2011-12 - Central Finance Company PLC · Seylan Bank PLC Standard Chartered Bank Habib Bank Ltd....

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CENTRAL FINANCE COMPANY PLC

NAME OF COMPANYCentral Finance Company PLC

LEGAL FORMA Quoted Public Company with limited liability incorporated in Sri Lanka on 5th December 1957 and registered under the Companies Act No.07 of 2007.

Registered under Finance Business Act No.42 of 2011 and Finance Leasing Act No.56 of 2000.

Approved Credit Agency under:* Mortgage Act No.6 of 1949* Trust Receipt Ordinance No.12 of 1947

COMPANY REGISTRATION NUMBERPQ 67

DIRECTORSJ.D. Bandaranayake - ChairmanE.H. Wijenaike - Managing DirectorG.S.N. Peiris - Director (Finance)R.E. Rambukwelle - Director (Marketing and Operations)A.K. Gunaratne - Director (Group Co-ordination)T.K. BandaranayakeD.P. de Silva - Director (Credit)C.L.K.P. JayasuriyaS.C.S. WickramasingheF. Mohideen

STOCK EXCHANGE LISTINGThe ordinary shares of the Company are listed on the Colombo Stock Exchange of Sri Lanka.

HEAD/ REGISTERED OFFICE84, Raja Veediya, Kandy.Telephone : 081- 2227000Facsimile : 081- 2232047

CITY OFFICE270, Vauxhall Street,Colombo 2.Telephone : 011 - 2300555Facsimile : 011 - 2300441E-mail : [email protected] : www.cf.lk

BANKERSBank of CeylonCiti Bank N.A.Commercial Bank of Ceylon PLCICICI Bank Ltd.Hatton National Bank PLCHongkong & Shanghai Banking Corporation LimitedNDB Bank PLCNations Trust Bank PLCPeople’s BankSampath Bank PLCSeylan Bank PLCStandard Chartered BankHabib Bank Ltd.

AUDITORSJMS Associates,Chartered Accountants,2, Castle Lane,Colombo 04.

LEGAL ADVISERF.J. & G. De Saram,Attorneys-at-Law,P.O.Box 212,Colombo.

COMPANY SECRETARYCorporate Services (Pvt) Limited,216, De Saram Place,Colombo10.Telephone : 011- 4605100Facsimile : 011- 4718220

ADMINISTRATIONIf you receive more than one copy of the Annual Report at the same address, we will appreciate such information of duplication communicated to the Company Secretaries in order to update the mailing list and minimize wasted expenditure in the future.

Corporate Information

VISIONCentral Finance shall be the first choice for progressive customers in delivering innovative financial solutions.

MISSIONTo be the leader in our industry, conducting business with responsibility, using our expertise in helping customers grow and prosper whilst creating lasting value for our shareholders.

Designed and produced by emagewiseDigital plates by Imageline (Pvt) LtdPrinted by Aitken Spence Printing & Packaging (Pvt) Ltd.

Central Finance Company PLC - Annual Report 2011-12 1

Financial Highlights 4

Chairman’s Statement 5

Managing Director’s Report 7

Board of Directors 13

Corporate Management Team 15

Management Discussion and Analysis 16

Financial Review 20

Branch Network 22

Risk Management 25

Corporate Governance 29

Corporate Social Responsibility 43

Financial Reports

Annual Report of the Board of Directors 50

Directors’ Responsibility for Financial Reporting 56

Remuneration Committee Report 57

Intergrated Risk Management Committee Report 58

Audit Committee Report 59

Directors’ Statement on Internal Control 61

Independent Assurance Report 62

Independent Auditor’s Report 63

Income Statement 64

Balance Sheet 65

Statement of Changes in Equity 66

Cash Flow Statement 68

Accounting Policies 69

Notes to the Financial Statements 77

Directors’ Interests in Contracts with the Company 108

Group Companies 109

Group Value Added Statement 113

Share Information 114

Decade at a Glance 116

Income Statement in US Dollars 118

Balance Sheet in US Dollars 119

Employees of the Year 120

Glossary of Financial Terms 123

Notice of Meeting 125

Form of Proxy 127

Investor Feedback Form 129

Corporate Information IBC

Central Finance Company PLC - Annual Report 2011-122

Chandra Wijenaike 25th January 1927 – 27th July 2011

Mr.Chandra Wijenaike founded the Company in 1957, served as the Managing Director upto 1999 and as Chairman until his retirement in 2006. Mr. Wijenaike was an exceptional human being and an outstanding leader. A man far ahead of his times, he epitomised the dauntless entrepreneurial spirit. His life and achievements prove what confidence, courage and hard work can achieve in a lifetime. The CF Group is a living testimony to his indomitable will, single-minded dedication and an unrelenting commitment to his goals.

We were fortunate to have had a man of Mr. Chandra Wijenaike’s stature in our midst. His leadership qualities, extraordinary foresight, uncompromising integrity, humility and remarkable capacity to motivate people will continue to guide and inspire future generations at CF. We are proud and privileged to inherit this invaluable legacy and would like to share some insights that defined his character, as expressed by his friends and associates.

Wil l iam Campbel l“Our paths crossed rather late in life but I believe that Chandra and

I shared a special relationship for a time that has left memories to

cherish.

I found that in conversations we would often anticipate each

other’s thoughts and conclusions. His dry wit was in complete

accord with mine; my dry wit was in complete accord with his.

There were occasions when all it took to generate much laughter

was a look, a raised eyebrow or just a pause in conversation.

As I continued my journey of discovery about Sri Lanka, Chandra

was supportive of all my pro-bono efforts. As I came to appreciate

his integrity and to trust his judgments, I was able to take on

additional responsibilities, knowing that I could turn to him for

advice and assistance at any time.”


Aji t Gunewardene“It was Mr. Wijenaike who first mooted the idea of forming Nations

Trust Bank with John Keells group. A visionary in his time Mr.

Wijenaike believed that together the two companies could create

a unique institution. He was a key member of the Bank’s Board

during its formative years.”

Chandra Jayaratne“Mr. Chandra Wijenaike was a benchmark to us of steadfast

commitment to principles, courageous decision making and in

following ethical business practices. I sought his advice and was

guided by his wise counsel in my early career and in Ceylon

Chamber of Commerce leadership actions.”

Sega Nagendra“He was always the epitome of charm and kindness, he never

failed to greet me with a smile whenever we met. His kind and

encouraging words were an inspiration to us all. He will be sadly

missed by his many circles of friends, but his memory will always

linger in our hearts.“

J ivaka Weeratunge“Chandra Wijenaike left an indelible mark on Sri Lanka’s business

and financial sectors. I was fortunate enough to be associated with

him from 1982 to the late 90’s during times which were both

exhilarating and challenging for all of us! I have much to thank

him for and he inspired me greatly with his simplicity, business

acumen, sense of fair play and caring for all those around him. The

financial sector has been subject to many trials and tribulations

during this period and what he built stands today as a testimony to

his greatness.”

Nimesh Udeshi“His thoughtful and regular contributions at Board Meetings

especially during the formative years of Siedles TV Industry Ltd.

was most helpful in guiding the operations of this pioneering

venture, his amiable disposition and cooperative nature enabled

him to also secure the lasting admiration of all colleagues on the

Board”

Pal i tha Udurawana “On Saturdays the villagers from the surrounding areas used to

gather and ask his assistance on various matters like loans, and

employment for their children. Rural small holders of tea sought

him for financial help as well. Never did he turn down any of these

requests. He had such a phenomenal memory that he would

remember every one of these requests, and he was kind enough

to help all of them out. Furthermore, some would ask him for

help with financing cars, vans or trucks. He would request them to

come to his Kandy office and would help them out to the best of

his ability.

He helped people who had nothing make their ambitions and

dreams come true. They came from all walks of life and all castes

and creeds. Some of them became very successful businessmen

setting up enterprises in many parts of Sri Lanka. He was a person

with a large heart. Kandy would miss him forever, as would the

rural people of Harispattuwa and Central Province.“

Oswin Si lva“Chandra was the 2nd president of the Lions club of Kandy. As

the Club was not functioning properly the District Governor at the

time suggested that dedicated Lion, Chandra, carry on for a second

term and he did a great job which resulted in the Kandy Lions

Club becoming a leading club in the country. He was President

of the Kandy Garden Club for over 25 years. He also took a keen

interest in sports especially rugby, and CFC sponsored many sports

activities which included building grandstands for Kandy Sports

Club and Bogambara. Truly he was an accomplished businessman,

very much respected by all. He will long be remembered for his

commitment to honesty, justice and fair-play”

F.C.B Marapane“Chandra is credited to have been the driving force in coming into

being the now prestigious Central Finance Company. He was its

Managing Director and Chairman over the years, and today it is

one of the leading financial institutions in the country.

He was also on the Boards of many companies where his vast

knowledge in the sphere of finance and business acumen were

greatly in demand. It can truly be said of him that he could move

with kings without losing the common touch.

He was well known as a philanthropist who helped many people

and causes in their hour of need. He stood up to his own and

others’ rights, and called a spade a spade and did not mince his

words when it came to matters where principles were involved.

His innate good nature and simplicity endeared him to his fellow

men with whom he had a good rapport.

Chandra was one of the all-time greats of our country and a

gentleman to his fingertips.”


Financial Highlights

Non-financial highlights

Employees

10/11: 1,347 09/10: 1,2791,439

Branches

10/11: 53 09/10: 5164

Group Company

2011/12 2010/11 2011/12 2010/11

Rs.Mn. Rs.Mn. Rs.Mn. Rs.Mn.

Financial performance

Income 9,260 8,094 8,737 7,647

Profit before income tax 3,891 3,242 3,257 2,608

Provision for taxation 1,120 1,330 911 998

Profit after income tax 2,771 1,911 2,345 1,610

Net profit attributable to ordinary shareholders 2,677 1,827 2,345 1,610

Gross dividends - - 262.21 213.15

Financial position

Total assets 53,558 41,163 51,166 39,040

Gross loans and advances to customers 40,603 28,660 41,170 29,638

Deposits 21,428 18,757 21,585 18,958

Shareholders’ funds 13,346 10,898 11,555 9,444

Information per ordinary share

Earnings Rs. 25.52 17.42 22.36 15.35

Dividends Rs. - - 2.50 2.04

Market value Rs. - - 171.30 1,273.70

Normalised Market value Rs. - - 171.30 246.84

Net assets Rs. 127.25 103.90 110.17 90.05

Dividend ratios

Dividend cover (times) - - 8.94 7.52

Dividend pay out (%) - - 11.18 13.29

Statutory ratios

Liquid assets (%) - - 14.82 12.25

Shareholders’ funds to deposits - - 53.53 49.82

Capital adequacy ratios

Core capital ratio % (Tier 1) - - 22.43 23.59

Total risk weighted capital ratio % (Tier 1 & 11) - - 22.62 23.85

TOTAL ASSETSRs.Mn

09/10 10/11 11/12

35,47741,163

53,558

+30%

TOTAL DEPOSITSRs.Mn

09/10 10/11 11/12

17,23318,757

+14%

21,428

SHAREHOLDERS’ FUNDSRs.Mn

09/10 10/11 11/12

9,127

10,898

13,346

+22%

Customers

10/11: 67,495 09/10: 59,83780,285


I have much pleasure in presenting to you

on behalf of the Board of Directors, the

Annual Report and Audited Accounts for

the Financial Year ended 31st March 2012.

Despite the uncertainties that affected the

pace of global economic recovery,

Sri Lankan macroeconomic fundamentals

encouraged confidence while the

investment climate remained optimistic

during the period under review. In fact, the

Sri Lankan economy moved decisively to

a higher growth phase with the end of the

conflict. The economic growth of 8.3% in

2011 is in line with this trend, with all key

sectors contributing to growth.

The intensified initiatives over the

last couple of years, for fast-tracking

growth and development of the

rural economy have seen large scale

infrastructure projects undertaken by the

Government. These include development

of national expressways, rural roads,

telecommunications and power generation.

The exposure and awareness of rural

markets have increased rapidly with the

advent of telecommunications and travel

infrastructure which in turn, have resulted

in a substantial difference in their lifestyles

and living standards. These developments

offer numerous opportunities to expand

our delivery network.

Overall, there was an impressive increase

in the demand for credit, stimulated by

reduced interest rates and intensified focus

on retail lending by banks, leasing and

licenced finance companies. However,

with the depreciation of the Rupee since

January 2012, restricted liquidity and

higher interest rates, credit expansion is

showing signs of moderation as of the date

of this review.

I am pleased to report that the Company

has notched an important milestone by

crossing Rs. 2.3 Billion in profit after tax

with shareholders’ funds of Rs.11.6 Billion

during the period under review.

Group Profit benefited from higher

contributions from subsidiaries and

associates to reach Rs. 2.8 Billion after Tax,

compared to Rs. 1.9 Billion previously.

CF Insurance Brokers (Pvt) Ltd., contributed

Rs. 156 Million to top line growth. Central

Industries PLC had a successful year of

operations and achieved revenues of Rs.

1.6 Billion Nations Trust Bank PLC had

a record year, with a strong contribution

of Rs.312 Million to Group Profits. The

Hydro power generation and plantation

segments of the Group did not perform up

to expectations due to unfavorable weather

and market conditions.

Notwithstanding the record increase in

advances, prudent portfolio management

has enabled CF to reduce the gross non-

performing loan ratio on the core business

to 1.65%. In addition, all key risk indicators

are monitored, regularly to ensure that they

are well within the risk-reward parameters

of the Company.

Chairman’s Statement

I am pleased to report that the Company has notched an important milestone by crossing Rs. 2.3 Billion in profit after tax with shareholders’ funds of Rs.11.6 Billion during the period under review.


During the period under review, service

delivery through the branch network was

further enhanced with the expansion of

IT network connectivity. This provided the

systems and internal controls for efficient

and effective operational requirements.

The Disaster Recovery Site was also

commissioned at our Nugegoda Branch

supplementing the Business Continuity

Plan initiated last year.

At the last Annual General Meeting, CF

announced a sub division of every share

into five shares and a Bonus issue which

has increased our Issued Stated Capital

to Rs. 568 Million from Rs. 203 Million

Notwithstanding this increase CF continues

with its policy of regular distribution of

dividends, amounting to Rs. 2.50 per share

this year as well and a dividend payout of

Rs. 262.2 Million, reflecting an increase of

Rs. 49.1 Million over the previous year.

The economic and business confidence

that appeared on the horizon after

emerging from three decades of war, still

remains. If the Middle East oil and Iranian

crises could be contained Sri Lanka’s

growth momentum can be maintained.

The current devaluation of the Rupee

has had its inherent effects on prices,

especially on motor vehicles and operating

costs. The sharp increase in imports and

slower growth of exports to countries

affected by the recession in the West

has resulted in a widening trade deficit.

The current Monetary Policy stance is

intended to mitigate the adverse impact

of these developments while maintaining

economic and price stability in the medium

term. The projections are for growth at a

lower trajectory during the current year,

and the Company expects to maintain

profitability through selectively growing its

assets, focusing on asset quality and cost

management.

On behalf of the Board, I would like

to express our thanks to Mr. S.V.

Wanigasekera and Mr. U.L. Kadurugamuwa,

who retired during the year, for their

invaluable contribution during their long

service to the Company. I would also

like to welcome Mr. F. Mohideen as an

Independent Non-executive Director, who

joined us in January 2012.

May I conclude by expressing my thanks

to the Governor of the Central Bank

of Sri Lanka and the officials at the

Department of Supervision of Non-bank

Financial Institutions for their guidance and

directions, my colleagues on the Board,

the Managing Director, the Management

and Employees at all levels for their

dedication and loyalty. I must also thank

the shareholders and all our other stake

holders for their continued confidence and

trust.

J.D. BandaranayakeChairman

12th June, 2012

Chairman’s Statement (contd.)


I have much pleasure in presenting an

overview of operations of the Company

and the Group for the year ended 31st

March 2012. Key achievements for the

period are summarised below:

Year ended Year ended

31/03/2012 31/03/2011

(Rs.Million) (Rs.Million)

Income 8,737 7,647

Profit before Tax 3,257 2,608

Profit after Tax 2,345 1,610

Earnings per

share (Rs./share) 25.52 17.42

Deposit Base 21,585 18,958

Shareholders Funds 11,555 9,444

2011 began on a very positive note.

Strengthened consumer confidence

increased demand for our services enabling

the Company to achieve record earnings

and operating cash flows. In particular, the

Company attained significant growth in

after- tax profits, while at Group level, profit

after tax was Rs.2.8 Billion, an increase of

45% over the previous year. Several factors

made this performance possible, most

notably:

• Theconsistenteconomicexpansion

for two consecutive years, with

2011 recording a growth of 8.3%,

the highest since Sri Lanka’s year of

independence.

• Asignificantcontribution(23.7%)to

growth from the private sector aided

by the ample flow of credit from banks

and non-banks.

• Theincreasedregionalimpacton

national output reflecting the broad

based economic activity taking place

in the Eastern, North Western and

Northern provinces.

Given these favourable conditions, the

Company grew its asset book by 31%

to reach Rs.51.2 Billion and achieved an

operating profit before financial VAT and

income tax of Rs.3.4 Billion, an increase of

18.4% over the previous year. Liabilities

grew at 34% on a lower base, to fund the

loan book and also to manage the asset/

liability match. Although cash flows from

core operations remained strong, the

focus was on maintaining liquidity to meet

market opportunities. Consequently the

Company ended the year with a surplus of

Rs.991 Million over statutory requirements

and approved but not drawn down bank

facilities of Rs.2.4 Billion.

On the cost side, despite the expansion in

business and delivery network, operating

expenses were well managed, with an

increase of only Rs.214 Million as against

Rs.258 Million last year. The cost to

income ratio improving to 40.6% from

41.8% previously.

The Company increased its capital strength

with shareholders’ funds growing by Rs.2.1

Billion to reach Rs.11.6 Billion. At Group

level shareholders’ funds crossed Rs.13

Billion. In terms of capital adequacy,

Managing Director’s Report

Company grew its asset book by 31% to reach Rs.51.2 Billion and achieved an operating profit before financial VAT and income tax of Rs.3.4 Billion, an increase of 18.4% over the previous year. Liabilities grew at 34% on a lower base, to fund the loan book and also to manage the asset/liability match.


Tier 1 Capital was 22.43% (minimum 5%)

and total capital to risk assets at 22.62.%

(minimum 10%).

Credit Ratings During the year, Fitch Ratings Lanka Ltd

(FRL) assigned the following ratings for the

Company:

• NationalLong-TermratingofA+(lka)

Outlook stable


for Senior Debentures of up to Rs.700

Million


for existing subordinate debentures

• Nationalshort-termratingofF1(lka)for

existing commercial paper

Among the factors taken into consideration

when assigning these ratings were the

relatively strong financial profile of the

Company, its funding and liquidity profile,

the conservative management of interest

rate mismatches and access to bank

credit. The National Short-Term Rating of

F1(lka) for commercial paper signifies the

strongest capacity for payment of financial

commitments relative to other issuers or

issues.

DividendThe Directors recommend a final dividend

of Rs.1.10 per share, making a total

dividend of Rs.2.50 per share for the

year ended 31.03.2012. The distribution

together with 10% WHT absorbs Rs.262.2

Million (an increase of 23% over last year).

BUSINESS

AdvancesThe automotive sector continued to record

a healthy growth, aided by the reduction

in duties and benign interest rates. New

vehicle registrations at 525,421 bettered

the previous year, with an increase of

166,178 units. Private cars saw the greatest

number of new registrations (57,886)

in 2011. Investment in freight availability

continued vigorously, to meet the demands

of economic growth, with the addition of

52,584 commercial vehicles during this

period a year on year growth of 101%.

With the provision of more efficient

transport systems, improved social

infrastructure and widespread employment

opportunities the last two years have

witnessed a narrowing of regional

disparities in terms of contribution to

Gross National Product (GNP). In this

context, the Eastern, North Western and

Northern provinces cumulatively accounted

for 18.7% of the GNP in 2011. A good

indicator of the level of economic activity

in these areas would be new vehicle

registrations, which aggregated to 132,044

units or 25% of all registrations in 2011, an

increase of 32,759 over the previous year.

Leasing and Hire purchase industry

reported new inceptions of Rs.284.5

Billion, for the year ended 31st December

2011, an increase of Rs.100 Billion over

the previous year. Much of this demand

was driven by rural and semi urban

markets, demonstrating the benefits of

growth in their lifestyle patterns. Within

this environment are sectors such as

agribusiness, healthcare, pharmaceuticals,

and infrastructure that present new markets

for the industry. With its strong rural

presence, these structural changes offer

multiple opportunities for the Company to

scale up its delivery channels.

Advances registered another good year with

disbursements of Rs.27.6 Billion as against

Rs.20.2 Billion in 2010/11. This translates

to a year on year growth of 36.4%. The

volume increase in the light truck and lorry

segment, used for cargo transportation

showed a growth of 58%, followed by

three wheelers (14.6%) and motor cars

(5.6%). In unit terms, the Company

registered a growth of 10.8% over the

previous year, while maintaining net interest

margins despite intense competition.

Asset QualityDuring the period under review, The

Company maintained an excellent credit

profile through strong risk management.

With minimal loan impairments and

improvement in loan recovery rates, Non-

Performing Loans (NPL) in absolute terms,

reduced by Rs.46 Million to Rs.659 Million

at year end.

Asset quality was better than market,

with gross non-performing loans to total

advances (inclusive of operating leases)

on the core business at 1.65% (previously

2.6%) and net non- performing loan ratio

Managing Director’s Report (contd.)


of 0.15% (previously 0.3%). Provision

cover is maintained at 70.1 %. Industry

wide gross non-performing loan ratios

in 2011 for registered finance / leasing

companies and banks were 5.1% and

3.8% respectively. Recovery of debts

previously written off amounted to Rs.77.3

Million as against Rs.71.2 Million last year.

Resource Mobilisation a) Deposits Core customer deposits comprising

fixed deposits grew by 14.08% over the

last year to reach Rs.20.7 Billion, with

gross mobilisation of Rs.6.04 Billion.

Although depositor preference was

mainly for shorter tenures, the Company

maintained a stable deposit mix, with

83% of the deposit base in tenures of

one year and over. CF savings continued

to grow with gross mobilisations of Rs.4

Billion (Rs.3.2 Billion previously) and

year-end balances of Rs.855.8 Million,

an increase of 9.4%.

b) Term Funding Borrowings from bank and non-bank

sources stood at Rs.5.7 Billion and

Rs.1.8 Billion respectively.

The Company anticipated a certain

degree of volatility in market conditions

and maintained strong liquidity

throughout the year. It sourced several

credit lines in the form of securitisation,

commercial paper, debentures and

term loans. With these initiatives it

maintained a prudent asset/liability

match and successfully managed

interest costs. In addition to normal

borrowings, the Company secured

long term loans of Rs.1.1 Billion.

The strong credit rating helped the

Company to source these lines at

attractive rates. The Company’s funding

strategy remains focused on the

conversion of short term debt to long

term instruments with commensurate

savings in costs.

SUBSIDIARIES

Central Industries PLC (CIL)CIL recorded revenues of Rs.1.6 Billion

compared to Rs.1.3 Billion in the previous

year. Although there was no major

development in the construction industry

the small and medium construction sector

was very active in all parts of the country.

With the re-demarcation of distribution

channels, the dealer network experienced

improved volumes in sales. Profit before tax

was Rs.149.7 Million compared to Rs.121.8

Million last year, an increase of 22%. Profit

after tax was Rs.105.9 Million compared

to Rs.74 Million last year, an increase of

42%. The Company has planned to further

enhance production capacity of its range

of products during the forthcoming year in

anticipation of improved market demand.

In this context, development operations

have commenced with the acquisition of a

property for factory expansion.

The Board has recommended a dividend

of Rs.3.00 per share for the year ended

31st March 2012 which is an increase of

20% over the previous year.

Core customer deposits comprising fixed deposits grew by 14.08% over the last year to reach Rs.20.7 Billion, with gross mobilisation of Rs.6.04 Billion. Although depositor preference was mainly for shorter tenures, the Company maintained a stable deposit mix, with 83% of the deposit base in tenures of one year and over.


Mark Marine Services (Pvt) Ltd. (MMSL)Dry weather conditions that prevailed

during most parts of the year affected

Company performance substantially. This

resulted in a 35% drop in the number of

Kwh generated during 2011/12. Decline

in power generation along with the 7%

reduction in average unit price resulted in

a 41% drop in Company’s total revenue.

This was the main reason for the decline

in profit before tax to Rs.70.3 Million from

Rs.144.5 Million in 2010/11. However

the profit after tax improved to Rs.74.87

Million due to the tax saving resulting from

the revision of tax rates, and reversal of

deferred tax liability.

The dividend paid out by the Company

during the financial year 31st March 2012

improved to Rs.11.50 per share from

Rs.8.50 paid in the prior year.

CF Insurance Brokers (Pvt) Ltd.(CFIB)The Company transacts mainly general

insurance business. The following results

relate to the financial year ending 31st

December 2011. The premium turnover

in 2011 was Rs.1.35 Billion compared

to Rs.1.23 Billion in the previous year, an

increase of 10%. Commission income

increased to Rs.156.6 Million in 2011 as

compared to Rs.143.2 Million recorded

in the previous year, a growth of Rs.13.3

Million. The Company’s operating profit

before tax increased by Rs.24.3 Million

from Rs.36.4 Million in 2010 to Rs.60.7

Million in 2011, an increase of 67%. A

provision for investment made in previous

years amounting to Rs.9.1 Million was

reversed during the year in line with the

Group policy to reflect the favourable

improvement in net assets of those

investments. Profit after tax was Rs.57.8

Million in 2011, after this one off reversal

on investment provisioning, compared to

Rs.30.1 Million recorded in 2010.

Dehigama Hotels Company Ltd.(DHCL)The Company owns the office complex

where the Registered Office of Central

Finance is located. The revenue consists

of rental income derived from its anchor

tenant which increased to Rs.26.7 Million

in the year under review from Rs.24.2

Million previously. This was due to the

expansion in rentable area by 700 square

feet. Interest expenses decreased by 38%

over the previous year, with the completion

of renovations and repayment of advances.

Profit after tax increased substantially to

Rs.24.1 Million in the year under review

compared to Rs.14.1 Million reported

in the previous year as a result of the

reduction in corporate tax rate from 28%

to 10%. A reversal of deferred tax liability

arising out of the change in the tax rate,

contributed Rs.4.7 Million towards these

results.

The Company paid an interim dividend of

Rs.3.00 per share and the Directors have

recommended a final dividend of Rs.22.00

per share, amounting to a total pay-out of

Rs.20.70 Million for the year under review.

Kandy Private Hospitals Ltd.(KPHL)Turnover of the Company witnessed a

marginal growth of 6% during the year

under review to Rs.79.8 Million from

Rs.75.2 Million in 2010/11. However,

profit before tax did not improve in the

same proportion due to a 31% decrease

in other income (consisting mainly of

interest income) and a 15% increase

in administrative, maintenance and

establishment expenses. Profit before tax

declined to Rs.15.2 Million from Rs.17.2

Million recorded in the previous year. Profit

after taxation increased to Rs.15.2 Million

compared to Rs.10.83 Million posted in

the previous financial year, solely due to

reduction in corporate tax rate from 28%

to 10%.

Hedges Court Residencies (Pvt) Ltd.(HCRL)Amidst slow demand in the condominium

market, the Company completed the

sale of all 88 units during the year under

review. Revenue from sales improved to

Rs.497 Million (as against Rs.309 Million

in the previous year) and was utilised to

reduce borrowings. With the settlement

of all bank loans, interest costs decreased

to Rs.1.6 Million from Rs.25.8 Million. Net

loss after tax for the year was contained

at Rs.7.7 Million compared to the loss of

Rs.47.6 Million incurred in the previous

financial year. The Company established a

Condominium Management Corporation as

required by the Apartment Ownership Law



No.11 of 1973 to manage the apartment

complex for the future.

ASSOCIATES

Tea Smallholder Factories PLC (TSFL)Global tea production in 2011 established

a new milestone of 4.2 Billion Kilograms.

Sri Lanka’s tea production in 2011

recorded 328.3 Million Kilograms,

marginally down from the previous year’s

production of 331.4 Million Kilograms.

The low grown average in the financial

year under review decreased by Rs.23.90

per Kilogram compared to the previous

year, due to the unsettled conditions in

the Middle East, the prime destination

for Sri Lankan tea. Tea production of the

Company in 2011/12 declined to 5.4

Million Kilograms as against 5.8 Million

Kilograms achieved in the previous year.

Extremes of weather had a negative impact

on the production during the year. The

revenue for the year under review was

Rs.1,744 Million, a decrease of Rs.597

Million over the previous year. Pre-tax profit

of the Company was Rs.7.43 Million, a

decrease of 96% over the previous year,

primarily due to the volatile situation in the

market. Loss after tax of the Company was

of Rs.1.29 Million compared to profit after

tax of Rs.120.96 Million recorded in the

last year.

The Company declared a dividend of

Rs.1.00 per share for the year ended 31st

March 2012.

Nations Trust Bank PLC (NTB)The NTB Group had its best ever year

in 2011 posting an after tax profit of

Rs.1.5 Billion, an increase of 40% over

2010. Non-interest income increased to

Rs.6.74 Billion compared to Rs.6.69 Billion

recorded in the previous year. Interest

income marginally declined to Rs.9.95

Billion compared to Rs.10.09 Billion

posted in the previous year. Deposit base

of the Bank recorded a significant growth

of 38% over last year to reach Rs.66.43

Billion at year end. Loans and advances

grew by 37% compared to 26% growth

recorded in the previous year and total

assets of the Group recorded a significant

growth of 23% to cross the Rs.100 Billion

threshold. Prudent management of the

lending portfolio had a substantial impact

on the overall performance during the year,

which resulted in a reversal of provisions

of Rs.208 Million in contrast to a provision

of Rs.202 Million made in the last year,

enhancing the profits in 2011. Net non-

performing loans (NPL) ratio improved to

2.8% as at the year-end.

The Bank paid a dividend of Rs.2.10 per

share for the year ended 31st December

2011.

Changes to the BoardI take this opportunity to welcome our new

Chairman Mr. Jayampathi Bandaranayake

and Director Mr. Faiz Mohideen to the

Board. Both gentlemen are eminently

qualified and have distinguished

themselves in their respective careers.


They bring with them a wealth of

knowledge and substantial experience

to contribute to the Company’s growth.

We are privileged to have them with us.

The structure of the Board has changed

significantly over the last two years and

reflects the process of succession that

ensures continuity and development of the

Company. I must also place on record our

appreciation to Messrs. S.V. Wanigasekera

and U.L. Kadurugamuwa who stepped

down from the Board in 2011, for their

guidance and valuable contribution

throughout their long association with the

Company.

AcknowledgementsI express my gratitude to the members on

the Board for the wide-ranging insights,

guidance and knowledge they bring to our

deliberations. Likewise, my appreciation for

the leadership, energy, and commitment

displayed by my colleagues on the Board

of Management and corporate team in

successfully steering the business during

the year.

On behalf of the Board of Directors I would

like to thank the Governor and Deputy

Governor of the Central Bank of Sri Lanka

for the co-operation and support extended

to us. Equally, our appreciation to the

Director and Additional Director and their

officers in the Department of Supervision

of Non-bank Financial Institutions for the

guidance and support given at all times

not only for the smooth functioning of the

Company but also for their perspective on

shaping process improvements.

My sincere appreciation to our

management and staff for their dedication

and hard work, for without their

contribution these results would not have

been possible. As always, a special word of

thanks to all our customers for their strong

support and confidence in the CF brand.

E. WijenaikeManaging Director

12th June, 2012



Jayampathi Divale BandaranayakeNon-executive Chairman

Jayampathi Bandaranayake, a Graduate in

Law, a fellow of the Institute of Personnel

Management, SriLanka (FIPM), the Institute

of Chartered Secretaries and Administrators

of Sri Lanka and a Fellow of the Institute of

Certified Chartered Professional Managers

(CPM) was appointed as Chairman of

Central Finance Company PLC on 01st

January 2012. He is the Chairman of

Ceylon Tobacco Company PLC and also

serves on the Board of Finlays Colombo

PLC. He has served as a Chairman of

the Ceylon Chamber of Commerce and

the Employers’ Federation of Ceylon and

also functioned as the Chairman/Director

General of the Board of Investment (BOI)

of Sri Lanka.

Eranjith Harendra WijenaikeExecutive Director

Eranjith Wijenaike is the Managing Director

of Central Finance Company PLC and has

been a member on the Board since 1st

April 1983. He is a Director of several

companies within and outside the Group

including Tea Smallholder Factories PLC,

Equity One PLC and Central Industries

PLC. He served as a founder Director of

Nations Trust Bank PLC for a period of

12 years and retired in December 2011.

He has over 30 years of experience and

holds a Bachelor’s Degree in Commerce

and a Postgraduate Diploma in Finance

and Management. He is a Member of the

Chartered Institute of Management (UK).

Gerard Shamil Niranjan PeirisExecutive Director

Shamil Peiris is the Director - Finance of

Central Finance Company PLC and has

been a Member on the Board since 1st

April 1983. He serves on the Boards of

many Companies within and outside the

Group. He possesses over 34 years of

post-qualification management experience.

He is a Fellow of the Institute of Chartered

Accountants of Sri Lanka, Institute of

Credit Management & Society of Certified

Management Accountants – Sri Lanka,

Chartered Institute of Management

Accountants, British Institute of

Management and Association of Corporate

Treasurers – UK. He is also a Chartered

Global Management Accountant.

Ravindra Erle RambukwelleExecutive Director

Ravi Rambukwelle is the Director

(Marketing and Operations) of Central

Finance Company PLC and was appointed

to the Board on 20th February 2002.

He has over 33 years of management

experience, both locally and internationally.

He holds a Bachelor’s Degree in

Economics and Political Science from the

University of Peradeniya, a Diploma in

Marketing from the Chartered Institute of

Marketing UK and a Diploma in Commerce

from the Institute of Commerce UK. He

serves on the Boards of Tea Smallholder

Factories PLC, Central Industries PLC and,

serves on several companies within the

Group.

Arjuna Kapila GunaratneExecutive Director

Arjuna Gunaratne, Director (Group

Coordination) of the Company, has been

a member on the Board since 20th

February 2002. He oversees the functions

of Strategic Planning and Risk Management

of the Company. He also serves on

Boards of Nations Trust Bank PLC and

Central Industries PLC. He is a Fellow of

the Institute of Chartered Accountants

of Sri Lanka and the Chartered Institute

of Management Accountants of UK. He

is also a Chartered Global Management

Accountant.

Tissa Kumara BandaranayakeIndependent Non-executive Director/

Senior Director

Tissa Bandaranayake, a Fellow of the

Institute of Chartered Accountants of

Sri Lanka, was appointed to the Board

on 27th May 2009. He functions as the

Chairman of the Audit and Integrated Risk

Management Committees of the Company

and also a member of the Remuneration

Committee. He was in public practice with

Ernst & Young for 27 years since 1982

where he was a Senior Partner managing

a large portfolio of clients both local and

multinational in various industries. He

serves as the First Chairman of the newly

created Quality Assurance Board of

Sri Lanka. He is a Director of DFCC Bank,

Nawaloka Hospitals PLC, Laugfs Gas PLC,

Micro Holdings Ltd., Coco Lanka PLC,

Renuka Holdings PLC, Overseas Realty

(Ceylon)PLC, Harischandra Mills PLC and

Samson International PLC and also works

in the capacity of Advisor/Consultant of the

Audit Committee of DFCC Vardhana Bank

and of the Board of Directors of Noritake

Lanka Porcelain (Pvt) Ltd.

Dhammika Prasanna de SilvaExecutive Director

Prasanna de Silva was appointed to the

Board on 01st July 2011. Having joined

the Company as a Credit Executive in

1991 de Silva headed the Credit Division

of the Company as General Manager

Credit at the time of appointment to

the Board. He served as the Chairman

of the Leasing Association of Sri Lanka

from 2007 – 2009. At present he is an

advisor to the Association. He also serves

as a Member of the Telecommunication

Regulatory Commission of Sri Lanka and

on the Board of Nations Trust Bank PLC.

Prasanna de Silva is an Associate Member

of the Chartered Institute of Management

Accountants (UK) and has also completed

all examinations of Chartered Financial

Analyst (CFA) programme. He is also a

Chartered Global Management Accountant.

Board of Directors


Chandima Lalith Kumar Perera JayasuriyaNon-executive Director

Kumar Jayasuriya, Executive Chairman and

Managing Director of Finlays Colombo

PLC was appointed to the Board with

effect from 01st July 2011. A Fellow

member of the Chartered Institute of

Management Accountants, UK (FCMA)

and the Association of Certified Chartered

Accountants, UK (FCCA), and also a

Chartered Global Management Accountant.

He is the immediate past Chairman of

the Employers’ Federation of Ceylon and

serves as the Chairman of the Mercantile

Services Provident Society and a Director

of the Employees Trust Fund Board. Kumar

Jayasuriya is a member of the Board of

the Chartered Institute of Management

Accountants – Sri Lanka Division, and

the Sri Lanka Accounting and Auditing

Standards Monitoring Board and also

serves on the Committee of the Ceylon

Chamber of Commerce.

Sunil Chandra Sillapana WickramasingheIndependent Non-executive Director

Sunil Wickramasinghe, the Chairman of

Milco (Pvt) Limited was appointed to the

Board on 01st July 2011. He possesses

29 years of experience at Nestlé, holding

various positions in the fields of Technical,

Sales, Marketing and General Management

in Sri Lanka and abroad. He served as

an Executive Director at Nestlé Sri Lanka,

prior to leaving for Australia in 2005 to

take up appointment as Sales Director for

Nestlé Pacific Islands and later on General

Manager – Nestlé Papua New Guinea. He

has wide exposure to sales and marketing

especially in emerging markets such as

India, Sri Lanka, Maldives and Malaysia.

Faiz MohideenIndependent Non-executive Director

F. Mohideen, a former Deputy Secretary

to the Treasury and Director General,

External Resources Department, Ministry

of Finance and Planning was appointed

to the Board on 01st January 2012. He

served on the Boards of Bank of Ceylon,

Securities and Exchange Commission of

Sri Lanka and Pelwatte Sugar Company

PLC. He currently serves on the Boards

of Carsons Cumberbatch PLC, Dipped

Products PLC and Kelani Valley Plantations

PLC. He holds an M.Sc. in Econometrics

from the London School of Economics and

a B.Sc. in Mathematics from the University

of London.

Board of Directors


1 U B Elangasinha FCA

General Manager – Finance

2 P A A R Perera BA (University of Peradeniya), MIPM (SL)

General Manager – Human Resources and

Development

3 I M J B Illangakoon AICM (SL)

General Manager – Branches

4 H S Fernando (Mrs.) MBA (University of Colombo), FCMA (UK),

CGMA, ACCA

General Manager – Internal Audit

5 C K Hettiarachchi MBA (University of Wales), ACMA (UK), CGMA

Deputy General Manager – Credit & Product

Development

6 B A C K Jayawardena Deputy General Manager – Recoveries

7 A F Goonetillake Dip. in Marketing (UK), MCIM (UK), Dip in IDPM

(UK)

Senior Assistant General Manager – Marketing

Services

8 S Ekanayake Senior Assistant General Manager – Fleet

Management

9 S Tennekoon Senior Assistant General Manager – Sales

10 A P B Rajanayake Senior Assistant General Manager – Deposits

11 G A R De Zoysa BSc (Hons) University of Manchester

Metropolitan (UK), Dip. in Computer System Design – NIBM, MBA - University of Sri Jayewardenepura

Senior Assistant General Manager – IT

12 G A Bandaranayake Senior Assistant General Manager – Credit

13 C S Hettiarachchi MBA (University of Sri Jayewardenepura),

LLB (University of Colombo), Attorney-at-Law

Senior Assistant General Manager – Recoveries

& Acquired Asset Management

14 H K Amarasinghe MCIA (UK), MIBK (UK), MAAT (UK), ASCA (UK),

MBIM

Assistant General Manager – Audit

15 C A Goonawardene BSc (University of Peradeniya), AICM (SL)

BMS (Open University of Sri Lanka)

Senior Regional Manager – Region 1

16 H G Wijeratne Senior Regional Manager – Region 4

17 D M Warnakulasuriya Assistant General Manager – Recoveries

18 M A M Farook BSc (Hons) University of London Guildhall (UK), Dip. in Computer System Design NIBM

Assistant General Manager – IT

19 K Kandeepan ACA, ACMA (UK), CGMA

Assistant General Manager – Finance

Corporate Management Team


OverviewThe Global economy recorded a moderate

growth of 3.8% in 2011, which is lower

than that forecasted by IMF, with emerging

economies performing as the main driving

force, and advanced economies lagging

behind recording a lower momentum in

growth. Expectation of a mild recession in

the Euro zone economies further limited

the global growth rate as a whole.

Amidst this global back drop Sri Lankas’

GDP grew at an unprecedented rate of

8.3% in 2011, exceeding 8% for the

second consecutive year. Per capita income

reached USD 2,836. Industry sector

growth was prominent at 10.3%, while the

agriculture sector had dropped compared

to the year 2010, due to poor weather

conditions. The Services sector remained to

be the dominant employer with a provision

of 42.8% of employment, and growing at

a slightly higher rate of 8.6% compared to

8% in 2010.

Domestic inflation remained within the

mid-single digit range, supported by the

supply side improvements seen in the

economy. Much emphasis was given

to food security during the period to

cushion the impact of increasing food and

commodity prices in the global context.

Accessibility to one third of the rich arable

land particularly in the Northern and

Eastern provinces gave an added boost to

the country’s agricultural output.

Significant pressure was mounted on

the external price of the Rupee, with the

general weakening of Asian currencies

throughout 2011. The infrastructure

development projects demanded a high

inflow of machinery, motor vehicles and

intermediate goods including petroleum

imports. However, the Central Bank policy

initiatives prevented excessive volatility in

the exchange rate.

The low interest rate regime resulted in

credit to the private sector expanding by

35% and by the 4th quarter the economy

had seen the signs of upward pressure

on the entire interest rate structure, which

prompted policy measures from February

2012 to moderate credit expansion.

The Country’s investments were,

mainly directed towards non-residential

infrastructure, ports and highways typically

important for the rebuilding of the nation.

Investment by both public and private

sectors as a percentage of GDP has

increased during the year to 29.9% as

compared to 27.6% in 2010. On the

other hand national savings declined from

25.4% in 2010 to 22.1% confirming

that the increase in investment is mainly

supported by foreign sources.

In an overall sense, the year 2011 gave

mixed signals on the direction of the

economy, and the private sector has had

to grapple with numerous challenges,

while experiencing ample opportunities.

As a result, success or failure was primarily

dependent upon an organisation’s

capability of strategic interpretation and

management of these multi facets of the

economy.

Non-Bank Financial IndustryWith the enactment of the Finance

Business Act, No. 42 of 2011, Registered

Finance Companies (RFCs) have been

termed as Licensed Finance Companies

(LFCs) and categorised under Non-Bank

Financial Institutions (NBFIs). During the

year 2011 the main indicators of financial

stability, profitability and growth of LFCs

have recorded impressive levels. Although

the CBSL took timely steps to restore

the few distressed Non-Bank Financial

Institutions in a diligent manner, the

continued erosion of capital and liquidity

shortages of those distressed companies

affected the overall indicators, masking the

better performing and stable companies

in the industry, which otherwise should

have achieved even stronger levels than

reported in 2011. The rapid expansion

of LFC branches in the Northern and

Eastern provinces, underscored their role in

delivering financial inclusiveness to support

economic growth in these regions.

Capital and liquidity The year was marked with capital inflows

through IPOs, rights issues, deposit

conversions, private placements and

strategic investments in the sector, and as

a result capital funds increased by 57%.

The core capital ratio declined to 15%

during the year compared to 2010, due to

the rapid increase in risk weighted assets

fueled by the credit boom, but remained

at a healthy position given the statutory

requirement of 5%. The improvement in

profitability of distressed finance companies

supported by the CBSL business revival

plan helped the maintenance of the

industry capital ratios at a healthy level.

Further, the total capital adequacy ratio

improved to a positive 14% due to

the above inflows, while the minimum

regulatory requirement is at 10%. The

capital funds of LFCs to total deposits

increased to 20% compared to 11% in

2010, while the statutory minimum level

remained at 10%.

Asset quality and growth Finance leasing, hire purchase and other

secured loans resulted in a high growth

of total accommodations to the tune

of 46% during the year. Approximately

43% of this growth in accommodations

came from Finance leasing, which grew

by 90%, compared to 2010. Total non-

performing assets (NPA) relative to the

facilities outstanding in the NBFI sector

decreased to 5.1% in 2011 compared to

7.9% in 2010, where 81% of such NPA

were mainly concentrated within distressed

companies.

The net NPA, when loan loss provisions

were adjusted, reduced to 1.9% in 2011,

while the provision coverage of NPA

marginally declined to 55% from 60% in

2010, mainly attributed to the growth of

Management Discussion and Analysis


accommodations and risk weighted assets

during the year.

Deposit Growth Growth of deposits in the LFC sector

reached a healthy level of 27% compared

to 22% in 2010 and 16% in 2009.

Deposit mobilisation remained the most

popular funding source of LFCs which

accounted for 38% of the liabilities, with

97% of it attributed to time deposits. This

was a clear sign of restored customers’

confidence in the sector during 2011,

given the liquidity issues seen in 2009 and

2010 within some distressed companies.

The measures taken by the CBSL

aimed at curbing unauthorised finance

businesses namely; conducting awareness

programmes, publication of details of

authorised LFCs and taking action against

institutions violating the legal framework;

has resulted in a renewed confidence for

the industry in general and the stronger

companies in particular. Further the Finance

Business Act has introduced provisions

prohibiting advertisements soliciting deposit

funds by unlicensed entities, accordingly

media organisations are now required to

verify the mandate of an advertiser to solicit

public deposits before publication of such

advertisements. These provisions will help

to create a well-informed public, which

will benefit the approved and more stable

LFCs to enhance deposit mobilisation in

the future.

Profitability Increased business volumes and the

favorable single digit interest rates helped

the sector to improve its profitability

during the year, with net interest income

as a percentage of total assets increasing

to 6.4%. The growth of core business

activities mainly in lease finance and

hire purchase, supported with improved

business conditions, aided the sector to

record remarkable profits after tax. Further

the improved level of recoveries of facilities

and reduction of NPAs resulted in reversals

of loan loss provisions. Due to these

favourable conditions the sector to achieve

a 24.7% return on equity, marking a 119%

growth in profitability.

Regulatory ChangesThe Finance Business Act No. 42 of

2011 was enacted on 9th November

2011 repealing and replacing the Finance

Companies Act No. 78 of 1988. The most

notable feature of the above Act. is, that

no entity other than a licensed finance

company shall use the words ‘finance,

‘financing’ or ‘financial’ as part of its name

or description. Accordingly, any entity

other than a licensed finance company

which uses the words ‘finance,’ financing’

or ‘financial’ or any of its derivatives or

its transliterations or their equivalent in

any other language as part of Its name or

description, shall remove such words from

its name and description on or before

9th May 2012. We believe that this is a

move in the right direction and would help

to safeguard the interests of the general

public from unscrupulous entities. During

the period under review, the Monetary

Board of the Central Bank of Sri Lanka

issued the following Directions to Licensed

Finance Companies.

• Finance Companies (Minimum Core

Capital) Direction No. 1 of 2011

This Direction stipulates the minimum

unimpaired core capital, a licensed finance

company shall maintain. Accordingly every

licensed finance company shall at all times

maintain an unimpaired core capital of not

less than Rupees Four Hundred Million.

• Finance Companies (Reporting

Requirements) Direction No. 2 of

2011

Under this direction every licensed finance

company shall submit specified information

to the Director of the Department of

Supervision of Non-Bank Financial

Institutions. The Schedule attached therein

provides the nature and periodicity of

reporting requirements.

• Finance Companies (Assessment of

Fitness and Propriety of Directors

and Officers Performing Executive

Functions) Direction No. 3 of 2011

The Fitness and Propriety of Directors and

Officers performing executive functions

is considered to be a fundamental

requirement to ensure good governance

and risk management on the conduct

of business of all financial institution. In

terms of the above direction, no person

shall be appointed as a director or an

officer performing executive functions of a

finance company unless such person is a

fit and proper person, as prescribed by the

direction, to hold office as a Director or an

Officer.

• During the period under review,

Guidelines on the Operations of the

Investment Fund Account proposed

in the 2011 Budget were also issued.

Duty changes on importation of vehicles The total vehicle imports had increased

by 147% and 121% in 2011 and 2010

respectively, as compared to 2009 figures.

Taking into consideration the increase

in vehicle imports since 2009, traffic

congestion and the high demand for

fuel, the Government revised the excise

duties on motor cars, three wheelers and

motorcycles to discourage import of such

vehicles in March 2012. However import

duties on commercial vehicles, namely

buses, Lorries, trucks and agricultural

vehicles remain unchanged.

The impact of these changes would

result in the deceleration of imports in

passenger cars after two successive years

of high growth. The off–take of commercial

vehicles which represent approximately

14% of total new vehicle registrations is

expected to remain, driven by demand for

infrastructure projects.

Operating and Financial Performance of the CompanyProfit before tax improved from Rs.2.6

Billion in the previous year to Rs.3.2 Billion

in the year under review and profit after

tax also reflected an increase from Rs.1.6

Billion to Rs.2.3 Billion. Other Operating

income decreased from Rs.796 Million to

Rs.743 Million in the year under review.

Operating income consists of operating

leases and contract hire business.

Intensified marketing efforts successfully


Management Discussion and Analysis (contd.)

grew the operating lease volumes,

exceeding 2010 levels. However, as the

portfolio consists exclusively of corporate

clients, there was a certain degree of

margin compression which resulted in a

lower contribution from this business line.

The net interest income of Rs.4.7 Billion

reflects an increase of 18% compared

to Rs.3.9 Billion in the previous financial

year. Other income was Rs.540 Million, an

increase of 1.75% compared to Rs.530

Million earned in the previous year.

Operating expenses at Rs.2.4 Billion reflects

an increase of 9.68% over Rs.2.2 Billion

due to increase in employee retirement

benefit expenses and other overheads.

The Financial Value Added Tax, calculated

on the basis of 12% of pre-tax profit

attributable to financial services, adjusted

for value added items such as staff

emoluments, amounted to Rs.155 Million

which was a decrease of 43% compared

to Rs.273 Million charged last year due to

a decrease in the tax rate. The provision

for losses on loans and advances was

Rs.126.7 Million, which represents 0.30%

of the total portfolio including operating

leases compared to 0.60 % in the previous

financial year.

The rigorous credit evaluation process

enabled the company to further improve

its asset quality with gross non-performing

loans (NPL) to total advances recorded at

2.39%, which is well below the Industry

wide NPL ratio in 2011 for licensed finance

companies of 5.1%. The ratio of gross

non-performing loans to total advances

(inclusive of operating leases) on the core

business was 1.65%. Interest bearing

liabilities accounted for 58.38% of the

total liabilities and shareholders’ funds, a

marginal increase compared to 56.89% in

the previous year. Deposits from customers

grew from Rs.19 Billion to Rs.21.6 Billion in

the current year, an increase of 13.86%.

DividendsThe Company continues with the tradition

of making three dividend payments. The

First interim and Second Interim dividends

of Rs. 0.70 per share each have already

been paid and the Board of Directors have

recommended a final dividend of Rs.1.10

per share for approval of the shareholders

at the Annual General Meeting, making

a total dividend of Rs. 2.50 per share,

amounting to Rs.262.2 Million and an

increase of 23% over the dividend paid in

the previous year.

Information Technology (IT)During the year under review, the main

focus of the Information Technology

Department was the completion of the

new projects initiated in the previous

year and refinement of the technology

to support such projects. A key business

continuity initiative was a series of full

fail-over simulations, with all operations

running off the Disaster Recovery Site

(DRS) Further enhancements were done

to the in-house developed Customer

Relationship Management system and the

Document Management System to cater

to the new business requirements and

additional process improvements.

All key executives of the department

numbering 15 were sent for overseas

training to enhance their technical skills

which resulted in better productivity and

overall improvement in their individual

performance.

Towards the end of the year new

projects namely, development of mobile

applications and conversion of the key

applications to WEB technology was

initiated and these would be key areas of

focus for the coming year.

Business OutlookWith the completion of two years of

sustained growth, the country is poised

to embark on an ambitious development

programme to lay the superstructure for

long term growth. This is supported by the

long term vision of the Government, which

has given the business community the

much anticipated confidence and direction

for new investment. The GDP growth is

predicted to be at a healthy rate around

7.2% in the coming years which is a

positive sign of continuance on the present

strategies, but with a downward revision

from the impressive GDP growth of 8.3%

recorded in 2011, which is more realistic in

the current domestic and global context.

The Government’s multifaceted long term

development vision aims to position

Sri Lanka as “The Wonder of Asia”. Public

sector participation in this endeavor will

provide a sustainable growth foundation,

where the collaboration of the private

sector will be an integral part of this

economic resurgence. The wide ranging

development taking place in the areas of

transportation, ports, power and energy

along with the opening of new unexplored

business territories provide tremendous

opportunities for the business community.

Achievement of these policies in that

real economy is principally dependent

on a high rate of investment expenditure

sustained for a longer period, because

of the high positive correlation with

investments and GDP growth. The

investment expenditure the country

is currently looking at is 29.9% as a

percentage of GDP, with 23.7% of it

attributed to private investment. It is cited

that the fast growing economies such as

China, India and Vietnam account for over

30% of investments as a percentage of

GDP which is supported by a national

savings rate over 30%. Therefore, it is

important to see an improvement of

quantity and efficiency of private and

government investments which are

directed at improving factor productivity


and growth in the real economy, with

policy reforms to curtail unproductive

growth.

The transportation sector demonstrates

noticeable improvement, predominantly

in the construction of highways, rural road

networks, bridges and rehabilitation of

existing roads specifically focused in North

and East. This improvement in transport

infrastructure will attract investments in

multi modal transportation to facilitate

the fast and efficient carriage of goods

passengers across the country in a

greater volume, and will pave the way for

accelerated economic activities within the

country.

The much awaited oil exploration in the

Mannar Basin started in 2010, and the

drilling commenced in 2011. Natural gas

sources were discovered in the Mannar

basin and Cauvery off the Northern

Peninsula, raising hopes of oil discovery.

There are plans to commence bid rounds

to offer rights for new oil exploration blocks

to be finalised in the coming months. This

development will support Sri Lanka to

rise as an upcoming industrial nation with

capital and expertise flowing in this area

of new investment, and to curtail the large

amount from the import bill, incurred in the

form of petroleum inputs which had a cost

to the tune of USD 4.6 Billion in 2011.

The capital market of Sri Lanka emerged as

one of the worlds’ best performing markets

during the year 2010, but has shown a

much lower level of activity during 2011,

due to various reasons. A well-organised

and regulated capital market will positively

help the emerging companies to raise

funds for new projects and the providers

of finance can develop additional business

lines such as margin trading and stock

clearing house services, while opening

further opportunities to develop Sri Lanka

as a Capital Hub to attract international

fund flows.

Our organisation is built on pillars of

absolute integrity, fair-play and prudence.

To harness business opportunities, we

have developed a strategic branch network

staffed with well-trained and motivated

personnel, who are capable of providing

efficient and caring customer service

focused on specific needs. We will increase

our presence in the rural micro sector

with the expansion of our micro branch

network in the newly liberated areas of

the country, equipped with innovative

product lines which will provide a one stop

facility for financial services. The tourism

sector is booming and private investment

is growing in the tourist transport sector,

refurbishment of hotels and in the supply

chain for the tourism industry, which will

be harnessed as a business opportunity.

We continue to provide our services for

high end corporate clients and plan to

extend facilities to the second tier customer

base as well, especially in the automotive

sectors. New product lines specifically

designed to cater, for differentiated niche

markets were implemented during the

year, which achieved successful market

penetration. We, as a leading financial

provider will strategically extend our

innovative product lines further, thereby

bringing prosperity to our loyal customers.


Industry overview

The non-bank financial industry saw an

exceptional year in 2011/12. All sub

sectors in the industry performed well

above expectations. The majority of the

industry participants were brought under

the regulatory umbrella by way of listing on

the Colombo Stock Exchange.

The industry asset base increased by 26%

compared to the preceding year and stood

at 490 Billion as at the end of 2011. The

loan portfolio also saw an impressive

growth and stood at Rs.388 Billion an

increase of 46% over the last year. The

NPA ratio of the sector improved to 5.1%

in comparison with the 7.9% recorded at

the end of 2010.

The major source of funding for LFCs;

Deposits, also increased in line with the

demand for credit at 27% reflecting the

growing public confidence in the LFC sector

Company performance in 2011/12

Income

Income increased by Rs.1.09 Billion or

14.26% over last year. Interest income

stood at Rs.7.5 Billion an increase of

17.94% compared to last year’s Rs.6.3

Billion.

The second half of the financial year saw

some volatility in the money market. Low

market liquidity coupled with noticeable

upward shifts in rates in all maturities in

the yield curve was witnessed during this

period.

Interest expense increased by 17.07%

during the year under review in line

with the market trend. The cost of term

borrowings was the major contributory

factor for this increase as the deposit

products were re-priced at maturity.

Operating Expense

The operating expenses, other than

employee related expenses, increased by

a marginal 8.29% in line with the general

increase in price levels. The increase in

salary bill by 11.95% includes cost of

additional staff required for the expanded

branch network together with the

recruitment and retention strategy of the

Company.

Taxation

Income tax expense for the year under

review at Rs.911 Million was lower than

the amount recorded for the preceding

year, primarily because the previous year’s

charge included some additional provisions

pertaining to prior years on settlements

reached with the Department of Inland

Revenue. The effective rate of current tax for

the year stands at 21.43% and is significantly

lower when compared to 28.98% recorded

in the previous period. The reduction in

VAT on Financial Services is mainly due to

the reduction in rate from 20% to12% and

elimination of tax on tax introduced in the

Government budget of 2011.

Leases, Loans & Advances

Net investment in Leases, Loans & Advances

recorded increases at 41.82% and 35.43%

and the year-end balances stood at Rs.22.9

Billion and Rs.18.3 Billion, respectively.

Along with the growth in business volume,

improvement in NPA was noted due to

the stringent Credit Risk Management

initiatives taken during the year. The NPA

volumes net of Interest -in-Suspense stood

at Rs.833.9 Million as against Rs.1,230.4

Million at the end of last year. Provisions

as at year end have exceeded the net NPA

amounts and the Company’s net exposure

to possible further provisions is zero.

Deposits

The Company grew its deposit book by

Rs.2.6 Billion reflecting an increase of

13.86%, despite the fierce competition

from both banks and other LFCs. The

deposit mix saw a shift towards the shorter

tenures due to the rate volatility that

prevailed in the market. The Company was

able to mop up fresh deposits of Rs.10.06

Billion during the year.

Borrowings

As part of the interest cost management

strategy, the Company increased its

borrowings from bank and non-bank

sources and the balances stood at Rs.5.7

Billion and Rs.1.8 Billion respectively.

Interest expenses relating to these

borrowings also saw substantial increases

Financial Review

IncomeRs.Mn

09/10 10/11 11/12

7,0577,647

8,737

+14%

OPERATING EXPENSESRs.Mn

09/10 10/11 11/12

1,9492,207

2,420

+10%

12.86%

5.67%1.35%0.65%6.08%0.84%

72.55%

Short Term Bank LoanBank OverdraftsCommercial PaperLong Term Bank LoansNon Bank LoansDebenturesDeposits

FUNDING MIX 2012


due to market conditions and resulted

in placing margins under persistent

pressure. Securitsation, Commercial Paper,

Debentures and Term Loans were some of

the borrowing sources utilised. The strong

creditratingofA+byFitchRatingsLanka

Ltd helped the Company to source these

lines at competitive rates.

Return on Assets & Return on Equity

ROA and ROE were encouraging in line

with the financial results. ROA which

measures the efficiency of the Company

stood at 5.20% compared to the previous

year’s 4.5% while the Return on Equity

was 22.34%, reflecting an impressive 20%

growth over the last year.

Market Capitalisation

CF remains as one of the largest capitalised

finance companies in the Colombo bourse.

Shareholders’ funds grew by 22.35%

mainly due to retained profits. The Share

price of the Company has seen a drop in

line with the overall market decline. Details

of the share prices are given on page 115.

Group Performance

Financial results of the Central Finance

Group, which comprises of the Company,

thirteen Subsidiaries and three Associates,

were impressive. The Group income rose

to Rs.9.26 Billion recording a 14.40%

increase YoY and the bottom line stands at

Rs.2.77 Billion as at the year-end. Details of

the performance of individual companies

are reflected in the Managing Director’s

review on pages 7 to 12.

Liquidity

Liquidity remained tight for most industry

participants. However, the Company

maintained satisfactory liquid assets of

Rs.991 Million in excess of the statutory

requirements. Liquid Assets of CF were at

Rs.3.20 Billion, at year-end, and represents

a Liquidity Assets Ratio of 14.82% which is

well above the minimum levels set by the

Regulator - Central Bank of Sri Lanka.

Earnings per Share

The normalised earnings per share

recorded an increase of 46.50% over the

corresponding year and stood at Rs.25.52

at year end, in line with the growth seen in

profit attributable to the equity holders of

the Company.

Capital Adequacy

Capital adequacy ratios remain very strong

for CF, with Tier I Capital Adequacy ratio of

22.43 % and Total Capital to Risk Assets of

22.62 % as at 31.03.2012, which are well

above the statutory minimum requirements

of 5% and 10% set by the Central Bank of

Sri Lanka. These ratios are marginally less

than the last year’s ratios.

Future Outlook

The Company will expand its network in

the rural areas, with specific concentration

in the Northern and Eastern markets as

part of its long-term strategy, despite the

subdued credit growth expected for the

ensuing year. The interest rate structure

seems to be volatile and will be a major

determinant which influences the future

growth of the industry. The market liquidity

is another important factor in this regard

and is expected to gain momentum

through foreign inflows, by way of

corporate debt, foreign direct investments

and remittances from expatriates.

DPS Rs.

1.16

2.04

2.50

+23%

09/10 10/11 11/12

ROE (%)

09/10 10/11 11/12

12.5

18.57

22.34

+20%

ROA (%)

09/10 10/11 11/12

2.9

4.45

5.2

+17%

LIQUID ASSETS(%)

09/10 10/11 11/12

21.22

12.2514.82

+21%

EPS Rs.

09/10 10/11 11/12

8.97

17.42

25.52+46%


Branch Network

KANDY - Head Office 84, Raja Veediya, Kandy, Sri Lanka. Tel : 94-81-2227000 Fax : 94-81-2232047

COLOMBO - City OfficeNo: 270, Vauxhall Street, Colombo 02, Sri Lanka. Tel : 94-11-2300555 Fax : 94-11-2300441, 94-11-2541212

KATUGASTOTA - Showroom No: 254, Katugastota Road, Kandy.Tel : 94-81-2234309, 94-81-2234234-5Fax : 94-81-2228468

CENTRALPROVINCE

NORTHERN PROVINCE

UVA PROVINCE

SABARAGAMUWA PROVINCE

NORTH CENTRAL PROVINCE

SOUTHERN PROVINCE

NORTH WESTERNPROVINCE

WESTERNPROVINCE

EASTERNPROVINCE

Ja�na

Mannar

Vavunia

Tambuttegama

Anuradhapura

Kekirawa

Dambulla

Kantale

Trincomalee

Puttalam

Nikaweratiya Galewela Bakamuna

Hingurakgoda

Polonnaruwa

Batticaloa

MelsiripuraChilaw

KuliyapitiyaKurunegala

GiriullaWennappuwa

Negombo

Matale

Dehiattakandiya

Ampara

Pottuvil

Tissamaharama

Hambanthota

Embilipitiya

BalangodaRatnapura

Matara

Galle

Ambalangoda Elpitiya

Matugama

MonaragalaWellawaya

Badulla

Bandarawela

Welimada

Nuwara Eliya

Hatton

Mahiyanganaya

Nawalapitiya

GampolaRikillagaskada

Kandy

Katugastota

Horana

Panadura

Avissawella

Warakapola

Kegalle

Nittambuwa

GampahaJa-ela

ColomboKiribathgoda

RatmalanaMaharagamaNugegoda

Piliyandala

Malabe HanwellaHomagama


WESTERN PROVINCE - 16

AVISSAWELLA No. 1/79, Ratnapura Road, Avissawella.Tel : 036-2232750, 036-2232650 GAMPAHA No:129, Ja-ela Road, Gampaha.Tel : 033-2227621, 033-2234132, 033-4670442

HANWELLA No.131/1/B, Pahala Hanwella, Hanwella.Tel : 036-2253945, 036-2253966

HOMAGAMA No.119/1/1, Katuwana Road, Homagama.Tel : 011-2892334

HORANA No. 163, Panadura Road, Horana.Tel : 034-2265065, 034-2265066

JA-ELA No. 171, Negombo Rd, Ja-ela.Tel : 011-2229180, 011-2229181

KIRIBATHGODA No. 541, New Hunupitiya Rd, Dalugama, Kelaniya.Tel : 011-4967530, 011-4821442

MAHARAGAMA No. 218A,/1/1,1st Floor, High level Road, Maharagama.Tel : 011-2845855, 011-4319961

MALABE No. 824C, Thalangama North, Malabe.Tel : 011-4413916, 011-2760893

MATUGAMA No. 17/1, Pasqual Street, Matugama.Tel : 034-224995

NEGOMBO 367, Main Street, Negombo.Tel : 031-2222579, 031-4871200, 031-2233456,031-2235111

NITTAMBUWA No. 43 Kandy Road, Nittambuwa.Tel : 033-2296615

NUGEGODA No. 312, High Level Road, Colombo 06.Tel : 011-2815800, 011-2815801, 011-2815803, 011-2815804

PANADURA No. 292, Galle Road, Panadura.Tel : 038-4281010, 038-2241533

PILIYANDALA No. 329/4, Colombo Road, Piliyandala.Tel : 011-2609000 Fax : 2609001

RATMALANA No. 259/1/1,Galle Road, Ratmalana.Tel : 011-2715617 Fax : 011-2715623

EASTERN PROVINCE - 6

AMPARA No, 09, 5th Avenue, Ampara.Tel : 063-4890117, 063-2222238

BATTICALOA No. 48, Station Road, Batticaloa.Tel: 065-2227823, 065-2227824

DEHIATTAKANDIYA No. 18E, New Town Complex, Dehiattakandiya.Tel : 027-2250189, 027-2250067

KANTALE No. 63/2 Trincomalee Rd, Kantale.Te l : 026-2234574, 026-2234447

POTTUVIL No. 230 Arugambay Road, Pottuvil.Tel : 063-2248080, 063-2248084

TRINCOMALEENo.272, 4th Mile Post, Kandy Road, TrincomaleeTel: 026-2242422, 026-2242423

SOUTHERN PROVINCE - 6

AMBALANGODA No. 21B,Wickramasooriya Road, Ambalangoda. Tel : 091-2255802, 091-2255799

GALLE No. 151A, Matara Road, Galle.Tel : 091-2223315, 091-4385676

HAMBANTOTA No. 1/3, New Tangalle Rd, Hambantota.Tel : 047-2222651, 047-2222652

MATARA No. 78, Kumaratunga Mawatha, Matara.Tel : 041-2227314, 041-2222914

TISSAMAHARAMANo. 173, Hambanthota Road, Kachcheriyagama, Tissamaharama.Tel : 047-2239145, 047-2239593

ELPITIYA No. 109, Ambalangoda Road, Igala, ElpitiyaTel: 091-4943533, 091-4943534

NORTHERN PROVINCE - 3

JAFFNA No. 364, Main St, Jaffna.Tel : 021-2221608, 021-2221942

VAVUNIYA No. 166, Station Rd, Vavuniya.Tel : 024-2225813, 024-2225814

MANNARNo. 45, Thalvupadu Road, MannarTel: 023-4920727, 023-4920728


NORTH WESTERN PROVINCE - 8

CHILAW No. 54, Kurunegala Road, Chilaw.Tel : 032-2220636,032-2221660

GIRIULLA No. 119, Negombo Road, Giriulla.Tel : 037-2289512, 037-2289513

KULIYAPITIYA No. 107, Kurunegala Road, KuliyapitiyaTel : 037-2284553,037-2283725,

KURUNEGALA No. 38, Mihindu Mawatha, Kurunegala.Tel : 037-2232313, 037-2222200037-2228020

MELSIRIPURA No. 177, Karandagolla Junction,Melsiripura.Tel : 037-2250014, 037-2250013

NIKAWERATIYA No. 200, Puttalam Road, Nikaweratiya.Tel : 037-2260871, 037-2260872

PUTTALAM No. 628 Colombo Rd, Puttalam.Tel : 032-2269328, 032-2269357

WENNAPPUWA No. 349, Colombo Road, Wennappuwa.Tel : 031-2245260, 031-2255261

NORTH CENTRAL PROVINCE - 6

ANURADHAPURA No. 6C, Wasantha Motors (Second Floor), Maha Veediya, Anuradhapura.Tel : 025-2223560, 025-4930501

BAKAMUNA No. 11, Elehera Road, Bakamuna.Tel : 066-2256000, 066-2556001

HINGURAKGODA No. 20, Airport Road, Hingurakgoda.Tel : 027-2247214, 027-2245224

POLONNARUWA No. 13, Hospital Junction, Polonnaruwa.Tel : 027-4599210, 027-2225176

TAMBUTTEGAMA No. 29 Kurunegala Road, Tambuttegama.Tel : 025-2275151, 025-2276978

KEKIRAWA No.33, Yakalla Road, KekirawaTel: 025-4976002, 025-4928868, 025-4928868

CENTRAL PROVINCE - 8

DAMBULLA No. 21 Kurunegala Rd, Dambulla.Tel : 066-2283021, 066-4925374

HATTON No. 62, Dunbar Road, Hatton.Tel : 051-2222760

MATALE No. 622 Trincomalee Street, Matale.Tel : 066-2231225, 066-2223005

NUWARAELIYA No. 169, Badulla Rd, Nuwaraeliya.Tel : 052-2235422, 052-2235433

NAWALAPITIYA 125, Ambagamuwa Road, Nawalapitiya.Tel : 054-4922792, 054-4976001

GAMPOLANo.6B, Nidahas Mawatha, GampolaTel: 081-4945114 ,081-4945115

GALEWELANo.334/B, Dambulla Road, GalewelaTel: 066-4929890, 066-4929891

RIKILLAGASKADANo. 21, Ratmetiya Road, Rikillagaskada.Tel : 081-4945112, 081-4945113

SABARAGAMUWA PROVINCE - 5

RATNAPURA No.143, Colombo Road,Moragahayata, RathnapuraTel : 045-2231409,045-2222028, 045-43604478

WARAKAPOLA No. 236, Kandy Rd, Warakapola.Tel : 035-2267010, 035-2268941

EMBILIPITIYA Rasika Building, Pallegama, Embilipitiya.Tel : 047-2261923, 047-4379332

KEGALLE No. 450A, 5th & 4th Floor, Kandy Rd, Meepitiya, KegalleTel : 035-2221083, 035-2232956

BALANGODANo.149E, Baranes Ratwatta Road, Balangoda. Tel: 045-4928326, 045-4928327

UVA PROVINCE - 6

BADULLA No. 04,Udayarajah Mawatha, Badulla.Tel : 055-2230541, 055-2229701, 055-4499643, 055-2224666

MAHIYANGANANo. 112, Giradurukotte Road, Mahiyangana.Tel : 055-2258335, 055-2258100

BANDARAWELA No. 03, Thanthiriya, Badulla Road, Bandarawela.Tel : 0572233241, 0572233240

MONARAGALA No. 150A, Wellawaya Road, Moneragala.Tel : 055-2277374, 055-2277346

WELIMADA No.8/1/A&B, Wattegedara, Divithotawela, WelimadaTel: 057-4926923, 057-4926922

WELLAWAYA No. 208, Monaragala Road, WellawayaTel: 055-4929301, 055- 4929302

Branch Network (contd.)


Central Finance is committed to achieving

the highest standards of corporate

governance in every aspect of the business,

including risk management. In discharging

the governance responsibility the Board of

Central Finance is conscious of the need to

manage risk within the preset parameters,

which ensures that risk oversight is a

critical focus for all our Directors. The

overall adequacy and effectiveness of the

risk management framework is managed

through the Integrated Risk Management

Committee (IRMC), Board Audit

Committee (BAC), which solely comprises

of Non-executive Directors and the Assets

and Liability Management Committee

(ALCO) which comprises of the Executive

Directors and senior level staff members

in charge of key related functions. Acting

within authority delegated by the Board,

these Committees review specific risk areas

and receive regular reports on internal

controls, risk management, portfolio

trends, policies, limits and standards. We

focus on setting clear risk parameters

and embedding a strong culture of risk

management and control designed to

ensure the proactive identification of risks

which in turn will enable the Company to

be resilient and respond effectively to any

unforeseen shocks.

The management of risk lies at the heart of CF’s business. Our balance sheet is dominated by credit to customers through our lending

operations. Beyond credit risk, we are also exposed to a range of other risk types such as liquidity, market risk which includes interest rate

risk, operational, strategic and other risks which are inherent to our strategy, product range and geographical coverage.

Risk Management FrameworkEffective risk management is fundamental to being able to generate profits consistently and in a sustainable manner. Our risk management

framework which is set out in the diagram below, encompasses structures that are strategically linked with performance management

enabling us to focus on the areas that drive our risk strategy.

Risk Management

Committee Role Membership

Board Audit Committee The Audit Committee reviews the accounting policies

and practices, controls and procedures established

by management for compliance with regulatory and

financial reporting requirements. It operates under

delegated authority from the Board.

Solely comprised of Non-executive Directors and

the majority of them are Independent. Details of

the members is given in the Audit Committee

Report on page 59.

Integrated Risk

Management Committee

The Integrated Risk Management Committee was

formed to operate primarily as an oversight committee

monitoring risk types, concentrating particularly on

Credit, Market, Operational and Strategic risks and

issues.

Comprised of Non-executive and Executive

Directors and senior level staff, who are in-charge

of related functions. The committee is chaired by

an Independent Non-executive Director. Details

of the members is given in the Integrated Risk

Management Committee Report on page 58.

Assets and Liabilities

Committee

The Asset and Liability Management Committee

(ALCO) is responsible for identifying, managing

and controlling balance sheet risks in executing the

business strategy of CF.

Comprised of Executive Directors and senior

level staff who are in charge of Finance, Branch

Network Management, Recoveries and Treasury.

Board of Directors

RISK OWNERSHIP

Business line operations

Managing Director

Board of Management

Business Units

(Marketing, Credit, Vehicle Hire, Fleet

Management Services, Deposits,

Treasury)

RISK ASSURANCE

Audit & Assurance

Board Audit Committee

Internal Audit Division

Independent External Auditor

(Reporting directly to the

shareholders)

RISK CONTROL

Risk Management

Integrated Risk Management Committee

Assets and Liability Committee

Risk Management Division

1st l

ine

of D

efen

se

2nd

Line

of D

efen

se

3rd

Line

of D

efen

se


Credit riskCredit risk is the potential for loss due

to the failure of a counterparty to meet

its obligations to pay the Company in

accordance with agreed terms. Credit risk

is managed through a framework that

sets out policies and procedures covering

the measurement and management

of credit risk. A well defined delegated

approval hierarchy supported by high

ethical standards, well established policies

& procedures provide a robust framework

for the organisation and management of

credit risk. There is a clear segregation

of duties between major transaction

originators in the businesses and approvers

in the Credit function. All credit exposure

limits are approved within a delegated

credit approval authority frame work.

Risk indicators are also set by the Credit

division and monitored through the Board

of Management (BoM) and ALCO on a

monthly basis.

Credit policiesCompany-wide credit policies and

procedures are considered and approved

by BoM, with the inputs of the Credit

and Recoveries Departments. BoM also

oversees the delegation of credit approval

and loan loss provisioning processes

through the regular review of operations.

These policies are adequate to reflect the

different risk environments and portfolio

characteristics of Central Finance.

Credit approvalMajor credit exposures to individual

counterparties, Groups of counterparties

and product categories are reviewed and

approved by the designated officers under

the delegated approving limits set by BoM,

with the oversight of the Board. The credit

approving limits in place are structured

based on the need of delegation required

to manage the network of branches,

without compromising the risk appetite of

the Company.

Credit concentrationCredit concentration risk is managed

within limits set by counterparty or groups

of connected counterparties, asset type,

industry sectors etc. Credit concentrations

are monitored by ALCO in each of the

product type categories and such limits

that are material to the Company are

reviewed and approved by ALCO. We have

a diversified portfolio with low exposure to

high risk asset classes and segments thus

minimising concentration risk. The ALCO

also reviews the top 20 lending exposures

at its’ quarterly meetings. The performance

of the large lending exposures are also

reviewed periodically.

Credit monitoringWe regularly monitor credit exposures,

portfolio performance, and external trends

which may impact risk management

outcomes. Internal management reports

are presented to various committees,

containing information on key

environmental, political and economic

trends. Portfolio delinquency and loan loss

provisioning as well as portfolio quality are

monitored by the Recoveries Department

constantly

SecuritiesMost of our lending activities are fully

secured by tangible assets with majority of

them being motor vehicles and equipment.

Hence the Company has a fall back in the

event of default.

Market riskWe at Central Finance recognise market risk

as the risk arising from changes in interest

rates, foreign currency, equity prices

and risk related factors such as market

volatilities. The objective of our market

risk management is to obtain the best

balance of risk and return whilst meeting

customers’ requirements. The primary

categories of market risk for CF are:

• Interest rate risk: arising from changes in

yield curves and credit spreads

•Equitypricerisk:arisingfromchangesin

the prices of equities and equity indices

Market risks arising from interest rate

volatility is managed with direction from

Risk Management (contd.)

16%42%

5%

7%

11%

5% 6% 6%2%

CentralEasternNorth CentralNorth WesternNorthernSabaragamuwaSouthernUvaWestern

Geographic concentration of advances

0

%

0.5

1.0

1.5

2.0

2.5

Apr-

11

May

-11

Jun-1

1

Jul-1

1

Aug-

11

Sep-1

1

Oct

-11

Nov-

11

Dec

-11

Jan-1

2

Feb-1

2

Mar

-12

NPA Ratio

4%96%

Top 20Portfolio

Top 20 concentration


ALCO which continuously monitors the

cost of funds of the Company and initiates

necessary action to ensure the required

margins for the Company.

Organisation and structureThe Board approves risk appetite for

market risks. The Director-Finance is

responsible for the funding operations,

under delegated authority from the Board,

which sets a framework of limits within

the context of the approved market risk

appetite. The Company has a strong

control environment facilitated by a well-

structured oraganisation which has enabled

it to strengthen segregation of duties in

respect of critical functions.

Interest rate derivativesThe Company’s principal interest rate

related contracts are interest rate SWAPs.

An interest rate SWAP is an agreement

between two parties to exchange fixed and

floating rate interest by means of periodic

payments based upon a notional principal

amount and the interest rates defined in

the contract. The interest rate SWAPs are

mechanisms which are used to manage

the interest rate volatility of maturity

mismatches, typically associated with

finance business.

Equity price risk

Central Finance is exposed to market

movements in equity price fluctuations

through the trading and investment

securities portfolios. IRMC and ALCO

consciously review the exposure limits. A

comprehensive evaluation process is also

carried out prior to investment decisions.

Regular monitoring of price levels is done

through the investment function within the

Finance Department to mitigate adverse

movements in the stock market.

Operational riskOperational risk is the risk of direct or

indirect loss due to an event or action

resulting from the failure of internal

processes, people and systems or from

external events. We seek to minimise

exposure to operational risk, subject to

cost trade-offs. Operational risk exposures

are managed through a consistent set of

management processes that drive risk

identification, assessment, control and

monitoring. The Board appointed Board

Audit and Integrated Risk Management

Committees oversee the management

of operational risks across the network

and at the center, with the support of the

independent internal audit department

which is separate from the business

functions. In addition the BAC also

receives and reviews the management

letter of the external auditor. This formal

structure of governance provides the

Board with confidence that operational

risks are being proactively identified and

effectively managed. All business units are

responsible for setting and maintaining

standards for operational risk management.

Possible losses to Company assets due to

unforeseen events have been covered with

comprehensive insurance policies.

Liquidity riskLiquidity risk is the risk that we either do not

have sufficient financial resources available

to meet our obligations as they fall due, or

can only access these financial resources

at excessive cost. Liquidity risk is heavily

influenced by the maturity profile and mix

of the Company’s funding base, as well as

the quality and liquidity value of its liquidity

assets portfolio. It is our policy to maintain

adequate liquidity at all times and be in

a position to meet all obligations as they

fall due. Diversification of the Company’s

funding base is central to its balance sheet

management strategy. Customer deposits

provide large pools of stable funding to

support the majority of lending. We access

market funding by way of debt issuances on

an unsecured and secured basis. We also

have a contingency funding plan by way of

undrawn approved bank lines.

We manage liquidity risk taking both

short and medium-term requirement into

consideration. In the short-term, our focus

is on ensuring that the cash flow demands

can be met through asset maturities,

customer deposits and bank funding

where required. In the medium-term, the

focus is on ensuring a structurally sound

balance sheet. ALCO is the responsible

governing body that oversees our liquidity

management policies. The Treasury

Department receives direction from ALCO

and is responsible for managing liquidity

limits. Liquidity risk is a standing agenda

item at our monthly ALCO meetings. We

also have a strong advances–to-deposit

Index

ASPIMPICFPI

0

2000

4000

6000

8000

10000

12000

Apr-11

May

-11

Jun-1

1

Jul-1

1

Aug-

11

Sep-1

1

Oct

-11

Nov-

11

Dec-

11

Jan-1

2

Feb-1

2

Mar

-12

CF price index vs ASPI

%

0

2

4

6

8

10

12

14

16

Apr-11

May

-11

Jun-1

1

Jul-1

1

Aug-

11

Sep-1

1

Oct

-11

Nov-

11

Dec

-11

Jan-1

2

Feb-1

2

Mar

-12

Liquid Assets to Deposits


Risk Management (contd.)

ratio, which is testament to our liquidity

management capabilities. The pricing of

deposit maturities are done in a way to

curb the maturity mismatches between our

lending and borrowing portfolios.

Liquidity asset ratio (LAR)This is the ratio of liquid assets to total deposits. The significant level of holdings of liquid assets in the balance sheet reflects the application of our liquidity policies and practices.

Strategic riskThe Company is continuously following developments taking place in the business environment and formulates its strategies to optimise the opportunities available whilst attempting to manage risks associated with such strategies. Business strategies are adopted after evaluating the overall risks associated with such strategies. A comprehensive three year strategic plan is being developed with quantitative targets. Risks in achieving such targets have also been mapped and will be monitored continuously.


Corporate GovernanceWe at Central Finance believe that good Corporate Governance is about creating the right culture throughout the entire organisation. Good

Corporate Governance contributes to the long-term success of a Company, creating trust and engagement between the Company and its

stakeholders. Our culture and values are deeply embedded within the organisation. Our culture stimulates transparency and accountability.

Corporate Governance is the system by which the Company is directed and managed and which influences the manner in which the objectives

of the Company are formulated, communicated and achieved. Corporate Governance policies and practices of the Company have been

designed to ensure that the Company is focused on its responsibilities to its stakeholders and on creating long term shareholder value. We

continuously review and find ways to improve our Board’s effectiveness in this regard.

This year marks an important milestone in Corporate Governance both globally and locally. Our English counterparts have made considerable

changes to board room effectiveness by complying or explaining their level of adoption of the Corporate Governance Code of UK, which stems

from Sir David Walker’s review of Corporate Governance in UK banks and other financial industry entities in 2009. In Sri Lanka, this year all

financial services entities have to fully comply with the Corporate Governance Directions issued by the Central Bank of Sri Lanka. Your Board has

considered both pronouncements in reconstituting the Board. Key highlights, level of adoption and conformance to the rules and best practices

embraced by your Company are disclosed in this year’s report.

Highlights of 20111. Reconstituted the Board in line with the CBSL Corporate Governance Direction for Finance Companies.

2. Election of a new Chairman.

3. Formation of the Board Integrated Risk Management Committee.

4. Election of new Chairmen for the Audit and Remuneration Committees.

5. Oversight of the successful share subdivision and a bonus issue.

CORPORATE GOVERNANCE FRAMEWORKThe diagram below demonstrates our approach to Corporate Governance. It depicts the interactive nature of the elements we view as being

key in embracing the spirit of best practice Corporate Governance principles.

As in the previous year, this year too we report our Governance practices and initiatives in three sections.

SECTION ONE covers the level of adoption of the Code of Best Practice on Corporate Governance issued jointly by the Securities and

Exchange Commission of Sri Lanka and the Institute of Chartered Accountants of Sri Lanka.

SECTION TWO covers the level of compliance with the Direction No. 03 of 2008 of Finance Business Act No. 42 of 2011 and subsequent

amendments thereto on Corporate Governance for Licensed Finance Companies issued by the Central Bank of Sri Lanka.

SECTION THREE covers the level of conformity with the Continuing Listing Rules - Section 7.10 on Corporate Governance for Listed

Companies issued by the Colombo Stock Exchange.

THE BOARD OF DIRECTORS

BOARD APPOINTED COMMITTEES

OTHER MANAGEMENT COMMITTEES

AUDIT COMMITTEE

Oversight and review of financial, audit and internal

control issues

Oversight and review of prudential risks including

credit, market, operational and liquidity

Oversight and review of remuneration and other

incentives

REMUNERATION COMMITTEEINTEGRATED RISK MANAGEMENT COMMITTEE


SECTION ONECODE OF BEST PRACTICE ON CORPORATE GOVERNANCE ISSUED BY THE SECURITIES AND EXCHANGE COMMISSION OF

SRI LANKA & THE INSTITUTE OF CHARTERED ACCOUNTANTS OF SRI LANKA.

The disclosures below reflect the level of adoption of the above voluntary Code which comprises of six fundamental principles. These are

namely Directors, Director’s Remuneration, Relations with Shareholders, Accountability and Audit, Institutional Shareholders, Other

Investors

Corporate Governance Principles

ICASL Code Reference/

Adoption statusExtent of Adoption by CF

A. DIRECTORS

A.1 The Board

Meetings A 1.1Adopted

During the year the Board met 12 times, at approximately monthly intervals. Details of the meetings and the individual attendance are given on page 42.

Boardresponsibilities

A 1.2 Adopted

The Board of Directors is responsible for strengthening the safety and soundness of Central Finance, safeguarding the depositors, prudent management of risks, ensuring good governance and compliance with rules and regulations. The Non-executive Directors are responsible for bringing independent judgment and scrutiny to decisions taken by the Board. The Board formulates strategy and ensures the implementation of same.

Access toindependentprofessionaladvice

A 1.3Adopted

The procedure for Directors to seek independent professional advice, in furtherance of their duties, at the Company’s expense, is in place as and when it is necessary.

CompanySecretary

A 1.4Adopted

The Company Secretary’s service is available for the Directors as and when required. The Company Secretary is responsible for supporting and advising the Chairman and the Board on all Corporate Governance matters, Board procedures and compliance with applicable laws and regulations.

Independent judgment

A 1.5Adopted

Directors bring independent judgment and scrutiny in the decisions taken by the Board on issues of strategy, performance, resources and business conduct.

Dedication ofadequatetime and effortby Directors

A 1.6Adopted

All Directors dedicate adequate time for the fulfillment of their duties as Directors of the Company. In addition to attending Board meetings, they attend sub-committee meetings.

Training fornew Directors

A 1.7Adopted

All new Directors have undergone necessary training, including the CBSL Symposium for Directors of Finance Companies, both in the general aspects of directorship and matters specific to the financial services industry.

A.2 Chairman & Chief Executive Officer (MD)Division ofresponsibilitiesof Chairman &MD (CEO)

A 2.1Adopted

The roles of the Chairman and MD (CEO) are separated to ensure that no individual has unfettered powers of decision.

A.3 Chairman’s RoleRole of the Chairman

A 3.1Adopted

The Chairman’s role is to lead and manage the Board, ensuring that it discharges its’ legal and regulatory responsibilities effectively and completely. He preserves order and facilitates the effective discharge of the Board function. The Chairman’s role includes but is not limited to;- approving the agenda prepared by the Company Secretary and conducting Board Meetings.- ensuring that the Directors are informed adequately and timely of the issues arising at Board Meetings.- encouraging Directors to make full and active contribution to the Board.- ensuring effective contribution of the Non-executive Directors.- ensuring regular meetings, the minutes of which are accurately recorded and where appropriate include the individual and collective views of the Directors.- maintaining effective communication with shareholders and convey their views to the Board.

Corporate Governance (contd.)





A.4 Financial AcumenAvailability of sufficientfinancial acumen and knowledge

A 4Adopted

The Board includes three Fellow Members of the Institute of Chartered Accountants of Sri Lanka and two of them are also Fellow Members of the Chartered Institute of Management Accountants of UK. In addition the Board also includes two Members whom are Members of the Chartered Institute of Management Accountants of UK and one of them is also a Fellow Member of the Association of Chartered Certified Accountants. These Members of the Board have the ability to offer guidance on matters of finance to the Board.

A.5 Board BalancePresenceof a strongindependentelement onthe Board

A 5.1Adopted

Half the Board Members are Non-executives. The roles of the Chairman and CEO (MD) are not vested in one person.

IndependentDirectors

A 5.2Adopted

A 5.3Adopted

More than half of the Non-executive Directors are Independent as defined by this Code.

Signeddeclaration ofIndependenceby the Non-executiveDirectors

A 5.4Adopted

Non-executive Directors have made written submissions as to their Independence.

Determinationof Independenceof the Directors by the Board

A 5.5Adopted

The Board has determined that the submission of declaration by the Non-executive Directors, as to their independence is a fair representation and will continue to evaluate this annually. The names of the Independent Non-executive Directors are given on page 42.

SeniorIndependentDirector

A 5.6Not Applicable

The requirement to appoint a Senior Independent Director does not arise as the roles of Chairman and CEO (MD) are separate.

Confidentialdiscussionwith the SeniorIndependentDirector

A 5.7Not Applicable

Please refer the above comment.

Meeting ofNon-executiveDirectors

A 5.8Adopted

The Chairman meets with the Non-executive Directors without the presence of the Executive Directors as and when it is necessary.

Recording ofconcerns inBoard minutes

A 5.9Not Applicable

Circumstances did not arise for the Board to record in minutes any concerns, as all issues were resolved unanimously at Board Meetings.

A.6 Supply of InformationInformationto the Boardby the management

A 6.1Adopted

The management provides timely and appropriate information to the Board by way of Board papers and proposals. The Board sought additional information as and when necessary. The Chairman ensured that all Directors were briefed on issues arising at Board Meetings.






Adequate time for Board meetings

A 6.2Adopted

The Board papers are sent to the Directors at least seven days before the respective Board Meetings, giving adequate time for Directors to study the related papers and prepare for a meaningful discussion at Board Meetings.

A.7 Appointment to the BoardNomination Committee

A 7.1Not adopted

The Board as a whole decides on the selection of new Directors. The Board believes that this process is more meaningful and transparent due to the importance in appointing Directors to the Board.

Assessmentof Boardcomposition & Succession planning for key Management personnel

A 7.2 Adopted

The Board carries out continuous reviews of the composition, which includes identifying, evaluating and recommending candidates for the Board. During 2011, the Board focused heavily on its future composition with an emphasis both on Executive and Non-executive succession planning. Non Board key management personnel are also covered with adequate succession planning.

Disclosure ofdetails of newDirectors toshareholders

A 7.3Adopted

Details of new Directors are disclosed to the shareholders on their appointment by way of public announcements as well as in the Annual Report. Notice on appointment of new Directors is given to the Colombo Stock Exchange.

A.8 Re-electionAppointmentof Non- executiveDirectors

A 8.1Adopted

The Company’s Articles of Association provides that at every Annual General Meeting of the Company, one-third of the Non-executive Directors shall retire from office. The Directors to retire in each year are the Directors who have been longest in office since their appointment or re-appointment, Period of service of Non- executive Directors shall not exceed nine years. Directors retire from the Board prior to reaching the age of 70 years.

Election ofDirectorsby theshareholders

A 8.2Adopted

Please refer comments above.

A.9 Appraisal of Board PerformanceAppraisalof BoardPerformance

A 9.1Adopted

The performance of the Board is evaluated by the Chairman. The Sub-committees carry out an assessment process annually to ensure they function effectively and efficiently with the objective of facilitating continuous improvement.

Annual selfevaluation ofthe Board andits Committees

A 9.2Adopted

Refer comments above.

Method ofBoard andsub-committeeperformanceappraisal

A 9.3 Adopted

Refer comments given for Section A 9.1

A.10 Disclosure of Information in respect of DirectorsDetails inrespect ofDirectors

A 10.1Adopted

Details of the Directors are given on pages 13 and 14.

A.11 Appraisal of the CEOFinancial targets for MD (CEO)

A.11.1Adopted

At the commencement of the year, performance targets for MD (CEO) are set by the full Board which is in line with the Strategic Plan of the Company.





Evaluationof the Performanceof the MD (CEO)

A 11.2 Adopted

There is an ongoing process to evaluate the performance of MD (CEO) against the financial and non financial targets set as described above.

B. DIRECTORS’ REMUNERATIONB.1 Remuneration ProceduresRemuneration Committee

B 1.1Adopted

The Remuneration Committee is responsible for assisting the Board with regard to the remuneration policy for the Executive Directors and other Senior Level Staff Members. The Committee determines and agrees with the Board, the broad policy framework for the remuneration of the Executive Directors. The Executive Directors participate at meetings by invitation in deciding the remuneration of the Corporate Management in order to recruit, retain and motivate the Corporate Management Team.

Composition of the Remuneration Committee

B 1.2Adopted B 1.3

Adopted

Please refer the Remuneration Committee Report given on page 57 for details.

Remunerationof the Non-executiveDirectors

B 1.4Adopted

The Board as a whole decides the remuneration of the Non-executive Directors. The Non-executive Directors receive a fee for serving on the Board and its Sub-committees.

Consultation ofthe Chairmanand access toprofessionaladvice

B 1.5Adopted

Chairman of the Board is also the Chairman of the Remuneration Committee.

B.2 Level and makeup of the RemunerationLevel andmakeup of theremunerationof ExecutiveDirectors

B 2.1 Adopted

The remuneration framework for the Directors is designed to create and enhance value for all stakeholders and to ensure that there is strong alignment between the short term and long term interest of the Company and the Directors.

Comparison ofremunerationwith othercompanies

B 2.2 Adopted

The Remuneration Committee in deciding the remuneration of the Directors takes into consideration the level of remuneration paid by other comparable companies.

Comparison ofRemunerationwith othercompanies inthe Group

B 2.3 Not Adopted

The size and scale of Central Finance is not comparable with Subsidiary Companies.

Performancerelatedpayment toExecutiveDirectors

B 2.4 Adopted

Please refer item B 2.1 above.

Executive share options

B 2.5 Not Applicable

There are no share option plans for Executives.

Designingthe ExecutiveDirectorsremuneration

B 2.6 Adopted

The Remuneration Committee considered the Schedule D to this code in deciding the remuneration of the Executive Directors.






Early termination of Directors

B 2.7 Adopted

Executive Directors are employees of the Company and their terms of reference are governed by the contract of employment. The Remuneration Committee has considered the compensation commitments given in the contracts of employment of Executive Directors, if any.

Early termination not included in the initial contract

B 2.8 Adopted

Refer comments above.

Remunerationof the Non-executiveDirectors

B 2.9 Adopted

Non-executive Directors receive fees in line with market practices.

B.3 Disclosure of RemunerationDisclosure ofremuneration

B 3.1Adopted

The Remuneration Committee’s Report setting out the policy of the Committee is given on page 57. The remuneration paid to the Board of Directors is disclosed in aggregate in note no. 6 to the financial statements on page 78.

C. RELATIONS WITH SHAREHOLDERSC.1 Constructive use of the Annual General Meeting and Conduct of General Meetings.Use of proxyvotes

C 1.1Adopted

The Company has a mechanism to record all proxy votes and proxy votes lodged on each resolution.

Separateresolution forall separateissues

C 1.2Adopted

The Company proposes a separate resolution for each item of business, giving shareholders the opportunity to vote on each such issue.

Availability of the Chairmen

C 1.3Adopted

The Chairmen of the Board, Audit Committee, Remuneration Committee and Integrated Risk Management Committee are present at the AGM to answer any questions of shareholders.

Adequate notice of the AGM

C 1.4Adopted

Notice of the meeting is given as per the requirements of the Companies Act No. 7 of 2007. The Annual Report including financial statements and the Notice of the Meeting is sent to shareholders at least 15 workings days prior to the date of the AGM.

Procedureof votingat GeneralMeetings

C 1.5Adopted

Notice of the Annual General Meetings and business to be transacted at General Meetings are circulated to the shareholders along with the Annual Report.

C.2 Major transactionsMajor transactions

C 2.1Adopted

During the year there were no major transactions as defined in the Companies Act No. 7 of 2007.

D. ACCOUNTABILITY AND AUDITD.1 Financial ReportingStatutory and Regulatory reporting

D 1.1Adopted

In the preparation of quarterly and annual financial statements, Central Finance has strictly complied with the requirements of the Companies Act No. 07 of 2007, the Finance Business Act No. 42 of 2011, and are prepared and presented in conformity with Sri Lanka Accounting Standards and comply with the reporting requirements prescribed by the Regulatory Authorities such as the Central Bank of Sri Lanka and Colombo Stock Exchange.

Directors’ report inthe Annual Report

D 1.2Adopted

The Directors’ report is given on pages 50 to 55 of the Annual Report.

Statementof Directors’responsibilityfor financialstatements

D 1.3Adopted

The Statement of Directors’ responsibility for financial statements is given on page 56 of the Annual Report.

Auditor’s report given on page 63 states their reporting responsibility.





Management Discussions and Analysis

D 1.4 Adopted

The Management Discussion and Analysis is given on pages 16 to 19.

Declaration bythe Board thatthe businessas a goingconcern

D 1.5Adopted

This is given in the Directors’ report on page 55 of the Annual Report.

Summoningan EGM tonotify seriousloss of capital

D 1.6Not Applicable

Should the situation arise, an EGM will be called for and shareholders will be notified.

D.2 Internal ControlAnnual evaluation of the internal control system

D 2.1 Adopted

The Board is responsible for establishing a sound framework of internal controls and monitoring its’ effectiveness on a continuous basis. The Directors Statement on internal controls is given on page 61. The Auditor’s report on same is given on page 62.

Need for internal audit function

D 2.2Adopted

The Internal Audit function is carried out by the Internal Audit Department of the Company.

D.3 Audit CommitteeComposition, terms &conditionsof the AuditCommittee

D 3.1 Adopted

The Audit Committee comprises of three Non-executive Directors, two of whom are Independent. The said committee met four times during the year. The General Manager - Internal Audit functions as the Secretary to the Audit Committee. Chairman, Managing Director, Director (Finance), Director (Group Co-ordination) GM - Finance and the External Auditor attend meetings by invitation.

Duties of the Audit Committee

D 3.2 Adopted

The duties of the Audit Committee are given in the Audit Committee Report given on page 59.

Terms of reference of the Audit Committee

D 3.3 Adopted

The Audit Committee functions within its terms of reference.

Disclosures of the Audit Committee

D 3.4 Adopted

The names of the Members of the Audit Committee are given on page 59.

D.4 Code of business conduct & ethicsCode of business conduct and ethics

D 4.1 Adopted

Central Finance has developed a Code of Business Conduct for all staff Members, which addresses conflict of interest, corporate opportunities, confidentiality of information, fair dealing, protection and proper use of the Company’s assets and compliance with laws and regulations.

Affirmation of the code of conduct & ethics

D 4.2 Adopted

The Chairman, by this section, confirms that he is not aware of any material violations of the Code of conduct.

D.5 Corporate Governance DisclosuresCorporateGovernanceReport

D 5.1Adopted

This report satisfies the requirement.






E. INSTITUTIONAL INVESTORSE.1 Shareholder voting Institutional shareholders

E 1.1Adopted

The Annual General Meeting is used to have an effective dialogue with the shareholders on matters which are relevant and of concern to the general membership.

E.2 Evaluation of Governance DisclosuresEvaluation ofthe CorporateGovernanceinitiatives

E 2Adopted

Institutional investors are encouraged to give due weightage to all relevant factors in the Board structure and composition.

F. OTHER INVESTORS

F.1 Investing/Divesting decisionOther Investors F 1

AdoptedIf the need arises individual shareholders are encouraged to carry out adequate analysis or seek independent advice on investing or divesting decisions.

F.2 Shareholder VotingIndividual shareholders voting

F 2 Adopted

Individual shareholders are encouraged to participate at General Meetings and exercise their voting rights.


SECTION TWOFINANCE COMPANIES DIRECTION NO 03 OF 2008 (AND SUBSEQUENT AMENDMENTS THERETO) ON CORPORATE GOVERNANCE

FOR LICENCED FINANCE COMPANIES IN SRI LANKA

Central Bank of Sri Lanka issued the Direction on Corporate Governance (Finance Companies Direction No. 03 of 2008 and subsequent

amendments thereto), to be complied with from January 01, 2009 in order to improve and sustain the Corporate Governance processes

and practices of the Licensed Finance Companies.

The above Direction which comprises of nine fundamental principles, namely The responsibilities of the Board, Meetings of the Board,

Composition of the Board, Criteria to assess the fitness and propriety of Directors, Management functions delegated by the Board,

The Chairman and the Chief Executive Officer, Board appointed Committees, Related party transactions, Disclosures. The structures

in place and the conformance to the requirement are tabulated below under the said nine fundamental principles.


CBSL Rule /Compliance

statusLevel of Compliance

2. The responsibilities of the Board of Directors

Strengthening the safety and soundness of the Finance Company

2 (1)Compliant

The Board is responsible for approving and overseeing strategic objectives, ensuring the adequacy of the risk management processes, review the internal control system and defining the responsibility of the Key Management Personnel. Overseeing the Key Management Personnel and exercise due diligence in hiring and oversight of the External Auditor. A strategic plan covering the next three years from 2012 is currently being developed.

Chairman & CEO (MD)

2 (2)Compliant

The roles of the Chairman and the CEO (MD) are separate.

Independent Advice

2 (3)Compliant

Please refer section A 1.3 of the SEC & ICASL Code table on page 30 for details.

Directors Voting’s in matters of interests

2 (4)Compliant

Procedure is in place to avoid conflicts of interest and Directors abstain from voting when matters in which a Director or his relatives or any concern in which he/she has substantial interest is discussed.

Formal Schedule of Matters to the Board

2 (5)Compliant

The Board has a formal schedule of matters specifically reserved for it.

Situation of Insolvency

2 (6)Compliant

This situation has not arisen.

Corporate Governance Report

2 (7)Compliant

This report addresses the requirement.

Self-assessment by Directors

2 (8)Compliant

Each Director performs a self-assessment based on the predefined criteria set by the Board.

3. Meetings of the Board

No. of Meetings

3 (1)Compliant

Please refer section A 1.1 of the ICASL & SEC table code on page 30 for details.

Inclusion of proposals by all Directors in the agenda

3 (2)Compliant

Proposals from all Directors on promotion of business and management of risk and other areas relevant to the progress of Central Finance are included in the agenda for regular meetings as and when they arise.

Notice of meetings

3 (3)Compliant

Directors are given adequate time and at least 7 days of notice for Board Meetings and a reasonable time period for other meetings to study the relevant papers and proposals for meaningful discussions.

Non-attendance of Directors

3 (4)Compliant

This situation has not arisen.






Board Secretary

3 (5)Compliant

The Board has appointed the Board Secretary to handle the secretarial services and to carry out other functions required by Statutes.

Agenda for Board Meetings

3 (6)Compliant

The Board Secretary prepares the Agenda, which has been delegated by the Chairman.

Access to the Board Secretary

3 (7)Compliant

Service of the Board Secretary is available for all Directors in discharging their duties to the Company.

Minutes of the Meetings

3 (8)Compliant

Directors have full access to the Minutes of the Board Meetings.

Details of Minutes

3 (9)Compliant

Minutes of the Board Meetings are maintained in sufficient detail by the Board Secretary.

4. Composition of the Board

Number of Directors

4 (1)Compliant

The Board comprised of ten Directors as at the year end.

Period of service of a Director

4 (2)Applicable

Non-executive Directors serving on the Board after the transitional period have not served on the Board for more than nine years.

Appointment of an employee as a Director

4 (3)Compliant

During the year an employee of the Company was appointed as an Executive Director. However, the number of Executive Directors does not exceed one half of the number of Directors of the Board inclusive of this appointment.

Independent Non-executive Director

4 (4)Compliant

The number of Independent Non-executive Directors on the Board is in excess of one fourth of the total number of Directors.

Alternative Director

4 (5)Compliant

This situation of appointing an alternative Director to an Independent Non-executive Director has not arisen during the year.

Credibility, skills& experience of Non-executive Directors

4 (6)Compliant

Biographic details of the Directors are given on pages 13 and 14.

Meetings of Boardwithout Non- executive Directors

4 (7)Not Applicable

This situation has not arisen during the year.

Details of Directors

4 (8)Compliant

Please refer pages 13 and 14 for the biographic details of the Directors and the categories.

Appointment of new Directors

4 (9)Compliant

The Board has a formal and transparent procedure in place when appointing Directors to the Board.

Appointment to fill a casual vacancy

4 (10)Compliant

Directors who were appointed during the year to fill casual vacancies will be standing for election by shareholders at the forthcoming Annual General Meeting.





Resignation/removal of a Director

4 (11)Compliant

Notifications of resignation of Directors of the Company were given to the shareholders by way of the Annual Report, Quarterly Financial Statements and Newspaper announcement and to the Director – DSNBFI of CBSL. During the year, four Non-executive Directors resigned in accordance with the Corporate Governance Direction No. 3 of 2008 and an Executive Director resigned from the Board after serving the Company for twenty six years. These resignations were not due to disagreement with the Board.

5. Criteria to assess the fitness and propriety of directors

Directors over 70 Years of age

5 (1)Not Applicable

Directors serving on the Board after the transitional period have not reached the age of 70.

Holding of office in more than 20 entities

5 (2) Non-compliant

Mr. C.L.K.P. Jayasuriya a Non-executive Director of the Company is the Executive Chairman / Managing Director of Finlays Colombo PLC. By virtue of being the Chairman of the Finlays Group, he serves as a Board Member of the 11 fully owned subsidiaries in the Finlays Group and as a result, he exceeds the limits set by this Direction. He relinquishes his Executive Chairman’s post of Finlays Group in August 2013. On this basis, the Company has written to the CBSL seeking an extension to comply with this requirement for Mr. Jayasuriya. All other Directors have complied with section.

6. Management function delegated by the Board

Delegation of work to the management

6 (3) Compliant

The Board of Central Finance annually evaluates the delegated authority process to ensure that the delegation of work does not materially affect the ability of the Board as a whole in discharging its functions.

Evaluation of the delegated process

6 (4) Compliant

Please refer comments above.

7. The Chairman and Chief Executive Officer

Division of Responsibilities of the Chairman & MD (CEO)

7 (1) Compliant

The roles of Chairman and Chief Executive Officer / Managing Director are separate.

Chairman Preferably be an Independent Director and if not appoint a Senior Director

7 (2) Compliant

The Chairman is not considered as independent as per the definition set out in the Direction on Corporate Governance. The Board has appointed Mr. T. K. Bandaranayake, an Independent Non-executive Director, as the Senior Director, as required by this Rule, with suitable terms to provide a sounding board for the Chairman and to serve as a trusted intermediary for the Non-executive Directors, when necessary.

Relationship between Chairman and MD (CEO) & other Directors

7 (3) Compliant

There are no material relationships between the Chairman and MD (CEO) and other Members of the Board which will impair their respective roles.

Role of the Chairman

7 (5)to

7 (11) Compliant

Detailed information of the role of the Non-executive Chairman is given on the SEC & ICASL Code table section A 3.1 on page 30.

8. Board appointed committees

Board appointed Sub-committees

8 (1)Compliant

There are three Board appointed Sub-committees namely Audit Committee, Remuneration Committee and Integrated Risk Management Committee.






Audit Committee

8 (2) Compliant

Please refer the Audit Committee Report given on page 59 for details.


8 (3) Compliant

Please refer the Integrated Risk Management Committee Report given on page 58 for details. The discussions and conclusions reached at such meetings are circulated to the Board of Directors at the very next monthly Board Meeting.

9. Related Party Transactions

Avoidingconflict ofinterest inrelated partytransactionsand favourabletreatment

9 (2) to9 (4)

Compliant

The Board has taken necessary steps to avoid any conflicts of interests that may arise, in transacting with related parties as per the definition of this Direction. The Board also ensures that no related party benefits from favourable treatment.

10. Disclosures

Financial reporting,Statutory and regulatory reporting

10 (1)Compliant

The financial statements for the year ended 31st March 2012 and the bi-annual financial statements are in conformity with all rules and regulatory requirements and have been published in all three languages in the news papers.

Minimum disclosure in the Annual Report

10 (2)Compliant

(a) A statement to the effect that the annual audited financial statements have been prepared in line with applicable accounting standards and regulatory requirements has been given in the Directors Responsibility Statement for Financial Reporting on page 56.

(b) Directors’ Statement of Internal Control is given on page 61.

(c) Auditor’s report on the Directors’ Statement of Internal Control is given on page 62.

(d) Details of the Directors are given on pages 13 and 14. Directors’ remuneration is disclosed on page 78. Deposits made by the Directors is given on note no. 30 of the financial statements on page 95.

(e) Fees and Remuneration paid to the Directors in total is given on note no. 06 of the financial statements on page 78.

(f) The net accommodation outstanding from the related parties is given below as a percentage of capital funds.

Related Party Category Amount (Rs. 000) As a % of Capital Funds

1. Subsidiaries 403,521 3.81 2. Associates 48,974 0.46 3. Key Management Personnel 1,801 0.02

(g) Transactions with Key Management Personnel such as remuneration paid, accommodation granted, deposits made are given in note no. 45 of the financial statements on pages 102 to 105. Investment made by the KMPs in the Company amounts to 24,296,060 ordinary shares.

(h) There were no material non-compliance to prudential requirements, laws and internal controls.

(i) There were no supervisory concerns on lapses in risk management, non-compliance with the Act and rules and directions that have been pointed out by the Director SNBFI and requested by the Monetary Board to be disclosed to the public.

(j) The external auditor has issued an assurance report in this regard.


SECTION THREECONTINUING LISTING RULES SECTION 7.10 ON CORPORATE GOVERNANCE OF THE COLOMBO STOCK EXCHANGE

The Continuing Listing Rule Section 7.10 of the Colombo Stock Exchange (CSE) mandates companies listed on the Colombo Stock Exchange

to publish a Table in the annual report commencing from 01 April 2007, confirming that as at the date of the annual report they comply with

the Corporate Governance rules. The rule addresses the following areas; Non-executive Directors, Independent Directors, Disclosures

relating to Directors, Remuneration Committee, Audit committee.

Corporate GovernancePrinciples

CSE RuleReference

Compliant status Level of Compliance

Non-executiveDirectors

7.10.1 (a) Compliant Half the Board members are Non-executives, which is more than the requirement of the rule.

7.10.2 (a) Compliant More than one third of the Non-executive Directors are independent.7.10.2 (b) Compliant All Non-executive Directors have submitted their independence declaration as per the

requirements.

Disclosures relating to Directors

7.10.3 (a) Compliant Declarations of Independence by the Directors were assessed by the full Board. The Directors who are independent are disclosed on page 42.

7.10.3 (b) Compliant Circumstances did not arise for the Board to decide a Director as Independent beyond the criteria set by this rule.

7.10.3 (c) Compliant Please refer pages 13 and 14 for the brief biography of each Director.7.10.3 (d) Compliant Information relating to new appointments to the Board are disclosed to the Colombo

Stock Exchange, when appointments are made.

Remuneration Committee

7.10.5 (a) Composition

Compliant The Remuneration Committee solely comprises of Non-executive Directors and majority of the Members are independent.

7.10.5 (b)Function

Compliant Please refer the Remuneration Committee report on page 57 for details of the functions of the Committee.

7.10.5 (c) Disclosure in the annual

report

Compliant The report of the Remuneration Committee is given on page 57 and the remuneration paid to Directors is given in note no. 6 to the financial statements on page 78.

Audit Committee

7.10.6 (a)Composition

Compliant The Audit Committee comprises of three Non-executive Directors, two of whom are independent.

7.10.6 (b)Function

Compliant Functions of the Audit Committee are given in detail in the Audit Committee Report on page 59.

7.10.6 (c) Disclosure in the annual

report

Compliant The names of the Directors comprising the Audit Committee and the basis of determination of independence of the Auditor are given in the Audit Committee report on page 59.



MEETINGSThe number of meetings of the Board, Board appointed Sub-committees and individual attendance by members are given below.

Names Directorship Status BoardAudit

Committee



Number of meetings held 12 4 3 1

J.D. Bandaranayake1 Non-executive Chairman 3/3 - 1/1 1/1*

E.H. Wijenaike Managing Director 11/12 - 3/3 -

G.S.N. Peiris Director (Finance) 12/12 - 3/3 -

R.E. Rambukwelle Director (Marketing and Operations) 12/12 - 3/3 -

A.K. Gunaratne Director (Group Co-ordination) 12/12 - 3/3 -

T.K. Bandaranayake Independent Non-executive Director

/Senior Director

12/12 4/4* 3/3* 1/1

D.P. de. Silva2 Director (Credit) 09/09 - 3/3 -

C.L.K.P. Jayasuriya2 Non-executive Director 09/09 3/3 - -

S. Wickramasinghe2 Independent Non-executive Director 07/09 - - 1/1

F. Mohideen1 Independent Non-executive Director 03/03 1/1 1/1 -

S.V. Wanigasekera3 Non-executive Chairman 08/09 3/3 - -

C. Kiriella (Mrs)4 Director (Legal) 03/03 - - -

M.S. Wijenaike4 Non-executive Director 01/03 - - -

U.L. Kadurugamuwa3 Independent Non-executive Director 08/09 3/3 - -

G.C.B. Wijeyesinghe (Dr)4 Independent Non-executive Director 03/03 1/1 - -

Key1 Appointed with effect from1st January 20122 Appointed with effect from1st July 20113 Resigned with effect from 31st December 20114 Resigned with effect from 30th June 2011

* Chairman of the Committee


Corporate Social ResponsibilityCentral Finance’s corporate vision endures within a sustainable

framework which satisfies present day’s needs without

compromising the future. Central Finance’s strategy was to create

an interactive and productive engagement with our stakeholders.

Our focus today has evolved to include social and environmental

responsibilities towards society at large in our corporate culture.

Financial InclusivenessDuring the year, the Company enhanced its presence in rural

areas by commissioning nine branches. Central Finance presently

operates 64 branches within its established network affording

customer accessibility to some remote rural communities as well.

The Company continued to offer its Savings customers the facility

of accessing their accounts through the Automated Teller Machines

(ATMs) of the Commercial Bank’s island-wide network which is also

further complemented by Central Finance’s own ATMs located at

Colombo, Nugegoda, Kandy, Kurunegala and Negombo.

In addition, Company has extended its micro finance operations to

Dehiattakandiya, Mahiyanganaya, Anuradhapura, Rikillagaskada &

Polonnaruwa areas during the year. We place emphasis on lending

to micro-entrepreneurs and small businesses, which limits access

to the conventional banking system due to lack of collateral and

high transaction costs. The Company extends services to these less

privileged sections of society and its approach is based on

(1) relationship-based financing for individual entrepreneurs and

small businesses; and

(2) group-based models, where several micro entrepreneurs come

together to apply for loans and other services as a group.

These services are offered to borrowers who are engaged in

agriculture, small scale trading, animal husbandry, fishing and other

cottage industries such as wood working, manufacture of cement

based products, sewing and a range of other economic activities.

A special loan programme was also established during the year

focusing on dairy farmers which provides funding for the purchase

of cows, developing dairy based infrastructure, growing of nutritious

grass, operation of bio gas systems etc.

Securing the depositors’ interestsCompany has initiated and performs best practices to safeguard

the interest of the deposit holders which includes maintaining a

healthy equity and liquidity position and strict compliance with

statutory & regulatory requirements. The Company offers a variety

of deposit products designed to meet the requirements of different

age groups. Special concern is given to senior citizens where the

scheme provide higher rates of interest and other benefits like

health insurance schemes.

The CF Super Savings account is a unique savings scheme that is

offered in combination with fixed deposits. Under this scheme, a

surplus balance in the Savings Account over a specified amount

is converted to term deposits which attract higher returns. This

account also gives an option to deposit holders to purchase

household items of their choice at Zero interest.

TrainingThe Company embraces the concept of being a learning

organisation with emphasis on the training and development

of employees from a technical as well as personal perspective.

Training also ensures that high standards are set, maintained and

enhanced and that we keep up with changes in the environment

and technology.

A Small scale entrepreneur & a dairy farmer in Anuradhapura District


Central Finance follows the focussed approach in Training &

Development and considers the same as an integral part of Human

Capital development with weightage on continuous learning and

perceives as a necessity in a rapidly changing environment.

Continuous Professional Development is an inbuilt component

in Central Finance’s quest for knowledge enhancement. During

the year, overseas training was provided at prominent institutions

in the United Kingdom, Singapore and India for Senior Managers

covering a diverse range of subjects on technical and conceptual

skills. A range of Training Programs based on Training needs at

all levels were organised and successfully completed using in

house resources as well as external trainers. To ensure that training

initiatives add value to the individual employee and the organisation

as a whole, a structured approach is followed to ensure that

maximum value is derived from training based on a progressive

and continuous training programme for all employees. Training

requirements and objectives are assessed at the performance

evaluation stage and carried out on a pre-determined plan based

on learning principles to ensure that the participants gain the

desired outcome of the programme.

Training requirements of existing employees are continuously

assessed and re-oriented with changes in risk management

principles and compliance requirements.

New employees are provided with a series of orientation

programmes that covers the Company’s core risk management

principles and best practices imparting sound knowledge on

compliance requirements.

Out-bound training programme held in Dambulla

Skills development programme held for senior managers

Corporate Social Responsibility (contd.)

Pre – Training Phase Training Phase Post Training Phase

Training EvaluationImplementation

Identification of training needsSelection of target group Training design & methods


WelfareWelfare of employees has been and continues to be a focus area

at Central Finance. Reward and Recognition practices are continued

to encourage and foster effective employee engagement.

During the year, Central Finance has organised its Sports Carnival

which allowed employees to display their talents. The events

included six-a-side cricket tournament, rugby, netball, volleyball,

athletics, selection of CF Queen, tug-o‘-war and many more. The

event was immensely enjoyed by staff who attended from all

corners of the island.

The Company established an Employee Benefit Foundation Fund

with a view to further extending benefits to the staff. Special

financial grants to children of staff on school admissions to grade

one, on admission to state owned universities, subsidised interest

on housing loans and financial assistance on hospitalisation are

some of the notable benefits granted through the Employee

Benefit Foundation.

The Company continued to operate the welfare sales outlet during

the year for the benefit of employees where goods are offered at

subsided prices.

Employee Appraisal

The Human Resource strategy of Central Finance has been

developed with an objective of building “an empowered set of

dedicated individuals who are driven by an irrepressible desire to

work as one towards a common goal in the truest sense of team

spirit”.

The effectiveness and the efficiency of employees and

organisational activities are monitored by a performance

management system within the human resources management

policy. The Company follows the Balanced Scorecard (BSC)

appraisal system of staff as a strategic performance management

tool.

Recognition of employees completing 25 years of service

Events in the Sports Carnival 2012

Age Analysis 2011/12

18-25 Years - 20%26-30 Years - 26%31-35 Years - 17%36-40 Years - 11%41-45 Years - 8%46-50 Years - 7%51-55 Years - 5%56-60 Years - 3%over 61 Years - 3%


Corporate Social Responsibility (contd.)

Creating a culture of learningCentral Finance Company PLC emphasis the importance of

strategic human resource development initiatives by means

of empathic engagement. Company has continued to invest

in providing financial assistance to staff to gain professional

qualifications to enhance their carrier opportunities.

Constructive communicationCompany continued to maintain an effective communication with

its employees. An in-house published journal, “CF Katha” is an

attractive means of expressing characterised views articulated by

the members of staff. Further, the Company has recently launched

the “CF HR e-alert” system to update the employees on Company

news and important notices via SMS, e-mail and on-call system.

Corporate social developmentIn line with global trends, CF has also commenced contributing to

the “Green Revolution”. Reducing wastage, recycling and adopting

environmentally friendly policies have enabled CF to be an

responsible corporate citizen. The Company has launched a Green

campaign with a view to;

Service Analysis 2011/12

Below 1 year - 19%1-2 year - 21%3-5 year - 20%6-10 year - 19%11-15 year - 6%16-20 year - 5%21-25 year - 5%26-30 year - 5%31-35 year - 0%

Gender Analysis 2011/12

Male - 71%Female - 29%

Training Analysis 2011/12

External - 28In-house - 18Oversease - 9

Scholarships to children of staff

Members of staff driving the “Green Campaign”


Conserving resources

Conserving energy

Reducing pollution

Protecting the environment

A team of volunteers has been appointed to drive this campaign.

The project commenced with a waste paper recycling programme

to encourage the conservation of resources through a disciplined

behavioral approach by staff.

The efforts have resulted in saving of,

284 fully grown trees

29,245 Liters of fuel

66KW of electricity

529,579 Liters of water

Curing cancerCentral Finance has initiated a project to build a dedicated iodine

treatment center attached to the Anuradhapura Hospital for patients

suffering from Thyroid Cancer. Radioactive iodine treatment is a

type of internal radiotherapy, used to treat patients suffering from

Thyroid Cancer. The project is expected to cost approximately Rs.20

Million.

A further sum of Rs.1.5 Million has been donated to the Sri Lanka

Cancer Society during the year which is a voluntary organisation

dedicated towards helping cancer patients.

Helping the flood victims of ThailandPeople of Thailand suffered the worst ever flooding in 50 years.

As a quick response, the Company donated fifty numbers of water

storage tanks to the victims.

Helping the needy through Micro FinanceCompany’s Micro Finance Unit continued to engage in several

welfare projects focusing less privileged and needy communities in

rural sectors. A programme was organised in Anuradhapura District

under “CF Navodya” programme to donate wheel chairs and

walking aids to handicapped people.

Contribution to “Presidential Book Project”“Nena Guna Thilina’ is a project conducted by the Presidential

Secretariat focused on donating books to schools with poor library

facilities mainly in rural areas. The project is focused on promoting

the habit of reading among children. Central Finance is committed

to contribute Rs. 1.5 Million for the project.

Donation to Maharagama Cancer Hospital

Wheel chair donation function held in Anuradhapura

529,579 Liters of water284 fully grown trees

Saving of:

29,245 Liters of fuel 66KW of electricity


Our solutions to your needs

Financial ReportsAnnual Report of the Board of Directors 50

Directors’ Responsibility for Financial Reporting 56

Remuneration Committee Report 57

Intergrated Risk Management Committee Report 58

Audit Committee Report 59

Directors’ Statement on Internal Control 61

Independent Assurance Report 62

Independent Auditor’s Report 63

Income Statement 64

Balance Sheet 65

Statement of Changes in Equity 66

Cash Flow Statement 68

Accounting Policies 69

Notes to the Financial Statements 77

Financial Calendar 2011/12 Second Interim Dividend 2010/11 - paid 05th May 2011

First Quarter Results 2011/12 12th August 2011

Final Dividend 2010/11 - paid 30th August 2011

Second Quarter Results 2011/12 09th November 2011

First Interim Dividend 2011/12 - paid 14th December 2011

Third Quarter Results 2011/12 10th February 2012

Second Interim Dividend 2011/12 - paid 23rd April 2012

Fourth Quarter Results 2011/12 28th May 2012

Annual Report 2011/12 27th June 2012

54th Annual General Meeting 20th July 2012

Final Dividend 2011/12 - proposed and to be paid 31st July 2012


Annual Report of the Board of DirectorsThe Directors have pleasure in presenting

to the members their report together with

the audited financial statements of Central

Finance Company PLC, and the audited

consolidated financial statements of the

Group for the year ended March 31, 2012.

Central Finance Company PLC is a public

limited liability company incorporated in

Sri Lanka on 5th December 1957, quoted

on the Colombo Stock Exchange in 1969,

registered as a finance company under

the Finance Business Act No. 42 of 2011,

registered under the Finance Leasing Act

No. 56 of 2000, and the Companies Act

No. 07 of 2007.

The Board of Directors approved the

financial statements on 12th June 2012.

Principal activities and review of operations

Company The principal activities of the Company

during the year continued to be leasing,

hire purchase financing, vehicle hire,

deposit mobilisation, vehicle trading,

providing money transfer facilities and

provision of other financial services.

SubsidiariesName of company Principal business activities

Central Industries PLC Manufacture and distribution of PVC pipes and fittings

Central Mineral Industries Ltd. Manufacture of mineral products

Central Construction and Development (Pvt) Ltd. Investment company

Expanded Plastic Products Ltd. Investment company

Central Homes (Pvt) Ltd. Property development and sale of real estate

Mark Marine Services (Pvt) Ltd. Hydro power generation

Central Developments Ltd. Investment company

CF Insurance Brokers (Pvt) Ltd. Insurance broking

Central Transport and Travels Ltd. Hiring of vehicles

Hedges Court Residencies (Pvt) Ltd. Construction and sale of apartments

Dehigama Hotels Company Ltd. Renting of commercial property

CF Growth Fund Ltd. Investment company

Kandy Private Hospitals Ltd. Provision of healthcare services

AssociatesName of company Principal business activities

Nations Trust Bank PLC Corporate and retail banking, trade services, leasing, factoring,

treasury and capital market services and fee-based activities.

Tea Smallholder Factories PLC Processing tea from green leaf purchased from small holders and

sale of processed black tea

Capital Suisse Asia Ltd. Provision of management services

CF Growth Fund Ltd. whose principal

business activity was importation and

assembly of hand tractors ceased that

operation at the end of last financial

year, and continued as an investment

Company during the current financial year.

There were no other significant changes

in the nature of the principal activities of

the Company and the Group during the

financial year under review.

Financial StatementsThe financial statements of the Group and

the Company are given on pages 64 to

107 of the Annual Report.

Auditor’s ReportThe auditor’s report on the financial

statements is given on page 63 of the

Annual Report.

Significant Accounting PoliciesDetails of significant accounting policies

adopted in the preparation of the financial

statements are given on pages 69 to 76 of

the Annual Report. The accounting policies

adopted during the financial year under

review were consistent with those of the

preceding financial year and hence there

were no changes in the accounting policies

adopted during the year under review.


Interests RegisterThe interests register is maintained by

the Company, as per the Companies Act

No. 07 of 2007. All Directors have made

declarations as provided for in Section

192 (2) of the Companies Act No. 07 of

2007. The related entries were made in

the Interests Register during the year under

review.

Directors’ Interests in SharesDirectors of the Company and its

subsidiaries who have relevant interest in

the shares of the respective companies

have disclosed their shareholdings and any

acquisitions/disposals to their respective

Boards in compliance with Section 200 of

the Companies Act.

The shareholdings of the Directors and

their spouses, of the Company at the

beginning and at the end of the year were

as follows:

31st March 31st March

2012 2011

E.H. Wijenaike 16,164,123 3,128,540

G.S.N. Peiris 1,828,168 352,446

R.E. Rambukwelle 984,906 190,000

A.K. Gunaratne 835,274 161,666

D.P. de Silva 103,850 N/A

Spouses

A.J. Wijenaike 3,271,357 633,166

I.R. Peiris 445,330 86,193

Increase in number of shares is due to

sub division of shares and issue of bonus

shares in the proportion of 01 by 05 and

01 for 30 respectively in September 2011.

G.S.N. Peiris purchased 7,200 shares in

February 2012 which was duly disclosed to

the Colombo Stock Exchange.

Employee share ownership schemeNo allotments of shares or funding for

same was provided during this period.

Given below are the Directors’

shareholdings in Group companies as at

31st March 2012.

Central Industries PLC

E.H. Wijenaike 9,003 (31.03.2011 - 9,003)

G.S.N. Peiris 03 (31.03.2011 - 03)

Nations Trust Bank PLC

E.H. Wijenaike 10,598 (31.03.2011 - 10,598)

A.K. Gunaratne 19,432 (31.03.2011 - 19,432)

Tea Smallholder Factories PLC

R.E. Rambukwelle 4,600 (31.03.2011 - 2,300)

Increase in number of shares is due to sub

division of shares in the proportion of 01

by 01.

Related Party Transactions The Directors have disclosed such

transactions in terms of Sri Lanka

Accounting Standard 30, Related Party

Disclosures (revised 2005) and such

transactions are given in note 45 to the

financial statements forming part of the

Annual Report of the Board of Directors.

Directors’ interests in transactions Directors of the Company have made the

general disclosures provided for in Section

192(2) of the Companies Act No. 07 of

2007. Particulars of those transactions are

set out on page 108 of the Annual Report.

Insurance and IndemnityThe Company has obtained a Directors

and Officers Liability Insurance Policy from

Union Assurance PLC up to a limit of

Rs.350 Million for the period covering 28th

February 2012 to 27th February 2013.

Directors’ Remuneration Directors’ remuneration in respect of the

Group and the Company for the financial

year ended March 31, 2012 is given in

Note 6 to the financial statements.

Corporate DonationsDuring the year, the Company made

donations amounting to Rs. 2.89 Million

(2010/11 Rs. 7.31 Million) in terms of

the resolution passed at the last Annual

General Meeting. Donations made to

Government approved charities from

the above amounted Rs. 1.66 Million

(2010/11 Rs. 7.14 Million).

Total donations of the Group during

the year amounted to Rs.3.06 Million

(2010/11 - Rs.7.36 Million) of which

Rs.1.68 Million (2010/11- Rs.7.14 Million)

had been made to Government approved

charities.

Internal controlsThe Board has instituted an effective and

comprehensive system of Internal Controls

covering financial operations, compliance,

control and risk management required to

carry on the business of the Company in

an orderly manner, safeguard its assets and

secure as far as possible the accuracy and

reliability of the records.

Director’s statement of internal controlThe Board of Directors has issued a report

on the internal control mechanism of the

Company as per the Section 10 of the

Direction No. 03 of 2008 on Corporate

Governance. The Board has confirmed

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.

The above report is given on page 61 of

the Annual Report. The Board has also

obtained an assurance report from the

external auditor on Director’s Statement of

Internal Control which is given on page 62

of the Annual Report.

Convergence with SLFRS/LKASThe Institute of Chartered Accountants

of Sri Lanka has issued a new volume of

Sri Lanka Accounting Standards that are

effective from financial periods beginning

on or after 01st January 2012. These

Sri Lanka Accounting Standards comprise

of Accounting Standards prefixed both


Annual Report of the Board of Directors (contd.)

SLFRS (corresponding to IFRS) and LKAS

(corresponding to IAS).

These new standards have become

applicable for the Company from 01st

April 2012 and accordingly the reporting

framework for the year ending 31st March

2013 will be in accordance with SLFRS.

Due to complexity and technical expertise

required in the convergence process, the

Company carried out an initial impact

analysis with the assistance of an external

consultant based on 2011 balances to

assess the approximate potential impact on

the financial statements had these standards

been applied for the year ended 31st

March 2012. This analysis was based on a

few assumptions and approximations. The

Company will publish its first quarter results

of 2012/13 financial year in accordance

with the transitional arrangement allowed by

the institute of Chartered Accountants of Sri

Lanka, in adopting SLFRS.

Corporate governanceThe Directors place great emphasis on

instituting and maintaining effective

corporate governance practices and

principles in respect of the management

and operations of the Company.

Accordingly, systems and structures have

been introduced and improved from time

to time to enhance risk management

measures and to improve accountability

and transparency.

The corporate governance report is given

on pages 29 to 42 of the Annual Report.

Board Sub-committeesThe Board of Directors of the Company has

formed the following sub committees;

Audit CommitteeT.K. Bandaranayake (Chairman) -


C.L.K.P. Jayasuriya - Non-executive Director

F. Mohideen - Independent Non-executive

Director

The report of the Audit Committee is given


Remuneration CommitteeMr.J.D. Bandaranayake (Chairman) -

Non-executive Director

Mr.T.K. Bandaranayake - Independent


Mr.S.C.S. Wickramasinghe - Independent


The report of the Remuneration Committee

is given on page 57 of the Annual Report.

Integrated Risk Management CommitteeComposition of the CommitteeMr.T.K. Bandaranayake - (Chairman)


Mr.F. Mohideen - Independent


Mr.E.H. Wijenaike Managing Director

Mr.G.S.N. Peiris Executive Director

Mr.A.K. Gunaratne Executive Director

Mr.R.E. Rambukwelle Executive Director

Mr.D.P. de Silva Executive Director

The report of the Integrated Risk

Management Committee is given on page

58 of the Annual Report.

Review of BusinessA review of the Company and Group

operations during the year, with comments

on the financial results and future

developments is contained in the Managing

Director’s report on pages 7 to 12 and the

Management Discussion and analysis on

pages 16 to 19 of the annual report, which

form an integral part of the Directors’ report.

IncomeIncome of the Group excluding associates

during the year was Rs.9,260.02 Million

(2010/11 - Rs. 8,094.37 Million), an

analysis of which is given in Note 1 to the

financial statements.

Results and AppropriationsProfit after tax of the Company was

Rs.2,345.41 Million (2010/11 - Rs.

1,610.14 Million) whilst the Group profit

attributable to equity holders of the parent

for the year under review was Rs. 2,676.61

Million (2010/11 - Rs. 1, 827.03 Million)


A detailed description of the results and appropriations are given below:2011/12 2010/11

Rs. ‘000 Rs. ‘000

Group profit for the year before income tax after payment of all

expenses, provision for depreciation, VAT on financial services and

loan losses 3,890,541 3,241,593

Provision for taxation (1,119,544) (1,330,155)

Group profit after taxation 2,770,997 1,911,438

Minority interest (94,382) (84,404)

Net profit for the year 2,676,615 1,827,034

Unappropriated profit brought forward from previous year 1,045,290 821,687

Transfer from revaluation reserve/deferred tax 8,825 6,386

Effect on gratuity transitional provision due to change in corporate tax rate - (2,642)

Profit available for appropriation 3,730,730 2,652,465

Appropriations

Transfer to reserve fund (118,000) (81,000)

Transfer to general reserve (1,776,000) (1,379,000)

Transfer to investment fund account (223,492) -

Dividends distributed during the year (235,818) (147,175)

Unappropriated profit to be carried forward 1,377,420 1,045,290

Dividends The Directors recommend the payment of a final dividend of. Rs. 1.10 per share for the year ended 31st March 2012 (2010/11 - Rs. 0.97 per share). This dividend together with the two interim dividends of Rs.0.70 each per share paid on 14th December 2011 and 23rd April 2012 respectively amount to a total dividend of Rs.262.21 Million for the year (2010/11- Rs. 213.15 Million). The first interim dividend represented a redistribution of dividends received by the Company and therefore was not subject to the 10% withholding tax. A major portion of the second interim dividend was paid out of dividends received and the balance out of taxable profit. Component of dividends paid out of profits was liable to 10% withholding tax.

The final dividend proposed will be paid entirely out of taxable profit and therefore will be liable to the 10% withholding tax. The Directors have confirmed that the Company satisfies the solvency test requirement under Section 56 of the Companies Act No.07 of 2007 for both

interim dividends paid in December 2011 and April 2012 and the final dividend proposed. Solvency certificates were obtained from the auditor in respect of interim dividends paid and the final dividend of Rs.1.10 per share proposed to be paid on 31st July 2012.

Property, Plant and EquipmentThe total capital expenditure on property, plant and equipment, intangible assets and capital work-in progress of the Company and the Group amounted to Rs. 893.52 Million and Rs.1,004.05 Million respectively. (2010/11-Company Rs. 1,107.95 Million and Rs.1,158.46 Group) details of which are given in notes 27 and 28 to the financial statements. Capital expenditure approved and contracted for as at year end is included in note 41(b) to the financial statements.

Market Value of Freehold Properties The value of freehold properties owned by the Group as at 31st March 2012 is included in the accounts at Rs.2,090.71 Million (31st March 2011 - Rs.2,060.85

Million) based on valuations undertaken by a panel of Chartered Valuers/Licensed Surveyors in March 2007 and March 2009 and cost of subsequent improvements. The Directors are of the opinion that this value is not in excess of the current market value. The details are provided in note 28 to the financial statements.

ReservesThe total Group reserves as at 31st March 2012 amounted to Rs.12,777.57 Million (31st March 2011 - Rs. 10,694.57 Million) details of which are given in notes 36 to 39 to the financial statements.

Stated CapitalThe stated capital of the Company consisting of 104,883,333 ordinary shares amounts to Rs.568.42 Million.

Sub-division of shares and capitalisation of reservesCompany’s ordinary shares were increased by subdividing each existing shares into 5 shares in September 2011. Subsequent to the sub-division, reserves amounting to Rs.365.4 Million were also capitalised at


Annual Report of the Board of Directors (contd.)

the rate of Rs.108/- per share through the issue of bonus shares in the proportion of 01 share for 30 shares. As a result, the number of shares increased to 104,883,333.

ShareholdingsAs at 31st March 2012 there were 2,823 registered shareholders and the distribution of shareholding is indicated on page 114.

Share InformationInformation relating to earnings, dividends, net assets and market value per share is given in financial highlights on page 4. Information pertaining to trading in the Company’s shares is given in note no. 6 on page 115 of the Annual Report.

Major Shareholders The twenty largest shareholders of the Company as at 31st March 2012 together with an analysis of the shareholdings are given on page 115.

Directorate

List of Directors The Board of Central Finance Company PLC consists of ten Directors as at end of the financial year with wide financial and commercial knowledge and experience. The qualifications and experience of the directors are given on pages 13 and 14 of the Annual Report. The following were the Directors of the Company as at the end of the financial year:

J.D. Bandaranayake (Non- executive Chairman)E.H. Wijenaike (Managing Director)G.S.N. Peiris (Executive Director)R.E. Rambukwelle (Executive Director)A.K. Gunaratne (Executive Director)T.K. Bandaranayake (Independent Non- executive Director)D.P. de Silva (Executive Director)C.L.K.P. Jayasuriya ( Non- executive Director)S.C.S. Wickramasinghe (Independent Non- executive Director)F. Mohideen (Independent Non- executive Director)

Resignations/New appointments of Directors G.C.B. Wijeyesinghe and M.S. Wijenaike resigned with effect from 30.06.2011 in accordance with the requirements of the Finance Business Act Direction No.03 of 2008 on Corporate Governance.C. Kiriella ,Director (Legal) resigned from the Board with effect from 30.06.2011 on completion of 26 years of service as an Executive Director of the Company. S.V. Wanigasekera and U.L. Kadurugamuwa resigned with effect from 31.12.2011 in accordance with the requirements of the Finance Business Act Direction No.03 of 2008 on Corporate Governance. D.P. de Silva was appointed to the Board as an Executive Director with effect from 01.07.2011.S.C.S. Wickramasinghe as an Independent Non-executive Director and C.L.K.P. Jayasuriya as a Non-executive Director were appointed to the Board with effect from 01.07.2011.J.D. Bandaranayake as a Non-executive Director and F. Mohideen as an Independent Non-executive Director were appointed to the Board with effect from 01.01.2012. J.D. Bandaraneyake was elected as Chairman of the Company on 01.01.2012.

Recommendations for Re-electionJ.D. Bandaranayake and F. Mohideen retire in terms of article 111 of the Articles of Association and being eligible for re-election have offered themselves for re-election at the forthcoming Annual General Meeting.

In accordance with Article 105 of the Articles of Association, S.C.S. Wickramasinghe retires by rotation and is eligible for re-election at the forthcoming Annual General Meeting.

In terms of the Finance Business Act No. 42 of 2011,the Company has obtained the approval of the Monetary Board of the Central Bank of Sri Lanka for the above mentioned directors nominated for re-appointment.

Directors’ Responsibility for Financial ReportingThe Directors are responsible for the preparation of financial statements of the Company to reflect a true and fair view of the state of its affairs. The Directors are of the view that these financial statements have been prepared in conformity with the requirements of the Sri Lanka Accounting Standards, Companies Act No. 07 of 2007, Finance Business Act No. 42 of 2011, Inland Revenue Act No.10 of 2006 and amendments thereto and the Listing Rules of the Colombo Stock Exchange.

The detailed report is given on page 56 of the Annual Report.

EnvironmentThe Company has not engaged in any activities detrimental to the environment. The Company has used its best efforts to comply with the environmental laws and regulations.

Human ResourcesThe employment policies of the Company are based on recruiting the best available people, training them to enhance their skills and offering equal career opportunities regardless of gender, race or religion.

Compliance with Laws and RegulationsThe Company has not engaged in any activities contravening laws and regulations. All officers responsible for ensuring compliance with the provisions of various laws and regulations confirm their compliance to the Board on a monthly basis.

Statutory PaymentsThe Directors, to the best of their knowledge and belief are satisfied that all statutory payments due to the Government and in relation to the employees have been made in full and on time.


Events after the Balance Sheet DateThere have not been any material events that occurred subsequent to the date of the balance sheet that require adjustments to the financial statements, other than those disclosed in note 44 to the financial statements.

Going ConcernThe Board of Directors is satisfied that the Company has adequate resources to continue its operations in the foreseeable future. Accordingly, the financial statements are prepared based on the going concern concept.

AuditorThe Audit Committee of the Company has recommended the re-appointment of SJMS Associates, Chartered Accountants as auditor of the Company and a resolution relating to their re-appointment and authorising the Directors to fix their remuneration as recommended by the Audit Committee will be proposed at the Annual General Meeting.

The Audit Committee reviews the appointment of the auditor, their effectiveness, independence and relationship with the Group.

The auditor, SJMS Associates, was paid Rs.1.68 Million (2010/11 Rs. 1.45 Million) as audit fees. In addition, they were paid Rs. 0.14 Million (2010/11- Rs. 0.16 Million) for permitted non-audit related services.

The Group works with two other firms of chartered accountants as well, namely; Ernst & Young and KPMG Ford, Rhodes, Thornton & Co. They were paid Rs.1.67 Million (2010/11 - Rs. 1.54 Million) and Rs.0.31 Million (2010/11 - Rs.0.35 Million) respectively for audit and permitted non audit related services.

The auditors have confirmed that they do not have any relationships with or interests in the Company or subsidiaries other than those disclosed above.

Annual General MeetingThe Fifty Fourth Annual General Meeting of the Company will be held at the registered office, 84, Raja Veediya, Kandy on 20th July 2012. The notice of meeting relating to the Fifty Fourth Annual General Meeting is given on page125.

For and on behalf of the Board


G.S.N. Peiris Director

Corporate Services (Pvt) Ltd. Secretaries

12th June 2012


The Directors of the Company are

responsible for the preparation and

presentation of the financial statements

to the shareholders in accordance with

the relevant provisions of the Companies

Act No.07 of 2007, Finance Business

Act No.42 of 2011 and other statutes

which are applicable in the preparation of

financial statements.

The financial statements comprise of:

• abalancesheet,whichpresentsatrue

and fair view of the state of affairs of

the Company and its subsidiaries as at

the end of the financial year

• anincomestatement,whichpresentsa

true and fair view of the profit and loss

of the Company and its subsidiaries for

the financial year

The Directors confirm that the financial

statements of the Company and its

Subsidiaries for the year ended 31st March

2012 incorporated in this report have

been prepared in accordance with the

Companies Act No.07 of 2007, Finance

Business Act No.42 of 2011, Sri Lanka

Accounting Standards and the Listing Rules

of the Colombo Stock Exchange. The

Directors consider that, in preparing the

financial statements exhibited on pages

64 to 107, they have adopted appropriate

accounting policies on a consistent basis,

supported by reasonable and prudent

judgments and estimates.

The Directors are responsible for ensuring

that the Company keeps sufficient

accounting records, which disclose the

financial position of the Company with

reasonable accuracy and enable them to

ensure that the financial statements have

been prepared and presented as aforesaid.

They are also responsible for taking

measures to safeguard the assets of the

Company and to prevent and detect frauds

and other irregularities. In this regard, the

Directors have instituted an effective and

comprehensive system of internal controls

comprising of internal checks, internal audit

and financial and other controls required

to carry on the Company’s business in

an orderly manner and to safeguard its

assets and ensure as far as practicable the

accuracy and reliability of the records.

The Directors’ are of the view that the

Company and its Subsidiaries have

adequate resources to continue operations

in the foreseeable future and have applied

the going concern basis in the preparation

of these financial statements.

To the best of the knowledge and belief

of the Directors, the Company’s Auditor

SJMS Associates has carried out reviews

and sample checks on the effectiveness

of the system of internal controls as they

consider appropriate and necessary in

providing their opinion on the financial

statements. SJMS Associates has examined

the financial statements made available

together with all other financial records,

minutes of shareholders’ and Directors’

meetings and related information and have

expressed their opinion which appears on

page 63 of the annual report.

The Directors have provided the Auditor

with every opportunity to carry out any

reviews and tests that they consider

appropriate and necessary for the

performance of their responsibilities.

Further, as required by Section 56(2) of

the Companies Act No.07 of 2007, the

Board of Directors has confirmed that

the Company, based on the information

available, satisfies the solvency test

immediately after the distribution of

the final dividend, in accordance with

Section 57 of the Companies Act No.07

of 2007, and has obtained a certificate

from the Auditor, prior to recommending

a final dividend of Rs.1.10 per share for

this year which is to be approved by

the shareholders at the Annual General

Meeting to be held on 20th July 2012.

The Directors are of the view that they

have discharged their responsibilities as set

out in this statement.

The Directors confirm to the best of

their knowledge that all taxes, levies and

financial obligations of the Group have

been either paid or adequately provided for

in the financial statements.

By Order of the Board

Corporate Services (Pvt) LimitedSecretaries

12th June 2012

Colombo

Directors’ Responsibility for Financial Reporting


The Remuneration Committee, appointed

by the Board of Directors comprises of

three Non-executive Directors, of whom,

two are Independent.

Composition

J.D. Bandaranayake (Chairman) / (NED)

T.K. Bandaranayake (IND/NED)

S.C.S. Wickramasinghe (IND/NED)

PolicyThe Company remuneration policy aims to

attract, motivate and retain talent with the

appropriate professional, managerial and

operational expertise necessary to achieve

the objectives of the Company.

The Company remuneration framework

for the Executive Directors and Corporate

Management Team is designed to

ensure alignment between short and

long term interests of the Company and

thereby create and enhance value for all

stakeholders of the Company.

Scope

The Committee reviews all significant

Human Resource policies and initiatives.

The Committee deliberates and

recommends to the Board of Directors

annual increments and bonuses of the

Executive Directors and Members of

the Corporate Management based on

individual and corporate performance. The

committee also reviews salary structures

and terms and conditions of service to

ensure compatibility with the market.

The Managing Director who is responsible

for the overall management of the

Company attends meetings by invitation

and participates in the deliberations except

when his own interest, performance and

compensation are discussed.

Fees

All Non-executive Directors receive a

fee for attendance at Board meetings

and serving on sub-committees and/or

subsidiary Boards.

Committee Meetings

A formal meeting of the committee was

held in March 2012 to review primarily

remuneration matters. The decisions of

the committee based on the policy and

scope outlined were ratified by the Board

of Directors.



Colombo,

12th June 2012

Key:

IND- Independent Director

NED- Non-executive Director

Remuneration Committee Report


The Integrated Risk Management Committee (IRMC) as at the end

of the financial year comprised of the following members:

T.K. Bandaranayake - Chairman

F. Mohideen - Independent Non-executive Director

J.D. Bandaranayake - Non-executive Director attends by invitation

Management Representatives:

E. H. Wijenaike - Managing Director

G.S.N. Peiris - Director (Finance)

R. E. Rambukwella -Director (Marketing and Operations)

A.K. Gunaratne - Director (Group Co-ordination)

D.P. de Silva - Director (Credit)

U. B. Elangasinha - General Manager (Finance)

J. Illangakoon - General Manager (Branches)

B.A.C.K. Jayawardena - Deputy General Manager (Recoveries)

K. Kandeepan - Assistant General Manager (Finance)

Brief profiles of the Directors representing the Committee are given


Terms of Reference

The Terms of Reference set out by the Board of Directors, include

the following

• toensurethattheCompanyhasacomprehensiverisk

management framework, appropriate compliance policies and

systems in place.

• toassessallrisktypes,includingbutnotlimitedtocredit,

market, liquidity, operational and strategic risks to the

Company through appropriate risk indicators and management

information.

• toensureriskdecisionsaretakeninaccordancewith

established delegated authorities and corrective action is

taken to mitigate risks taken beyond the tolerance set by the

Committee, on the basis of Company’s policies and regulatory

and supervisory requirements.

• tomonitorandassesstheeffectivenessoftheCompany’s

risk management system and the robustness of the risk

management function.

• toperiodicallyassessperformanceagainstinternallydefined

risk appetite.

The primary responsibility of the Committee is to assist the Board

of Directors in understanding and exercising regular risk oversight

on risk management measures adopted by the Management in

operating the Company’s business. The Committee determines the

adequacy and effectiveness of measures taken by the Management

in order to ensure that the overall risk of the Company conforms to

parameters approved by the Board.

Meetings

The Committee meets on a quarterly basis and the attendance at

the meetings is given on page 42 of the Annual Report.

The discussion and conclusions reached at the meeting are

recorded in minutes and circulated to the Board of Directors for

information and advice. A risk assessment report is also submitted

quarterly.

T. K. BandaranayakeChairman


Colombo

12th June 2012

Integrated Risk Management Committee Report


Committee Composition

The Audit Committee is comprised of three Non-executive Directors

of the Company. The Committee is chaired by T.K. Bandaranayake,

a Senior Fellow Member of the Institute of Chartered Accountants

of Sri Lanka.

The members of the Board appointed Audit Committee are:

T.K. Bandaranayake Chairman (IND/NED) - appointed in May 2009

C.L.K.P. Jayasuriya (Non-IND/NED) - appointed in July 2011

F. Mohideen (IND/NED)-appointed in January 2012

(IND-Independent Director, Non-IND-Non-Independent Director

and NED-Non-executive Director)

Brief Profiles of the members are given on pages 13 to 14 of the

Annual Report.

T.K. Bandaranayake was appointed the Chairman of the

Audit Committee in January 2012, on the resignation of S.V.

Wanigasekera as Chairman of the Company in December 2011.

G.C.B. Wijeyesinghe and U.L. Kadurugamuwa who were members

of the Committee relinquished their services upon resignation from

the Board in June 2011 and December 2011 respectively.

The General Manager-Internal Audit functions as its Secretary.

Meetings

The Audit Committee met four times during the year. The

attendance of the members at Audit Committee Meetings is as

follows:Member Status No. of Meetings

S.V. Wanigasekera (retired) Non-IND /NED 3

G.C.B. Wijesinghe (retired) IND/NED 1

T.K. Bandaranayake IND/NED 4

U.L. Kadurugamuwa (retired) Non-IND/NED 3

C.L.K.P. Jayasuriya Non-IND/NED 3

(Non-independent since Jan’12)

F. Mohideen IND/NED 1

The eligible members attended the respective Audit Committee

meetings.

The Chairman, Managing Director, Director (Finance), Director

(Group Co-ordination), General Manager (Finance) and External

Auditor participate at meetings by invitation. Proceedings of the

Audit Committee meetings are reported regularly to the Board of

Directors.

Role of the Audit Committee:

The Audit Committee assists the Board of Directors in fulfilling

effectively its responsibilities relating to financial and other related

affairs of the Company. The Committee has been empowered to:

• Examineinternallyanymatterrelatingtothefinancialaffairsof

the Company

• Monitorandfollow-uptheInternalandExternalAudit

programmes and plans, review the Internal Audit and External

Audit reports

• Analyseandreviewrisksandexaminetheadequacy,

efficiency and effectiveness of the Internal Control System and

procedures in place to avoid or mitigate such risks.

• ReviewAccountingPolicies,emergingaccountingissuesand

disclosures according to SLAS / SLFRS

• ReviewinformationrequirementofCompaniesActNo.7of

2007 and other financial reporting requirements and SEC and

CBSL regulations

• ReviewandapproveAnnualFinancialStatementsandInterim

Financial Statements prepared for the shareholders, prior to

submission to the Board.

An Audit Committee Charter was introduced to guide the workings

of the Committee.

Financial Reporting

The Committee assists the Board of Directors to discharge

their responsibility for the preparation of Financial Statements

that portray a true and fair view of the affairs of the Company

in accordance with the Company’s accounting records and in

conformity with the Sri Lanka Accounting Standards, the Companies

Act No.7 of 2007 and Central Bank Directions.

Acting with the other Board members, the Committee reviewed

the Company’s interim and annual financial statements and

recommended their issue to shareholders. The Audit Committee

which reviewed the operations and monitored the effectiveness

of internal controls and procedures is of the view that adequate

controls and procedures are in place to provide reasonable

assurance to the Board that the assets of the Company are

safeguarded and the financial position is monitored according to

information made available.

Audit Committee Report


Audit Committee Report

External Audit

The Committee assists the Board of

Directors in engaging External Auditor

for audit services in compliance with the

statutes.

The Audit Committee is also empowered

to recommend the appointment and fees

of the External Auditor. The committee is

satisfied that there is no conflict of interests

between the Company and the Auditor

other than for the payment of the auditor’s

fees. The Committee is thus satisfied

that there is no cause to compromise on

the independence and objectivity of the

Auditor. The Audit Committee will ensure

that the rotation of the audit partner takes

place at the end of 5 years as per section

8 (2) of the Direction No.3 of 2008 issued

under the Finance Business Act. No 42 of

2011.

The Committee also met with the External

Auditor before the commencement and

at the conclusion of the annual audit

and reviewed their Engagement and

Management Letter and Management’s

responses thereto. The interim (end

Feb’12) and annual financial statements

were reviewed with the External Auditor

present.

The Committee also meets with the

External Auditor without the presence of

the Company management to discuss

any sensitive or critical issues and any

difficulties experienced during the audit.

Internal AuditDuring the year, the Audit Committee

reviewed the performance of the internal

audit function, the findings of the internal

audits completed and their evaluation of

the Company’s internal control system.

The Audit Committee also reviewed and

approved the adequacy of coverage of the

internal audit programme. It also assessed

the department’s resource requirements.

The Audit Committee, with the concurrence

of the Board enlisted the services of a

leading firm of Chartered Accountants to

supplement the internal audit division in

carrying out branch audits.

T.K. Bandaranayake FCA

Chairman

Audit Committee

Colombo

12th June 2012


Responsibiltiy

The Board of Directors (‘Board’) is

responsible for the adequacy and

effectiveness of Central Finance Company

PLC’s (“the Company”) system of Internal

Controls. Such a system is designed

to manage the Company’s key areas

of risk within an acceptable risk profile

in achieving the policies and business

objectives of the Company, rather than

eliminating the risk of failure. Accordingly,

the system of Internal Controls can only

provide reasonable but not absolute

assurance against material misstatement of

management and financial information and

records or against financial losses or fraud.

The Board has established an ongoing

process for identifying, evaluating and

managing the significant risks faced by

the Company and this process includes

enhancing the System of Internal Controls

as and when there are changes to business

environment or regulatory guidelines. The

process is regularly reviewed by the Board.

The management assists the Board in the

implementation of the Board’s policies

and procedures on risk and control by

identifying and assessing the risks faced by

the Company and in the design, operation

and monitoring of suitable Internal Controls

to mitigate and control these risks. The

Board is of the view that the System of

Internal Controls in place is sound and

adequate to provide reasonable assurance

regarding the reliability of financial

reporting, and that the

Preparation of Financial Statements

for external purposes is in accordance

with relevant accounting principles and

regulatory requirements.

Key Features of the Process Adopted in Reviewing the Design and Effectiveness of the Internal Control System

The key processes that have been

established in reviewing the adequacy and

integrity of the System of Internal Controls

with respect to financial reporting include

the following

• Sub-committeesareestablishedtoassist

the Board in ensuring the effectiveness

of the Company’s daily operations in

accordance with the corporate objectives,

strategies and the annual budget as well

as the policies and business directions

that have been approved.

• TheInternalAuditDivisionofthe

Company checks for compliance

with policies and procedures and the

effectiveness of the Internal Control

System on an ongoing basis using

samples and rotational procedures and

highlight significant findings in respect

of any non-compliance. Audits are

carried out on all units and branches,

the frequency of which is determined

by the level of risk assessed, to provide

an independent and objective report.

The annual audit plan is reviewed and

approved by the Audit Committee.

Findings of the Internal Audit Division are

submitted to the Audit Committee for

review at their periodic meetings.

• TheAuditCommitteeoftheCompany

reviews Internal Control issues identified

by the Internal Audit Division, regulatory

authorities and management, and

evaluate the adequacy and effectiveness

of the Internal Control System. They also

review the Internal Audit function with

particular emphasis on the quality of

audits performed. The minutes of the

Audit Committee meetings are tabled

for the information of the Board on a

periodic basis.

• InassessingtheInternalControlSystem,

identified officers of the Company

collated all procedures and controls

that are connected with significant

accounts and disclosures of the Financial

Statements. The Internal Audit Division

checks for suitability of design and

effectiveness of these procedures and

controls on an ongoing basis during their

Audit Process.

Confirmation

Based on the above processes, the Board

confirms that the financial reporting system

of the Company has been designed to

provide reasonable assurance regarding

the reliability of financial reporting and

the preparation of Financial Statements

for external purposes has been done in

accordance with Sri Lanka Accounting

Standards and regulatory requirements of

the Central Bank of Sri Lanka.

Review of the Statement by External Auditor

The External Auditor has reviewed the

Directors’ Statement on Internal Control

included in the Annual Report of the

Company for the year ended 31 March

2012 and reported to the Board that

nothing has come to their attention that

causes them to believe that the statement

is inconsistent with their understanding of

the process adopted by the Board in the

review of the design and effectiveness

of the Internal Control system of the

Company.

For and on behalf of the Board


T.K. BandaranayakeChairman - Audit Committee

E. WijenaikeManaging Director/Chief Executive Officer

Colombo,

12th June 2012

Directors’ Statement on Internal Control


To the Board of Directors of Central Finance Company PLC

Introduction

We were engaged by the Board of Directors of Central Finance Company PLC (“Central Finance”) to provide assurance on the Directors’ Statement on Internal Control (“the Statement”) included in the annual report for the year ended 31st March 2012.

Management’s responsibility

Management is responsible for the sufficiency and reliability of internal controls in place at the company as specified in the Finance Companies (Corporate Governance) Direction, No. 3 of 2008 (“the direction”) and to prepare and present the statement as required by paragraph 10 (2) (b) in accordance with the direction.

Our responsibilities and compliance with SLSAE 3050

Our responsibility is to issue a report to the board on the Statement based on the work performed. We conducted our engagement in accordance with Sri Lanka Standard on Assurance Engagements 3050 – Assurance Report for Banks on Directors’ Statement on Internal Control (SLSAE 3050), issued by the Institute of Chartered Accountants of Sri Lanka.

Summary of work performed

Our engagement has been conducted to assess whether the Statement is both supported by the documentation prepared by or for directors and appropriately reflects the process the directors have adopted in reviewing the system of internal control for the company.

The procedures performed were limited mainly to inquiries of the Central Finance personnel and existence of the documentation on a sample basis that supports the basis adopted by the board of directors.

SLSAE 3050 does not require us to consider whether the Statement covers all risks and controls, or to form an opinion on the effectiveness of the company’s risk and control procedures. It also does not require us to consider whether the processes described to deal with material internal control aspects of any significant problems disclosed in the annual report will, in fact, remedy the problems.

Our conclusion

Based on the procedures performed, nothing has come to our attention that causes us to believe that the Statement included in the annual report is inconsistent with our understanding of the process the Board of Directors have adopted in the review of the design and effectiveness of internal control of Central Finance.

SJMS Associates

Chartered Accountants

Colombo12th June 2012

Independent Assurance Report


TO THE SHAREHOLDERS OF CENTRAL FINANCE COMPANY PLC

Report on the Financial Statements

We have audited the accompanying financial statements of

Central Finance Company PLC, the consolidated financial

statements of the Company and its subsidiaries which

comprise the balance sheet as at 31st March 2012, and the

income statement, statement of changes in equity and cash

flow statement for the year then ended, and a summary of

significant accounting policies and other explanatory notes.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair

presentation of these financial statements in accordance with

Sri Lanka Accounting Standards. This responsibility includes:

designing, implementing and maintaining internal control

relevant to the preparation and fair presentation of financial

statements that are free from material misstatement, whether

due to fraud or error; selecting and applying appropriate

accounting policies; and making accounting estimates that

are reasonable in the circumstances.

Scope of Audit and Basis of Opinion

Our responsibility is to express an opinion on these

financial statements based on our audit. We conducted

our audit in accordance with Sri Lanka Auditing Standards.

Those standards require that we plan and perform the

audit to obtain reasonable assurance whether the financial

statements are free from material misstatement.

An audit includes examining, on a test basis, evidence

supporting the amounts and disclosures in the financial

statements. An audit also includes assessing the accounting

principles used and significant estimates made by

management, as well as evaluating the overall financial

statement presentation.

We have obtained all the information and explanations

which to the best of our knowledge and belief were

necessary for the purposes of our audit. We therefore

believe that our audit provides a reasonable basis for our

opinion.

Opinion

In our opinion, so far as appears from our examination, the

Company maintained proper accounting records for the

year ended 31st March 2012 and the financial statements

give a true and fair view of the Company’s state of affairs

as at 31st March 2012 and its profit and cash flows for the

year then ended in accordance with Sri Lanka Accounting

Standards.

In our opinion, the consolidated financial statements give

a true and fair view of the state of affairs as at 31st March

2012 and the profit and cash flows for the year then

ended, in accordance with Sri Lanka Accounting Standards,

of the Company and its subsidiaries dealt with thereby, so

far as concerns the shareholders of the Company.

Report on Other Legal and Regulatory Requirements

In our opinion, these financial statements also comply

with the requirements of Section 151 (2) and 153(2) to

153(7) of the Companies Act No. 07 of 2007 and the

Finance Business Act No. 42 of 2011.

SJMS ASSOCIATES

Chartered Accountants

Colombo.12th June 2012

Independent Auditor’s Report


Income Statement Group CompanyFor the year ended 31st March 2012 2011 2012 2011 Notes Rs.’000 Rs.’000 Rs.’000 Rs.’000

Income 1 9,260,026 8,094,371 8,737,392 7,647,201

Interest income 2 7,407,431 6,269,481 7,454,354 6,320,455 Less: Interest expenses 3 2,755,184 2,355,263 2,778,250 2,373,125

Net interest income 4,652,247 3,914,218 4,676,104 3,947,330 Other operating income 4 1,379,546 1,413,023 743,225 796,194 Other income 5 473,049 411,867 539,813 530,552

6,504,842 5,739,108 5,959,142 5,274,076

Less: Operating expenses 6 Personnel expenses 1,026,436 916,114 844,210 758,141 Premises, equipment and establishment expenses 1,271,571 1,183,015 1,173,707 1,118,288 Employee retirement benefit expenses 7 107,155 91,134 93,424 79,390 Other expenses 392,008 354,878 308,979 250,834

2,797,170 2,545,141 2,420,320 2,206,653

Profit before loan losses and provisions 3,707,672 3,193,967 3,538,822 3,067,423 Less: Loan losses and provisions 8 127,255 186,822 126,777 186,221

3,580,417 3,007,145 3,412,045 2,881,202 Share of profit of associates 9 465,552 507,781 - -

Profit before VAT on financial services and income tax 4,045,969 3,514,926 3,412,045 2,881,202 Less: VAT on financial services 155,428 273,333 155,428 273,333

Profit before income tax 10 3,890,541 3,241,593 3,256,617 2,607,869 Less: Income tax expense 11 1,119,544 1,330,155 911,206 997,733

Profit after income tax 2,770,997 1,911,438 2,345,411 1,610,136

Attributable to equity holders of the parent 2,676,615 1,827,034 2,345,411 1,610,136Attributable to minority interest 94,382 84,404 - -

Net profit for the year 2,770,997 1,911,438 2,345,411 1,610,136

Basic and diluted earnings per share - Rs. 12 25.52 17.42 Dividend per share - Rs. 13 Paid 1.40 1.07 Proposed 1.10 0.97 The accounting policies and notes from pages 69 to 107 form an integral part of these financial statements.


Balance Sheet Group CompanyAs at 31st March 2012 2011 2012 2011 Notes Rs.’000 Rs.’000 Rs.’000 Rs.’000

ASSETSCash in hand and at banks 356,483 345,681 307,421 273,197 Investments in government securities 1,568,257 1,954,393 1,568,257 1,954,393 Deposits with banks 1,500,000 95,000 1,500,000 95,000 Dealing securities 14 24,560 32,000 24,560 32,000 Tax receivables 36,726 2,851 - - Inventories and other stocks 15 819,257 667,967 555,554 433,014 Investment securities 16 180,331 180,331 173,971 173,971 Net investment in leases 17 22,891,794 16,141,201 22,891,794 16,141,201 Corporate debt securities 18 181,850 313,414 181,850 313,414 Loans and advances 19 17,710,991 12,518,772 18,278,528 13,496,307 Trade and other receivables 20 1,252,836 1,485,024 819,791 1,106,588 Investments in real estate 21 92,438 594,204 72,364 107,811 Investments in associates 23 2,104,030 1,908,947 523,458 523,458 Investments in subsidiaries 24 - - 312,987 312,987 Other assets 25 18,252 8,259 18,252 8,259 Deferred tax asset 26 128 8,929 - - Intangible assets 27 38,316 46,491 36,109 43,991 Property, plant and equipment 28 4,781,476 4,859,631 3,901,006 4,024,580

Total assets 53,557,725 41,163,095 51,165,902 39,040,171

LIABILITIESBank overdrafts 1,711,728 505,932 1,687,625 502,367 Tax payable 111,608 323,795 111,256 275,939 Commercial paper 400,496 - 400,496 - Trade and other payables 29 7,914,095 5,735,556 7,702,364 5,488,142 Amounts due to subsidiaries - - 224,296 185,210 Deposits 30 21,428,425 18,757,201 21,584,908 18,957,838 Bank loans 31 4,067,767 986,167 4,019,167 901,167 Non bank loans 32 1,809,812 1,340,661 1,809,812 1,340,661 Debentures 33 250,000 400,000 250,000 400,000 Retirement benefit obligations 34 480,040 403,982 409,734 345,411 Deferred tax liability 26 1,450,094 1,264,795 1,411,451 1,199,214

Total liabilities 39,624,065 29,718,089 39,611,109 29,595,949

SHAREHOLDERS’ FUNDSStated capital 35 568,420 203,020 568,420 203,020 Capital reserves 36 1,384,240 1,385,463 972,611 979,072 Reserve fund 37 800,000 682,000 800,000 682,000 Investment fund 38 223,492 - 223,492 - Revenue reserves 39 10,369,840 8,627,110 8,990,270 7,580,130

Funds attributable to equity holders of the parent 13,345,992 10,897,593 11,554,793 9,444,222 Minority interest 587,668 547,413 - -

13,933,660 11,445,006 11,554,793 9,444,222

Total liabilities, shareholders’ funds and minority interest 53,557,725 41,163,095 51,165,902 39,040,171

Net assets per share - Rs. 127.25 103.90 110.17 90.05

The accounting policies and notes from pages 69 to 107 form an integral part of these financial statements. I certify that the financial statements comply with the requirements of the Companies Act No. 07 of 2007.

U.B. Elangasinha Chief Financial OfficerThe Board of Directors is responsible for the preparation and presentation of these financial statements. Approved and signed for and on behalf of the Board.

E.H. Wijenaike G.S.N. Peiris Managing Director Director (Finance)

12th June 2012Colombo


Statement of Changes in Equity

At

tribu

tabl

e to

Equ

ity H

olde

rs o

f the

Com

pany

Gro

up e

quity

sta

tem

ent f

or th

e

yea

r end

ed 3

1st M

arch

201

2 St

ated

Ca

pita

l Res

erve

s

Rese

rve

Inve

stm

ent

Gen

eral

Re

tain

ed

Min

ority

To

tal

C

apita

l Re

valu

atio

n O

ther

F

und

F

und

R

eser

ves

E

arni

ngs

Inte

rest

R

eser

ve

Cap

ital

R

eser

ves

Rs.’

000

R

s.’00

0

Rs.’

000

R

s.’00

0

Rs.’

000

R

s.’00

0

Rs.’

000

R

s.’00

0

Rs.’0

00

Bala

nce

as a

t 1st

Apr

il 20

10

203

,020

1

,358

,312

1

8,86

5

601

,000

-

6

,124

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8

21,6

87

506

,506

9

,633

,460

N

et p

rofit

for t

he y

ear e

nded

31s

t Mar

ch 2

011

-

-

-

-

-

-

1

,827

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8

4,40

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1,9

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38

Reve

rsal

of p

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for l

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loss

es

-

-

-

-

-

78,

750

-

-

7

8,75

0 D

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red

tax

attri

buta

ble

to re

valu

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n su

rplu

s

due

to c

hang

e in

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-

10,

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1,0

11

11,

905

Effe

ct o

n gr

atui

ty tr

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l pro

visio

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due

to c

hang

e in

cor

pora

te ta

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-

-

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-

-

(2,

642)

-

(

2,64

2)D

efer

red

tax

on b

roug

ht fo

rwar

d ta

x lo

sses

-

-

-

-

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4

05

-

405

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red

tax

attri

buta

ble

to re

valu

atio

n su

rplu

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due

to c

hang

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cor

pora

te ta

x ra

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ssoc

iate

com

pany

-

3

,019

-

-

-

-

3

54

-

3,3

73

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recia

tion

on re

valu

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n su

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s -

(

5,62

7)

-

-

-

-

5,6

27

-

-

Tran

sfer

s du

ring

the

year

-

-

-

8

1,00

0

-

1,3

79,0

00

(1,

460,

000)

-

-

D

ivide

nds

for t

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ear e

nded

31s

t Mar

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-

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(96

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) (

44,5

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nded

31s

t Mar

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-

-

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(50

,750

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(

50,7

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t 31s

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203

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1

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1

8,86

5

682

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-

7

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1

,045

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5

47,4

13

11,

445,

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Net

pro

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yea

r end

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1st M

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2

- -

- -

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2,6

76,6

15

94,

382

2

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of re

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365

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-

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(

365,

400)

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alise

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f bui

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3,4

94

-

-

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x at

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reva

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de-

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f bui

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9

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978

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tax

attri

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to re

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due

to c

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-

6,6

24

-

-

-

-

-

2,4

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9,0

79

Dep

recia

tion

on re

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n su

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(

5,33

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5,3

31

-

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the

year

-

-

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1

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223

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1

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-

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Divi

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1 -

-

-

-

-

-

(

162,

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56,5

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(21

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ivide

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for t

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ear e

nded

31s

t Mar

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012

-

-

-

-

-

-

(73

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568

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800

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587

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pag

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107

form

an

inte

gral

par

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fina

ncia

l sta

tem

ents

.


Com

pany

equ

ity s

tate

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t for

the

y

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vest

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tal

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203

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74,8

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-

6

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896,

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Net

pro

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1st M

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1

-

-

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-

1,6

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36

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-

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-

78,

750

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x at

tribu

tabl

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reva

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surp

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due

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8,1

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-

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8,1

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in c

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rate

tax

rate

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(

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2)

(2,

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Dep

recia

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on re

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rplu

s

-

(

3,95

4)

-

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-

3,9

54

-

Tran

sfer

s du

ring

the

year

-

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8

1,00

0

- 1

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(

1,46

0,00

0)

-

Divi

dend

s fo

r the

yea

r end

ed 3

1st M

arch

201

0

-

-

-

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-

(

96,4

25)

(96

,425

)D

ivide

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for t

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ear e

nded

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011

-

-

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(50

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) (

50,7

50)

Bala

nce

as a

t 31s

t Mar

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011

203

,020

9

79,0

72

682

,000

-

7

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,639

9

,491

9

,444

,222

Net

pro

fit fo

r the

yea

r end

ed 3

1st M

arch

201

2

-

-

-

-

-

2,3

45,4

11

2,3

45,4

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Capi

talis

atio

n of

rese

rves

36

5,40

0

-

-

-

(36

5,40

0)

-

-

Reva

luat

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surp

lus

real

ised

on d

e-re

cogn

ition

of b

uild

ing

-

(3,

494)

-

-

-

3

,494

-

D

efer

red

tax

attri

buta

ble

to re

valu

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son

de-

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9

78

-

-

-

-

978

D

epre

ciatio

n on

reva

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surp

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(3,

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3

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Tr

ansf

ers

durin

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e ye

ar

-

-

118

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2

23,4

92

1,7

76,0

00

(2,

117,

492)

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D

ivide

nds

for t

he y

ear e

nded

31s

t Mar

ch 2

011

-

-

-

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(16

2,40

0)

(16

2,40

0)D

ivide

nds

for t

he y

ear e

nded

31s

t Mar

ch 2

012

-

-

-

-

-

(73

,418

) (

73,4

18)

Bala

nce

as a

t 31s

t Mar

ch 2

012

568

,420

9

72,6

11

800

,000

2

23,4

92

8,9

81,2

39

9,0

31

11,

554,

793

Figu

res

in b

rack

ets

indi

cate

ded

uctio

ns.

The

acco

untin

g po

licie

s an

d no

tes

from

pag

es 6

9 to

107

form

an

inte

gral

par

t of t

hese

fina

ncia

l sta

tem

ents

.


Cash Flow Statement Group CompanyFor the year ended 31st March 2012 2011 2012 2011 Rs.’000 Rs.’000 Rs.’000 Rs.’000

Cash flows from operating activitiesInterest receipts 6,509,975 5,776,514 6,557,318 5,828,700 Interest payments (2,288,725) (2,290,037) (2,306,263) (2,292,970)Recoveries on loans previously written off 60,255 69,960 60,255 69,960 Receipts from other operating activities 4,862,558 4,155,052 380,628 440,215 Cash payments to employees and suppliers (5,870,712) (4,620,404) (2,081,791) (1,651,866)

Operating profit before changes in operating assets 3,273,351 3,091,085 2,610,147 2,394,039(Increase)/decrease in operating assets: (Investments)/divestments in government securities and bank deposits maturing after 90 days (341,929) 672,949 (341,929) 672,949 Funds advanced to customers (28,004,432) (21,734,460) (28,048,678) (21,839,807)Capital component of recoveries from customers 18,605,995 15,723,293 19,026,128 15,765,364 Others 787,346 363,133 736,657 436,997 Increase/(decrease) in operating liabilities:Deposits 3,053,593 2,013,711 3,060,584 2,039,870

Net cash from operating activities before income tax (2,626,076) 129,711 (2,957,091) (530,588)Income tax paid (966,439) (1,183,159) (840,379) (1,043,543)

Net cash outflow from operating activities (3,592,515) (1,053,448) (3,797,470) (1,574,131)

Cash flows from investing activitiesDividends received from subsidiaries and associates 118,174 70,393 119,370 74,537Dividends received from other companies 16,521 14,996 13,919 14,991 Purchase of securities - (148,836) - (148,836)Proceeds from sale of securities - 104,897 - 120,339 Investments in associates - (146,751) - (41,404)Purchase of property, plant and equipment (849,715) (1,020,759) (747,139) (977,485)Disposal of property, plant and equipment 321,610 372,884 319,967 368,624

Net cash outflow from investing activities (393,410) (753,176) (293,883) (589,234)

Cash flows from financing activitiesBorrowings 7,534,426 3,485,129 7,485,826 3,400,129 Repayment of borrowings (3,695,415) (2,298,396) (3,634,589) (2,019,488)Dividends paid to equity holders of the parent (317,918) (145,958) (232,918) (145,958)Dividends paid to minority shareholders (52,162) (44,508) - -

Net cash inflow from financing activities 3,468,931 996,267 3,618,319 1,234,683

Net decrease in cash and cash equivalents (516,994) (810,357) (473,034) (928,682)Cash and cash equivalents at the beginning of the period 1,171,749 1,982,106 1,102,830 2,031,512

Cash and cash equivalents at the end of the period 654,755 1,171,749 629,796 1,102,830

Analysis of cash and cash equivalentsCash in hand and at banks 356,483 345,681 307,421 273,197 Investments in government securities-maturing within 90 days 1,020,000 1,237,000 1,020,000 1,237,000Deposits with banks-maturing within 90 days 990,000 95,000 990,000 95,000 Bank overdrafts (1,711,728) (505,932) (1,687,625) (502,367)

Cash and cash equivalents at the end of the period 654,755 1,171,749 629,796 1,102,830

The accounting policies and notes from pages 69 to 107 form an integral part of these financial statements. Figures in brackets indicate outflows.


1 General1.1 Reporting entity Central Finance Company PLC is a public limited liability

Company incorporated on 5th December 1957 and domiciled in Sri Lanka. Its registered office and principal place of business is at 84, Raja Veediya, Kandy. Ordinary shares of the Company are listed on the Colombo Stock Exchange.

The staff strength of the Company as at 31st March 2012 was 1,439 (1,347 as at 31st March 2011)

1.2 Consolidated financial statements The consolidated financial statements of Central Finance

Company PLC for the year ended 31st March 2012 comprise those of the Company (parent Company) and its subsidiaries (together referred to as the “Group”) and of the Group’s interest in associates. The consolidated financial statements of all companies in the Group other than CF Insurance Brokers (Pvt) Ltd, Nations Trust Bank PLC and Capital Suisse Asia Ltd are prepared for a common financial year, which ends on 31st March. The three companies referred to above have a common financial year ending 31st December.

1.3 Approval of the consolidated financial statements by the Board of Directors

The consolidated financial statements for the year ended 31st March 2012 were authorised for issue on 12th June 2012.

1.4 Parent enterprise Central Finance Company PLC does not have a parent of its

own.

2 Principal activities and nature of operations2.1 Company The principal activities of the Company are leasing, hire

purchase financing, vehicle hire, deposit mobilisation, vehicle trading, providing money transfer facilities and provision of other financial services.

2.2 Subsidiaries Name of the company Principal business activities

Central Industries PLC Manufacture and distribution of PVC pipes and fittings

Central Mineral Industries Ltd. Manufacture of mineral products

Central Construction and Development (Pvt) Ltd. Investment company

Expanded Plastic Products Ltd. Investment company

Central Homes (Pvt) Ltd. Property development and sale of real estate

Mark Marine Services (Pvt) Ltd. Hydro power generation

Central Developments Ltd. Investment company

CF Insurance Brokers (Pvt) Ltd. Insurance broking

Central Transport and Travels Ltd. Hiring of vehicles

Hedges Court Residencies (Pvt) Ltd. Construction and sale of apartments

Dehigama Hotels Company Ltd. Renting of commercial property

CF Growth Fund Ltd. Investment company

Kandy Private Hospitals Ltd. Provision of healthcare services

2.3 Associates Name of the company Principal business activities

Nations Trust Bank PLC Corporate and retail banking, trade services, leasing, factoring, treasury and capital market services and fee- based activities.

Tea Smallholder Processing tea from green leaf Factories PLC purchased from small holders and sale of processed black tea.

Capital Suisse Asia Ltd. Provision of management services

CF Growth Fund Ltd. whose principal business activity was importation and assembly of hand tractors ceased that operation at the end of last financial year, and continued as an investment company during the current financial year. There were no other significant changes in the nature of the principal activities of the Company and the Group during the financial year under review.

3 Basis of preparation of the consolidated Financial Statements

3.1 Statement of compliance The consolidated financial statements (balance sheets,

income statements, statements of changes in equity, cash flow statements and notes comprising a summary of significant accounting policies and the other explanatory notes) have been prepared in accordance with Sri Lanka Accounting Standards (SLAS) issued by the Institute of Chartered Accountants of Sri Lanka, and with the requirements of the Companies Act No. 7 of 2007 and the Finance Business Act No. 42 of 2011 and provide appropriate disclosures as required under the listing rules of the Colombo Stock Exchange.

Accounting Policies


3.2 Basis of measurement The consolidated financial statements have been prepared

on the historical cost convention except in respect of the following which are treated as shown;

• Landandbuildingsaremeasuredatcostatthetimeof acquisition and subsequently at revalued amounts being fair values at the date of revaluation

• Dealingsecuritiesarestatedatmarketvalue

• Retirementbenefitobligationsarerecognisedatpresent value of the defined benefit obligation less the net total of the plan assets plus unrecognised actuarial gains less unrecognised past service cost and unrecognised actuarial losses as explained in the note 34 to the consolidated financial statements.

3.3 Going concern In preparing the consolidated financial statements, the

Directors have made an assessment of the ability of the constituents of the Group to continue as going concerns in the foreseeable future, and they do not foresee a need for liquidation or cessation of trading, taking into account all available information about the future.

3.4 Functional and presentation currency The consolidated financial statements are presented in

Sri Lankan Rupees, which is the Group’s functional and presentation currency. All financial information presented in Sri Lankan Rupees has been given to the nearest thousand, unless otherwise stated.

4 Significant accounting judgments, estimates and assumptions

The preparation of consolidated financial statements in conformity with Sri Lanka Accounting Standards requires management to make judgments, estimates and assumptions that influence the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Judgments and estimates are based on historical experience and other factors, including expectations that are believed to be reasonable under the circumstances and assumptions based on such knowledge and expectation of future events. Hence, actual experience and results may differ from these judgments and estimates.

The estimates and underlying assumptions are reviewed on an on-going basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised if the revision affects only that period or in the period of the revision and future periods as well, if the revision affects both current and future periods. Information about significant areas of estimation and uncertainty that have the most significant effect on the amounts recognised in the consolidated financial statements are described in notes 4.1 to 4.5.

Revisions to accounting estimates are dealt with in accordance with Sri Lanka Accounting Standard No.10 - (Revised 2005) Accounting Policies, Changes in Accounting Estimates and Errors.

4.1 Deferred tax assets Deferred tax assets are recognised for all deductible temporary

differences, unused tax losses and tax credits to the extent it is probable that taxable profits will be available against which these losses can be utilised. Significant management judgments are required to determine the amount of deferred tax assets that can be recognised, based on the likely timing and level of future taxable profits together with future tax planning strategies.

4.2 Provision for losses on loans and advances In addition to the provisions made for possible loan losses

based on the parameters and directives for provisions on loans and advances as issued by the Central Bank of Sri Lanka, the Company reviews its loans and advances portfolio at each reporting date or more frequently if events or changes in circumstances necessitate, to assess whether a further provision is required for the amount of potential losses not specifically included but experience indicates are present in the portfolio. Management judgment is required in the estimation of these amounts and estimations are based on assumptions concerning a number of factors though actual results may differ, resulting in future changes to the provisions so made.

4.3 Classification of dealing and investment securities In classifying securities as ‘dealing’ the Group has determined

that it meets the description set out in notes 6.4 and 6.5. In classifying securities as ‘investment’, the Group has determined that it has both the positive intention and ability to hold the securities until their maturity date.

4.4 Impairment of assets The Group assesses at each reporting date whether there is

an indication of objective evidence of impairment of assets. If any such indication exists, the Company makes an estimate of the asset’s recoverable amount. An asset’s recoverable amount is the higher of an asset’s or cash generating unit’s fair value less costs to sell and its value in use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. Where the carrying amount of an asset exceeds its recoverable amount, the asset is considered impaired and is reduced to its recoverable amount. Impairment losses of operations are recognised in the income statement in those expense categories consistent with the function of the impaired asset, except for property previously revalued, where the revaluation was taken to equity. In this case, the impairment is recognised against the revaluation reserve to the extent that it reverses a previous

Accounting Policies


revaluation surplus. An assessment is made at each reporting date as to whether there is any indication that previously recognised impairment losses may no longer exist or may have decreased. Previously recognised impairment losses, other than in respect of goodwill, are reversed only if there has been an increase in the recoverable amount of such asset. Such increased carrying amount of an asset attributable to reversal of an impairment loss is recognised only up to the carrying amount that would have been determined had no impairment loss been recognised for the asset in prior years.

4.5 Defined benefit plans The cost of defined benefit plans, viz: gratuity obligations is

determined using actuarial valuations. The actuarial valuation involves making assumptions about discount rates, expected rates of return on assets, future salary increases and mortality rates. Due to the long-term nature of these plans, such estimates are subject to significant uncertainty.

5 Basis of consolidation5.1 Subsidiaries Subsidiaries included in the consolidated financial statements

are those companies in which the Group directly or indirectly has an interest of over 50% of the voting rights and/or has the power to govern the financial and operating policies of the companies so as to obtain benefits from their activities. Central Industries PLC, with an equity control of 49.98% has been consolidated as a subsidiary Company based on the power to govern the financial and operating policies of that Company. The financial statements of subsidiaries are included in the consolidated financial statements from the date on which the control commences until the control ceases. The profit or loss and net assets of a subsidiary attributable to equity interests that are not owned by the parent, directly or indirectly, through subsidiaries are disclosed separately as “Minority Interest”.

Losses applicable to the non-controlling interests in excess of the minority’s interest in the subsidiary’s equity are allocated against the interests of the Group, except to the extent that the controlling interests has a binding obligation and is able to make an additional investment to cover the losses.

The consolidated financial statements are prepared to a common financial year ending 31st March. All subsidiaries in the Group other than CF Insurance Brokers (Pvt) Ltd., have a common financial year ending 31st March. The financial year end for CF Insurance Brokers (Pvt) Ltd., is 31st December; and hence, adjustments were made based on unaudited financial statements drawn up to 31st March for the effect of significant transactions or events for purposes of consolidation.

A listing of the Group’s subsidiaries is set out in Note 24 to the consolidated financial statements.

5.2 Associates Associates are those enterprises in which the Group has

significant influence, but no control over financial and operating policies. Investments in associates are accounted for using the equity method and are initially recognised at cost except when the investment is classified as held for sale, in which case it is accounted for in accordance with SLAS 38 (Revised 2006)- Non-current Assets Held for Sale and Discontinued Operations. The consolidated financial statements include the Group’s share of gains and losses accounted under the equity method from the date that significant influence commences until the date that significant influence ceases. When the Group’s share of losses exceeds its investment in an equity accounted investee, the carrying amount of that interest is derecognised and the recognition of further losses is discontinued except to the extent that the Group has an obligation or has made payments on behalf of the investee. The audited consolidated financial statements of Nations Trust Bank PLC and Capital Suisse Asia Ltd are drawn up to 31st December; and hence, adjustments were made based on unaudited financial statements drawn up to 31st March for purposes of consolidation.

5.3 Transactions eliminated on consolidation Intra-group transactions and balances, income, expenses and

any unrealised gains arising from intra-group transactions are eliminated in preparing the consolidated financial statements. Unrealised gains arising from transactions with associates are eliminated to the extent of the Group’s interest in the associates against the investment in the associate. Unrealised losses are eliminated in the same way as unrealised gains except that they are eliminated only to the extent that there is no evidence of impairment.

6 Assets and bases of their valuation6.1 Cash and cash equivalents Cash and cash equivalents comprise cash, bank balances

and Treasury Bills and deposits placed with banks, maturing within three months. Bank overdrafts that are repayable on demand are also included as a component of cash and cash equivalents for the purpose of the cash flow statement.

6.2 Investment in Government Securities Investments in Treasury Bills, Treasury Bonds and Repurchase

Agreements are stated at cost.

6.3 Investments in associates Investments in associates are accounted for at cost less

provision for impairment in the Company financial statements, and in the Group financial statements under the equity method. Under the equity method, the investment is initially accounted for at cost less provision for any impairment losses and the carrying amount is adjusted for post-acquisition changes in the Group’s share of net assets of the associates.


Accounting Policies

6.4 Dealing securities These are marketable securities acquired and held with the

intention of re-sale over a short period of time. Such securities are recorded at market value on an aggregate portfolio basis as at the balance sheet date. Changes in market value are dealt with through the income statement.

6.5 Investment securities These are acquired and held for yield or capital appreciation.

Investment securities are carried in the balance sheet at cost less any provision made for diminution in value. Where such carrying amounts are impaired, such impairments have been recognised for each investment individually to recognise a decline other than temporary. Changes in market values of these securities are not taken into account, unless the decline is other than temporary.

6.6 Rentals receivable on leased assets Assets leased to customers, which transfer substantially

all the risks and rewards incidental to the ownership other than the legal title are accounted for as finance leases in accordance with Sri Lanka Accounting Standard 19 (Revised 2005) - Leases, and are reflected in the balance sheets after eliminating unearned interest income, and provision for loan losses.

6.7 Hire purchase assets Assets hired to customers under hire purchase agreements,

which transfer all the risks and rewards incidental to ownership as well as the legal title at the end of such contractual period, are classified as hire purchase receivables. Such assets are accounted for in a similar manner as those of finance leases.

6.8 Loans and advances and trade and other receivables Loans and advances and trade and other receivables are

stated in the balance sheet net of provision for bad and doubtful debts and interest in suspense.

6.9 Provision for loan losses Provision for possible loan losses is made on the basis of a

continuous review of all advances to customers in accordance with the Finance Companies Direction No. 3 of 2006 (Provision for bad and doubtful debts) issued by the Central Bank of Sri Lanka. Accordingly, specific provisions have been made as follows:

50% on all advances in arrears for a period of 6 to 12 months

100% on all advances in arrears for over 12 months

In addition, wherever it is considered prudent, further provisions are made on specifically identified loans and advances.

6.10 Inventories and other stocks Inventories are valued at the lower of cost and net realisable

value. The cost of raw materials is determined at purchase price including all expenses incurred in sourcing. The cost of work-in-progress is the value of raw material transferred to production. The cost of finished goods includes raw material cost and all direct and indirect expenses incurred in production. Vehicles, spare parts and other stocks are valued at cost and net realisable value whichever is lower. Net realisable value is the estimated selling price less estimated cost of completion and the estimated cost necessary to make the sale Inventories are regularly assessed for impairment and provisions are made accordingly.

6.11 Investments in real estate Investments in real estate are valued at cost and net realisable

value whichever is lower. Net realisable value is the estimated selling price less estimated cost of completion and the estimated cost necessary to make the sale.

6.12 Investments in subsidiaries and associates Investments in subsidiaries and associates are stated at

cost less accumulated impairment losses, if any, in the financial statements of the Company. In the consolidated financial statements, investments in associate companies are accounted under equity method reduced by accumulated impairment losses, if any.

Provision for impairment is made, where the decline in value is other than temporary, and such impairment is made for investments individually.

6.13 Intangible assets An intangible asset is recognised if it is probable that future

economic benefits that are attributable to the asset will flow to the enterprise and the cost of the asset can be measured reliably in accordance with Sri Lanka Accounting Standard 37 - Intangible Assets. Accordingly, these assets are stated in the balance sheet at cost less accumulated amortisation and impairment losses if any. Subsequent expenditure on acquisition and improvement of intangible assets is capitalised only when it increases the standard of performance of these assets, and future economic benefits embodied in these assets will flow to the Company. Intangible assets with finite lives are amortised over their useful lives, and are assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method for an intangible asset with a finite useful life are reviewed at the end of the financial year. Computer software, which is not an integral part of hardware, is stated at cost less accumulated amortisation and any accumulated impairment loss. Amortisation is charged over a period of five years on a straight-line basis.


6.14 Property, plant and equipment6.14.1 Cost/ Valuation Property, plant and equipment are stated at cost or revalued

amounts less accumulated depreciation and accumulated impairment losses, if any. Subsequent expenditure incurred for the purpose of acquiring, extending or improving assets of a permanent nature by means of which to carry on the business or to increase the earning capacity of the business is treated as capital expenditure. Carrying values of property, plant and equipment are reviewed for impairment when events or changes in circumstances indicate that such carrying value may not be recoverable. All items of property, plant and equipment are initially recorded at cost. Where items of property, plant and equipment are subsequently revalued, the entire class of asset is revalued. When an asset is revalued, any increase in the carrying value is credited to the revaluation reserve, except to the extent that it reverses a revaluation decrease of the same asset previously recognised in the income statement, in which case the increase is recognised in the income statement. Any revaluation deficit that offsets a previous surplus on the same asset is directly set off against the surplus in the revaluation reserve and any excess recognised as an expense. The difference in depreciation based on the revalued carrying amount and cost is transferred from revaluation reserve to retained earnings. The carrying amount of an item of property, plant and equipment is derecognised on disposal or when no further economic benefits are expected from its use or disposal. Where group companies occupy a significant portion of the investment property of a subsidiary, such investment properties are treated as property, plant and equipment in the consolidated financial statements and accounted for as per Sri Lanka Accounting Standard 18 (Revised 2005) Property, Plant and Equipment.

6.14.2 Operating lease assets Operating lease assets are classified under property, plant

and equipment at cost less accumulated depreciation and impairment losses, if any. Cost of the asset net of residual value is depreciated over the estimated useful life. Residual value is the estimated net amount that the Company would currently obtain from disposal of the asset at the end of its estimated useful life

6.14.3 Depreciation Provision for depreciation is calculated using straight-line

method on the cost or other amount substituted for cost of all property, plant and equipment other than freehold land in order to allocate depreciable amounts over the estimated useful life of such assets. The estimated useful lives of assets are as follows:

Years

Freehold buildings 40 Furniture & office equipment 10

Motor vehicles and lifts 05 Plant, machinery & other equipment 08 Air conditioners & computer servers 08 Generators 15 Computers 05 Other assets 10

Depreciation of an asset begins when it is available for use and ceases at the earlier of the date that the asset is classified as held for sale and the date that the asset is derecognised.

7 Liabilities and provisions7.1 Deposits from customers Deposits include term deposits and certificates of deposit

accepted under various tenures ranging from one month to five years and savings deposits. They are accounted for at the gross value of the outstanding balance as at the balance sheet date.

7.2 Income tax The liability for taxation has been computed on the basis of

the profit for the year as adjusted for taxation purposes in accordance with the provisions of the Inland Revenue Act No.10 of 2006 and amendments thereto as well as relevant Board of Investment (BOI) regulations in respect of subsidiary Hedges Court Residencies (Pvt) Limited.

7.3 Deferred tax Deferred tax is recognised using the liability method, providing

for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is measured at the tax rates that are expected to apply for the temporary differences when they reverse, based on the tax laws that have been enacted or substantively enacted as at the reporting date. A deferred tax asset is recognised for all deductible temporary differences, carry forward unused tax credits and unused tax losses, only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised. Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to set off current tax assets against current tax liabilities and when the deferred taxes relate to the same taxable entity and the same taxation authority. Deferred tax arising on items recognised in equity is dealt with through the equity statement.

7.4 Trade and other payables and amounts due to subsidiaries Trade and other payables and amounts due to subsidiaries

are stated at cost.

7.5 Employee Benefits7.5.1 Defined benefit plans A defined benefit plan is a post-employment benefit plan


Accounting Policies

other than a defined contribution plan. The estimation of this liability, determined by an independent, qualified actuary necessarily involves long-term assumptions, which have been disclosed in Note 34.The defined benefit obligation is calculated annually using the projected unit credit method. The services of a qualified actuary is obtained once in every 3 years to determine the valuation of the defined benefit obligation for the Company as well as those subsidiary companies within the Group that adopted the actuarial valuation method in computing the provision required in accordance with Sri Lanka Accounting Standard 16(Revised 2006) - Employee Benefits. The revised standard also provides a formulaic method, which approximates the actuarial valuation, which has been adopted by the other companies within the Group that have not adopted the actuarial valuation method. The projected unit credit method projects the current data using the actuarial assumptions and calculates projected benefits at the participants’ assumed retirement date. The key assumptions used in determining the defined benefit obligations are given in Note 34.

The defined benefit obligation recognised in the balance sheet represents the present value of the defined benefit obligation as adjusted for unrecognised actuarial gains and losses and unrecognised past service cost, and as reduced by the fair value of plan assets. Any asset resulting from this calculation is limited to unrecognised actuarial losses and past service cost, plus the present value of available refunds and reductions in future contributions to the plan. Actuarial gains and losses that exceed 10% of the greater of the present value of the defined benefit obligation and the fair value of plan assets at the end of the prior year are amortised over the expected average remaining working lives of the participating employees. Past service cost is recognised immediately to the extent that the benefits are already vested, and otherwise is amortised on a straight-line basis over the average period until the benefits become vested. The gratuity liability of the parent Company is externally funded by a gratuity fund established in 1987, with the investments of the fund being mainly in fixed deposits with approved banks. Gratuity liabilities of the other companies in the Group are not funded externally. Provision is made for defined benefit plan liability for all employees from the first year of service in conformity with SLAS 16 (Revised 2006) - Employee Benefits. This liability of the parent Company is computed on the following basis:

Length of service (years) No of months’ salary for each completed year

Up to 15 1/2 15 up to 30 1 30 up to 35 1 ½ 35 up to 40 2 Over 40 2 ½

However, under the Payment of Gratuity Act No.12 of 1983, the liability to an employee arises only on completion of five years of continued service. Liabilities for the other companies in the Group are computed on the basis of half a month’s salary for each year of completed service.

7.5.2 Defined contribution plans A defined contribution plan is a post-employment benefit plan

under which an entity pays fixed contributions into a separate entity and will have no legal or constructive obligation to pay further amounts. Obligations for contributions to the Employees’ Provident Fund and Employees’ Trust Fund covering all employees are recognised as an expense in the income statement as incurred.

7.6 Provisions In accordance with Sri Lanka Accounting Standard 36-

Provisions, Contingent Liabilities and Contingent Assets, recognition of a provision in the balance sheets is made when the Company has a present legal or constructive obligation as a result of past events and it is probable that an outflow of economic benefits will be required to settle the obligation.

8 Investment fund account As introduced through the budget proposals - 2011, every

person or partnership that carries on the business of banking or financial services is required to establish and operate an Investment Fund Account. Licenced Finance Companies are required to transfer funds to the Investment Fund Account and build a permanent fund as and when taxes are paid after 01st January 2011 in the following manner:

8% of the profits calculated for the payment of Value Added Tax (VAT) on financial services on dates specified in the VAT Act for payment of VAT.

5% of the profit before tax calculated for income tax purposes on dates specified in Section 113 of the Inland Revenue Act for the self-assessment payments of tax.

Funds in the Investment Fund Account are to be utilised through investment in long-term Government Securities or lending in specified sectors at prescribed rates.

An Investment Fund Account has been created by the Company in compliance with the above and details of amounts reserved and invested are given in Note 38.

9 Capital commitments and contingencies Capital commitments and contingent liabilities as at the date

of the balance sheet are disclosed in the respective notes to the consolidated financial statements. Contingent assets are disclosed, where an inflow of economic benefit is probable.

10 Foreign currency transactions Transactions in foreign currencies are translated to Sri Lankan

Rupees at the exchange rates that prevailed at the date of the


transaction. Monetary assets and liabilities denominated in foreign currencies as at the balance sheet date are translated to Sri Lankan Rupees using the closing rates that prevailed at the balance sheet date. Foreign exchange differences arising on translation are recognised in the income statement.

11 Income statement11.1 Revenue recognition Revenue is recognised to the extent that it is probable that the

economic benefits will flow to the Company and the revenue and associated costs incurred or to be incurred can be reliably measured. Revenue is measured at the fair value of the consideration received or receivable net of trade discounts and sales taxes. The following specific criteria are used for the purpose of recognition of revenue.

11.1.1 Lease In accordance with Sri Lanka Accounting Standard 19

(Revised 2005) on Leases, recognition of finance income on leasing is accounted based on a pattern reflecting a constant periodic rate of return on capital outstanding. The excess of aggregate lease rentals receivable over the cost of the leased asset constitutes the total unearned interest income at the commencement of the contract. The unearned interest income is taken into revenue on an accrual basis over the term of the lease commencing from the month in which the first rental is due, in proportion to the reducing capital outstanding balance. Non-performing leases are those leases where the rentals are overdue for 6 months or more. Interest income accrual is suspended from the date on which a lease is classified as non-performing and credited to “Interest in suspense”. Thereafter such income is recognised on a cash basis until the lease is reclassified as performing.

11.1.2 Hire purchase Recognition of interest income from hire purchase facilities is

similar to that of leases; where interest income is recognised based on a pattern reflecting a constant periodic rate of return on the capital outstanding. Interest income is taken into revenue on an accrual basis over the term of the contract commencing from the month in which the first rental is due, in proportion to the capital outstanding. Non-performing hire purchase facilities are those in which the rentals are overdue for 6 months or more. Interest income accrual is suspended from the date on which the facility is classified as non-performing and credited to “Interest in suspense”. Thereafter, such income is recognised on a cash basis until the hire purchase facility is reclassified as performing.

11.1.3 Interest income on loans and advances Interest receivable on loans and advances is recognised on

accrual basis. When rentals are overdue for 6 months or more such loans are categorised as Non-performing loans and advances and interest income accrual is suspended from the date on which the facility is classified as non-performing and

credited to “Interest in suspense”. Thereafter, such income is recognised on a cash basis until the loan is reclassified as performing.

11.1.4 Overdue interest Overdue interest on lease, hire purchase, loans and other

advances is recognised on a cash basis.

11.1.5 Vehicle hire income Minimum payments receivable under a hire contract consist

of the hire charges receivable over the term of the contract. Rental income from all performing vehicle hire contracts are accounted for on an accrual basis.

11.1.6 Interest income on investments in government Securities

Interest receivable is taken to the income statement on an accrual basis, based on a pattern reflecting a constant periodic rate of return. Interest on government Securities is grossed up with the notional tax credit available under the Inland Revenue Act No.10 of 2006 and amendments thereto as disclosed in note no. 2.

11.1.7 Interest income on deposits with banks Interest receivable is taken to the income statement on an

accrual basis.

11.1.8 Dividend income Dividend income is recognised in the income statement

on the date that the Group’s right to receive payment is established.

11.1.9 Income on housing projects and real estate income Income on housing projects and real estate income is

recognised on an accrual basis.

11.1.10 Rental income on rent-purchase facilities for real-estate

Rental income on rent-purchase facilities provided on sale of real estate is recognised on an accrual basis.

11.1.11 Commission income Commission income relating to specific transactions or events

is recognised in the income statement in the period in which they are earned.

11.1.12 Profit or loss on sale of securities Profit or loss arising from the sale of marketable securities is

accounted for in the income statement on the date of the transaction.

11.1.13 Profit/loss from sale of property, plant and equipment

Profit/loss from sale of property, plant and equipment is recognised in the period in which the sale occurs.


Accounting Policies

11.1.14 Significant accounting policies that are specific to the business of the subsidiaries

11.1.14.1 Sale of Services Revenue from energy supplied is recognised, upon delivery

of Energy to Ceylon Electricity Board and Delivery of Electrical Energy shall be completed when Electrical Energy meeting the specifications as set out in Power Purchase Agreement is received at the metering point.

11.1.14.2 Sale of apartments Revenue is recognised on percentage completion basis. For

this purpose, the property is deemed to be sold once 75% of sale proceeds have been collected.

11.1.14.3 Insurance broking The commission income of the Company is recognised on an

accrual basis and matched with related costs and expenses.

11.2 Expenditure recognition Expenses are recognised in the income statement on the

basis of a direct association between the cost incurred and the earnings of specific items of income. All expenses incurred in the running of the business and in maintaining property, plant and equipment in a state of efficiency are charged to the income statement. In terms of the provisions of Sri Lanka Accounting Standard 33 – Revenue Recognition and Disclosures in the Financial Statements of Finance Companies, interest and other expenses payable are recognised on an accrual basis.

11.2.1 Borrowing costs Borrowing costs are recognised as an expense in the period

in which they are incurred, except to the extent that they are directly attributable to the acquisition, construction or production of a qualifying asset, in which case they are capitalised as part of the cost of that asset.

11.3 Recovery of bad debts Bad debts recovered are recognised as and when the debts

are recovered.

12 Off balance sheet transactions The Company enters into off balance sheet transactions

such as interest rate SWAPs as part of the risk management strategy. Net interest receipt or payment is accrued in the income statement.

13 Earnings per share The Group presents basic and diluted earnings per share

(EPS) for its ordinary shares. Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during the period. Diluted EPS is determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted average number

of ordinary shares outstanding for the effects of all dilutive potential ordinary shares.

13 Cash flow statement The cash flow statement has been prepared using the direct

method in accordance with Sri Lanka Accounting Standard 9 - Cash Flow Statements.

14 Segmental reporting A segment is a distinguishable component of the Group

that is engaged in providing an individual product or service (Business segment) or in providing services within a particular economic environment (Geographical segment) which is subject to risks and rewards that are different from those of other segments. In accordance with Sri Lanka Accounting Standard 28 Segmental Reporting, segmental information is presented in respect of the Group. The business segments comprise of leasing, hire purchase and advances, vehicle hire, power generation, manufacturing, medical services and insurance broking, real estate and investments in shares and units. Segment results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis.

15 Events after the balance sheet date All material events after the balance sheet date have

been considered and where appropriate adjustments to/or disclosures in the respective notes to the consolidated financial statements have been made.

16 Related party transactions Disclosures are made In respect of the transactions in which

one party has the ability to control or exercise significant influence over the financial and operating policies of the other, irrespective of whether a price is charged.

17 New Accounting Standards issued but not yet effective as at balance sheet date

The Institute of Chartered Accountants of Sri Lanka has issued a new volume of Sri Lanka Accounting Standards that are effective from financial periods beginning on or after 01st January 2012. These Sri Lanka Accounting Standards comprise of Accounting Standards prefixed both SLFRS (corresponding to IFRS) and LKAS (corresponding to IAS).

These new standards have become applicable for the Company from 01st April 2012 and accordingly the reporting framework for the year ending 31st March 2013 will be in accordance with SLFRS. Due to complexity and technical expertise required in the convergence process, the Company carried out an initial impact analysis with the assistance of an external consultant based on 2011 balances to assess the approximate potential impact.


Notes to the Financial Statements Group Company 2011/12 2010/11 2011/12 2010/11 Rs.’000 Rs.’000 Rs.’000 Rs.’000

1 Income Interest income (Note 2) 7,407,431 6,269,481 7,454,354 6,320,455 Other operating income (Note 4) 1,379,546 1,413,023 743,225 796,194 Other income (Note 5) 473,049 411,867 539,813 530,552 9,260,026 8,094,371 8,737,392 7,647,201

2 Interest income Leases 3,597,860 2,662,308 3,597,860 2,662,308 Hire purchase 2,778,306 2,476,292 2,778,306 2,476,292 Government securities and deposits with banks 184,225 234,017 184,225 234,017 Interest on loans granted under Investment Fund Account (IFA) 794 - 794 - Interest on treasury bills and treasury bonds under IFA scheme 7,920 - 7,920 - Loans, advances and others 838,326 896,864 885,249 947,838 7,407,431 6,269,481 7,454,354 6,320,455

Notional credit for withholding tax on Government Securities on secondary market transactions The Inland Revenue Act No 10 of 2006, provides that a company which derives interest income from secondary market transactions in Government Securities would be entitled to a notional tax credit (being one ninth of the net interest income), provided such interest income forms part of the statutory income of the company for that year of assessment. Accordingly, interest income from secondary market transactions in government securities for the year has been grossed up in the financial statements with the value of such notional credit which amounts to Rs.13.32 Million (2010/11 - Rs.24.01 Million) for the Company and the Group.

Group Company 2011/12 2010/11 2011/12 2010/11 Rs.’000 Rs.’000 Rs.’000 Rs.’000

3 Interest expenses Deposits 2,142,449 2,072,875 2,165,515 2,090,737 Bank loans and overdrafts 517,378 183,119 517,378 183,119 Non- bank loans 56,406 80,606 56,406 80,606 Interest on other debt securities 38,951 18,663 38,951 18,663 2,755,184 2,355,263 2,778,250 2,373,125

4 Other operating income Vehicle hiring income 742,798 795,733 743,225 796,194 Manufacturing and trading income 327,648 270,965 - - Insurance broking 159,098 130,833 - - Medical services 52,312 49,240 - - Power generation 97,690 166,252 - - 1,379,546 1,413,023 743,225 796,194


Group Company 2011/12 2010/11 2011/12 2010/11 Rs.’000 Rs.’000 Rs.’000 Rs.’000

5 Other income Commissions 2,589 3,373 2,589 3,373 Profit on sale of shares - 38,014 - 56,707 Profit on sale of vehicles 80,641 39,199 77,101 32,559 Recovery of bad debts 79,145 71,446 77,297 71,234 Profit on sale of property, plant and equipment 116,846 131,414 114,968 124,802 Dividend income from quoted investment securities 12,262 14,140 8,683 14,135 Dividend income from unquoted investment securities 5,237 857 5,237 857 Dividend income from subsidiaries - - 57,937 49,860 Dividend income from associates - - 62,800 62,724 Profit on real estate operations 65,806 29,397 21,973 10,878 Appreciation in value of dealing securities and reversal of provision for impairment of long term investments - 12,623 - 25,001 Profit on maintenance of vehicles 27,729 36,679 27,729 36,679 Others 82,794 34,725 83,499 41,743 473,049 411,867 539,813 530,552

6 Operating expenses Operating expenses include the following:

Directors’ emoluments 114,074 109,813 92,078 91,425 Legal expenses 7,917 7,468 7,420 6,969 Depreciation 550,140 493,275 492,994 446,882 Amortisation of intangible assets 13,116 20,581 12,520 20,402 Impairment of property, plant and equipment - 430 - - Auditor’s remuneration - Audit 3,346 2,996 1,678 1,448 Non-audit 447 511 143 163 Donations 3,067 7,366 2,894 7,312 Employees’ Provident Fund contributions 90,463 77,030 73,511 62,565 Employees’ Trust Fund contributions 21,331 18,119 17,159 14,557 Diminution in value of dealing securities 7,440 - 7,440 -

7 Employee retirement benefit expenses Current service cost 43,193 33,212 38,103 29,598 Interest cost 70,762 67,105 63,151 60,588 Gratuity charge for the year 1,030 1,613 - - Amortisation of actuarial loss 4,785 - 4,785 - Expected return on assets (12,615) (10,796) (12,615) (10,796) 107,155 91,134 93,424 79,390

All relevant companies in the Group have either obtained actuarial valuations or used the formula method to determine the present value of retirement benefit obligations and current service cost as required by SLAS-16-Retirement Benefits (Revised-2006).

Notes to the Financial Statements


8 Loan losses and provisions Group Company 2011/12 2010/11 2011/12 2010/11 Rs.’000 Rs.’000 Rs.’000 Rs.’000

Increase/(decrease) in provision over the previous year 53,756 (6,089) 53,756 (6,089) Transfer (to)/from revenue reserves - 78,750 - 78,750 Provision charged to income statement 53,756 72,661 53,756 72,661 Bad debts written off 478 115,133 - 114,532 Loss on sale of repossessed vehicles - 28,341 - 28,341 Loss/(reversal of loss) on revaluation of repossessed vehicles and miscellaneous stocks 73,021 (29,313) 73,021 (29,313) 127,255 186,822 126,777 186,221

9 Share of profit of associates Nations Trust Bank PLC 448,250 433,248 Tea Smallholder Factories PLC 2,177 49,444 Capital Suisse Asia Ltd. 15,125 25,089 465,552 507,781

10 Group profits/(losses) before income tax Central Finance Company PLC 3,256,617 2,607,869 Central Industries PLC 149,760 121,814 Central Developments Ltd. 3,324 18,341 Dehigama Hotels Company Ltd. 21,852 19,330 Expanded Plastic Products Ltd. 846 7,033 Central Mineral Industries (Pvt) Ltd. 1,341 631 Central Transport & Travels Ltd. 2,575 9,786 Central Construction & Development (Pvt) Ltd. 360 (43) CF Growth Fund Ltd. 16,486 27,571 Kandy Private Hospitals Ltd. 15,276 17,258 CF Insurance Brokers (Pvt) Ltd. 51,910 43,848 Central Homes (Pvt) Ltd. 1,113 554 Mark Marine Services (Pvt) Ltd. 70,281 144,505 Hedges Court Residencies (Pvt) Ltd. (7,141) (47,521) 3,584,600 2,970,976 Inter-group adjustments (159,611) (237,164) Share of profit of associates 465,552 507,781

3,890,541 3,241,593

11 Income tax expense The provision for the year is made up as follows: Current tax charge 756,337 887,874 697,991 755,754 Under provision of current tax relating to previous years - 363,776 - 363,746 Over provision of current tax relating to previous years - (489) - - Social Responsibility Levy - 1,979 - - Deemed dividend tax 11 59 - - 10% WHT on inter-company dividends 20,743 17,398 - - Increase/(decrease) in deferred tax liabilities (Note 26) 195,356 (140,512) 213,215 (121,767) (Increase)/decrease in deferred tax assets (Note 26) 8,801 (6,215) - - Current /deferred tax share of associates 138,296 206,285 - - 1,119,544 1,330,155 911,206 997,733

11.1 Income tax on profit of the Company has been computed at the rate of 28% (2010/11 - 35%) on the taxable income. Group companies other than Central Industries PLC and Hedges Court Residencies (Pvt) Ltd. have computed taxation at 10% for the financial year 2011/12 as per the provisions of Inland Revenue (Amendment) Act No. 22 of 2011 (2010/11 - 35%). Central Industries PLC has computed taxation at 28% (2010/11 - 35%) while Hedges Court Residencies (Pvt) Ltd. is entitled to a five year tax holiday ending 31st March 2013 on operating income under BOI regulations. Other income of Hedges Court Residencies (Pvt) Ltd. is liable to income tax at 28% for 2011/12 (2010/11 - 35%). Social Responsibility Levy was abolished in 2011.



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

2011/12 2010/11 2011/12 2010/11 Rs.’000 Rs.’000 Rs.’000 Rs.’000

Profit before tax (net of losses) 3,890,541 3,241,593 3,256,617 2,607,869 Losses before tax 7,141 47,564 - - Share of results of associates (465,552) (507,781) - - Other consolidation adjustments 159,611 237,164 - - Accounting profit chargeable for income taxes 3,591,741 3,018,540 3,256,617 2,607,869 Tax effect on chargeable profits at 28% and 10% (2010/11-35%) 975,254 1,056,489 911,853 912,754 Tax effect on allowable credits (1,967,459) (1,913,093) (1,954,432) (1,882,101) Tax effect on exempt profits (53,382) (138,918) (37,926) (118,223) Tax effect on non-deductible expenses 1,794,562 1,875,580 1,778,496 1,843,324 Tax effect on adjustments 7,565 8,225 - - Tax effect on losses claimed (203) (409) - - 756,337 887,874 697,991 755,754 Social Responsibility Levy - 1,979 - - Under provision for previous years - 363,776 - 363,746 Over provision of deemed dividend tax - (489) - - Deemed dividend tax 11 59 - - Increase/(decrease) in deferred tax liabilities (Note 26) 195,356 (140,512) 213,215 (121,767) (Increase)/decrease in deferred tax assets (Note 26) 8,801 (6,215) - - 10% WHT on inter company dividends 20,743 17,398 - - Current/deferred tax share of associates 138,296 206,285 - -

Charged to income statement 1,119,544 1,330,155 911,206 997,733

Effective tax rate (Excluding deferred taxation) 21.06% 29.41% 21.43% 28.98%

12 Earnings per share The calculation of basic and diluted earnings per share is based on the net profit for the year attributable to ordinary shareholders

and the weighted average number of ordinary shares outstanding during the year.

Group 2011/12 2010/11

Profit attributable to equity holders of the parent 2,676,615 1,827,034 Number of shares used as denominator (‘000) 104,883 104,883

Basic and diluted earnings per share (Rs.) 25.52 17.42 Company’s ordinary shares were increased by subdividing each existing share into 5 shares in September 2011. Subsequent to the

subdivision, reserves amounting to Rs.365.40 Million were also capitalised at the rate of Rs.108/- per share through the issue of bonus shares in the proportion of 01 share for 30 shares. As a result, the number of shares increased to 104,883,333. Earnings per share and net asset per share of the previous periods were adjusted accordingly.

13 Dividends Paid: First interim Rs.0.70 (2010/11: Rs.0.49) 73,418 50,750 Second interim Rs.0.70 (2010/11: Rs.0.58) 73,418 60,900 Proposed: Final Rs.1.10 (2010/11: Rs.0.97) 115,371 101,500 262,207 213,150 Dividend per share (Rs.) - Paid and proposed 2.50 2.04


D

ealin

g se

curi

ties

Gro

up

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mpa

ny

N

o. o

f Co

st

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ket

No.

of

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M

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ares

Valu

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31.0

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3

1.03

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Rs.

’000

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Vehi

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5

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4

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se d

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rele

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am

ount

ed to

Rs.

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(Rs.

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illio

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of in

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s re

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anci

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anks

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C

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for t

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4

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men

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Central Finance Company PLC - Annual Report 2011-12 83(b

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up

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31.0

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ka. (

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1

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for i

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begi

nnin

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year

(10

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(

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(9,

720)

(

10,5

45)

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vers

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f pro

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pairm

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or th

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-

82

5

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825

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at th

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d of

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(

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(9,

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(

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388



Group Company 31.03.2012 31.03.2011 31.03.2012 31.03.2011 Rs.’000 Rs.’000 Rs.’000 Rs.’000

17 Net investment in leases Gross investment in leases 30,500,064 21,525,736 30,500,064 21,525,736 Unearned interest income (7,513,761) (5,269,388) (7,513,761) (5,269,388) 22,986,303 16,256,348 22,986,303 16,256,348 Provision for loan losses (Note 22.1) (94,509) (115,147) (94,509) (115,147) 22,891,794 16,141,201 22,891,794 16,141,201

17.1 Rentals receivable on leased assets Not later than one year Gross investment in leases 9,685,810 7,148,628 9,685,810 7,148,628 Unearned interest income (3,611,591) (2,585,628) (3,611,591) (2,585,628) Provision for loan losses (27,075) (69,448) (27,075) (69,448)

6,047,144 4,493,552 6,047,144 4,493,552 Later than one year and not later than five years Gross investment in leases 20,423,349 14,094,766 20,423,349 14,094,766 Unearned interest income (3,901,933) (2,683,375) (3,901,933) (2,683,375)

Provision for loan losses (67,434) (45,699) (67,434) (45,699) 16,453,982 11,365,692 16,453,982 11,365,692 Later than five years Gross investment in leases 390,905 282,342 390,905 282,342 Unearned interest income (237) (385) (237) (385) 390,668 281,957 390,668 281,957

18 Corporate debt securities At the beginning of the year 313,414 402,813 313,414 402,813 Repayments during the year (131,564) (89,399) (131,564) (89,399) 181,850 313,414 181,850 313,414

Receivable within one year 181,850 131,564 181,850 131,564 Receivable after one year - 181,850 - 181,850

181,850 313,414 181,850 313,414

19 Loans and advances Stock out on hire purchase 15,565,586 10,531,373 15,565,586 10,531,373 Amounts due from hirers 1,566,336 1,364,225 1,566,336 1,364,225 Term loans 844,014 820,484 1,420,854 1,806,544 Temporary refunds against fixed deposits 537,470 553,049 537,470 553,049 Housing and land receivables 19,489 19,511 19,489 19,511 Loans to employees (Note 19.1) 79,651 65,673 70,348 57,148

18,612,546 13,354,315 19,180,083 14,331,850 Provision for loan losses (Note 22.1) (733,276) (659,073) (733,276) (659,073) Interest in suspense (168,279) (176,470) (168,279) (176,470)

17,710,991 12,518,772 18,278,528 13,496,307

Receivable within one year 6,465,221 5,803,338 6,665,435 5,799,141 Receivable after one year 11,245,770 6,715,434 11,613,093 7,697,166

17,710,991 12,518,772 18,278,528 13,496,307



19.1 Loans to employees Movement of loans to employees is given below: At the beginning of the year 65,673 64,078 57,148 54,977 Loans granted during the year 75,011 62,251 67,243 56,033 Loans recovered during the year (61,033) (60,656) (54,043) (53,862)

At the end of the year 79,651 65,673 70,348 57,148

Receivable within one year 39,010 32,825 35,119 28,628 Receivable after one year 40,641 32,848 35,229 28,520 79,651 65,673 70,348 57,148

20 Trade & other receivables Trade & other receivables 1,316,615 1,549,998 847,294 1,133,900 Provision for bad & doubtful debts (Note 22.1) (63,779) (64,974) (27,503) (27,312) 1,252,836 1,485,024 819,791 1,106,588 Group Company 31.03.2012 31.03.2011 31.03.2012 31.03.2011 Rs.’000 Rs.’000 Rs.’000 Rs.’000

21 Investments in real estate (a) Investments in land Balance at the beginning of the year 65,579 63,545 65,579 63,545 Additions/transfers during the year 1,079 2,091 1,079 2,091 Disposals/transfers during the year (259) (57) (259) (57) Balance at the end of the year 66,399 65,579 66,399 65,579

(b) Investment in housing projects Balance at the beginning of the year 529,699 925,959 43,306 148,784 Additions during the year 12 3,760 12 3,760 Disposals/transfers during the year (502,598) (400,020) (36,279) (109,238)

27,113 529,699 7,039 43,306 Provision for bad and doubtful debts (Note 22.1) (1,074) (1,074) (1,074) (1,074)

Balance at the end of the year 26,039 528,625 5,965 42,232 92,438 594,204 72,364 107,811

No borrowing costs were capitalised during the current and the preceding financial years.



22 Provision for losses on loans and advances and interest in suspense Company 31.03.2012 31.03.2011 Rs.’000 Rs.’000

Provision for losses on loans and advances: Balance at the beginning of the year 802,606 808,695

Net increase during the year 53,756 (6,089) Balance at the end of the year (Note 22.1) 856,362 802,606 Interest in suspense: Balance at the beginning of the year 176,470 224,782 Net decrease during the year (8,191) (48,312)

Balance at the end of the year 168,279 176,470 Total 1,024,641 979,076

Increase/(decrease) in provision against advances over the previous year 53,756 (6,089)Provision reversed from revenue reserves - 78,750

Provision charged to income statement 53,756 72,661 Non-performing loans and advances 1,002,192 1,406,929 Interest in suspense (168,279) (176,470) Net non-performing loans and advances 833,913 1,230,459 Provision for losses on loans and advances (856,362) (802,606)

Net exposure - 427,853

22.1 Provision for losses on loans and advances Net investment in leases 94,509 115,147 Loans and advances 733,276 659,073 Trade & other receivables 27,503 27,312 Investments in real estate 1,074 1,074

Total for the Company 856,362 802,606 Trade and other receivables - subsidiaries 36,276 37,662

Total for the Group 892,638 840,268


Co

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31

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31

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Rs

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24

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1

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1

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1

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9

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2

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. 99

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38

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1

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1

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8

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8

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k M

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40

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40

.00%

3

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3

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5

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8

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000,

000

2,00

0,00

0 20

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20

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-

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Reve

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of p

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inve

stm

ents

Ba

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begi

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year

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) (

34,1

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men

t in

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of p

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3

12,9

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312

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25 Other assets At the beginning of the year 8,259 10,937 8,259 10,937 Amount incurred during the year 15,717 - 15,717 - Amortised during the year (5,724) (2,678) (5,724) (2,678) 18,252 8,259 18,252 8,259

Other assets represent transaction costs incurred in obtaining long term borrowings. These charges are written off over the period of the loan as the Directors are of the opinion that these form part of the financing costs of long term borrowings.


26 Deferred tax assets and liabilities Deferred tax liability At the beginning of the year 1,264,795 1,414,570 1,199,214 1,326,518 Transfer from/(to) income statement (Note 26.1) 195,356 (140,512) 213,215 (121,767) Deferred tax effect on gratuity transitional provision due to change in corporate tax rate - 2,642 - 2,642 Deferred tax attributable to revaluation surplus on de-recognition of building (978) - (978) - Deferred tax attributable to revaluation surplus due to change in corporate tax rate (9,079) (11,905) - (8,179)

At the end of the year 1,450,094 1,264,795 1,411,451 1,199,214 Deferred tax assets At the beginning of the year 8,929 2,309 - - Less: transfer from/(to) income statement 8,801 (6,215) - - Transfer to equity statement - 405 - - At the end of the year 128 8,929 - -

26.1 Group Balance Sheet Income Statement Equity 31.03.2012 31.03.2011 2011/12 2010/11 31.03.2012 31.03.2011 Rs.‘000 Rs.‘000 Rs.‘000 Rs.‘000 Rs.‘000 Rs.‘000 Deferred tax assets, liabilities and

income tax relate to the following: Deferred tax liability Capital allowances for tax purposes 1,601,503 1,407,441 (204,119) 125,943 10,057 11,905 Deferred tax assets Defined benefit plans (151,409) (142,646) 8,763 14,569 - (2,642) Deferred tax income/(expense) (195,356) 140,512 10,057 9,263 Net deferred tax liability 1,450,094 1,264,795



26.2 Company Balance Sheet Income Statement Equity 31.03.2012 31.03.2011 2011/12 2010/11 31.03.2012 31.03.2011 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000 Rs. ‘000

Deferred tax assets, liabilities and income tax relate to the following:

Deferred tax liability Capital allowances for tax purposes 1,553,911 1,332,613 (222,276) 106,575 978 8,179 Deferred tax assets Defined benefit plans (142,460) (133,399) 9,061 15,192 - (2,642)

Deferred tax income/(expense) (213,215) 121,767 978 5,537 Net deferred tax liability 1,411,451 1,199,214


27 Intangible assets Computer software at cost At the beginning of the year 116,495 98,415 113,606 97,717 Additions 4,941 18,080 4,638 15,889 At the end of the year 121,436 116,495 118,244 113,606

Amortisation At the beginning of the year (70,004) (49,423) (69,615) (49,213) Charge for the year (13,116) (20,581) (12,520) (20,402) At the end of the year (83,120) (70,004) (82,135) (69,615)

Carrying amount At the beginning of the year 46,491 48,992 43,991 48,504 At the end of the year 38,316 46,491 36,109 43,991


28 Property, plant and equipment Group Land and Furniture Motor Plant, Total Total Buildings and office vehicles & machinery 31.03.2012 31.03.2011 equipment lifts and other equipment Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000

Cost/valuation At the beginning of the year 2,167,139 177,223 3,390,183 948,563 6,683,108 6,396,481 Additions/transfers 51,080 26,071 775,458 117,558 970,167 1,132,257 Disposals/transfers (4,899) (480) (958,859) (10,174) (974,412) (845,630)

At the end of the year 2,213,320 202,814 3,206,782 1,055,947 6,678,863 6,683,108

Accumulated depreciation At the beginning of the year 107,054 76,818 1,049,668 597,826 1,831,366 1,767,549 Charge/transfers during the year 16,583 16,328 428,942 88,287 550,140 492,618 Impairment for the year - - - - - 430 On disposals/transfers (1,023) (339) (443,960) (8,862) (454,184) (429,231) At end of the year 122,614 92,807 1,034,650 677,251 1,927,322 1,831,366

Net book value 2,090,706 110,007 2,172,132 378,696 4,751,541 4,851,742 Capital work-in-progress 29,935 7,889 Carrying amount at the end of the year 4,781,476 4,859,631

Company Land and Furniture Motor Plant, Total Total Buildings and office vehicles & machinery 31.03.2012 31.03.2011 equipment lifts and other equipment Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000

Cost/valuation At the beginning of the year 1,509,338 144,709 3,342,319 388,195 5,384,561 5,124,446 Additions/transfers 12,872 21,673 775,325 56,374 866,244 1,090,554 Disposals/transfers (4,899) (480) (957,836) (2,571) (965,786) (830,439)

At the end of the year 1,517,311 165,902 3,159,808 441,998 5,285,019 5,384,561

Accumulated Depreciation At the beginning of the year 69,591 56,553 1,017,816 221,029 1,364,989 1,336,767 Charge/transfers during the year 8,568 13,728 423,556 47,142 492,994 446,445 On disposals/transfers (1,023) (339) (442,937) (2,029) (446,328) (418,223)

At the end of the year 77,136 69,942 998,435 266,142 1,411,655 1,364,989 Net book value 1,440,175 95,960 2,161,373 175,856 3,873,364 4,019,572 Capital work-in-progress 27,642 5,008 Carrying amount at the end of the year 3,901,006 4,024,580



28 Property, plant and equipment (contd.) Information on the freehold land and buildings of the Company and the Group

Location Cost or Cost or Extent revaluation revaluation Accumulated Net book

(Perches) of land of buildings Total value depreciation value Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000

Central Finance Company PLC City office No.270, Vauxhall Street, Colombo 02. 117.32 204,612 129,497 334,109 33,325 300,784 No.244, Vauxhall Street, Colombo 02. 13.21 20,760 25,183 45,943 6,992 38,951

Branches No.62, Maithripala Senanayake Mw, Anuradhapura. 40.20 24,306 - 24,306 - 24,306 No.367, Main Street, Negombo. 29.00 24,239 5,724 29,963 1,554 28,409 No.38, Mihindu Mawatha, Kurunegala. 54.63 34,700 3,563 38,263 946 37,317 04, Udaya Raja Mawatha, Badulla. 26.90 16,692 4,004 20,696 1,179 19,517 No.78, Kumarathunga Mawatha, Matara. 125.25 83,769 5,303 89,072 1,464 87,608 23, Kurunegala Road, Dambulla 21.00 1,777 5,024 6,801 689 6,112 No.143, Colombo Road, Moragahayata, Ratnapura 46.00 18,281 6,169 24,450 1,210 23,240 No.312, Highlevel Road, Nugegoda. 15.70 27,075 20,860 47,935 4,011 43,924

Showrooms No.254,254/1, Katugastota Road, Kandy. 85.93 69,000 37,426 106,426 5,475 100,951 268, Vauxhall Street, Colombo 02. 21.67 31,619 163 31,782 3 31,779

Vehicle Yards No.249, Katugastota Road, Kandy. 165.38 114,239 3,795 118,034 1,482 116,552 313, Koholwila Road, Kelaniya. 348.50 17,636 7,313 24,949 1,955 22,994 Batalahenawatte Road, Gonawala, Kelaniya. 189.05 7,946 208 8,154 19 8,135 258/3, Katugastota Road, Kandy. 45.93 22,750 - 22,750 - 22,750 210, Siri Dhamma Mawatha,

Colombo 10. 121.45 158,120 19,736 177,856 2,514 175,342 No.313, Madawala Road, Katugastota. 167.43 30,100 900 31,000 113 30,887 Kirindiwela Road, Pugoda. 1,600.00 15,834 2,209 18,043 101 17,942

Other properties Pahathgama Cross Road, Hanwella 180.00 3,811 295 4,106 26 4,080 Sarasavigama Road, Hindagala. 25.00 9,958 - 9,958 - 9,958 Hekiththa Road, Wattala 375.00 36,135 - 36,135 - 36,135

Bungalows No.8, Sukhastan Gardens, Ward Place, Colombo 7. 38.14 66,642 17,309 83,951 5,384 78,567 No.25, Sri Rahula Road, Nuwaraeliya. 194.00 67,908 12,268 80,176 1,706 78,470 Indibedda, Moratuwa 251.10 37,562 35,541 73,103 6,988 66,115

Car Parks Yatinuwara Veediya, Kandy. 14.00 14,000 - 14,000 - 14,000 No.267 & 269, Vauxhall Street, Colombo 02. 10.26 15,350 - 15,350 - 15,350

Total for the Company 1,174,821 342,490 1,517,311 77,136 1,440,175 Group companies Dehigama Hotels Company Ltd. 84, Raja Veediya, Kandy. 85.00 125,000 99,025 224,025 25,041 198,984 Kandy Private Hospitals Ltd. 255/8, Katugastota Road, Kandy. 127.25 89,000 40,000 129,000 10,000 119,000 Central Mineral Industries Ltd. Diganatenna Estate,Gonawala, Rajawella, Digana 1,916.25 30,774 2,859 33,633 357 33,276 Central Industries PLC Factory 195/4, Kerawalapitiya Road,

Hendala, Wattala. 522.10 130,525 65,391 195,916 6,503 189,413 Head office 312, Nawala Road, Rajagiriya. 18.00 36,000 45,511 81,511 3,577 77,934 Yakkala land 1,440.00 31,924 - 31,924 - 31,924 Total for the Group 1,618,044 595,276 2,213,320 122,614 2,090,706


28 Property, plant and equipment (contd.) Revaluations The freehold land and buildings of the Company and the Group, except for the freehold land and buildings of subsidiary Central

Industries PLC were revalued as at March 2007 by an independent qualified Valuer / Licensed Surveyor, resulting in the carrying amounts being written up by Rs.607.7 Million and Rs.669.28 Million respectively.

The freehold land and buildings of Central Industries PLC were revalued by an independent valuer/ Valuer of Real Estate, as at 31st March 2009, resulting in the carrying amounts being written up by Rs.166.9 Million.

The details of the above revaluations are given below:

Location/Address Valuation Net Book Revalued Revaluation Method Value before Amount Surplus/

Revaluation (deficit) Rs.’000 Rs.’000 Rs.’000 Central Finance Company PLC Office No.270, Vauxhall Street, Land Comparison 162,814 204,612 41,798 Colombo-2. Building Contractor’s 79,193 95,387 16,194 No.244, Vauxhall Street, Land Comparison 14,070 20,760 6,690 Colombo -2. Building Contractor’s 13,984 21,240 7,256 Branches No.62, Maithripala Senanayake Mw, Land Comparison 8,124 24,306 16,182 Anuradhapura. Building Contractor’s 1,866 4,444 2,578 No.367, Main Street, Land Comparison 8,650 24,239 15,589 Negombo Building Contractor’s 3,278 4,761 1,483 No.38, Mihindu Mw, Land Comparison 10,554 34,700 24,146 Kurunegala Building Contractor’s 2,015 3,050 1,035 No. 04, Udaya Raja Mw, Land Comparison 10,187 16,692 6,505 Badulla Building Contractor’s 3,275 3,308 33 No.78, Kumarathunga Mw, Land Comparison 13,383 83,769 70,386 Matara Building Contractor’s 3,951 4,481 530 No. 143, Colombo Road Land Comparison 2,300 18,281 15,981 Moragahayata, Ratnapura Building Contractor’s 3,141 5,719 2,578 No. 312, Highlevel Road, Land Comparison 19,625 27,075 7,450 Nugegoda Building Contractor’s 10,985 12,925 1,940 Showrooms No. 254, 254/1, Katugastota Road, Land Comparison 31,845 69,000 37,155 Kandy Building Contractor’s 36,374 36,500 126 Vehicle Yards No. 249, Katugastota Road, Land Comparison 85,398 114,239 28,841 Kandy. Building Contractor’s 3,568 2,761 (807) 313, Koholwila Road, Land Comparison 9,905 17,636 7,731 Kandy. Building Contractor’s 6,900 4,364 (2,233) Batalahenawatte Road, Gonawala, Land Comparison 6,248 7,946 1,698 Kelaniya Building Contractor’s 27 54 27 210, Siri Dhamma Mawatha Land Comparison 41,577 158,492 116,915 Colombo 10 Building Contractor’s 4,214 17,659 13,445 No. 313, Madawala Road, Land Comparison 20,646 30,100 9,454 Katugastota Building Contractor’s - 900 900 No.258/3, Katugastota Road, Kandy Land Comparison 11,512 22,750 11,238 Bungalows No. 8, Sukhastan Gardens, Land Comparison 37,552 66,642 29,090 Ward Place, Colombo 7. Building Contractor’s 13,354 13,358 4 No. 25, Sri Rahula Road, Land Comparison 9,700 67,908 58,208 Nuwara Eliya Building Contractor’s 1,049 12,091 11,042 Indibedda, Moratuwa Land Comparison 10,541 37,562 27,021 Building Contractor’s 17,000 27,438 10,438 Car Parks Yatinuwara Veediya, Land Comparison 10,071 14,000 3,929 Kandy Building Contractor’s 235 - - No. 267 & 269, Vauxhall Street, Colombo 02 Land Comparison 10,270 15,350 5,080 Sub total Land 534,972 1,076,059 541,087 Building 204,409 270,440 66,569 Central Finance Company PLC 739,381 1,346,499 607,656



28 Property, plant and equipment (contd.) Location/Address Valuation Net Book Revalued Revaluation Method Value before Amount Surplus

Revaluation (deficit) Rs.’000 Rs.’000 Rs.’000

Kandy Private Hospitals Ltd. 255/8, Katugastota Road, Kandy. Land Comparison 56,114 89,000 32,886 Building Contractor’s 17,414 40,000 22,586 Central Mineral Industries Ltd. Diganatenna Estate, Gonawala, Land Comparison 24,954 30,673 5,719 Rajawella, Digana Building Contractor’s 2,512 2,950 438

Central Industries PLC Factory Kerawalapitiya Land Contractor’s 8,177 130,525 122,348 Building Contractor’s 41,038 56,814 15,776 Head office - Nawala Land Contractor’s 12,546 36,000 23,454 Building Contractor’s 40,171 45,512 5,341 Total for the Group Land 636,763 1,362,257 725,494 Building 305,544 415,716 110,710 942,307 1,777,973 836,204

Where properties have fallen in value, the decreases have been charged against revaluation reserve to the extent that it was credited previously and any decrease beyond such value was charged to revenue during the year of such revaluations.

Building at No. 62, Maithiripala Senanayake Mawatha was demolished during the year for the construction of a new building and was accordingly de-recognised as property.

The carrying value of freehold land and buildings of the Group, if carried at cost less accumulated depreciation and impairment, would amount to Rs.760.60 Million as at 31st March 2012 (31st March 2011 Rs.783.97 Million).

The cost of fully depreciated assets of the Group and Company amounted to Rs.631.72 Million and Rs.504.92 Million respectively (Group Rs.477.42 Million and Company Rs.445.78 Million as at 31st March 2011).

The carrying value of land and buildings pledged as security for banking facilities amounts to Rs.756.68 Million and Rs.637.68 Million for the Group and Company respectively.

Movement of capital work-in-progress Group Company 31.03.2012 31.03.2011 31.03.2012 31.03.2011 Rs.’000 Rs.’000 Rs.’000 Rs.’000

Balance at the beginning of the year 7,889 4,117 5,008 3,500 Additions during the year 28,946 8,122 22,634 1,508 Transfer to property, plant and equipment (6,900) (4,350) - - Balance at the end of the year 29,935 7,889 27,642 5,008

Operating lease assets are classified under property, plant and equipment. Rental receivable on operating lease assets are given below:

Rental receivable on operating leases Group Company 31.03.2012 31.03.2011 31.03.2012 31.03.2011 Rs.’000 Rs.’000 Rs.’000 Rs.’000

Within one year 439,332 434,149 439,332 434,149 After one year 712,174 749,069 712,174 749,069 Total 1,151,506 1,183,218 1,151,506 1,183,218



29 Trade and other payables Interest payable on deposits 1,453,335 1,240,202 1,456,665 1,247,037 Creditors 1,077,455 643,551 1,072,235 638,309 Prepaid rentals - lease finance 3,808,633 2,759,285 3,808,633 2,759,285 Prepaid rentals - hire purchase 630,718 10,163 630,718 10,163 Advances on real estate projects 4,310 96,065 3,864 22,325 Accrued expenses 252,603 62,898 196,328 27,811 Others 687,041 923,392 533,921 783,212

7,914,095 5,735,556 7,702,364 5,488,142

30 Deposits Term deposits 20,570,554 17,966,844 20,725,288 18,167,352 Certificates of deposits 3,747 8,292 3,747 8,292 Savings deposits 854,124 782,065 855,873 782,194

21,428,425 18,757,201 21,584,908 18,957,838

The above includes a sum of Rs.100,624,758(31.03.2011- Rs.186.813,837) deposited with the Company by Directors.

31 Bank Loans Borrower Lending Institution Nature of Facility Security 31.03.2012 31.03.2011

Rs.000 Rs.000

Central Finance NDB Bank PLC Revolving short term loan Agreement to mortgage over lease receivables - 697,000 Company PLC Hatton National Bank PLC Revolving short term loan Power of attorney and mortgage bond over lease

agreements and hypothecation of hire purchase contracts 946,000 100,000

Term loan Power of attorney and mortgage bond over lease agreements and hypothecation of hire purchase contracts 177,333 - Habib Bank Ltd. Term loan Mortgage over lease receivables 20,834 104,167 Commercial Bank PLC Revolving short term loan Primary mortgage over land and buildings 1,000,000 - HSBC Revolving short term loan Mortgage over lease receivables 800,000 - Sampath Bank PLC Revolving short term loan Assignment of lease agreements 300,000 - Standard Chartered Bank Revolving short term loan Power of Attorney over lease receivables 700,000 - Bank of Ceylon Revolving short term loan Assignment of quoted company shares 75,000 - 4,019,167 901,167 Hedges Court Corporate guarantee from Central Residencies (Pvt) Ltd Hatton National Bank PLC Term loan Finance Company PLC - 85,000 Central Industries PLC Hatton National Bank PLC Short term loan Unsecured 45,900 - Nations Trust Bank PLC Short term loan Unsecured 2,700 -

48,600 85,000

4,067,767 986,167


Payable within one year 3,885,834 880,333 3,885,834 880,333 Payable after one year 181,933 105,834 133,333 20,834 4,067,767 986,167 4,019,167 901,167



32 Non-bank Loans Borrower Lending Institution Nature of Facility Security 31.03.2012 31.03.2011

Rs.’000 Rs.’000

Central Finance FMO Netherland Term Loan Mortgage over Lease and Company PLC Hire purchase receivables 382,512 573,768 Central Bank of Sri Lanka Refinance loans Unsecured - 449 Consortium of lenders Securitisation facility Trust deed, mortgage over lease receivables 1,427,300 16,444 Consortium of lenders Securitisation facility Trust deed, mortgage over lease receivables - 750,000

1,809,812 1,340,661 Group Company 31.03.2012 31.03.2011 31.03.2012 31.03.2011 Rs.’000 Rs.’000 Rs.’000 Rs.’000

Payable within one year 609,456 212,149 609,456 212,149 Payable after one year 1,200,356 1,128,512 1,200,356 1,128,512 1,809,812 1,340,661 1,809,812 1,340,661

33 Debentures At the beginning of the year 400,000 150,000 400,000 150,000 Issued during the year - 250,000 - 250,000 Redeemed during the year (150,000) - (150,000) -


The Company issued 150,000 unsecured redeemable unlisted debentures of Rs.1,000/- each during the financial year 2007/08 which were fully subscribed. During the financial year 2010/11, a further issue of Rs.50,000,000 par valued unlisted, rated, unsecured redeemable debentures to the value of Rs.250,000,000 was made and fully subscribed. The debentures amounting to Rs.150,000,000 issued in 2007/08 were redeemed during the year.


34 Retirement benefit obligation Present value of defined benefit obligation 766,645 698,382 683,340 622,007 Fair value of plan assets (174,812) (145,583) (174,812) (145,583)

Unfunded status 591,833 552,799 508,528 476,424 Unrecognised net actuarial gain (111,793) (148,817) (98,794) (131,013) Net retirement benefit obligation 480,040 403,982 409,734 345,411

The liability for retirement benefit obligation of the Group other than the parent is not externally funded.


34 Retirement benefit obligation (contd.) Group Company 31.03.2012 31.03.2011 31.03.2012 31.03.2011 Rs.’000 Rs.’000 Rs.’000 Rs.’000

Movement of the retirement benefit obligation Present value of defined benefit obligation at the beginning of the year 698,382 531,345 622,007 475,301 Gratuity charge for the year 1,030 1,613 - - Interest cost 70,762 67,105 63,151 60,588 Amortisation of actuarial loss 4,785 - 4,785 - Current service cost 43,193 33,212 38,103 29,598 Payments made during the year (13,818) (24,353) (10,834) (20,125) Actuarial gain/(loss) (37,689) 89,460 (33,872) 76,645

Present value of defined benefit obligation at the end of the year 766,645 698,382 683,340 622,007

Movement of the plan assets Fair value of the plan assets at the beginning of the year 145,583 130,017 145,583 130,017 Contributions made to the plan 29,101 24,598 29,101 24,598 Benefits paid by the plan (10,833) (20,125) (10,833) (20,125) Expected return on plan assets 12,615 10,796 12,615 10,796 Actuarial gain/ (loss) (1,654) 297 (1,654) 297 Fair value of the plan assets at the end of the year 174,812 145,583 174,812 145,583

Retirement benefit liability of Central Finance Company PLC is partly funded externally through a gratuity fund established in 1987. Retirement benefit obligations of Central Finance Company PLC, Central Industries PLC and CF Insurance Brokers (Pvt) Ltd has

been determined as per the actuarial valuations carried out by Consulting Actuary, Mr. Piyal S Goonetilleke, Fellow of the Society of Actuaries (USA), Member of the American Academy of Actuaries. The employee benefit liabilities of Central Mineral Industries (Pvt) Ltd, Kandy Private Hospital Ltd., and Mark Marine Services (Pvt) Ltd., are computed based on the gratuity formula recommended in SLAS 16 (Revised 2006) - Employee Benefits.

Details of actuarial assumptions of the Company are as follows;

31.03.2012 31.03.2011 Actuarial assumptions Discount rate 11% 10% Expected return on plan assets 9% 9% Future salary increases 12.50% 13%

Mortality GA 1983 Mortality Table Age: 20 25 30 35 40 45 50 Turnover 10% 10% 10% 7.5% 5% 2.5% 1% Disability Age: 20 25 30 35 40 45 50 55 Disability 0.08% 0.09% 0.10% 0.12% 0.18% 0.29% 0.54% 0.00%

(Long term disability 1987 Soc. Sec. Table:Rates of disability at selected ages)

Retirement age - Normal retirement age or age at valuation date,if greater.



Company 31.03.2012 31.03.2011 No.of shares Stated Capital No.of shares Stated Capital In ’000 Rs.’000 In ’000 Rs.’000

35 Stated Capital Issued and fully paid - ordinary shares At the beginning of the year 20,300 203,020 20,300 203,020 Subdivision of shares (01 into 05) 81,200 - - - Capitalisation of reserves (01 for 30) 3,383 365,400 - -


Company’s ordinary shares were increased by subdividing each existing share into 5 shares in September 2011. Subsequent to the subdivision, reserves amounting to Rs.365.4 Million were also capitalised at the rate of Rs.108/- per share through the issue of bonus shares in the proportion of 01 share for 30 shares. As a result, the number of shares increased to 104,883,333. Earnings per share and net assets per share of the previous periods are adjusted accordingly.


36 Capital reserves Revaluation reserve Balance at the beginning of the year 1,366,598 1,358,312 979,072 974,847

Depreciation on revaluation surplus (5,331) (5,627) (3,945) (3,954) Revaluation surplus realised on de-recognition of building (3,494) - (3,494) - Deferred tax attributable to revaluation surplus on de-recognition of building 978 - 978 - Deferred tax attributable to revaluation surplus due to change in corporate tax rate 6,624 13,913 - 8,179 Balance at the end of the year 1,365,375 1,366,598 972,611 979,072

Capital redemption reserve 18,865 18,865 - - Total 1,384,240 1,385,463 972,611 979,072

Revaluation reserve consists of the net surplus on the revaluation of land and buildings. Capital redemption reserve comprises of reserve funds arising from the redemption of preference shares of subsidiaries.


37 Reserve fund Balance at the beginning of the year 682,000 601,000 682,000 601,000 Transfers during the year 118,000 81,000 118,000 81,000 Balance at the end of the year 800,000 682,000 800,000 682,000

The Company’s Reserve fund is maintained in accordance with Direction No. 9 of 1991 as amended by Direction No. 1 of 2003 issued by the Central Bank of Sri Lanka under the Finance Business Act No.42 of 2011.


38 Investment fund account Balance at the beginning of the year - - - - Transfers during the year 223,492 - 223,492 -

Balance at the end of the year 223,492 - 223,492 -

As proposed in the Government Budget 2011, Finance Companies are required to establish and operate an Investment Fund Account (IFA) commencing January, 2011. According to the guidelines issued by the Central Bank of Sri Lanka (CBSL), Finance Companies are required to transfer 8% of the profits calculated for the payment of Value Added Tax (VAT) on financial services and 5% of the profits before tax calculated for payment of income tax.These funds have to be utilised for granting credit facilities for prescribed purposes or invested in long term government securities/bonds.


Details of investments in government securities and credit facilities granted utilising the proceeds of this fund as at 31.03.2012 are given below.

Instrument Rate of interest Maturity Amount invested (Rs.000)

Treasury bonds 8.50% 01.05.2019 92,449 Treasury bills 9.55% 20.04.2012 83,685

176,134

No.of loans granted Rate of interest Tenure of Amount granted Purpose of the loan (Rs.000) the loan

5 10.65%,11.00% and 04 and 47,358 Factory 12.75% 05 years modernisation

39 Revenue Reserves Group Company 31.03.2012 31.03.2011 31.03.2012 31.03.2011 Rs.’000 Rs.’000 Rs.’000 Rs.’000

General Reserve: Balance at the beginning of the year 7,581,820 6,124,070 7,570,639 6,112,889 Capitalisation of reserves (365,400) - (365,400) - Transfers during the year 1,776,000 1,379,000 1,776,000 1,379,000 Transfer (to)/from provision for loan losses - 78,750 - 78,750 8,992,420 7,581,820 8,981,239 7,570,639 Retained earnings 1,377,420 1,045,290 9,031 9,491 Balance at the end of the year 10,369,840 8,627,110 8,990,270 7,580,130

General reserve represents amounts set aside by the Directors for future expansions, and to meet any contingencies.

40 Secured liabilities Bank and other non-bank borrowings have been secured on the mortgage of specific land and buildings, pledge of specific quoted

company shares and assignment of specific lease receivables/book debts and hypothecation of hire purchase and lease contracts. The carrying value of the assets mortgaged/assigned as security amounted to Rs.9,938 Million as at 31st March 2012 (31st March 2011 - Rs.3,891 Million).

41 Commitments(a) The Company has entered into fixed interest rate SWAP agreements as follows: (1) Date of commencement 06th July 2008 Date of termination 04th July 2013 Notional principal amount Rs.1,000 Million (2) Date of commencement 04th August 2011 Date of termination 04th August 2016 Notional principal amount Rs.200 Million

(b) Capital expenditure Capital expenditure approved by the Board of Directors for which provision has not been made in the financial statements amounts to approximately Rs.30.54 Million for the Company and Rs.36.83 Million for the Group (2010/11- Rs.19.51 Million for the Group and Company).



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43 Contingent liabilities Group Company 31.03.2012 31.03.2011 31.03.2012 31.03.2011 Contingent liabilities as at Rs.’000 Rs.’000 Rs.’000 Rs.’000

Guarantees Issued Fully secured guarantees issued on behalf of depositors 21,140 24,940 21,140 24,940 Performance bonds and warranties in respect of letter of credit facilities 57,926 14,888 57,926 14,888 Corporate guarantee issued on account of Hedges Court Residencies (Pvt) Ltd. - 85,000 - 85,000

79,066 124,828 79,066 124,828

44 Events after the balance sheet date Second interim dividend and proposed final dividend The Directors have recommended the payment of a final dividend of Rs.1.10 per share for the year ended 31st March 2012

(2010/11 – Rs.0.97 per share on enhanced number of shares) which requires the approval of shareholders at the Annual General Meeting to be held on 20th July 2012. In accordance with Sri Lanka Accounting Standards 12 (revised 2005) “Events after the balance sheet date”, this proposed final dividend and the second interim dividend of Rs.0.70 per share paid after the year end have not been recognised as liabilities at the year-end.

As required by section 56 (2) of the Companies Act No.7 of the 2007, the Board of Directors have confirmed that the Company satisfies the solvency test in accordance with Section 57 of the Companies Act No.7 of 2007, and have obtained solvency certificates from the auditor prior to declaring the final dividend of Rs.1.10 per share.

No other circumstances have arisen since the balance sheet date, which would require adjustments to / or disclosure in the financial

statements.

45 Related party disclosures45.1 Parent and ultimate parent The Company does not have a parent of its own. 45.2 Subsidiaries and associates Relationship with subsidiaries and associates are explained on the pages 109 to 112 of the Annual Report. The directors of the Company are also directors of the following subsidiary and associate companies of the Group.

The Company carried out transactions in the ordinary course of business at commercial rates with these related entities.


45.2 Subsidiaries and associates (contd.)

Central Industries PLC - X X X X - - - - - Central Developments Ltd. - - X X - - - - - - Dehigama Hotels Company Ltd. - X X - - - - - - - Expanded Plastic Products Ltd. - - X X - - - - - - Central Mineral Industries (Pvt) Ltd. - - X X - - - - - - Central Transport & Travels Ltd. - - X X - - - - - - Central Construction & Development (Pvt) Ltd. - - X X - - - - - - CF Growth Fund Ltd. - - X - - - - - - - Kandy Private Hospitals Ltd. - X X - - - - - - - CF Insurance Brokers (Pvt) Ltd. - - X X - - - - - - Central Homes (Pvt) Ltd. - - X - - - - - - - Mark Marine Services (Pvt) Ltd. - - - X X - X - - - Hedges Court Residencies (Pvt) Ltd. - - X X - - X - - - Capital Suisse Asia Ltd. - X - - X - - - - - Nations Trust Bank PLC - - - - X - X - - - Tea Smallholder Factories PLC - X - X - - - - - -


45.3 Amounts due from related parties Subsidiaries Loans and advances - - 576,840 986,060 Trade and other receivables - - 29,730 49,623 606,570 1,035,683 Provision for doubtful debts (203,049) (175,697) Net amount due from subsidiary companies 403,521 859,986 Associates Lease and hire purchase receivables - - 48,974 21,386 Key management personnel (KMP) and their close family members Loans and advances 1,801 50,034 1,801 27,538 Other related entities CF employee benefit foundation 314,989 357,640 314,989 357,640 316,790 407,674 769,285 1,266,550 Amount due from KMPs to CF Employee Benefit Foundation 299,665 343,840 299,665 343,840

(Net outstanding balances as at the year end are secured)

Amounts due to related parties Subsidiaries Deposits - - 156,483 200,638 Interest payable on deposits - - 3,330 6,835 Amounts due to subsidiaries - - 224,291 185,210 Associates Bank overdraft 183,685 32,932 183,685 32,932 Key management personnel(KMP) and their close family members Deposits 118,055 198,977 118,055 198,977 Interest payable on deposits 18,873 49,144 18,873 49,144 320,613 281,053 704,717 673,736

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45.4 Transactions with related parties Subsidiaries Collection of insurance premium - - 1,064,659 886,266 Rendering of services - - 96,195 89,369 Loan instalment recoveries - - 409,220 15,000 Rent paid - - 26,779 24,229 Vehicle hire rentals received - - 4,934 5,228 Administrative fees received - - 66 66 Management fees received - - 1,800 1,080 Loans given - - - 121,440 Interest received - - 51,655 51,928 Interest paid on deposits - - 23,066 17,862 Rent received - - 3,654 3,654 Guarantees given - - - 85,000

Associates Interest paid on deposits 9,970 1,471 9,970 1,379 Lease facilities given 27,552 12,790 27,552 12,790 Vehicle hire rentals received 7,823 11,276 7,823 11,276 Lease and hire purchase rentals received 17,848 9,823 17,848 9,823

Key management personnel (KMP) and their close family members Interest paid on deposits 7,554 19,237 7,554 19,237 Loans given 2,470 2,470 - Interest received 272 3 272 3 Recovery of loans 2,438 - 2,438 - Instalment recoveries on purchase of apartments - 23,991 - -

Post employement benefit Contributions to providend fund 16,998 17,803 14,703 15,796 Contributions to gratuity fund 8,031 5,833 5,241 4,408

Compensation of key management personnel Short term employee benefits 130,837 131,516 109,020 114,310

Related parties include key management personnel defined as those persons having authority and responsibility for planning, directing and controlling the activities of the Company. Such KMP’s comprise members of the Board of Directors of the Company and key employees of the Company who are responsible for planning, directing and controlling the operations of the Company.


45.5 Inter subsidiary transactions Hedges Court Residencies (Pvt) Ltd. paid Rs.0.85 Million (2010/11-Rs.9.95 Million) on account of interest expense to the following

subsidiary companies.

2011/12 2010/11 Rs.’000 Rs.’000

Central Homes (Pvt) Ltd. 155 1,132 Kandy Private Hospitals Ltd. 548 5,185 Central Transport & Travels Ltd. - 3,227 Central Developments Ltd. 148 408

Inter- company balances between subsidiaries Due from Due to 31.03.2012 31.03.2011 Rs.’000 Rs.’000

Central Industries PLC Central Transport &Travels Ltd. - 96 Central Mineral Industries (Pvt) Ltd. Central Transport &Travels Ltd. 2,479 2,872 Central Construction & Development (Pvt) Ltd. Central Transport &Travels Ltd. - 250 Central Construction & Development (Pvt) Ltd. Central Mineral Industries (Pvt) Ltd. 8 119 Hedges Court Residencies (Pvt) Ltd. Central Homes (Pvt) Ltd. - 1,218 Hedges Court Residencies (Pvt) Ltd. Kandy Private Hospitals Ltd. - 16,888 Hedges Court Residencies (Pvt) Ltd. Central Transport &Travels Ltd. - 2,197 Hedges Court Residencies (Pvt) Ltd. Central Developments Ltd. - 417 2,487 24,057



Business Segment Information For the year ended 31st March Leasing, hire purchase Vehicle Hire Medical services Power generation Manufacturing Insurance broking Investments in Investments in Real estate Intra segmental Total and other advances Shares and Units securities in excess adjustments of statutory requirementsAll figures in Rs.000 2012 2011 2012 2011 2012 2011 2012 2011 2012 2011 2012 2011 2012 2011 2012 2011 2012 2011 2012 2011 2012 2011

Revenue

Interest income 7,398,582 6,142,634 2,416 4,408 316 323 - - 4,416 616 - - - - - 116,914 1,701 4,586 - - 7,407,431 6,269,481

Other operating income - - 742,798 795,733 52,312 49,240 97,690 166,252 327,648 270,965 159,098 130,833 - - - - - - - - 1,379,546 1,413,023

Other income 263,729 215,881 117,098 107,363 328 406 350 - 4,289 2,530 38,848 43,842 178,514 284,304 - - 65,806 29,397 (195,913) (271,856) 473,049 411,867

Income from external customers 7,662,311 6,358,515 862,312 907,504 52,956 49,969 98,040 166,252 336,353 274,111 197,946 174,675 178,514 284,304 - 116,914 67,507 33,983 (195,913) (271,856) 9,260,026 8,094,371

Inter - segment income 55,309 55,624 4,934 8,555 7,662 11,437 10,171 9,438 32 20 - - 4,480 2,152 - - 30,187 26,848 (112,775) (114,074) - -

Total income 7,717,620 6,414,139 867,246 916,059 60,618 61,406 108,211 175,690 336,385 274,131 197,946 174,675 182,994 286,456 - 116,914 97,694 60,831 (308,688) (385,930) 9,260,026 8,094,371

Expenses

Interest expenses 2,552,648 2,035,141 129,355 139,751 - - - - - - - - 64,046 63,887 - 102,209 9,135 14,275 - - 2,755,184 2,355,263

Other operating and

administrative expenses 2,069,878 1,954,827 440,308 396,905 44,749 39,108 37,930 31,185 184,815 151,329 118,244 104,374 1,172 885 - - 27,329 53,350 - - 2,924,425 2,731,963

4,622,526 3,989,968 569,663 536,656 44,749 39,108 37,930 31,185 184,815 151,329 118,244 104,374 65,218 64,772 - 102,209 36,464 67,625 - - 5,679,609 5,087,226

Inter - segment expenses 56,152 47,937 - - 593 5,040 - - 358 400 27,792 26,453 26,409 23,342 - - 1,471 11,086 (112,775) (114,258) - -

Total expenses 4,678,678 4,037,905 569,663 536,656 45,342 44,148 37,930 31,185 185,173 151,729 146,036 130,827 91,627 88,114 - 102,209 37,935 78,711 (112,775) (114,258) 5,679,609 5,087,226

Segment results 3,038,942 2,376,234 297,583 379,403 15,276 17,258 70,281 144,505 151,212 122,402 51,910 43,848 91,367 198,342 - 14,705 59,759 (17,880) (195,913) (271,672) 3,580,417 3,007,145

Share of profits of associates 465,552 507,781

Profit before VAT on

financial services and income tax 4,045,969 3,514,926

Less:VAT on financial services 155,428 273,333

Profit before income tax 3,890,541 3,241,593

Less:Income tax expenses 1,119,544 1,330,155

Profit after income tax 2,770,997 1,911,438

Minority interest 94,382 84,404

Profit for the year 2,676,615 1,827,034

Segment assets 47,999,724 35,632,838 2,088,086 2,264,380 221,420 226,344 171,252 232,494 1,111,426 963,348 619,165 600,285 913,585 912,524 - - 406,920 962,287 (2,077,882) (2,540,352) 51,453,696 39,254,148

Investments in associate companies 2,104,030 1,908,947

Total assets 47,999,724 35,632,838 2,088,086 2,264,380 221,420 226,344 171,252 232,494 1,111,426 963,348 619,165 600,285 913,585 912,524 - - 406,920 962,287 (2,077,883) (2,540,352) 53,557,725 41,163,095

Segment liabilities 37,224,543 26,576,668 1,526,967 2,135,765 16,981 41,228 9,790 47,450 195,971 130,817 342,666 370,461 977,671 968,502 322,600 965,073 (993,124) (1,517,875) 39,624,065 29,718,089


Business Segment Information For the year ended 31st March Leasing, hire purchase Vehicle Hire Medical services Power generation Manufacturing Insurance broking Investments in Investments in Real estate Intra segmental Total and other advances Shares and Units securities in excess adjustments of statutory requirementsAll figures in Rs.000 2012 2011 2012 2011 2012 2011 2012 2011 2012 2011 2012 2011 2012 2011 2012 2011 2012 2011 2012 2011 2012 2011

Revenue

Interest income 7,398,582 6,142,634 2,416 4,408 316 323 - - 4,416 616 - - - - - 116,914 1,701 4,586 - - 7,407,431 6,269,481

Other operating income - - 742,798 795,733 52,312 49,240 97,690 166,252 327,648 270,965 159,098 130,833 - - - - - - - - 1,379,546 1,413,023

Other income 263,729 215,881 117,098 107,363 328 406 350 - 4,289 2,530 38,848 43,842 178,514 284,304 - - 65,806 29,397 (195,913) (271,856) 473,049 411,867

Income from external customers 7,662,311 6,358,515 862,312 907,504 52,956 49,969 98,040 166,252 336,353 274,111 197,946 174,675 178,514 284,304 - 116,914 67,507 33,983 (195,913) (271,856) 9,260,026 8,094,371

Inter - segment income 55,309 55,624 4,934 8,555 7,662 11,437 10,171 9,438 32 20 - - 4,480 2,152 - - 30,187 26,848 (112,775) (114,074) - -

Total income 7,717,620 6,414,139 867,246 916,059 60,618 61,406 108,211 175,690 336,385 274,131 197,946 174,675 182,994 286,456 - 116,914 97,694 60,831 (308,688) (385,930) 9,260,026 8,094,371

Expenses

Interest expenses 2,552,648 2,035,141 129,355 139,751 - - - - - - - - 64,046 63,887 - 102,209 9,135 14,275 - - 2,755,184 2,355,263

Other operating and

administrative expenses 2,069,878 1,954,827 440,308 396,905 44,749 39,108 37,930 31,185 184,815 151,329 118,244 104,374 1,172 885 - - 27,329 53,350 - - 2,924,425 2,731,963

4,622,526 3,989,968 569,663 536,656 44,749 39,108 37,930 31,185 184,815 151,329 118,244 104,374 65,218 64,772 - 102,209 36,464 67,625 - - 5,679,609 5,087,226

Inter - segment expenses 56,152 47,937 - - 593 5,040 - - 358 400 27,792 26,453 26,409 23,342 - - 1,471 11,086 (112,775) (114,258) - -

Total expenses 4,678,678 4,037,905 569,663 536,656 45,342 44,148 37,930 31,185 185,173 151,729 146,036 130,827 91,627 88,114 - 102,209 37,935 78,711 (112,775) (114,258) 5,679,609 5,087,226

Segment results 3,038,942 2,376,234 297,583 379,403 15,276 17,258 70,281 144,505 151,212 122,402 51,910 43,848 91,367 198,342 - 14,705 59,759 (17,880) (195,913) (271,672) 3,580,417 3,007,145

Share of profits of associates 465,552 507,781

Profit before VAT on

financial services and income tax 4,045,969 3,514,926

Less:VAT on financial services 155,428 273,333

Profit before income tax 3,890,541 3,241,593

Less:Income tax expenses 1,119,544 1,330,155

Profit after income tax 2,770,997 1,911,438

Minority interest 94,382 84,404

Profit for the year 2,676,615 1,827,034

Segment assets 47,999,724 35,632,838 2,088,086 2,264,380 221,420 226,344 171,252 232,494 1,111,426 963,348 619,165 600,285 913,585 912,524 - - 406,920 962,287 (2,077,882) (2,540,352) 51,453,696 39,254,148

Investments in associate companies 2,104,030 1,908,947

Total assets 47,999,724 35,632,838 2,088,086 2,264,380 221,420 226,344 171,252 232,494 1,111,426 963,348 619,165 600,285 913,585 912,524 - - 406,920 962,287 (2,077,883) (2,540,352) 53,557,725 41,163,095

Segment liabilities 37,224,543 26,576,668 1,526,967 2,135,765 16,981 41,228 9,790 47,450 195,971 130,817 342,666 370,461 977,671 968,502 322,600 965,073 (993,124) (1,517,875) 39,624,065 29,718,089


Directors’ Interest in Contracts with the Company Directors’ interests in contracts with the Company Transactions with related parties as required by the Sri Lanka Accounting Standards No.30 on Related Party Disclosures (Revised 2005)

are detailed in Note 45 to the financial statements. In addition, the Company carried out transactions in the ordinary course of business on an arm’s length basis with entities where a director of the Company is also a director of such entities as detailed below:

Name of Director Company Relationship Nature of transaction Rentals received Balance outstanding2011/12 2010/11 31.03.2012 31.03.2011

Rs.000 Rs.000 Rs.000 Rs.000

T. K. Bandaranayake Laugfs Gas PLC Director Finance lease facility 522 697 - 522

J.D. Bandaranayake Finlays Colombo PLC Director Hire of vehicles 2,994 *N/A - *N/A C.L.K.P. Jayasuriya Chairman

C.L.K.P. Jayasuriya Hapugastenna Plantations PLC Director Hire of vehicles 16,069 *N/A 11 *N/A James Finlay Plantations

Holdings (Pvt) Ltd. Chairman Hire of vehicles 359 *N/A - *N/A Udupussellawa Plantations PLC Director Hire of vehicles 4,036 *N/A - *N/A Ceylon Chamber of Commerce Committee

Member Hire of vehicles 2,204 *N/A 130 *N/A Finlays Rentokil Ceylon (Pvt) Ltd. Chairman Finance lease facility 735 *N/A 955 *N/A Acme Printing & Packaging PLC Director Finance lease facility 754 *N/A 756 *N/A

* Name of Director Date of appointment J.D. Bandaranayake 01.01.2012

C.L.K.P. Jayasuriya 01.07.2011


Group Companies Group Companies

Subsidiaries

Central Industries PLC Central Developments Ltd Central Transport and Central Construction and Travels Ltd Development (Pvt) Ltd

Year of incorporation 1984 1974 1990 1983

Stated Capital Rs.121,320,460 Rs.132,940,000 Rs.29,490,070 Rs.50,000

(9,884,214 Shares) (13,294,000 Shares) (2,949,007 Shares) (5,000 Shares)

Group Holding 49.98% 99.99% 99.99% 99.90%

Status of the Company Quoted Unquoted Unquoted Unquoted

Principal Activities Manufacture and distribution Investment company Hiring of vehicles Investment company

of PVC pipes and fittings

Registered Office No. 312, Nawala Road, No. 270, Vauxhall Street, No. 84, Raja Veediya, No. 84, Raja Veediya,

Rajagiriya Colombo 02 Kandy Kandy

S.V. Wanigasekera S.V. Wanigasekera G.S.N. Peiris G.S.N. Peiris

E.H. Wijenaike C. Kiriella R.E. Rambukwelle R.E. Rambukwelle

A.N.P. Wickramasuriya G.S.N. Peiris U.B. Elangasinha U.B. Elangasinha

G.S.N. Peiris R.E. Rambukwelle

C.S.W. De Costa U.B. Elangasinha

R.E. Rambukwelle

A.K. Gunaratne

N.J. Abeysekera

Company Secretary Corporate Services (Pvt) Ltd. Kandy Business Kandy Business Kandy Business

216, De Saram place, Consultants (Pvt) Ltd. Consultants (Pvt) Ltd. Consultants (Pvt) Ltd.

Colombo 10 80, Kings Street, Kandy 80, Kings Street, Kandy 80, Kings Street, Kandy

COM

PAN

Y PR

OFI

LEBO

ARD

OF

DIR

ECTO

RS


Group Companies (contd.)

Group Companies

Subsidiaries

Central Mineral Central Homes ( Pvt ) Ltd CF Growth Fund Ltd CF Insurance Industries (Pvt) Ltd Brokers ( Pvt ) Ltd


Stated Capital Rs.3,500,000 Rs.34,175,020 Rs.163,036,780 Rs.123,750,000

(350,000 Shares) (3,417,502 Shares) (16,303,678 Shares) (12,375,000 Shares)

Group Holding 99.99% 99.99% 99.99% 99.99%

Status of the Company Unquoted Unquoted Unquoted Unquoted

Principal Activities Manufacture of mineral Property development and Investment company Insurance broking

products sale of real estate

Registered Office Diganatenna Estate, No. 270, Vauxhall Street, No. 270, Vauxhall Street, No. 270, Vauxhall Street,

Gonawala, Digana Colombo 02 Colombo 02 Colombo 02

G.S.N. Peiris G.S.N. Peiris S.V. Wanigasekera S.V. Wanigasekera

U.B. Elangasinha C. Kiriella G.S.N. Peiris M.S. Wijenaike

R.E. Rambukwelle R.E. Rambukwelle A.K. Gunaratne

D.P. de Silva G.S.N. Peiris

C. Kiriella

R.E. Rambukwelle

D.P. de Silva

Company Secretary Kandy Business Kandy Business Kandy Business Kandy Business

Consultants (Pvt) Ltd. Consultants (Pvt) Ltd. Consultants (Pvt) Ltd. Consultants (Pvt) Ltd.

80, Kings Street, Kandy 80, Kings Street, Kandy 80, Kings Street, Kandy 80, Kings Street, Kandy

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Group Companies

Subsidiaries

Dehigama Hotels Expanded Plastic Hedges Court Kandy Private Hospitals Ltd Company Ltd Products Ltd Residencies (Pvt) Ltd


Stated Capital Rs.8,280,700 Rs.64,000,000 Rs.50,000,000 Rs.6,084,750

(828,070 Shares) (6,400,000 Shares) (5,000,000 Shares) (550,500 Shares)

Group Holding 79.69% 99.99% 99.99% 66.35%

Status of the Company Unquoted Unquoted Unquoted Unquoted

Principal Activities Renting of commercial Investment company Construction and sale Provision of healthcare services

property of apartments

Registered Office No. 84, Raja Veediya, No. 270, Vauxhall Street, No. 270, Vauxhall Street, No. 255/8, Katugastota Road,

Kandy Colombo 02 Colombo 02 Kandy

E.H. Wijenaike G.S.N. Peiris S.V. Wanigasekera E.H. Wijenaike

G.S.N. Peiris R.E. Rambukwelle G.S.N. Peiris G.S.N. Peiris

C. Kiriella U.B. Elangasinha C. Kiriella S. Ranasinghe

C.D. Paranagama R.E. Rambukwelle S. Kapuwatte

L. Sirimanne D.P. de Silva A.P.R. Aluwihare

A. Jayasinghe N.H.B. Mavilmada

(Alternate to C.D. Paranagama)

H.C.D. Divitotawela A.B. Abeysinghe

(Alternate to L. Sirimanne)

Company Secretary Corporate Services (Pvt) Ltd. Kandy Business Managers & Kandy Business

216, De Saram place, Consultants (Pvt) Ltd. Secretaries (Pvt) Ltd. Consultants (Pvt) Ltd.

Colombo 10 80, Kings Street, Kandy 08, Tickell Road, Colombo 08 80, Kings Street, Kandy

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Group Companies (contd.)

Group Companies Group Companies

Subsidiaries Associates

Mark Marine Capital Suisse Asia Ltd. Nations Trust Bank PLC Tea Smallholder Factories PLC Services (Pvt) Ltd


Stated Capital Rs.85,611,980 Rs.181,000,070 Rs.5,101,369,000 Rs.150,000,000

(8,561,198 Shares) (18,100,007 Shares) (230,607,283 Shares) (30,000,000 Shares)

Group Holding 58.12% 24.58% 20.00% 29.30%

Status of the Company Unquoted Unquoted Quoted Quoted

Principal Activities Hydro power generation Provision of management Commercial, Investment, Processing tea from green leaf

services and private banking purchased from small holders

Registered Office No. 4, Circular Lane, No. 244, Vauxhall Street, No. 242, Union Place, No. 320/1, Union Place,

Sapumal Place, Rajagiriya Colombo 02 Colombo 02 Colombo 02

A.A.A. Makalanda A.K. Gunaratne J.R.F. Peiris S.C. Ratnayake

G.C.J. Makalanda E.H. Wijenaike S.G. Rajakaruna A.D. Gunewardene

A.K. Gunaratne M.S. Wijenaike A.K. Gunaratne J.R.F. Peiris

R.E. Rambukwelle S.T. Amarasuriya K.N.J. Balendra E.H. Wijenaike

U.B. Elangasinha P. Bottinelli M.E. Wickremesinghe R.E. Rambukwelle

D.P. de Silva G.N. Fernando A.R. Rasiah A.S. Jayathilleke

S.P.P. Makalanda N. Amarasuriya D. Weerakoon J.S. Ratwatte

(Alternate to A.A.A. Makalanda)

A.F. Goonetillake M. Jafferjee R. Seevaratnam

(Alternate to U.B. Elangasinha)

K. De Soysa R.S. Fernando

N.S. Panditaratne

D.P. de Silva

C.H.S.K. Piyaratna

Company Secretary Management B.P. De Silva (Ceylon) Ltd. Theja Silva Keells Consultants Limited.

Applications (Pvt) Ltd. 234/4, Old Awissawella 130, Glennie Street,

12, Rotunda Gardens, Road, Orugodawatta Colombo 02

Colombo 03

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Group Value Added Statement For the year ended 31st March 2012 % 2011 % Rs.’000 Rs.’000

Value Added Operating Income earned by providing financial services 8,786,977 7,682,504 Cost of services (3,867,184) (3,395,759) Value added by financial services 4,919,793 4,286,745 Other Income 473,049 411,867 Provision for losses on loans, advances and assets (127,255) (186,822) Share of Associate companies’ profits before tax 465,552 507,781 5,731,139 5,019,571

Value Allocated To employees remuneration 1,133,591 19.78 1,007,248 20.07 To providers of capital Dividends to shareholders 235,818 4.11 147,175 2.93 Minority interest 94,382 1.65 84,404 1.68 To government revenue Income tax 1,119,544 19.53 1,330,155 26.49 Turnover tax and Debits tax 1,439 0.03 4,349 0.09 VAT on financial services 155,428 2.71 273,333 5.45

To expansion and growth Retained income 2,440,797 42.59 1,679,632 33.47 Depreciation 550,140 9.60 493,275 9.82

5,731,139 100.00 5,019,571 100.00

Consolidated sources & utilisation of income For the year ended 31st March 2012 % 2011 % Rs.’000 Rs.’000

Sources of income Interest and operating income 8,786,977 90.35 7,682,504 89.31 Other Income 473,049 4.86 411,867 4.79 Share of associate companies’ profits before tax 465,552 4.79 507,781 5.90

9,725,578 100.00 8,602,152 100.00

Utilisation of income Interst expenses 2,755,184 28.33 2,355,263 27.38 Remuneration to employees 1,133,591 11.66 1,007,248 11.71 Other operating expenses including provision for loan losses, diminition in value of investments and depreciation 1,789,395 18.40 1,720,366 20.00 Taxation 1,276,411 13.12 1,607,837 18.69 Dividends to shareholders 235,818 2.42 147,175 1.71 Retained income 2,440,797 25.10 1,679,859 19.53 Minority interest 94,382 0.97 84,404 0.98 9,725,578 100.00 8,602,152 100.00


Share Information 1. Stock Exchange The Ordinary Shares of the Company are listed on the Colombo Stock Exchange.

The audited Income Statement for the year ended 31st March 2012 and the audited Balance Sheet of the Company and of the Group as at that date have been submitted to the Colombo Stock Exchange within three months of the Balance Sheet date.

2. Ordinary Shareholders as at 31st March 2012 - 2,823 (Stated capital of the Company solely represents voting ordinary shares).

Number of share holders as at 31.03.2011 – 2,516 No. of shares held Residents Non-residents Total No.of No.of % No.of No.of % No.of No.of % share shares share shares share shares holders holders holders

1 - 1,000 1,248 337,643 0.32 15 5,858 0.01 1,263 343,501 0.33 1,001 - 5,000 660 1,484,528 1.42 19 54,106 0.05 679 1,538,634 1.47 5,001 - 10,000 356 2,302,091 2.19 4 28,583 0.03 360 2,330,674 2.22 10,001 - 50,000 336 6,731,310 6.42 13 308,144 0.29 349 7,039,454 6.71 50,001 - 100,000 70 4,764,886 4.54 4 293,844 0.28 74 5,058,730 4.82 100,001 - 500,000 67 12,779,371 12.18 7 1,541,221 1.47 74 14,320,592 13.65 500,001 - 1,000,000 8 5,980,904 5.70 1 749,295 0.71 9 6,730,199 6.42 Over 1,000,000 13 65,164,702 62.13 2 2,356,847 2.25 15 67,521,549 64.38 Total 2,758 99,545,435 94.91 65 5,337,898 5.09 2,823 104,883,333 100.00

There were 2,459 resident and 57 non-resident share holders as at 31st March 2011.

31st March 2012 31st March 2011 No of No of % No of No of % Share shares share shares holders holders

Individuals 2,595 57,347,221 54.68 2,310 11,786,921 58.06

Institutions 228 47,536,112 45.32 206 8,513,079 41.94 Total 2,823 104,883,333 100.00 2,516 20,300,000 100.00

As per Rule No.7.6 (iv) of the Colombo Stock Exchange, the percentage of public holding as at 31st March 2012 was 59.02 (31st March 2011 – 58.03%).

** Company’s ordinary shares were increased by subdividing each existing share into 5 shares in September 2011. Subsequent to the subdivision, reserves amounting to Rs. 365.4 Million were also capitalised at the rate of Rs.108/- per share through the issue of bonus shares in the proportion of 01 share for 30 shares. As a result, the number of shares increased to 104,883,333.

* Net asset & Market value per share of the previous periods were not adjusted in line with the increase in shareholdings referred above.

0

200

400

600

800

1,000

1,200

1,400

Net Asset Value per share and Market Value per share (Rs.)

Net Asset Value per shareMarket Value per share

Financial Year07/08 08/09 09/10 10/11 11/12

0

5

10

15

20

25

30

Shareholders’ Funds and Market Capitalisation. (Rs.Mn.)

Shareholders' FundsMarket Capitalisation

Financial Year07/08 08/09 09/10 10/11 11/12

Mill

ion


3. Twenty largest shareholders as at 31st March 2012 31st March 2012 * 31st March 2011 No. of shares % No. of shares %

1. Corporate Services (Pvt) Ltd. 18,293,420 17.44 3,540,737 17.44 2. E.H. Wijenaike 16,164,123 15.41 3,128,540 15.413. Perpetual Capital (Pvt) Limited 9,854,740 9.40 1,860,100 9.16 4. Employees Provident Fund 6,194,693 5.91 - -5. A.J. Wijenaike 3,271,357 3.12 633,166 3.126. N.W. Wijegoonawardene 2,162,353 2.06 418,520 2.067. G.S.N. Peiris 1,828,168 1.74 352,446 1.748. J.B. Cocoshell (Pvt) Ltd. 1,749,483 1.67 476,466 2.359. C.R. Dunuwille 1,348,582 1.29 236,316 1.1610. N.M. Gunawardana 1,300,346 1.24 251,680 1.2411. P.R. Munasinha 1,226,980 1.17 237,480 1.1712. Thurston Investments Limited 1,056,501 1.01 - -13. S.V. Wanigasekera 1,053,136 1.00 203,833 1.0014. P.M. Wijenaike 1,016,180 0.97 196,680 0.9715. Employees Trust Fund Board 1,001,487 0.95 49,233 0.2416. R.E. Rambukwelle 984,906 0.94 190,000 0.9417. C. Kirielle 967,881 0.92 187,332 0.9218. S.K. Wedande 852,329 0.81 198,467 0.9819. A.K. Gunaratne 835,274 0.81 161,666 0.8020. N.M. Wahab 749,295 0.71 145,025 0.71 71,911,234 68.56 12,467,687 61.42 Others 32,972,099 31.44 7,832,313 38.58 Total 104,883,333 100.00 20,300,000 100.00 * Comparative shareholdings as at 31st March 2011 of the twenty largest shareholders as at 31st March 2012.

4. Market Value The market value of Central Finance Company PLC Ordinary shares.

2011/12 2010/11 2009/10 Rs. Rs. Rs. Highest 1895.00 (on 25.05.2011) 1,300.00 (on 23.03.2011) 410.00 (on 13.01.2010) Lowest 149.00 (on 15.02.2012) 388.75 (on 24.05.2010) 158.00 (on 11.05.2009) Year End 171.30 1,273.70 90.00

5. Dividend Payments 2011/12 2010/11 Rs. Rs. First Interim 0.70 0.49 Second Interim 0.70 0.58 Final 1.10 0.97 Total Dividend 2.50 2.04

6. Share Trading 2011/12 2010/11 2009/10 No. of shares traded 7,943,223 8,709,000 2,002,900 Value of shares traded (Rs.’000) 7,373,614 6,866,551 597,524 Market Capitalisation (Rs.’000) 17,966,515 25,856,110 7,917,000


Year ended 31st March 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000

Group income 2,574,382 3,035,435 2,092,281 4,195,574 5,332,059 6,453,132 7,405,866 7,536,516 8,094,371 9,260,026

Interest Income 1,820,790 2,095,301 2,208,204 2,704,715 3,651,989 4,662,008 5,520,829 5,723,338 6,269,481 7,407,431

Other operating Income 360,030 526,232 802,533 1,265,417 1,477,626 1,615,909 1,638,866 1,470,952 1,413,023 1,379,546

Other Income 393,562 413,902 81,544 225,442 202,444 175,215 246,171 342,226 411,867 473,049

Interest Expenses

Interest on deposits (1,026,175) (1,045,773) (966,721) (1,063,482) (1,315,954) (1,751,728) (2,212,756) (2,561,737) (2,072,875) (2,142,449)

Interest on bank and other borrowings (102,335) (81,153) (101,024) (274,835) (538,298) (913,129) (1,001,190) (497,008) (282,388) (612,735)

Operating expenses (696,595) (693,304) (814,469) (1,447,632) (1,832,297) (2,008,313) (2,234,224) (2,335,775) (2,545,141) (2,797,170)

Loan losses and provision (161,543) (379,988) (224,031) (27,642) (48,357) (124,399) (220,189) (299,479) (186,822) (127,255)

Share of profit of associates 29,103 70,489 69,865 85,909 102,150 168,434 163,953 383,868 507,781 465,552

VAT on financial services - - - - (115,246) (107,803) (159,080) (200,851) (273,333) (155,428)

Profit before income tax 616,837 905,706 1,055,901 1,467,892 1,584,057 1,716,194 1,742,380 2,025,534 3,241,593 3,890,541

Income tax expense (22,141) (42,854) (284,149) (377,197) (419,634) (456,608) (561,336) (900,699) (1,330,155) (1,119,544)

Net profit for the year 594,696 862,852 771,752 1,090,695 1,164,423 1,259,586 1,181,044 1,124,835 1,911,438 2,770,997

Attributable to equity holders of the parent 566,295 822,266 722,636 1,042,400 1,122,237 1,210,711 1,126,985 1,046,112 1,827,034 2,676,615

Attributable to Minority interest 28,401 40,586 49,116 48,295 42,186 48,875 54,059 78,723 84,404 94,382

Balance Sheet

Share capital 121,800 121,800 203,000 203,000 203,020 203,020 203,020 203,020 203,020 568,420

Capital reserves 757,511 732,895 728,514 725,677 1,308,366 1,326,647 1,382,664 1,377,177 1,385,463 1,384,240

Reserve fund 274,500 313,500 349,500 395,500 448,500 501,000 553,500 601,000 682,000 800,000

Unrealised income reserve 294,000 103,000 103,000 53,000 53,000 - - - - -

Investment fund - - - - - - - - - 223,492

Revenue reserves 1,381,365 2,162,643 2,118,195 3,038,516 4,040,699 5,107,037 6,053,306 6,945,757 8,627,110 10,369,840

Shareholders’ funds 2,829,176 3,433,838 3,502,209 4,415,693 6,053,585 7,137,704 8,192,490 9,126,954 10,897,593 13,345,992

Minority interest 273,780 252,314 306,069 302,166 320,779 350,818 459,454 506,506 547,413 587,668

3,102,956 3,686,152 3,808,278 4,717,859 6,374,364 7,488,522 8,651,944 9,633,460 11,445,006 13,933,660

Decade at a Glance


Year ended 31st March 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000 Rs.’000

Assets

Cash and other liquid assets 1,448,803 1,715,819 1,660,394 1,803,290 1,996,020 2,108,534 2,822,987 3,727,366 2,395,074 3,424,740

Dealing securities 19,830 21 61,296 8,208 7,322 8,168 7,444 2,200 32,000 24,560

Investment securities 199,156 69,652 72,746 8,219 8,319 7,949 10,338 121,176 180,331 180,331

Investments in associates 601,433 524,020 519,130 767,637 862,149 1,209,943 1,224,834 1,584,724 1,908,947 2,104,030

Advances to customers 7,223,095 9,406,020 12,859,872 14,143,703 18,704,532 20,768,506 21,353,518 21,733,403 28,659,973 40,602,785

Other assets 2,394,390 2,242,096 715,832 1,888,578 2,425,317 2,892,999 3,490,477 3,675,363 3,127,139 2,439,803

Property, plant and equipment 1,646,372 1,678,866 1,733,342 4,357,335 5,490,668 5,453,522 5,137,289 4,633,049 4,859,631 4,781,476

Total Assets 13,533,079 15,636,494 17,622,612 22,976,970 29,494,327 32,449,621 34,046,887 35,477,281 41,163,095 53,557,725

Liabilities

Deposits 8,112,617 9,433,518 9,614,073 10,406,456 11,765,897 12,172,031 13,354,133 17,233,458 18,757,201 21,428,425

Bank and other borrowings 794,679 715,316 1,227,910 3,854,109 6,299,135 6,963,437 5,866,646 1,756,655 2,832,760 7,589,307

Other liabilities 1,522,827 1,801,508 2,972,351 3,998,546 5,054,931 5,825,631 6,174,164 6,853,708 8,128,128 10,606,333

Total Liabilities 10,430,123 11,950,342 13,814,334 18,259,111 23,119,963 24,961,099 25,394,943 25,843,821 29,718,089 39,624,065

Key Indicators

Earnings per share (Rs.) 27.90 40.51 35.60 51.35 55.28 59.64 55.52 51.53 17.42 25.52

Net assets per share (Rs.) 142.32 172.11 175.48 220.48 298.21 351.61 403.57 449.60 103.90 127.25

Gross dividends paid (Rs.’000) 36,540 48,720 57,855 71,050 91,350 91,350 101,500 121,800 213,150 262,208

Dividend cover (times covered) 15.5 16.88 12.49 14.67 12.28 13.25 11.10 7.72 7.55 10.38

Market price per share (Rs.) 100.00 224.50 143.75 205.00 236.00 200.00 157.00 390.00 1,273.70 171.30

Normalised market value per share (Rs.) * 60.00 134.70 143.75 205.00 236.00 200.00 157.00 390.00 246.84 171.30

Price earnings ratio 2.15 3.33 4.04 3.99 4.27 3.35 2.83 7.57 14.17 6.71

Market value of previous period has been adjusted in line with changes in stated capital subsequent to the subdivision & issue of bonus shares in September 2011.


Income Statement in US Dollars Group CompanyFor the year ended 31st March 2012 2011 2012 2011

US$ 000 US$ 000 US$ 000 US$ 000

Income 72,429 73,279 68,341 69,230

Interest income 57,938 56,758 58,305 57,219

Less: Interest expenses 21,550 21,322 21,731 21,484

Net interest income 36,388 35,436 36,575 35,735

Other operating income 10,790 12,792 5,813 7,208

Other income 3,700 3,729 4,222 4,803

50,879 51,956 46,610 47,746

Less: Operating expenses

Personnel expenses 8,028 8,294 6,603 6,863

Premises, equipment and establishment expenses 9,946 10,710 9,180 10,124

Employee retirement benefit expenses 838 825 731 719

Other expenses 3,066 3,213 2,417 2,271

21,879 23,041 18,931 19,977

Profit before loan losses and provisions 29,000 28,915 27,679 27,770

Less: Loan losses and provisions 995 1,691 992 1,686

28,005 27,224 26,688 26,084

Share of profit of associates 3,641 4,597 - -

Profit before VAT on financial services and income tax 31,646 31,821 26,688 26,084

Less: VAT on financial services 1,216 2,474 1,216 2,474

Profit before income tax 30,431 29,346 25,472 23,609

Less: Income tax expense 8,757 12,042 7,127 9,033

Profit after income tax 21,674 17,304 18,345 14,577

Attributable to equity holders of the parent 20,936 16,540 18,345 14,577

Attributable to minority interest 738 764 - -

Net profit for the year 21,674 17,304 18,345 14,577

Basic and diluted earnings per share - US$ 0.20 0.16

Exchange rate of US$ 1 was Rs.127.85 as at 31st March 2012 (Rs.110.46 as at 31st March 2011)

The income statement given on this page is solely for the convenience of the shareholders, bankers, investors, customers and other users of financial statements and do not form part of the audited financial statements.


Balance Sheet in US Dollars Group CompanyAs at 31st March 31.03.2012 31.03.2011 31.03.2012 31.03.2011 US$ 000 US$ 000 US$ 000 US$ 000

ASSETSCash in hand and at banks 2,788 3,129 2,405 2,473 Investments in government securities 12,266 17,693 12,266 17,693 Deposits with banks 11,732 860 11,732 860 Dealing securities 192 290 192 290 Tax receivables 265 26 - - Inventories and other stocks 6,430 6,047 4,345 3,920 Investment securities 1,410 1,633 1,361 1,575 Net investment in leases 179,052 146,127 179,052 146,127 Corporate debt securities 1,422 2,837 1,422 2,837 Loans and advances 138,529 113,333 142,969 122,183 Trade and other receivables 9,821 13,444 6,412 10,018 Investments in real estate 701 5,379 566 976 Investments in associates 16,457 17,282 4,094 4,739 Investments in subsidiaries - - 2,448 2,833 Other assets 143 75 143 75 Deferred tax asset 1 81 - - Intangible assets 300 421 282 398 Property, plant and equipment 37,399 43,994 30,512 36,435

Total assets 418,911 372,652 400,203 353,433

LIABILITIESBank overdrafts 13,389 4,580 13,200 4,548 Tax payable 873 2,931 870 2,498 Commercial paper 3,133 - 3,133 - Trade and other payables 61,901 51,924 60,245 49,684 Amounts due to subsidiaries - - 1,754 1,677 Deposits 167,606 169,810 168,830 171,626 Bank loans 31,817 8,928 31,437 8,158 Non-bank loans 14,156 12,137 14,156 12,137 Debentures 1,955 3,621 1,955 3,621 Retirement benefit obligations 3,755 3,657 3,205 3,127 Deferred tax liability 11,342 11,450 11,040 10,857

Total liabilities 309,926 269,039 309,825 267,934

SHAREHOLDERS’ FUNDSStated capital 4,446 1,838 4,446 1,838 Capital reserves 10,827 12,543 7,607 8,864 Reserve fund 6,257 6,174 6,257 6,174 Investment fund 1,748 - 1,748 - Revenue reserves 81,109 78,102 70,319 68,623

Funds attributable to equity holders of the parent 104,388 98,656 90,378 85,499 Minority interest 4,597 4,956 - -

108,984 103,612 90,378 85,499

Total liabilities, shareholders’ funds and minority interest 418,911 372,652 400,203 353,433

Net assets per share - US$. 1.00 0.94 0.86 0.82

Exchange rate of US$ 1 was Rs.127.85 as at 31st March 2012 (Rs.110.46 as at 31st March 2011)

The balance sheet given on this page is solely for the convenience of the shareholders, bankers, investors, customers and other users of financial statements and do not form part of the audited financial statements.


Employees of the Year

Head Office 2011/12

December Mrs. Harshanee Athauda

August Mr. Sarath Wijenayake

April Mr. Harsha Dasanayake

January Mrs. R.A.A. Chandrakanthi

September Mr. Prasad Weerasekara

May Mr. Amila Wijesena

February Miss. Chandrika Siriwardana

October Mr. Thusitha Abeysinghe

June Mrs. Thushari Kumarasinghe

March Mr. Keerthi Liyanagedara

November Mr. A.M.A. Nissanka

July Mr. V. G. S. Niroshan


City Office 2011/12

December Mr. K. A. S. T. Gunadasa

August Mr. I.H. Ranjith

April Mr. S. C. Weerasekera

January Mr. S. W. P. C. Fernando

September Ms. D. G. Gunasinghe

May Ms. K. A. R. W Rupasinghe

February Mrs. M.R. Deepani

October Ms. M. M. H. Kandamby

June Ms. R. K. Senanayake

March Mr. K.K. G. D. I. Wijethilake

November Mr. U.D. N. Ukwatta

July Mr. M. K. M. Muhandiramge


Employees of the Year (contd.)

Branches 2011/12

December Mr. K.G.S. Madushan

Kantale

August Ms. I. M. Ariyatunga

Vavuniya

April Ms. Inoka Hettiarachchi

Kantale

January Mr. R. M. E.R Ratnayake

Kuliyapitiya

September Ms. Purnima Panditharatne

Negombo

May Ms. D. W. Nishadini Ruwangika

Gampaha

February Mr. Lalinda Rupasinghe

Hanwella

October Ms. I.K.R. Priyanthi

Homagama

June Mr. L.M.N. Silva

Matugama

March Mr. A.S. Maduwage

Ambalangoda

November Mr. Viraj Jayasekera

Avissawella

July Mr. H. H. I. Nalin Silva

Bandarawela


Accrual basis - the system of

accounting wherein revenue is recognised

at the time it is earned and expenses at

the time they are incurred, regardless of

whether cash has actually been received or

paid out.

Associate company - an associate

is an entity, including an unincorporated

entity such as a partnership, over which the

investor has significant influence and that

is neither a subsidiary nor an interest in a

joint venture.

Cash equivalents - short-term,

highly liquid investments that are readily

convertible to known amounts of cash and

which are subject to an insignificant risk of

changes in value.

Consolidated financial statements - financial statement of a holding company

and its subsidiaries based on their combined

assets, liabilities and operating results.

Contingencies - a condition or situation

existing at the balance sheet date where

the outcome will be confirmed only by the

occurrence or non-occurrence of one or

more future events.

Corporate governance - process by

which corporate entities are governed to

promote stakeholder interest. Shareholders

exert collective pressure on management

to ensure equitable decision making on

matters that may affect the value of their

holdings and base their response on

statutory requirements or on so called

“Best Practice”.

Dealing securities - marketable

securities that are acquired and held with

the intention of reselling them in the short

term.

Dividend cover - profit attributable to

ordinary shareholders divided by gross

dividends to ordinary shares; this indicates

number of times dividend is covered by

current year’s distributable profits.

Dividend per share - value of the total

dividend paid out and proposed to ordinary

shareholders divided by the number of

ordinary shares in issue; this indicates

the proportion of current year’s dividend

attributable to an ordinary share in issue.

Earnings per share (EPS) - profit

attributable to ordinary shareholders

divided by the number of ordinary shares

in issue; this indicates the proportion of

current year’s earnings attributable to an

ordinary share in issue.

Equity method - a method of

accounting whereby the investment is

initially recognised at cost and adjusted

thereafter for the post-acquisition change

in the investor’s share of net assets of the

investee. The profit or loss of the investor

includes the investor’s share of the profit or

loss of the investee.

Finance lease - a lease that transfers

substantially all the risks and rewards

incidental to the ownership of an asset to

the lessee. Title may or may not eventually

be transferred.

Gross dividend - the proportion of

profit distributed to shareholders including

the tax withheld.

Hire purchase - a contract between

hirer and financier where the hirer takes on

hire a particular article from the financier,

with the option to purchase the article

at the conclusion of the agreed rental

payments.

Interest cover - earnings before interest

and tax divided by interest expenses; this

indicates the ability to cover or service

interest charges of the debt holders.

Interest in suspense - interest

suspended on non-performing loans and

advances.

Interest rate SWAP - an interest rate

SWAP is a contract, whereby two parties

agree to exchange a set of interest cash

flows based on a notional principle on

pre-arranged dates. Normally fixed rate is

exchanged for a floating rate.

Lease - an agreement whereby the

lessor conveys to the lessee in return for a

payment or series of payments the right to

use an asset for an agreed period of time.

Market capitalisation - number of

ordinary shares in issue multiplied by

market value of a share and indicates total

market value of all ordinary shares in issue.

Minority interest - portion of the profit

or loss and net assets of a subsidiary

attributable to equity interests that are

not owned, directly or indirectly through

subsidiaries, by the parent.

Net asset value per ordinary share - ordinary shareholders’ funds divided by

the number of ordinary shares in issue.

Non-performing advances - loans

and advances of which rentals are in

arrears for six months or more.

Operating lease - an operating lease is

a lease other than a finance lease.

Provision - amounts set aside against

possible losses on net receivable of facilities

Glossary of Financial Terms


granted to customers as a result of their

becoming partly or wholly uncollectible.

Related parties - parties are considered

to be related if one party has the ability

to control the other party or exercise

significant influence over the other party in

making financial and operating decisions.

Related party transactions - is a

transfer of resources, services or obligations

between related parties, regardless of

whether a price is charged or not.

Return on average assets (ROA) - profit after tax expressed as a percentage of

average total assets.

Return on average equity (ROE) - profit after tax less preference share

dividends if any, expressed as a percentage

of average ordinary shareholders’ equity.

Segmental Analysis - analysis of

financial information by segments of

an enterprise specifically the different

industries and the different geographical

areas in which it operates.

Shareholders’ funds (Equity) - total

of issued and fully paid ordinary share

capital and capital and revenue reserves

attributable to ordinary shareholders.

Subsidiary company - an entity,

including an unincorporated entity such

as a partnership, which is controlled by

another entity, known as the parent.

Substance over form - the

consideration that the accounting

treatment and the presentation in financial

statements of transactions and the events

are governed by their financial reality and

not merely by its legal form.

Tier I capital - core capital representing

permanent share holders’ equity

and reserves created or increased by

appropriations of retained earnings or other

surpluses.

Tier II capital - supplementary capital

representing revaluation reserves, general

provisions and other capital instruments,

which combine certain characteristics of

equity and debts, such as, hybrid capital

instruments and unsecured subordinate

term debts.

Glossary of Financial Terms (contd.)


Notice is hereby given that the Fifty Fourth Annual General Meeting of Central Finance Company PLC will be held at the Registered Office of

the Company, 84, Raja Veediya, Kandy on 20th day of July 2012 at 11.00 a.m. for the following purposes.

1. To receive and consider the Annual Report of the Board together with the Financial Statements of the Company for the year ended

31st March 2012 and Report of the Auditor thereon.

2. To approve a final dividend of Rs.1.10 per share as authorised by the Directors.

3. To re-elect as a Director S.C.S. Wickramasinghe who retires by rotation in terms of Article 105 of the Articles of Association of the

Company.

4. To re-elect J.D. Bandaranayake a Director who retires in terms of Article 111 of the Articles of Association of the Company, and being

eligible has offered himself for re-election.

5. To re-elect F. Mohideen a Director who retires in terms of Article 111 of the Articles of Association of the Company, and being eligible

has offered himself for re-election.

6. To re-appoint SJMS Associates, Chartered Accountants, as Auditor of the Company, to hold office until the conclusion of the next

Annual General Meeting of the Company at a remuneration to be agreed with by the Board of Directors and to audit the Financial

Statements of the Company for the accounting period ending 31st March 2013.

7. To consider, and if thought fit, pass the following resolution as a Special Resolution.

Special Resolution

“183 The Company may effect insurance for a Director or employee of the Company to the extent permitted by law, with the prior

approval of the Board.

For the purposes of this Article, the term ‘Director” includes a former Director and the term ‘employee’ includes a former employee

to the extent that the insurance or indemnity is provided in relation to any act or omission done in his/her capacity as a Director or

employee and is not in relation to any criminal liability”.

8. To authorise the Directors to determine contributions to charities for the ensuing year.

By Order of the Board,

Central Finance Company PLC

Secretaries

Corporate Services (Pvt) LimitedColombo on this 12th day of June 2012

Note:

(1) Any member entitled to attend and vote is entitled to appoint a proxy instead.

A proxy need not be a member, instruments appointing proxies must be lodged with the Company not less than 48 hours before the

meeting.

(2) It is proposed to dispatch the dividend warrants on 31st July 2012 in accordance with the rules of the Colombo Stock Exchange, the

shares of the Company will be quoted ex-dividend with effect from 23rd July 2012.

Notice of Meeting


Notes


Form of Proxy*I/We …………………………………………………………………………………………………….……………………………………………

of ………………………………………………………..……………………………………………………………………………………………...

being *a member/members of CENTRAL FINANCE COMPANY PLC do hereby appoint

1. Jayampathi Divale Bandaranayake or failing him,

2. Eranjith Harendra Wijenaike or failing him,

3. Gerard Shamil Niranjan Peiris or failing him,

4. Ravindra Erle Rambukwelle or failing him,

5. Arjuna Kapila Gunaratne or failing him,

6. Tissa Kumara Bandaranayake or failing him,

7. Sunil Chandra Sillapana Wickramasinghe or failing him,

8. Chandima Lalith Kumar Perera Jayasuriya or failing him,

9. Dhammika Prasanna de Silva or failing him,

10. Faiz Mohideen or failing him,

……………………………………………………………………………………………………………………………………………………… of

…………………………………………………………………………………………………………………………………………………………

as *my/our Proxy to vote/speak for me/us on *my/our behalf at the 54th Annual General Meeting of the Company to be held at the

registered office of the Company, No.84, Raja Veediya,Kandy on the 20th day of July 2012 at 11.00 a.m. and at any adjournment thereof,

and at every poll which may be taken in consequence thereof.

For Against

1. To receive and consider the Annual Report of the Board together with the Financial Statements of the

Company

2. To approve a final dividend of Rs.1.10 per share as authorised by the Directors

3. To re-elect as a Director S.C.S. Wickramasinghe in terms of Article 105 of the Articles of Association

4. To re-elect as a Director J.D. Bandaranayake in terms of Article 111 of the Articles of Association

5. To re-elect as a Director F. Mohideen in terms of Article 111 of the Articles of Association

6. To appoint SJMS Associates as Auditor of the Company to audit the financial statements and authorise the

Directors to fix their remuneration

7. To consider and if thought fit pass the Special Resolution

8. To authorise the Directors to determine contributions to charities

Signed this ……………………… day of ………………………… Two Thousand and Twelve.

……………………………….

*Signature/s

Note: Please delete the inappropriate words

Instructions as to completion are noted on the reverse hereof.


Instructions as to Completion

1. Kindly perfect the Form of Proxy after filling in legibly your full name and address and sign in the space provided. Please fill in the date

of signature.

2. A Member entitled to attend and vote at the Meeting is entitled to appoint a Proxy who need not be a member, to attend and vote

instead of him.

3. In the case of a Corporate Member, the Form must be completed under its Common Seal, which should be affixed and attested in

the manner prescribed by Articles of Association.

4. If the Form of Proxy is signed by an Attorney, the relevant Power of Attorney should also accompany the completed Form of Proxy, in

the manner prescribed by Articles of Association.

5. The completed Form of Proxy should be deposited at the Registered Office of the Company, Nio.84, Raja Veediya, Kandy not less

than forty eight (48) hours before the appointed time for the Meeting.

Form of Proxy (contd.)


Investor Feedback FormTo request information or submit a comment/query to the Company, please complete the following and return this page to -

General Manager - Finance

Central Finance Company PLC,

84, Raja Veediya, Kandy

Sri Lanka

Email: [email protected]

Name : ................................................................................................................................................................................................

Permanent Mailing Address : ................................................................................................................................................................................................

................................................................................................................................................................................................

Contact Numbers (Tel) : .................................. .................................. ..................................

Country Code Area Code Number

(Fax) : .................................. .................................. ..................................

Country Code Area Code Number

Email : ................................................................................................................................................................................................

Name of Company : ................................................................................................................................................................................................

(If applicable)

Designation : ................................................................................................................................................................................................

(If applicable)

Company Address : ................................................................................................................................................................................................(If applicable) ................................................................................................................................................................................................

Please tick (ü) the appropriate box Yes No

Would you like to receive soft copies of the CF annual and interim reports via e-mail?

Would you like to receive news and press releases of CF via e-mail?

Would you like to receive any information on our products/services?

Queries / Comments

NAME OF COMPANYCentral Finance Company PLC

LEGAL FORMA Quoted Public Company with limited liability incorporated in Sri Lanka on 5th December 1957 and registered under the Companies Act No.07 of 2007.

Registered under Finance Business Act No.42 of 2011 and Finance Leasing Act No.56 of 2000.

Approved Credit Agency under:* Mortgage Act No.6 of 1949* Trust Receipt Ordinance No.12 of 1947

COMPANY REGISTRATION NUMBERPQ 67

DIRECTORSJ.D. Bandaranayake - ChairmanE.H. Wijenaike - Managing DirectorG.S.N. Peiris - Director (Finance)R.E. Rambukwelle - Director (Marketing and Operations)A.K. Gunaratne - Director (Group Co-ordination)T.K. BandaranayakeD.P. de Silva - Director (Credit)C.L.K.P. JayasuriyaS.C.S. WickramasingheF. Mohideen

STOCK EXCHANGE LISTINGThe ordinary shares of the Company are listed on the Colombo Stock Exchange of Sri Lanka.

HEAD/ REGISTERED OFFICE84, Raja Veediya, Kandy.Telephone : 081- 2227000Facsimile : 081- 2232047

CITY OFFICE270, Vauxhall Street,Colombo 2.Telephone : 011 - 2300555Facsimile : 011 - 2300441E-mail : [email protected] : www.cf.lk

BANKERSBank of CeylonCiti Bank N.A.Commercial Bank of Ceylon PLCICICI Bank Ltd.Hatton National Bank PLCHongkong & Shanghai Banking Corporation LimitedNDB Bank PLCNations Trust Bank PLCPeople’s BankSampath Bank PLCSeylan Bank PLCStandard Chartered BankHabib Bank Ltd.

AUDITORSJMS Associates,Chartered Accountants,2, Castle Lane,Colombo 04.

LEGAL ADVISERF.J. & G. De Saram,Attorneys-at-Law,P.O.Box 212,Colombo.

COMPANY SECRETARYCorporate Services (Pvt) Limited,216, De Saram Place,Colombo10.Telephone : 011- 4605100Facsimile : 011- 4718220

ADMINISTRATIONIf you receive more than one copy of the Annual Report at the same address, we will appreciate such information of duplication communicated to the Company Secretaries in order to update the mailing list and minimize wasted expenditure in the future.

Corporate Information

VISIONCentral Finance shall be the first choice for progressive customers in delivering innovative financial solutions.

MISSIONTo be the leader in our industry, conducting business with responsibility, using our expertise in helping customers grow and prosper whilst creating lasting value for our shareholders.

Designed and produced by emagewiseDigital plates by Imageline (Pvt) LtdPrinted by Aitken Spence Printing & Packaging (Pvt) Ltd.

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