (7.5) percent of the average of its month end total deposit liabilities and borrowings of the twelve months of the preceding financial year. Such holdings of the Sri Lanka Government Treasury Bills, Sri Lanka Government Securities and the Central Bank of Sri Lanka Securities should not be considered for computation of Investment Fund Account utilization.

Investments in government securities and Treasury Bills was Rs. 55,000,000 as at 31st March 2018, against the requirement of Rs. 2,663,690,813

Central Bank Direction No: 24|02|005|0021|003

Absorbing investor liabilities of The Finance Property Fund Company Limited (TFPF) and TFC Homes (Pvt) Ltd (TFCH) to The Finance Company PLC (TFC).

Although the Company has settled the full liability due to the depositors of the above companies, the assets are to ANALYSIS be recovered from the above companies and from the directors have not been fully recovered yet.

46. RELATED PARTY DISCLOSURES MANAGEMENT DISCUSSION AND DISCUSSION MANAGEMENT The Company carries out transactions in the ordinary course of the business on an arm’s length basis at commercial rates with parties who are defined as Related Parties as per the LKAS 24 - ‘Related Party Disclosures’.

46.1 Parent and Ultimate Controlling Party

The Company does not have an identifiable parent of it’s own.

46.2 Transactions with Key Management Personnel (KMPs)

Key Management Personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the Company directly or indirectly. Accordingly the Company’s KMP comprise the

Board of Directors (Executive and Non-Executive) and key employees of the Company who meet the above FINANCIAL REPORTS criteria.

Close Family Members (CFM) of a KMP are those family members who may influence or be influenced by that KMP in their dealings with the Company. They may include partner, children and dependants of the KMP. ANNEXURES

107 The Finance Company PLC Annual Report 2017 | 2018

Notes to the Financial Statements

2018 2017 For the year ended 31st March Rs. Rs.

46.2.1 Compensation of KMPs - Directors Short Term Employment Benefits 8,481,667 13,875,350 Post Employment Benefits 631,750 1,071,950 Total 9,113,417 14,947,300

46.2.2 Compensation of KMPs - Directors Short Term Employment Benefits 63,363,142 66,154,066 Post Employment Benefits 6,550,678 7,195,154 Total 69,913,820 73,349,220

46.2.3 Transactions with KMP and their Close Family Members of KMPs Liabilities Term Deposits (Rs.) 76,177 529,954 Savings Deposits (Rs.) 541,906 760,484 Shares - Voting (Nos.) 4,620 130,882 Shares - Non Voting (Nos.) - -

46.2.4 The Directors of the Company were also Directors of the following companies during the year.The Company had following transactions with those companies in the ordinary course of business which were at arm’s length basis.

Income/(Expenses) recognised Name of Company Nature of Transaction during the year Assets / (Liabilities)

2017/18 2016/17 2017/18 2016/17

Interest Expense for the Year (876,628) 972,312 - - The International School (Pvt) Ltd Interest Payable at year end - - 6,317 2,788,780 Short Term Borrowing payable at Year End - - (2,202,053) (8,093,462)

47. FINANCIAL RISK MANAGEMENT

The Company has exposure to the following risks from financial instruments: Credit Risk Liquidity Risk Market Risks Operational Risks. Credit Risk Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations. Exposure to credit risk arises basically from lending the Company’s loans and receivable balances. Each branch of the Company is responsible for managing and analyzing the credit risk for each new client by assessing the credit quality of the customer, taking into account its financial position, past experience and other factors. Further, those assessments need to be sent to the Credit Review Committee for final approvals before granting the facility. In addition to material advances, the Executive Director (Operations)’s approval obtained.

108 The Finance Company PLC Annual Report 2017 | 2018

Notes to the Financial Statements

Liquidity Risk Liquidity risk is the risk that the Company will encounter difficulty in meeting its contractual obligations associated with financial liabilities. As other financial companies, the Company is vulnerable to liquidity risk resulting from assets and liability mismatch. The Treasury Division of the Company primarily tasked to monitor daily requirement of liquidity to meet daily liquidity obligations. The Treasury Division invests any surplus cash in interest bearing financial instruments with appropriate maturities to meet above mentioned daily liquidity obligations. In addition, the Asset and Liability Management Committee (ALCO) is responsible for managing and controlling the overall liquidity of the Company and assess the impact of strategic decisions on the Company liquidity. The liability of

the Company to attract new deposits and renew a significant percentage of the maturing deposits permits it to OVERVIEW manage the associated liquidity risk. Note No. 41 to the Financial Statements discloses the maturity analysis of the Company’s assets and liabilities.

Market Risk

Market risk is the risk that the Company will incur a loss due to market conditions such as foreign exchange rate, interest rates, equity prices or commodity prices. The Integrated Risk Management Committee (IRMC) is primarily responsible in identifying, measuring, monitoring and reporting market risks to the management to mitigate the impact on such risks.

Interest Rate Risk ANALYSIS Interest Rate Risk may arise due to fluctuations in the Interest Rate resulting in an adverse impact to future cash flows or the fair value of the financial instruments of the Company. The Company is managing the interest rate risk by analyzing rate trends and sensitivity level based on the Company’s asset and liabilities, terms of interest

payments, thus helping to ascertain various interest rate movements. AND DISCUSSION MANAGEMENT

Interest Rate Sensitivity Analysis

Given below is a Sensitivity Analysis carried out as at 31st March 2018 that demonstrates a possible impact to the Company’s Statement of Comprehensive Income due to a given change in interest rates keeping all other variables constant.

Market Rates Market Rates Market Rates Market Rates up by 0.5% drop by 0.5% up by 1.0% drop by 1.0% effect to effect to effect to effect to

the interest the interest the interest the interest FINANCIAL REPORTS Income/ Income/ Income/ income/ (Expenses) (Expenses) (Expenses) (expenses) Rs.'000 Rs.'000 Rs.'000 Rs.'000

Effect on Rate sensitive Assets 74.54 (74.54) 149.09 (149.09) Effect on Rate sensitive Liabilities 146.72 (293.43) 293.43 Sensitivity/Effect to Income statement 74.54 72.17 (144.35) 144.35

The Company possesses interest rate sensitive assets of Rs.16 Bn and rate sensitive liabilities of Rs. 29.3 Bn.

Assumptions :-

™™ The interest rates movement have been applied on the basis that both asset and liabilities pricing rates are ANNEXURES on a fixed basis.

™™ The market rates are not changed materially in the foreseeable future

™™ The lending and deposit volumes are to remain un-changed.

109 The Finance Company PLC Annual Report 2017 | 2018

Notes to the Financial Statements

Financial Assets and Financial Liabilities exposed to Interest Rate Risk

The Company’s Financial Assets and Financial Liabilities exposed to interest rate risk as at 31st March 2018 is presented in Note No 48.1

Equity Risk

The Company’s equity investment in the Stock Market could decline due to a fall in share prices due to adverse market conditions. To minimize equity risk the Company monitors the performance of the stock market and identifies existing conditions, trends and make decisions on an ongoing basis.

Risk Analysis of Equity Based Portfolio

The Equity Risk Exposure as at 31st March 2018 is given below

If market price Market price as drop by 10% as Effect to Effect to at 31st March experienced in the Income the Income 2018 2017/18 Statement Statement Rs. Rs. Rs. %

Bank, Finance & Insurance Sector 238,686 214,817 (23,869) 0.3% Beverage, Food & Tobacco Sector - - - 0.0% Land & Property Sector 35,208,900 31,688,010 (3,520,890) 48.3% Diversified Holdings Sector 26,259,560 23,633,604 (2,625,956) 36.0% Trading Sector - - - 0.0% Hotel & Travel Sector 270 243 (27) 0.0% Manufacturing Sector 418,000 376,200 (41,800) 0.6% Plantation Sector - - - 0.0% Power & Energy Sector - - - 0.0% Mutual Funds 10,736,000 9,662,400 (1,073,600) 14.7% 72,861,416 65,575,274 (7,286,142) 100.0%

Commodity Price Risk

Commodity price risk caused by the fluctuations in the prices of commodities. Given the significance of gold backed loans, fluctuations in the gold prices could have an adverse impact on earnings. Gold price risk could arise from both adverse movement in the world prices and exchange rates. The company mitigates the risks by constantly adjusting advance offered per gold sovereign in line with the gold market prices.

Operational Risk

Operational risk is the possibility of losses incurred to the Company from internal processes, personal, technology, infrastructure and external factors legal and regulatory requirements. These would expose the Company to fines, penalties, direct and indirect financial loss, brand or reputational damage, negative impact on customer satisfaction. The Integrated Risk Management Committee (IRMC) is responsible in identifying those above operational risks on monthly basis, measure, monitor and report to the management to mitigate the impact on such risks.

110 The Finance Company PLC Annual Report 2017 | 2018

Notes to the Financial Statements 1,500,000 602,389,539 226,694,903 1,250,520,065 4,169,034,754 3,821,648,070 4,838,223,624 14,910,010,955 (20,433,079,112) 6,000,000,000 Total as at Total 31-03-2018 31-03-2018 35,343,090,067 29,343,090,067 - - - - OVERVIEW 5,821,545 2,681,496 5 Years 5 Years 58,765,443 58,765,443 24,730,308 More than More 4,812,691,530 4,871,456,973 4,838,223,624 - - - - 24,869,314 71,409,640 104,922,057 464,659,961 640,991,658 Between Between 4,524,869,314 3 to 5 Years 5 Years 3 to 4,500,000,000 (3,883,877,656) - - - - 62,009,501 299,927,381 431,033,034 ANALYSIS Between Between 1,562,009,501 1,393,059,563 1 to 3 Years 3 Years 1 to 2,224,108,650 2,955,069,064 1,500,000,000 - - - - MANAGEMENT DISCUSSION AND DISCUSSION MANAGEMENT 525,405,151 525,405,151 166,986,682 1,113,071,666 Between Between 222,000,000 1,773,041,923 2,749,695,119 3,275,100,270 3 to 12 Months 3 to - - 1,500,000 4,694,903 Up to Up to 61,384,340 361,372,933 400,185,185 400,185,185 3 Month 3,167,392,990 1,250,520,065 1,487,920,749 2,767,207,805 FINANCIAL REPORTS - ANNEXURES Interest Sensitivity Gap Sensitivity Interest Total Financial Liabilities Financial Total Interest Bearing Loans and Borrow Loans Bearing Interest ings Total Financial Assets Financial Total Liabilities Sensitive Interest Customers Liabilities due to Financial Financial Instruments - Held to Maturity Instruments - Held to Financial Sale for Instruments - Available Financial Financial Investment - Loans and Receivables - Loans Investment Financial Loans and Receivable - Others and Receivable Loans Loans and Receivable - Hire Purchase - Hire and Receivable Loans - Leases and Receivable Loans Interest Sensitive Assets Sensitive Interest Equivalents and Cash Cash Financial Assets and Liabilities exposed to Interest Rate Risk As at 31st March As 47.1

111 The Finance Company PLC Annual Report 2017 | 2018

Notes to the Financial Statements - 31.03.2017 2,935,390 8,144,887 11,833,367 RS. 12,624,915 24,129,565 73,395,633 12,409,389 (1,768,284) 36,538,954 87,674,557 (13,395,314) 10,600,000 312,741,998 (237,006,981) 6,865,777,159 (252,170,579) (706,040,129) 31.03.2017 3,925,140,201 3,376,795,387 (502,220,680) 3,888,601,248 2,476,330,300 19,350,126,509 29,365,699,810 (1,293,482,743) (4,966,452,365) (5,218,622,945) (3,766,336,444) 21,826,456,809 36,231,476,969 36,231,476,969 - - Total 6,529,361 31.03.2018 RS. 4,062,633 18,205,013 (1,685,812) 17,964,501 20,516,959 13,987,598 22,969,861 21,356,000 80,781,507 (12,524,411) 29,270,549 (9,620,236) 48,554,665 (613,167,251) (442,021,119) 19,319,511,705 6,823,937,125 3,563,873,594 31,214,969,113 3,347,426,956 31.03.2018 3,543,356,635 4,242,890,855 (5,357,829,318) (5,375,793,819) (1,793,955,724) 23,562,402,560 (4,308,081,039) 38,038,906,238 ------RS. 31.03.2017 2,935,390 13,535,390 13,535,390 13,535,390 10,600,000 217,262,296 217,262,296 31.03.2017 ------RS. 31.03.2018 22,969,861 44,325,861 44,325,861 44,325,861 21,356,000 200,538,838 200,538,838 Investment in Shares Investment 31.03.2018

------RS. 31.03.2017 496,167,102 496,167,102 496,167,102 496,167,102 31.03.2017 6,644,513,458 6,298,440,995 6,298,440,995 6,644,513,458 ------Treasury RS. 31.03.2018 543,459,648 543,459,648 543,459,648 543,459,648 31.03.2018 6,808,711,091 6,808,711,091 6,669,064,188 6,669,064,188 6,669,064,188 ------RS. 31.03.2017 6,020,000 (1,768,284) 316,993,714 (1,768,284) (1,768,284) 312,741,998 318,761,998 318,761,998 31.03.2017 1,941,369,585 1,941,369,585 ------Properties Investment Investment - RS. 31.03.2018 4,954,188 (1,685,812) (1,685,812) (1,685,812) 6,640,000 6,640,000 6,640,000 31.03.2018 1,861,369,585 1,861,369,585 ------RS. 31.03.2017 77,022,172 73,395,633 73,395,633 77,022,172 77,022,172 181,289,156 73,395,633 150,417,805 986,525,296 31.03.2017 986,525,296 181,289,156 181,289,156 ------Real Estate Real RS. 31.03.2018 48,554,665 48,554,665 48,554,665 557,164,207 129,369,070 31.03.2018 508,609,542 508,609,542 508,609,542 129,369,070 129,369,070 1,299,653,826 1,299,653,826 ------5,813,367 31.03.2017 RS. 12,624,915 87,674,557 39,974,546 (13,395,314) (314,029,153) 2,986,741,124 2,659,316,657 31.03.2017 2,986,741,124 39,974,546 39,974,546 9,906,528,338 2,880,628,285 (327,424,467) (327,424,467) 9,906,528,338 ------Financial RS. 11,565,013 31.03.2018 4,062,633 80,781,507 25,503,867 (9,620,236) 2,411,417,232 31.03.2018 25,503,867 25,503,867 2,900,376,461 9,149,238,365 9,149,238,365 (488,959,229) (488,959,229) 2,900,376,461 (479,338,994) 2,803,967,308 Segment Reporting Total Assets Non-Segment Assets Non-Segment Segment Assets As at As Profit / (Loss) for the Period for the / (Loss) Profit Total Non Segment Expenses Total Total Gross Expenses Other Operating Expenses Other Operating Personnel Expenses Personnel Interest Expense Interest Impairment Reversal of Property, Reversal Impairment Plant & Equipment Non Segment Expenses of Other Charge Impairment Receivables Total Segment Expenses Other Operating Exp. Other Operating Impairment for Loans & Receivables Loans for Impairment Segment Expense Expenses and Commission Fees Total Gross Income Total Non Segment Income Total Other Income Non Segment Income Gain on Disposal of Property, Plant and Equipment Total Segment Income Total Rent Income Recovery of Loans Written Off Written of Loans Recovery Change in Fair Value of Value Change in Fair Property Investment Dividend Income fromDividend Income Sale Investments for Available Total Liability Total Income fromIncome Held-for-Trading Instruments Fees and Commission Income and Commission Fees Non-Segment Liability Non-Segment Real Estate Income Estate Real Segment Liability Segment Income Income Interest ANNEXURES 112 The Finance Company PLC Annual Report 2017 | 2018

Annexures OVERVIEW ANALYSIS MANAGEMENT DISCUSSION AND DISCUSSION MANAGEMENT

ANNEXURES Ten Year Summary 114 Shareholders’ Information 115 Branch Network 118 Service Centres 122

Notice of Meetings 124 FINANCIAL REPORTS Form of Proxy 125 Corporate Information 127

ANNEXURES ANNEXURES 113 The Finance Company PLC Annual Report 2017 | 2018

Ten Year Summary ------141 72.38 5,513 73,877 410,181 191,225 67,070 911,067 371,390 659,910 994,177 (125.54) 1,414,119 987,639 996,930 502,889 488,457 984,944 (589,015) 1,639,334 1,990,230 1,049,765 (635,043) 3,575,709 3,539,059 2009 4,689,572 6,342,426 (6,623,611) 6,697,488 1,478,006 17,017,248 27,065,133 (2,913,302) (1,928,358) (2,563,401) 36,704,551 36,704,551 10,640,478 35,226,545 (2,563,401) Rs. ‘000 2008/09 ------6,403 (174.56) 31,620 35,642 410,181 191,225 42,867 229,531 659,167 659,910 546,164 398,665 373,984 868,765 946,305 477,686 (209.90) (533,971) 2,146,291 1,420,601 3,195,938 1,910,806 3,205,103 6,860,313 (593,858) 2010 (1,011,657) 3,804,053 5,204,000 (4,815,710) (3,158,108) 10,286,595 (5,580,813) 25,747,255 (4,285,937) (3,564,417) 27,296,260 2009/10 27,296,260 (3,692,080) Rs. ‘000 (4,285,937) 30,860,677 ------6,401 (24.07) 2,092 11,594 84,613 191,225 841,411 201,107 325,157 (87.54) 659,910 107,779 791,686 359,759 372,690 239,467 946,305 1,181,390 4,010,181 2,101,063 2011 1,327,979 1,692,825 2,683,718 (979,387) 2,733,725 2,985,939 5,652,439 (606,696) 7,444,363 (3,830,135) (3,841,729) 2010/11 21,434,222 21,434,222 (3,235,033) 25,295,265 (3,830,135) (9,477,439) (3,861,043) 20,862,890 Rs. ‘000 (3,080,449) - - - (31.59) 0.08 1,500 7,420 13,318 13,318 195,411 28,839 29,467 459,213 410,410 659,910 1,111,965 325,753 182,093 553,385 102,280 447,158 (85,180) 933,837 429,353 425,376 640,327 1,105,817 2,165,917 4,010,181 (191,940) 3,196,018 (471,639) 1,199,045 1,997,936 (412,058) 3,746,515 1,368,473 2012 2,909,572 6,909,467 18,902,951 (1,052,385) (11,106,481) 2011/12 21,568,084 (2,469,575) (5,067,917) 18,902,950 Rs. ‘000 23,970,868 ------1,334 1,260 1,260 (44.95) (9.47) 51,534 151,323 29,467 157,224 659,910 385,323 817,249 553,385 547,180 292,058 598,677 920,324 1,311,650 564,076 4,010,181 2,119,489 2,670,851 2013 (873,658) 1,366,045 (1,181,537) 8,140,027 2,563,402 (488,334) 3,480,077 (1,517,288) (7,211,325) (1,669,871) (1,518,548) (2,993,147) 22,772,272 17,875,227 17,875,228 (1,518,548) 25,086,553 (13,193,066) Rs. ‘000 2012/2013 - - - (55.32) 1,334 8,338 (11.14) 116,010 158,915 411,269 137,366 659,910 670,519 103,469 124,348 401,938 784,818 623,837 267,387 (53,835) 275,064 359,070 1,422,631 4,010,181 (1,321,159) 2,012,086 2014 2,472,797 2,793,843 1,340,404 2,570,497 7,928,999 (909,890) (1,662,371) (1,224,932) (2,134,822) (2,188,657) (1,786,719) (3,333,245) 2013/14 24,559,850 16,850,837 25,724,535 16,850,840 Rs. ‘000 (8,873,695) (14,966,417) - - - 9,131 (66.74) 1,446 21,882 (11.49) 49,163 191,061 (61,913) 659,910 159,248 1,691,711 357,696 528,897 386,435 679,457 224,897 860,784 4,010,181 (184,237) 2,351,067 1,493,675 (888,491) 2015 (530,795) 9,701,024 2,493,293 2,278,492 2,742,475 6,245,398 6,738,009 (1,833,891) (1,127,990) (3,166,983) (1,658,785) (1,843,022) 27,686,523 24,616,203 2014/15 24,616,202 (16,870,611) (1,843,022) 35,323,048 Rs. ‘000 (10,706,845) - - - (81.78) 2,051 (15.80) 931,119 174,183 154,188 659,910 (31,348) 127,900 244,413 142,074 122,840 199,990 353,870 (60,529) 4,010,181 1,692,281 1,055,851 3,463,315 1,462,327 1,385,433 2,447,315 2016 (202,603) (968,366) 5,652,993 3,252,034 6,359,346 (2,412,562) 29,466,391 (1,567,036) 23,883,913 (1,506,507) 23,883,913 2015/16 10,794,098 (2,535,402) (3,454,637) (19,251,825) Rs. ‘000 37,003,320 (2,535,402) (13,119,407) ------1,981 3,584 7,870 4,286 (8.06) 85,779 354,211 131,483 167,421 (89.80) 659,910 145,409 986,525 534,950 982,294 270,887 1,021,791 4,010,181 (389,541) 1,941,370 3,925,140 1,436,776 2017 (228,862) 3,376,795 2,308,910 6,373,627 5,944,229 28,563,191 8,924,234 (1,285,613) (1,210,029) (1,293,483) 36,231,477 (3,766,336) 21,826,457 2016/17 21,826,456 (1,064,620) (1,293,483) Rs. ‘000 (20,511,887) (14,405,020) - - - - - 1,981 (11.18) 10,061 72,861 16,746 (3,806) 127,677 659,910 254,562 480,201 634,955 (71,484) 206,826 959,709 254,648 1,716,217 4,010,181 3,149,187 1,861,370 2018 1,722,472 6,328,510 1,299,654 (753,828) 6,414,502 8,514,284 (960,654) 3,563,874 3,347,427 3,988,243 (90.24) (1,810,702) (1,793,956) (1,793,956) 2017/18 30,408,152 23,562,403 23,562,403 (1,056,874) (4,308,081) 38,038,906 Rs. ‘000 (22,295,781) (14,476,503) Other Income Net Interest Income Net Interest Interest Expenses Interest Interest Income Interest INCOME STATEMENT INCOME the year For Gross Revenue Gross Net Asset Value per Share (Rs) per Share Value Net Asset Total Liabilities & Shareholders Fund Liabilities & Shareholders Total Revenue Reserves Revenue Statutory Reserve Fund Reserve Statutory Other Reserves Shareholders' Funds Shareholders' Capital Stated Total Liabilities Total Bank Overdraft Unclaimed Dividend Unclaimed Taxation Other Payables Public Deposits Term Loans Term Liabilities Debentures Total Assets Property, Plant and Equipment Property, Investment Properties Investment Earnings per Share Deferred Tax Assets Tax Deferred Total Comprehensive Income for the year for Income Comprehensive Total Capital Work in Progress Work Capital Other Comprehensive Income for the year for Income Other Comprehensive Investments Securities Investments Net Gains/ (Losses) on Re-measuring Available- on Re-measuring Net Gains/ (Losses) Assets Financial for-Sale Other Assets Unrealized Actuarial Gains/ (Losses) o n Gains/ (Losses) Actuarial Unrealized Benefit Obligations Retirement Other Comprehensive Income Other Comprehensive on Land and Buildings Revaluation Amount due from Customers Profit for the year for the Profit Investment in Leases Investment Provision for Income Taxation Income for Provision Loans and Advance Loans Net Profit before Prov. for Taxation for Prov. before Net Profit Investment in Real Estate in Real Investment Provision for Loan Losses Loan for Provision Financial Investment - Held for Trading - Held for Investment Financial Net Profit before Prov. for Loan Losses Loan for Prov. before Net Profit Investment in TBs & FDs Investment Operating Expenses Operating BALANCE SHEET AS AT 31ST MARCH 31ST BALANCE SHEET AS AT Assets Balances Bank and Cash Total Operating Income Operating Total

114 The Finance Company PLC Annual Report 2017 | 2018

Shareholding Information

a) Shareholder Analysis i) Ordinary Voting Shares (Quoted)

VALUE BANDS 31ST MARCH 2018 31ST MARCH 2017 Shares No of Share No of Share holders No. of Shares % holders No.of Shares %

1 - 1,000 8,629 1,482,903 2.56 9,521 1,522,680 2.63 749 2,570,334 4.43

1,001 - 10,000 773 2,709,019 4.67 OVERVIEW 10,001 - 100,000 197 5,533,243 9.55 188 5,010,904 8.64 100,001 - 1,000,000 32 9,099,093 15.70 26 6,588,880 11.37 Over 1,000,001 9 39,141,974 67.53 10 42,273,434 72.93 Total 9,640 57,966,232 100.00 10,494 57,966,232 100.00

ii) Resident /Non-Resident – Ordinary Voting Shares(Quoted)

31ST MARCH 2018 31ST MARCH 2017 Type No of Share No of Share holders No. of Shares % holders No.of Shares %

Resident 9,594 57,913,995 99.91 10,445 57,884,513 99.86

Non-Resident 46 52,237 0,09 49 81,719 0.14 ANALYSIS Total 9,640 57,966,232 100.00 10,494 57,966,232 100.00

iii) Individuals/Institutions – Ordinary Voting Shares (Quoted)

31ST MARCH 2018 31ST MARCH 2017 AND DISCUSSION MANAGEMENT Type No of Share No of Share holders No. of Shares % holders No.of Shares %

Company 171 43,220,646 74.56 173 44,915,507 77.49 Individuals 9,469 14,745,586 25.44 10,321 13,050,725 22.51 Total 9,640 57,966,232 100.00 10,494 57,966,232 100.00 b) Shareholder Analysis i) Ordinary Non-Voting Shares (Quoted)

VALUE BANDS 31ST MARCH 2018 31ST MARCH 2017 FINANCIAL REPORTS Shares No of Share No of Share holders No. of Shares % holders No.of Shares %

1 - 1,000 1,339 636,986 0.64 1,347 653,785 0.65 1,001 - 10,000 2,607 11,239,956 11.24 2,660 11,494,354 11.49 10,001 - 100,000 1,404 42,857,711 42.86 1,420 43,381,685 43.40 100,001 - 1,000,000 157 35,953,265 35.95 151 36,357,164 36.36 Over 1,000,001 7 9,312,082 9.31 5 8,113,012 8.10 Total 5,514 100,000,000 100.00 5,583 100,000,000 100.00 ANNEXURES

115 The Finance Company PLC Annual Report 2017 | 2018

Shareholding Information

ii) Resident /Non-Resident – Ordinary Non Voting Shares

31ST MARCH 2018 31ST MARCH 2017 Type No of Share No of Share holders No. of Shares % holders No.of Shares %

Resident 5,502 97,729,183 97.73 5,569 97,587,420 97.59 Non-Resident 12 2,270,817 2.27 14 2,412,580.00 2.41 Total 5,514 100,000,000 100.00 5,583 100,000,000 100.00

iii) Individuals/Institutions - Ordinary Non Voting Shares

31ST MARCH 2018 31ST MARCH 2017 Type No of Share No of Share holders No. of Shares % holders No.of Shares %

Company 92 12,627,563 12.63 82 11,272,612 11.27 Individuals 5,422 87,372,437 87.37 5,501 88,727,388 88.73 Total 5,514 100,000,000 100.00 5,583 100,000,000 100.00 c) Twenty Major Shareholders i) Ordinary Voting Shares (Quoted)

31st March 2018 31st March 2017 Type % on vot- % on vot- No. of Shares ing shares No.of Shares ing shares

01 Sampath Bank PLC /Dr. T. Senthilverl 7,124,900 11.79 7,124,900 11.79 02 Ceylinco Investment Company Ltd 6,670,230 11.04 6,670,230 11.04 03 Seylan Bank PLC / Thirugnanasambandar Senthilverl 5,948,480 9.85 5,948,480 9.85 04 Bank of Ceylon A/C-Ceybank Unit Trust 5,706,601 9.44 5,706,601 9.44 05 Employees Provident Fund 5,091,200 8.43 5,091,200 8.43 06 Allnatt Investments (Private) Limited 2,906,570 4.81 2,906,570 4.81 07 Peoples Bank 2,080,400 3.44 2,080,400 3.44 08 Ceylinco Insurance PLC A/C No.2 (General Fund) 1,875,000 3.10 1,875,000 3.10 09 Seylan Bank PLC- K L G Udayananda 1,738,593 2.88 1,739,001 2.88 10 MR. M M C J Fernandopulle 925,000 1.53 925,000 1.53 11 Seylan Bank PLC – A/C No 3 893,003 1.48 3,131,052 5.18 12 Mr. N Perera 889,270 1.47 889,270 1.47 13 Mrs. R A D R P Kumari 560,625 0.93 672,660 1.11 14 Mr. J L B Kotelawala 526,427 0.87 526,427 0.87 15 Mr.K.L G Udayananda 502,200 0.83 Nil Nil 16 Peoples Leasing & Finance PLC/ K.L. G Udayananda 492,767 0.82 Nil Nil 17 Mr. R A D S P Randeniya 473,406 0.78 Nil Nil 18 Mr. G S Padumadasa 354,500 0.59 201,190 0.33 19 Peoples Leasing & Finance PLC/Mr. W M H B Senevirathna 24,4670 0.40 Nil Nil 20 Miss. R H Mallika 243,679 0.40 Nil Nil

116 The Finance Company PLC Annual Report 2017 | 2018

Shareholding Information

ii) Non Voting Ordinary Shares (Quoted)

31st March 2018 31st March 2017 Type % on non % on non voting voting No. of Shares shares No.of Shares shares

01 Peoples Leasing & Finance PLC/Mr.J A K S Prabha 1,509,892 1.51 Nil Nil

02 Bank of Ceylon A/C Ceybank Unit Trust 14,94,345 1.49 1,494,345 1.49 OVERVIEW

03 Mrs. R A D R P Kumari 1,405,058 1.41 1,935,000 1.94

04 M/s Bishop of Galle 1,347,535 1.35 2.103,300 2.10

05 Seylan Bank PLC/ K.L.G Udayananda 1,290,777 1.29 1,330,367 1.33

06 Mrs. A Kundanmal 1,250,000 1.25 1,250,000 1.25

07 Mr. Y L Farook 1,014,475 1.01 952,900 0.95

08 Mrs. P S A V Perera 945,200 0.95 945,200 0.95

09 Mr. Y J S Perera 753,698 0.75 866,945 0.87

10 Mr.M Gunadasa 718,545 0.72 718,545 0.72

11 Mr. I H Jafferjee 645,400 0.65 645,400 0.65 ANALYSIS 12 Andaradeniya Estate Private Limited 654,182 0.65 654,182 0.65

13 Mr. M De Seram 683,392 0.64 683,392 0.64

14 Mr. W N K Waduge 617,600 0.62 617,600 0.62 MANAGEMENT DISCUSSION AND DISCUSSION MANAGEMENT

15 Mr. D Rajeswaran 598,800 0.60 588,800 0.59

16 Mr. S Ranaweera 579,800 0.58 579,800 0.58

17 Mr.K K D Senanayake 555,404 0.56 Nil Nil

18 Mr.R Rambukwelle 546,442 0.55 Nil Nil

19 Mr. C Siluvaithasan 537,500 0.54 537,500 0.54

20 Mr. A Gallage 523,000 0.52 523,000 0.52 FINANCIAL REPORTS ANNEXURES

117 The Finance Company PLC Annual Report 2017 | 2018

Branch Network

Branches 46 Service Centres 12

Northern Province 02 Branches Jaffna Vavuniya North Central 02 Service Centres Province Chavakachcheri 04 Branches Nelliady Anuradhapura Hingurakgoda Polonnaruwa North Western Province Thambuthhegama 04 Branches Chilaw Kuliyapitiya Eastern Kurunegala Province Nikaweratiya 03 Branches Ampara Batticaloa Western Trincomalee Province 14 Branches Avissawella Baduraliya Gampaha Homagama Central Horana Province Hyde Park Corner Ja-ela 06 Service Centres 06 Branches Kadawatha Kiribathgoda Alawathugoda Kalutara Maharagama Dambulla Metropolitan Malabe Galewela Moratuwa Matugama Kandy Negombo Modara Matale Nittambuwa Piliyandala Nuwara Eliya Nugegoda 02 Service Centre Hatton Nawalapitiya Sabaragamuwa Province Uva 04 Branches Province Balangoda 04 Branches Embilipitiya Badulla Kegalle Southern Bandarawela Ratnapura Province Mahiyangana 05 Branches Welimada 01 Service Centre Ambalantota 01 Service Centre Ruwanwella Galle Wellawaya Matara Elpitiya Tissamaharama

118 The Finance Company PLC Annual Report 2017 | 2018

Branch Network

Branch Address Contact Number Email

No.809,Matale Road, Tel 0662 243 308 Alawathugoda [email protected] Alawathugoda. Fax 0662 057 320 0472 223 210 No. 123, Main Street, Tel Ambalantota 0472 223 842 - 3 [email protected] Ambalantota Fax 0472 223 136 0632 222 326 OVERVIEW No. 120, D. S. Senanayaka Tel 0632 222 669 Ampara [email protected] Mawatha 0632 223 070 Fax 0632 223 135 0252 222 443 No. 249/1A, Maithripala Tel Anuradhapura 0254 581 107 [email protected] Senanayake Mawatha, Fax 0252 221 379 0362 222 216 Tel 0362 222 820 Avissawella No.73, Ratnapura Road [email protected] 0362 223 117 Fax 0362 231 071 0552 222 557 Tel 0552 222 682 Badulla No.7-9, Ward Street, Badulla [email protected] 0552 223 982 ANALYSIS Fax 0552 223 149 No 38 Rathnapura Road, Tel 0342 241 066 Baduraliya [email protected] Baduraliya Fax 0342 241 066 MANAGEMENT DISCUSSION AND DISCUSSION MANAGEMENT No.119, Barnes Rathwatta Tel 0452 288 877 Balangoda [email protected] Mawatha, Fax 0452 286 561 No.501, Badulla Road, Tel 0572 224 866 Bandarawela [email protected] Bandarawela Fax 0572 232 053 No.211, Trincomalee Road, Tel 0652 222 521 Batticaloa [email protected] Baticaloa Fax 0652 222 896 0322 222 269 No. 53A, Puttalam Road, Tel 0322 222979 Chilaw [email protected] Chilaw 0322 221 463 Fax 0322 223 443 FINANCIAL REPORTS No. 689, Anuradhapura Tel 0662 283 183 Dambulla [email protected] Road, Dambulla Fax 0662 283 388 No. 21, Dambulu Building, Tel 0913 901 620 Elpitiya Ambalangoda Road, [email protected] Fax 0912 290 397 Elpitiya. 0472 230 159 No. 59, Main Street, Tel Embilipitiya 0472 230 990 [email protected] Embilipitiya Fax 0472 230 991 No.59, Kalawewa Road, Tel 0662 288 115 Galewela [email protected] Galewela Fax 0662 288 115 0912 232 166 Tel ANNEXURES Galle No. 28, Havelock Road, 0912 234 166 [email protected] Fax 0912 223 860

119 The Finance Company PLC Annual Report 2017 | 2018

Branch Network

Branch Address Contact Number Email

0332 223 329 No. 99, Bauddhaloka Tel 0332 226 572 Gampaha [email protected] Mawatha 0332 227 888 Fax 0334 670 176 No.23,Air Port Road, Tel 0272 245 290 Hingurakgoda [email protected] Hingurakgoda. Fax 0272 245 290 0112 893 177 No 96/2, High level Road, Tel 0112 893 178 Homagama [email protected] Homagama 0112 892 340 Fax 0112 855 469 0342 261 400 0342 260 913 No. 141-D, Ratnapura Road, Tel Horana 0342 260 914 [email protected] Horana 0342 260 122 Fax 0342 261 565 0112 682 745 No.97, Hyde Park Corner, Tel 0112 684 278 Hyde Park Corner [email protected] Colombo 2 0115 566 300 Fax 0112 690 007 0112 236 495 0112 244 651 Tel Ja-Ela No.159/A, Colombo Road 0112 237 461 [email protected] 0114 870 539 Fax 0112 237 379 0212 222 310 Tel Jaffna No. 249, Power House Road, 0212 226 256 [email protected] Fax 0212 222 310 0112 925 305 1026, Kandy Road, Kadawa- Tel 0112 926 259 Kadawatha [email protected] tha. 0112 921 325 Fax 00112 928 173 0342 222 623 No. 202, Main Street, Kalut- Tel Kalutara 0342 228 900 - 1 [email protected] ara South, Fax 0342 223 159 0812 226 170 No. 281,D S Senanayeke Tel Kandy 0812 226 169 [email protected] Veediya, Fax 0812 234 304 0352 223 082 No. 171, Colombo Road, Tel 0352 222 734 Kegalle [email protected] Kegalle 0352 230 975 Fax 0352 230 976 0372 281 122 No. 50, Madampe Road, Tel Kuliyapitiya 0372 282 015 [email protected] Kuliyapitiya Fax 0372 282 271 No.79/21, Colombo Road, Tel 0372 234 890 - 1- 2 Kurunegala [email protected] Kurunegala Fax 0372 234 893 No. 16, Kandy Road, New Tel 0552 257 558 - 9 Mahiyangana [email protected] Town, Fax 0552 257 214

120 The Finance Company PLC Annual Report 2017 | 2018

Branch Network

Branch Address Contact Number Email

0662 222 189 Tel 0662 224 172 Matale No. 315, Main Street, Matale [email protected] 0662 234 152 Fax 0662 224 401 0412 222 533 No. 169, Anagarika Dharma- Tel 0412 222 766 Matara pala [email protected] 0412 228 224 OVERVIEW Mawatha, Matara Fax 0412 228 223 0112 740 400 No. 194, Galle Road, Tel [email protected] Metropolitan 0112 720 800 Dehiwala [email protected] Fax 0112 740 433 0112 647 777 0112 648 367 No. 293, Galle Road, Tel Moratuwa 0112 644 831 [email protected] Moratuwa 0112 641 493 Fax 0112 648 956 0312 233 003 No.317, Main Street, Tel Negombo 0312 235 024 - 5 [email protected] Negombo

Fax 0312 233 946 ANALYSIS 0332 295 889 No. 195 1/1, Colombo Road, Tel Nittambuwa 0332 295 890 [email protected] Nittambuwa Fax 0332 295 890

No. 81, Kurunegala Road, Tel 0372 260 860 AND DISCUSSION MANAGEMENT Nikaweratiya [email protected] Nikaweratiya Fax 0372 260 031 0112 815 281-2-3 No. 214, High Level Road, Tel 0112 818 047 Nugegoda [email protected] Nugegoda 0112 853 765 Fax 0112 853 765 Tel 0522 235 996 Nuwara Eliya No. 1, St. Xavier Church Road, [email protected] Fax 0522 223 551 0272 222 296 No. 25, Batticaloa Road, Tel Polonnaruwa 0272 224 851 [email protected] Polonnaruwa Fax 0272 224 852 FINANCIAL REPORTS 0452 223 897 No. 73, River Side Road, Tel Ratnapura 0452 222 031 [email protected] Demuwawatha, Fax 0452 232 335 No 59,1st Floor, Rajangana Tel 0252 275 055 Thambuthhegama [email protected] Junction, Fax 0252 275 055 Muthukumarana Building, Tel 0472 239 497 Tissamaharama Lower Street, [email protected] Fax 0472 239 497 Tissamaharama No. 164/1, 0262 227 722 Tel Trincomalee Thirugnanasampanthar 0262 050 196 [email protected]

Veethi, Fax 0262 227 722 ANNEXURES 0572 246 925 No.117, Badulla Road, Tel Welimada 0572 051 550 [email protected] Welimada Fax 0572 246 925 No. 73B, 2nd Cross Street, Tel 0242 224 690 Vavuniya [email protected] Vavuniya Fax 0244 589 535 121 The Finance Company PLC Annual Report 2017 | 2018

Service Centres

Service Centre Address Contact Number Email Date Open Main Branch

No.126, Kandy Road, Tel 0212 270 035 Chavakachcheri [email protected] 24/03/2005 Jaffna. Chavakachcheri Fax 0212 270 035

No. 30 A, Dunbar Road, Tel 0512 225 250 Nuwara Hatton [email protected] 21/04/2005 Hatton. Fax 0512 225 251 Eliya.

No. 227/B, High Level Road, Tel 0112 745 110 Maharagama [email protected] 20/12/2004 Homagama. Wattegedara, Maharagama. Fax 0112 896 166 No .766-1/2, Kaduwela Road, Tel 0112 760 988 Malabe [email protected] 10/12/2004 Nugegoda. Malabe. Fax 0114 542 947 No. 92, Agalawatte Road, Tel 0342 248 383 Matugama [email protected] 12/11/2004 Kalutara. Matugama. Fax 0342 248 382 No.6, Muthuwella Mawatha Tel 0112 540 521 Modara [email protected] Ja-ela Colombo 15. Fax 0112 541 251 No. 16, Makola Road, Tel 0115 540 800 Kiribathgoda [email protected] 21/12/2004 Kadawatha Kiribathgoda Fax 0112 912 985 0542 224 293 No.30,Ambagamuwa Road, Tel Nawalapitaya 0542 224 294 [email protected] 21/04/2005 Kandy Nawalapitiya Fax 054 2224 293 No. 91, Main Street, Tel 0212 264 170 Nelliady [email protected] 24/03/2005 Jaffna. Nelliady. Fax 0212 264 170 No. 48/1, Colombo Rd., Tel 0112 606 382 Piliyandala [email protected] 8/03/2005 Moratuwa. Piliyandala Fax 0112 606 382 No.76, Main Street, Tel 0362 267 567 Ruwanwella [email protected] 15/03/2005 Avissawella. Ruwanwella. Fax 0362 266 792 No.76A, M.K.S Building Tel 0552 274 314 Wellawaya [email protected] 2/05/2005 Badulla New Ella Road, Wellawaya. Fax 0552 274 315

122 The Finance Company PLC Annual Report 2017 | 2018

Note OVERVIEW ANALYSIS MANAGEMENT DISCUSSION AND DISCUSSION MANAGEMENT FINANCIAL REPORTS ANNEXURES

123 The Finance Company PLC Annual Report 2017 | 2018

Notice of Annual General Meeting

NOTICE IS HEREBY GIVEN THAT the 78th Annual General Meeting of the shareholders of The Finance Company PLC will be held at Sri Lanka Foundation, No 100, Padanama Mawatha, Independence Square, Colombo 07 on 17th September 2018 at 10.00 a. m.

AGENDA

1. To receive and adopt the Report of the Directors and the Statement of Accounts for the year ended 31st March 2018 and to receive the report of the auditors thereon.

2. To pass a resolution in terms of section 158 (b) of the Companies Act No. 07 of 2007 to appoint New Auditors of the Company in place of the retiring Auditors M/s SJMS Associates Chartered Accountants and to authorize the Directors to determine their remuneration.

3. To authorize the Directors to determine contributions to charities and other donations for the year 2018/2019.

4. To consider any other business of which due notice is given.

By order of the Board THE FINANCE COMPANY PLC

Shashika Naguruge (Mrs.) Company Secretary

10th August 2018

Note: ™™ A member is entitled to appoint a proxy to attend and vote for him/her.

™™ A proxy need not be a member of the Company.

™™ A form of proxy is enclosed for this purpose.

™™ The instrument appointing a proxy should be deposited at the Head office at No 55, R A De Mel Mawatha (Lauries Place) Colombo 4 not less than 48 hours before holding of the meeting.

™™ Shareholders/Proxy holders attending the Annual General Meeting are kindly requested to bring with them their National Identity Card or any other valid form of identification.

124 Form of Proxy (For Non-Voting Shareholders)

I/We....……………………………………………………………………………………………………………...... …………of ………

…………………………………………………………….…………………………………………………. being a shareholder/s of The Finance Company

PLC hereby appoint Mr/Mrs/Miss ……………….…………………………………...……………………………………………………………………………………….…

(N.I.C.No……...... …………...... …..…….) of…………...... ………………………………………………………………………...... ….……………failing him/ her Mr Bamunu Arachchige Wasantha Kumarasiri of Malabe whom failing, Mr Nimal Jayantha Bandara

Mamaduwa of Kotte whom failing, Mr Merenna Koralalage Don Wijayasiri Amarasinghe of Kosgama whom failing , Mr. Walahanduwa Gamage Karunadasa of Piliyandala whom failing, Mr Rathnasiri Siriwardhane of

Ragama as my/our Proxy to represent me/us at the Annual General Meeting of the Company to be held on September 17, 2018 and at any adjournment thereof.

Signed this ……………...... ………… day of ………....………………2018

….…………………………… ….…………………………...... … Signature Shareholder/s NIC/Co. Reg. No.

Folio Number…………………….....…..

INSTRUCTIONS AS TO COMPLETION

Kindly perfect the form of proxy, after filling in legibly your full name and address, by signing in the space provided and filling in the date of signature.

If the proxy is signed by an Attorney, the relative power of Attorney should also accompany the proxy form for registration if such power of Attorney has not already been registered with the Company.

The Completed form of proxy should be deposited at the Head Office at No.55, (Lauries Place) R A De Mel Mawatha, Colombo 4, not later than 48 hours before the holding of the Meeting.

In the case of a Company/ Corporation the proxy must be under its Common Seal which should be affixed and attested in the manner prescribed by its Articles of Association or Constitution.

125 The Finance Company PLC Annual Report 2017 | 2018

FORM OF PROXY (For voting Shareholders)

I/We...... of ...

...... being a shareholder/s of The Finance Company PLC hereby appoint

Mr/Mrs/Miss…...... ….…………………………………...…………………………………………………………………………………(N.I.C.No…...... …...... ……...………..…….) of ……………………………...... ……………………………………………………...... failing him/her Mr Bamunu Arachchige Wasantha Kumarasiri of Malabe whom failing, Mr Nimal Jayantha Bandara Mamaduwa of Kotte whom failing, Mr Merenna Koralalage Don

Wijayasiri Amarasinghe of Kosgama whom failing , Mr. Walahanduwa Gamage Karunadasa of Piliyandala whom failing,

Mr Rathnasiri Siriwardhane of Ragama as my/our Proxy to represent me/us at the Annual General Meeting of the

Company to be held on September 17, 2018 and at any adjournment thereof

I/We the undersigned hereby authorize my/our Proxy to vote for me/us and on my/our behalf in accordance with the preferences indicated below

For Against

01. To receive and adopt the report of the Directors and the Statement of Accounts for the year ended March 31, 2018 and to receive the report of the auditors thereon.

02. To pass a resolution in terms of section 158 (b) of the Companies Act No. 07 of 2007 to appoint New Auditors of the Company in place of the retiring Auditors M/s SJMS Associates Chartered Accountants and to authorize the Directors to determine their remuneration. 03. To authorize the Directors to determine contributions to charities and other donations for the year 2018/2019.

Signed this ……………………… day of ………………………2018

….…………………………… ….…………………………...... … Signature Shareholder/s NIC/Co. Reg. No.

Folio Number…………………….....…..

Notes and Instructions as to the completion of the form of Proxy are noted on the reverse hereof.

INSTRUCTIONS AS TO COMPLETION

Kindly perfect the form of proxy, after filling in legibly your full name and address, by signing in the space provided and filling in the date of signature.

If the proxy is signed by an Attorney, the relative power of Attorney should also accompany the proxy form for registration if such power of Attorney has not already been registered with the Company.

The Completed form of proxy should be deposited at the Head Office at No.55, (Lauries Place) R A De Mel Mawatha, Colombo 4, not later than 48 hours before the holding of the Meeting.

In the case of a Company/Corporation the proxy must be under its Common Seal which should be affixed and attested in the manner prescribed by its Articles of Association or Constitution.

126 The Finance Company PLC Annual Report 2017 | 2018

Corporate Information

Name of Company Lawyer Ajith Karunathilake THE FINANCE COMPANY PLC Attorney-at-Law & Notary Public

Board of Directors M/s Nithya Partners Attorneys-at-Law & Notary Public Mr. B.A. Wasantha Kumarasiri Chairman/ Independent Non-Executive Director Bankers

Seylan Bank PLC OVERVIEW Mr. Nimal J. B.Mamaduwa Executive Director/ CEO People’s Bank Commercial Bank of Ceylon PLC Mr. M.K. D. W. Amarasinghe Hatton National Bank PLC Independent Non-Executive Director Bank of Ceylon Dr. W. G. Karunadasa Deutsche Bank Independent Non-Executive Director Auditors Mr. Rathnasiri Siriwardhane Independent Non-Executive Director M/s SJMS Associates Chartered Accountants No 11, Castle Lane Audit Committee Colombo 4 Dr. W.G. Karunadasa

Mr. M.K.D.W. Amarasinghe Legal Status ANALYSIS Incorporated under the Companies Ordinance No Company Secretary 51 of 1938 and re-registered under the Companies Mrs. Shashika Naguruge Act No 7 of 2007 MANAGEMENT DISCUSSION AND DISCUSSION MANAGEMENT Date of Incorporation – 30th May 1940 Company Re-Registration Number Registered under the Finance Companies Act No PQ - 1 78 of 1988, Finance Leasing Act No 56 of 2000 and Business Finance Act No 42 of 2011. Registered Office Approved Credit Agency under the Mortgage Act No. 97, Hyde Park Corner, Colombo 2 No 6 of 1949 and Inland Trust Receipts Act No. 14 of Tel No. 2682745 1990 Public Company Listed on the Colombo Stock Head Office Exchange. The Finance House FINANCIAL REPORTS No. 55, (Lauries Place) R A de Mel Mawatha Colombo 4. Tel Nos. 2597613/2580210 Web: www.thefinance.lk ANNEXURES

127 The Finance Company PLC Annual Report 2017 | 2018

128

THE FINANCE COMPANY PLC No. 55, Lauries Place, R.A.De Mel Mawatha, Colombo 4. Tel : +94 11 2580210 | +94 11 2597613, Fax : +94 11 2580098