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The Finance Company Plc Annual Report 2017/2018

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The Finance Company Plc Annual Report 2017/2018 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 OVERVIEW Vision & Mission Statement 04 Financial Highlights 05 Chairman’s Message 06 Chief Executive Officer’s Review 08 Board of Directors 10 Senior Management 14 2017 2015 2014 2016 2018 OVERVIEW 3 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 The Finance Company PLC Annual Report 2017 | 2018 Financial Highlights 2017/2018 2016/2017 2015/2016 (Restated) Rs. Rs. Rs. Performance for the Year (Rs. Mn) Gross Income 3,563 3,925 3,463 Operating Loss before Income Tax (1,794) (1,293) (2,535) Financial Position at the year end (Rs. Mn) OVERVIEW Total Assets 23,562 21,826 23,884 Gross Loans and Advances 16,419 16,713 18,346 Deposits 30,408 28,563 29,466 Information per Ordinary Share Earnings per Share (Basic) (Rs.) (11.18) (8.06) (15.80) Dividends per Share (Rs.) - - - Net Assets per Share (Rs.) (90.24) (89.80) (81.78) Market Value of Shares Voting Ordinary Shares Highest value recorded during the Financial Year (Rs.) 5.20 10.20 17.40 ANALYSIS Lowest value recorded during the Financial Year (Rs.) 4.60 4.60 5.90 Value at the end of the Financial Year (Rs.) 4.60 4.70 8.00 Non - Voting Ordinary Shares MANAGEMENT DISCUSSION AND DISCUSSION MANAGEMENT Highest value recorded during the Financial Year (Rs.) 2.30 4.40 6.50 Lowest value recorded during the Financial Year (Rs.) 2.00 1.80 2.10 Value at the end of the Financial Year (Rs.) 2.20 2.20 3.00 Ratios Interest Cover Times 0.58 0.66 0.27 Liquid Assets against requirement Times 0.05 0.07 0.01 (Rs. Mn) (Rs. Mn) 4000 20000 3000 16000 FINANCIAL REPORTS 12000 2000 8000 GROSS LOANS GROSS LOANS 3,463 3,925 3,563 AND ADVANCES 16,713 16,419 1000 18,346 GROSS INCOME 4000 0 0 2015/16 2016/17 2017/18 2015/16 2016/17 2017/18 (Rs. Mn) 25000 (Rs. Mn) 35000 20000 28000 15000 21000 ANNEXURES 10000 14000 DEPOSITS 23,884 21,826 23,562 28,563 5000 29,466 7000 30,408 TOTAL ASSETS TOTAL 0 0 2015/16 2016/17 2017/18 2015/16 2016/17 2017/18 5 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 Finance Company PLC Annual Report 2017 | 2018 Chairman’s Message note the concerns raised by the parents of students on the Way forward 2018/19 future education of their children and impact that could bring in by the new owners. TFC and TIS will make its best The board is making its best efforts to turnaround the endeavours to address the concerns by the parents and fortunes of the company in the next financial year also job security sought by the teachers of the school. considering the strong foundation we have laid in terms of disposing the legacy assets and mechanism implemented The Board also took actions after many meetings to dispose towards recovery of loans given to former group companies two properties occupied by Sussex College in Galle and of Ceylinco Group. As the Chairman of the company and OVERVIEW Wennapuwa. The property in Galle has no access road and my fellow board members are taking every effort required situated within the school premises whilst in Wennapuwa a to find a suitable investor who will be able to infuse the large portion of the land has been developed with a school much-needed significant capital to turn around the building in the past supposedly funded by the donations of business operations of the company. the parents. This matter has been outstanding since 2009 and the amount raised is Rs. 11 Mn. In conclusion I take this opportunity to thank all our loyal deposit holders, customers and all other stakeholders who Financial Performance have placed their trust on us on the TFC Brand which has helped TFC to be placed in the 72nd place among top 100 The company recorded a net loss of Rs. 1,794 Mn during brands in Sri Lanka according to the Rankings by Brand the year under review. The year on year increase of the loss Finance Sri Lanka for 2017. which is 38.6% was mainly due to rising interest costs in ANALYSIS the financial markets whilst the loans and products carry I express my sincere appreciation to the Governor of long term three to five Year repayment arrangements. the Central Bank of Sri Lanka, the Director and staff of The challenging economic climate where the industry as the Department of Supervision of Non-Bank Financial MANAGEMENT DISCUSSION AND DISCUSSION MANAGEMENT a whole faced increased NPL levels impacted the results of Institutions, officials of the TFC Union, members of the TFC as well. The executive management team led by the Senior Management and all staff members for their CEO/ED is taking appropriate actions to recover the non- corporation and commitment extended towards the TFC’s performing loans and I am confident that we will be able progression.
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