primefinance - cdn.cse.lk

ANNUAL REPORT 2017/18

AN

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T 2017/18

primefinance.lk

Corporate Information

Name of the CompanyPrime Finance PLC

Legal FormPublic Limited Liability Company domiciled in Sri Lankaand incorporated on 10th September 2004 under the-Companies Act No. 17 of 1982 and re-registered under theCompanies Act No. 07 of 2007.

The Company is licensed under the Finance Business Act,No. 42 of 2011.

A registered Financed Leasing Establishment in terms ofFinance Leasing Act No. 56 of 2000.

Date of Incorporation10th September 2004

Colombo Stock Exchange listing12th September 2012

Company Registration No.PB 351 PQ

VAT registration No.134011947 - 7000

DirectorsM. D. S. GoonatillekeChairman / Independent Non-Executive Director

B. PremalalNon-Independent Non-Executive Director

Mrs. H. K. S. Rukmal PereraExecutive Director

Mahinda PereraNon-Independent Non-Executive Director

Nandana A. WickramageNon-Independent Non-Executive Director

Dhammika KalapugeIndependent Non-Executive Director

Mr. Anura PathirageNon- Independent Non-Executive Director

H. M. H. BandaraIndependent Non-Executive Director

Registered OfficeNo. 61 ,D. S. Senanayake Mawatha, Colombo 08.Tel : + 94 112 679 285 - 87Fax : + 94 112 679 284Email : [email protected] : primefinance.lk

Secretaries & RegistrarsS S P Corporate Services (Private) LimitedNo 101, Inner Flower Road, Colombo 03.

BankersNational Development Bank PLC Commercial Bank of Ceylon PLCHatton National Bank PLCSeylan Bank PLCUnion Bank PLCDFCC Bank PLCBank of Ceylon People’s BankSampath Bank PLCNations Trust Bank PLC

LawyersNithya PartnersNo.97A, Galle Road, Colombo 03.

AuditorsM/s. Ernst & Young Chartered AccountantsNo.201, De Saram Place, P.O Box 101, Colombo 10.

primefinance.lk

UP CONFIDENCEDuring the year we gathered momentum in our performance

levels by achieving significant strides in our business performance creating unwavering confidence and generating

an assurance of stability.

With a firm foundation of good corporate governance, guided by visionary insights and financial acumen we are set to pursue

our strategic vision. As we poise ourselves to elevate our performance to greater horizons of excellence we hope to create

and generate enhanced value to all our stakeholders.

Our Vision

To become the most preferred,progressive and innovative financial solutions provider in Sri Lanka.

Our Mission

To offer financial solutions geared toachieve the goals and aspirations of a progressive nation and illuminate the potential of its people through dynamic team players by proffering a highly customized and innovative product portfolio.

Core Values

Customer Centric

At Prime Finance PLC, the customer comes first. Our primary focus is to provide personalized and flexible services.

Winning with Integrity

We are passionate about becoming the unrivaled industry leader by achieving superior results for our stakeholders.

Employee Value

We value our colleagues as we do our customer. We are committed to provide opportunities to our employees for professional and personal development.

Serving Communities

We invest our time and resources to support the communities in which we live and work, improving the quality of life for everyone.

Prime Finance PLC | Annual Report 2017/18

Contents

Financial Highlights ∫ 4

Group Chairman’s Message ∫ 6

Chairman’s Message ∫ 10

Chief Executive Officer’s Review ∫ 14

Board of Directors ∫ 18

Corporate Management ∫ 24

Senior Management and Unit Heads ∫ 26

Management Discussion and Analysis ∫ 29

Financial Capital ∫ 35

Intellectual Capital ∫ 36

Human Capital ∫ 37

Social and Relationship Capital ∫ 39

Natural Capital ∫ 39

Risk Management Review ∫ 40

Corporate Governance ∫ 48

Board Audit Committee Report ∫ 90

Board Remuneration Committee Report ∫ 92

Board Integrated Risk Management Committee Report ∫ 93

Board Related Party Transactions Review Committee Report ∫ 94

Financial Reports

Annual Report of the Board of Directors on the Affairs of the Company ∫ 96

Directors’ Statement on Internal Control over Financial Reporting ∫ 105

Chief Executive Officer’s and Assistant General Manager Finance’s Responsibility Statement ∫ 106

Statement of Directors’ Responsibilities for Financial Reporting ∫ 108

Independent Auditor’s Report ∫ 109

Statement of Financial Position ∫ 112

Statement of Comprehensive Income ∫ 114

Statement of Changes in Equity ∫ 115

Statement of Cash Flows ∫ 116

Notes to the Financial Statements ∫ 118

Statement of Value Added ∫ 178

Investor Information ∫ 179

Share Information ∫ 182

Branch Network ∫ 183

Notes ∫ 184

Notice of the Annual General Meeting ∫ 186

Form of Proxy ∫ 187

Group Chairman’s

Message

Chief Executive Officer’s Review

Chairman’s Message

Page ∫ 6

Page ∫ 14

Page ∫ 10

4

2017/2018 2016/2017 Change %

Profitability (Rs ‘000)

Income 532,771 299,181 78.08%

Operating income 323,321 165,809 95.00%

Profit/(Loss) before VAT on financial services 35,086 18,156 93.25%

Profit/(Loss) before income tax 27,124 8,813 207.78%

Taxation Expenses (14,033) (6,290) 123.11%

Profit/(Loss) for the year 13,091 2,523 418.86%

Profit for the year after OCI 13,136 2,906 352.00%

Assets & Liabilities (Rs ‘000)

Loans & Receivables 2,680,734 1,166,101 129.89%

Due to Customers 2,399,150 1,311,056 82.99%

Total equity 613,075 316,439 93.74%

Total assets 3,671,375 1,701,770 115.74%

Investor Information (Rs)

Net asset value per share 17.03 14.06 21.09%

Earnings per share - Basic 0.42 0.11 281.82%

Dividend per share NIL NIL

Financial Indicators (%)

Return on average assets (after tax) 0.49% 0.16%

Return on average equity (after tax) 2.82% 0.80%

Growth in profit 418.86% -92.78%

Growth in total assets 115.74% 14.22%

Capital adequacy ratios (%)

Core capital to risk weighted assets (Tier I) (minimum 5%) 21.00% 26.23%

Total capital to risk weighted assets (Tier I & II) (minimum 10%) 21.00% 26.23%

Financial Highlights

Prime Finance PLC | Annual Report 2017/18 5

Interest Income

0

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200

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400

500

2012/13 2013/14 2014/15 2015/16 2016/17 2017/18

Rs. Mn

Net Interest Income

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100

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250

2012/13 2013/14 2014/15 2015/16 2016/17 2017/18

Rs. Mn

Shareholders’ Fund

0

100

200

300

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700

800

2012/13 2013/14 2014/15 2015/16 2016/17 2017/18

Rs. Mn

Net Asset Valueper Share

21%Growth

Earnings per share

282%Growth

Gross Income

0

100

200

300

400

500

600

2012/13 2013/14 2014/15 2015/16 2016/17 2017/18

Rs. Mn

Growth in Total Assets

Rs. Bn

1.5

2.0

2.5

3.0

3.5

4.0

Apr

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May

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Jun-

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Jul-

17

Aug

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Sep-

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Oct

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Nov

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Dec

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Jan-

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Feb-

18

Mar

-18

Growth in Customer Deposit

Rs. Bn

1.0

1.5

2.0

2.5

Apr

-17

May

-17

Jun-

17

Jul-

17

Aug

-17

Sep-

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Oct

-17

Nov

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Dec

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Jan-

18

Feb-

18

Mar

-18

Shareholders’ Funds

94%Growth

6

Group Chairman’sMessage

Brahmanage Premalal

“The performance in key indicators surpassed expectations demonstrating the turnaround of the Company in line with the new strategic initiatives implemented”


Dear Stakeholders,

It gives me great pleasure to place before you the performance of Prime Finance PLC in its first year of operations under the wings of the Prime Group.

Performance

Prime Finance PLC performed well amidst a challenging economic environment, to deliver encouraging performance levels. The performance in key indicators surpassed expectations, demonstrating the turnaround of the Company, in line with the new strategic initiatives implemented.

The Company reported a profit before VAT on financial services of LKR 35.1 Mn and profit after tax LKR 13.1 Mn. The Company achieved significant strides in key spheres of lending portfolio growth and deposit mobilization. During the year the Company achieved significant asset growth reflecting a YoY growth of 116 %, achieving an asset base of LKR 3.7 Bn. This is attributable to the focused lending and new products and services introduced. A significant

increase in our Public deposit portfolio was achieved, with the doubling of the deposit base to LKR 2.4Bn. This projects the renewed confidence and trust placed by the depositors.

Positioning Prime Finance PLC

A key milestone in 2017 was the rebranding of the Company as Prime Finance PLC which reinforced the Company’s strength through its affinity to its parent - Prime Group. Strength, trust and stability are paramount factors that determine the sustainability of a finance company. Thus being a part of a formidable and respected entity such as the Prime Group enhances the trust and stability of the Company.

Prime Group is recognized as the vanguard in the real estate sector of Sri Lanka, with a market presence of over two decades. We have over the years transformed the real estate sector of Sri Lanka, through successful real estate projects spread over 13 districts of our country along with distinctive housing and apartment complexes. The Group has embarked on several landmark

condominium projects in Colombo which will transform the skyline of the area.

The Group has been recognized as one of ‘Asia’s Top 100 Brands’ in the ‘100 Asia’s Greatest Brands and Leaders Awards’ held in January 2018. I am proud to note that we were the only Sri Lankan company to be recognized in this forum along with iconic and global brands such as TATA, Airtel and many other leading brands.

Extending on the corporate ideals of Prime Group - “committed to create a better place on earth”, Prime Finance PLC will help Sri Lankans realize their financial aspirations through innovative financial solutions. We hope to complement our product portfolio with an extensive range of financial products serving the needs of the SME sector and personal financing aspirations, by being a ‘one stop shop’ for all financing needs be it the financing of a land, a house, an apartment or a vehicle. This will empower Sri Lankans to reach their multi-dimensional aspirations through the Prime Group.

Group Chairman’s Message

“The Group has been recognized as one of Asia’s Top 100 Brands in the 100 Asia’s Greatest Brands and Leaders Awards held in January 2018.”

8

We envision Prime Finance to be the trusted financial institution for our Prime Group customers.

This will enable them to fulfil their financial needs within the trusted realms of the “Prime” brand thereby enriching the service experience. We believe that this will harness the latent potential of a captive clientele by building synergistic strength.

Corporate governance

As a financial institution backed by a respected Group we place significant emphasis in following a compliant framework to ensure that our business activities are carried out in an ethical manner by adopting practices of good governance. The Board of Directors of the Company have been strengthened with professionals from diverse backgrounds who possess wide expertise in the financial services industry.

We have created the right governance framework to ensure that highest standards of transparency, compliance and risk management strategies are implemented in line with the directions issued for finance companies by the Central Bank of Sri Lanka along with the Code of Best Practice on Corporate Governance jointly issued by the Institute of

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

Outlook for the future

The Sri Lankan economy is expected to increase its pace of growth in the medium term from the moderate growth levels experienced presently. It is expected that the economy will boost through exports and FDIs which will improve the Balance of Payments position and ease exchange rate fluctuations. The Non-Banking Financial Institutions sector would need to keep abreast with the challenges and move in tandem with the changes in the macro-economic environment whilst seizing the opportunities present in the market.

Way forward

The Company has announced a rights issue through the Colombo Stock Exchange which was approved by the shareholders at the EGM held on 18th June 2018. This will strengthen the core capital base of the Company in compliance with the regulatory requirements of the Central Bank of Sri Lanka. The Company plans to issue LKR 43.2 Million ordinary voting shares by way of a Rights Issue to raise LKR 864 Million. This will enhance the stated capital of the Company to LKR 1.4 Billion, which is way above the threshold of LKR 1Billion stipulated by Central Bank.

“The Prime Group has been recognized as a Great Place to Work and is ranked among the best 25 establishments to work for in Sri Lanka.”

Group Chairman’s Message


With the enhanced capital structure the Company will be strategically positioned to win customer confidence for a sustainable growth in the future. Our strategic intent is to expand the lending portfolio through increased disbursements.

In the formative year we strengthened the management team with industry experts in order to set the right path for the Company to reach new heights. With the correct management framework, operational structure and policies we have placed a structural framework conducive to be competitive. The Company will continue to refine and improve its service parameters to be agile in terms of service delivery standards of the industry to seize the captive market opportunities.

The Prime Group has been recognized as a ‘Great Place to Work’ and is ranked among the best 25 establishments to work for in Sri

Lanka. We take pride in our HR practices and development of our human resources. The HR practices and staff development activities will be aligned in such a way to create an engaged and productive team working towards the mission of our Company.

A note of appreciation

In conclusion, I extend my heartfelt gratitude to the Prime Finance Team ably lead by the CEO, senior management and the staff who have made the initial transition smooth by setting for growth. I extend my sincere appreciation to our customers who have placed their trust and confidence in the Company.

My sincere appreciation goes out to the Governor of the Central Bank of Sri Lanka and the Director of the Department of Supervision of Non-Bank Financial Institutions of the

Central Bank of Sri Lanka for their continuous support and guidance. I wish to appreciate the strategic direction extended by the Chairman and the Board of Directors of Prime Finance PLC who have set the right track for the Company.

As your Company gains momentum we are confident and optimistic about the opportunities that lie ahead which could be harnessed to our full potential to maximize returns to all stakeholders.

Brahmanage Premalal

Group Chairman – Prime Group

18th June 2018Colombo

“The Company plans to issue 43.2 Million ordinary voting shares by way of a Rights Issue to raise LKR 864 Million. This will enhance the stated capital of the Company...”


Mangala Goonatilleke

“During the year the Company was steered towards sustainable growth, while relentlessly focusing on operational efficiencies. This enabled us to demonstrate a remarkable financial performance amidst a challenging business environment.”


Dear Stakeholders,

I am pleased to present to you the Annual Report of Prime Finance PLC for the financial year ended 31st March 2018. During the year under review the Company embarked on laying the foundation of the strategic framework for the Company’s future path of progress achieving growth and positive results, in the main performance parameters. Thus our performance and future outlook for the Company is in synchronization with the theme of this Annual Report 2017/18 - “Up with Confidence”.

Local economic environment

The global economy was on rebound in 2017 ending three years of slow growth. Hence the global GDP growth overtook mid-year projections and edged closer to 3.0% in 2017. Both advanced and emerging economies around the world reported improved economic performances, bolstered by a strong revival in global trade and investment as well as an overall improvement in business sentiments.

The Sri Lankan economy expanded to 3.7%, driven by growth in

the service and manufacturing sectors and a sustained increase in expenditure on large infrastructure projects. However, growth in the agricultural sector was hampered for the third consecutive year due to un-favourable weather conditions. Inflation increased slightly more than the usual mid-single digit level, ending the year above 7%. The rising cost of living and shrinking disposable income, prompted changes in consumer spending, market demand and supply trends. With margins shrinking across the financial sector, competition in the non-bank financial services sector, intensified.

Given this operating backdrop, Prime Finance PLC categorized as a mid-sized finance company in terms of asset size was able to perform in an optimal manner. We sharpened our resolve to discover opportunities in the face of every challenge and made notable progress in our business performance.

Overview of the leasing and finance sector

The Non-Banking Financial Industry (NBFI) sector represented by Licensed Finance Companies (LFCs)

and Specialized Leasing Companies (SLCs) performed moderately during the year with low credit growth, declining profitability and increasing non-performing loans. The year 2017 continued to be a challenging year for the sector, as some of the restrictions placed in 2016 on the core business of leasing, with high import duties on vehicle imports and regulatory Loan to Value (LTV) ratio of 70%, continuing in 2017 as well.

According to statistics announced by the Central Bank of Sri Lanka, the credit growth in the industry decreased to 9.8% in 2017 in comparison to 21% in 2016. During 2017 the NBFI sector recorded an after-tax profit of LKR 17.7 Bn compared to LKR 20.2 Bn in the previous year, reflecting a drop of 12.7%. The net interest margin for the industry too dropped from 7.9% in 2016 to 7.7% in 2017, mainly due to rise in funding costs and competitive loan pricing yielding pressure on margins.

During the year the Central Bank initiated several prudential policy measures to strengthen the supervisory and regulatory framework of LFCs and SLCs with


Total Assets Growth

116 %

Loans & Receivable Growth Public Deposits Growth

130 83% %

12

the aim of enhancing the stability and soundness of the sector and increasing the customer confidence in the sector. A new prudential direction was issued to revise the LTV ratio for credit facilities in line with the national budget proposals of 2017.

Further, the minimum core capital requirement for LFCs has been increased to be completed on a staggered basis, in view of strengthening the capital position of the sector and increasing the capacity to absorb unexpected internal and external shocks. Accordingly, the minimum core capital has been increased from LKR 400 Million to LKR 1.0 Billion by 01 January 2018, LKR 1.5 Billion by 01 January 2019, LKR 2.0 Billion by 01 January 2020 and LKR 2.5 Billion by 01 January 2021.

Performance of the Company

The strategic vision of Prime Finance PLC is to be ‘the most preferred, progressive and innovative financial solutions provider in Sri Lanka’. Consequent to the acquisition of Summit Finance PLC by Prime Lands (Pvt) Ltd last year the Company was rebranded as Prime Finance

PLC, reflecting its affinity to the Prime Group and thereby infusing confidence and stability.

During the year the Company was steered towards sustainable growth, whilst relentlessly focusing on operational efficiencies. This enabled us to demonstrate a remarkable financial performance amidst a challenging business environment. The Company increased its revenue to LKR 233 Million during the year, reflecting an increase of 78% compared to the last year. The Company recorded a total net profit after tax of LKR 13.1 Million, thereby recording a 419% increase over last year’s profit.

The Company’s total asset base depicted a remarkable growth of 116% closing the year at LKR 3.7 Billion over the previous year’s LKR 1.7Billion. This was mainly driven by the increase in the lending portfolio which increased to LKR 2.7 Billion demonstrating a YoY (Year on Year) growth level of 130%. During the year the Company focused on diversifying its funding base and hence was able to significantly increase the public fixed deposits by 83% to LKR 2.4 Billion. The

Company’s focused recovery efforts and the growth in its lending portfolio resulted in NPA levels improving significantly to 7.4% in comparison to 13.8%, in the previous year.

The shareholders’ funds increased to LKR 613Mn during the financial year, and the Company plans to increase it approximately to LKR 1.4 Billion by July 2018 with the rights issue already announced to the Colombo Stock Exchange.

Positioning ourselves in the industry

The Company continued to pursue its strategies of becoming a leading and distinctive financial institution, serving the financial aspirations of Sri Lankans. The introduction of innovative financial products to the market which forms a core strategy of the Company would be pursued into the future to derive exponential growth in our asset portfolio. Prime Finance’s achievements were also lauded by external parties, further re-enforcing the Company’s brand value to stakeholders.


“During the year the Company focused on diversifying its funding base and hence was able to significantly increase the public fixed deposits by 83%”


A strong focus on corporate governance

Throughout the Company’s journey since its relaunch, we have continued to emphasize the importance of ethical and transparent business operations. We have been consistently committed to develop a culture of trust and accountability, while creating value to all our stakeholders. This has resulted in elevating the confidence and trust of our loyal employees, customers, shareholders, suppliers and vendors who believe in the Company’s ability to achieve its goals and remain sustainable in the future.

In line with our strong governance mechanism embedded in our operations we strive to ensure that the highest standards of transparency, compliance and risk management strategies are maintained.

We comply with the Finance Companies Direction No. 03 of 2008 and the subsequent amendments thereto on Corporate Governance for Registered Finance Companies issued by the Central Bank of Sri Lanka along with the Code of Best Practice on Corporate Governance jointly issued by the Institute of Chartered Accountants of Sri Lanka and the Securities and Exchange Commission of Sri Lanka.

The way forward

As a subsidiary of Sri Lanka’s leading property development Company, which spearheaded the transformative impact on Sri Lanka’s real estate landscape we hope to create the same perpetual impact in the lives of Sri Lankans through innovative financial solutions. Our Board of Directors consist of professionals from diverse backgrounds who bring in professionalism and commitment. Together we are excited about the future prospects of the Company.

We hope to strengthen the capital structure of the Company with the completion of the impending rights issue, which is planned to take place in July 2018. This will exceed the minimum regulatory requirement of the Central Bank of Sri Lanka.

We are geared to promote financial inclusivity by serving Sri Lankans with our extended portfolio of products. We intend to offer tailor made products for certain segments which we have already identified. We are confident that we have indeed coined together a formula of success, which we are ready to roll out, while creating a positive and enduring brand experience.

Appreciation

I would like to take this opportunity to express my appreciation to our Group Chairman Mr. Brahmanage

Premalal, for his visionary direction, guidance and support towards enabling the success of the Company.

The Company’s performance and achievements are the direct result of the efforts extended by our loyal and dedicated employees who were driven to surpass targets and create new heights of success. I also take this opportunity to thank the management team led by the Chief Executive Officer for their leadership, and all employees for their commitment and dedication.

I extend my deep appreciation to my colleagues on the Board for their valued counsel and guidance in setting the strategic path of the Company.

I wish to convey my sincere appreciation to the Governor of the Central Bank of Sri Lanka and the Director - Department of Supervision of Non-Bank Financial Institutions for their continuous support and guidance extended to Prime Finance PLC.

Mangala Goonatilleke

Chairman


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Chief ExecutiveOfficer’s Review

Rasika Kaluarachchi

“The staff led by the senior management through their untiring efforts have paved the way to success and growth.”


“Focused marketing strategies drove growth in our lending portfolio reflecting a 130% YoY growth...”

Dear Stakeholders,

The year under review reflects a turning point for Prime Finance PLC in terms of performance and growth. The Company garnered its capabilities with improved performance levels whilst strengthening the operational activities and paving the way for future growth.

Several strategic initiatives were implemented across the entire business model, encompassing corporate governance, internal control systems, operational aspects which cascaded down to the operational levels across the business lines, branches and all personnel.

Financial performance

Prime Finance PLC, during its first financial year under the ownership of the Prime Group of Companies, recorded an encouraging growth in its profitability levels in a

challenging business environment. The Company recorded a net profit of LKR 35.1 Mn before taxes, with a profit after tax of LKR 13.1 Mn. The Company applied a two pronged strategy of strategic realignment of investments and focused recoveries strategies. This derived a positive impact, driving the revenue and profitability levels of the Company on an upward trend.

Focused marketing strategies drove growth in our lending portfolio reflecting a 130% YoY (Year on Year) growth, augmenting the asset base to LKR 3.7Bn. It is noteworthy to mention that the asset base increased steadily from December 2017, at an average of LKR 400Mn per month. Thereby the net loan portfolio increased to LKR2.7Bn in comparison to the LKR 1.2Bn during the previous financial year.

Building the fixed deposit portfolio to strengthen our funding base was another priority where we

were successful in doubling the deposit base from LKR 1.3Bn in the previous year to LKR 2.4Bn by 31st March 2018. This was achieved while maintaining an average monthly renewal ratio of more than 85% continuously. This signifies the trust and confidence depositors have placed in the Company under the new ownership and management of the Prime Group.

The Company’s asset quality remained strong due to proactive recovery strategies deployed during the last quarter of the year. The aggressive recovery drive derived positive results improving the NPA ratio to 7.4% from 13.8% in the previous year. During the financial year, the Company reached an income level of LKR 533Mn and with the steady income growth, cost to income ratio improved from 83% in the previous year to 58%.


Total Income Growth Net Interest Income Growth Net Profit Growth

78 49 419% % %

16

Positioning Prime Finance within the NBFI sector

The strategic rebranding of the Company as “Prime Finance PLC” reflects the affinity and our strategic alliance with the Prime Group - a trusted name in the real estate sector in Sri Lanka for over two decades. This strong positioning helps us to create a strong value proposition on par with some of the industry’s best in terms of strength and stability. In the present context a finance company which is backed by the strength of a strong group provides us the impetus to forge ahead with a competitive edge in the NBFI sector.

The Company’s ethics is built on professionalism and a friendly customer focused approach with a strong emphasis on good corporate governance practices within a cohesive risk management framework, while building on its core strengths.

Our human resources

While the year witnessed financial resilience in all aspects, it is noteworthy to recognize our team of employees who have been the hallmark of our success. The staff led by the senior management through their untiring efforts have paved the way to success and growth. Thereby we were able to fulfil the Company’s

commitment to deliver greater value to our stakeholders in a sustainable manner.

Recognizing the importance of our human resources and its pivotal role in building our brand, we have taken steps to strengthen critical functions of our Company. We have appointed personnel with the requisite competencies and expertise to strengthen the critical functions of the Company. These new appointments to key positions and significant refinement of our policies, processes and HR systems has been instrumental in steering the Company towards growth.

Our corporate culture is focused on innovation and value addition represented by an open and friendly communication conducive environment to foster creativity. We appreciate ideas presented by our staff which is rewarded at all levels. The workplace is energetic and vibrant with no barriers hindering communication. The Company’s open culture and values in enterprise management is communicated well to all team members.

Contributing to the communities

The Company places significant emphasis on its social and environmental responsibilities. We hope to engage with the communities on a greater level with a strong focus on sustainability and community engagement in the future.


“We are confident that the sustainable business model, which is built on the synergistic capabilities of the Group will derive tangible results in the years to come.”


Future outlook

We are confident that the sustainable business model, which is built on the synergistic capabilities of the Group will derive tangible results in the years to come. The Company hopes to introduce several new products to capture new market segments which have been identified as niche markets. We remain committed to develop innovative products in order to meet our customers’ needs and will be looking to enhance our product offerings through tailor-made solutions. Our key strategies thus would be product development and geographical penetration, which would expand these products to reach customer in un-chartered territories.

We also hope to focus on our funding strategy by accessing low cost and diversified sources of finance to further elevate our competitive position in pricing our credit facilities at competitive rates. Strengthening our operating processes and risk management systems is another strategic priority, which we would place emphasis

to ensure that asset quality is maintained.

Further, the Company will focus on harnessing the IT capabilities to offer financial solutions which would appeal to the emerging customer segments who wish to transact through online mediums.

We have also taken steps to enhance shareholder funds which was doubled during the year under review. The Company has announced to the Colombo Stock Exchange, a rights issue, that will come into the market soon. This will further improve the core capital of the Company to LKR 1.4Bn. The enhanced capital base would enable the Company to strategically position itself to sustain future growth and stability.

A note of appreciation

I wish to offer my sincere appreciation to the Group Chairman, Chairman and the Board of Directors for their unstinted support and guidance offered to me at all times.

Our success is mainly attributable to our Prime Finance Team, who worked together as one cohesive unit, demonstrating wholehearted commitment towards the realization of our goals. I wish to place my appreciation to the corporate and executive management for their leadership in driving growth across the business.

I wish to recognize the support of our shareholders and our loyal customers for their continued confidence and trust placed in Prime Finance PLC. We look forward to sustaining our close engagement with them as we guide this organization to greater heights.

Rasika Kaluarachchi

Chief Executive Officer


“The strategic rebranding of the Company as Prime Finance PLC reflects the affinity and our strategic alliance with the Prime Group - a trusted name in the real estate sector in Sri Lanka for over two decades.”

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Board of Directors


Left to right seated

Mr. Mangala Goonatilleke Chairman / Independent Non-Executive Director

Mr. Brahmanage Premalal Group Chairman / Non-Independent Non-Executive Director

Mrs. Sandamini Rukmal Perera Executive Director

Left to right standing

Mr. Mahinda Perera Non-Independent Non-Executive Director

Mr. Dhammika Kalapuge Independent Non-Executive Director

Mr. Nandana A. Wickramage Non-Independent Non-Executive Director

Mr. Anura Pathirage Non- Independent Non-Executive Director

Mr. Hennayake Bandara Independent Non-Executive Director

20

Mr. Brahmanage Premalal

Group Chairman / Non-Independent Non-Executive Director

Appointed to the Board on 07th February 2017. A member of the Remuneration Committee.

A dynamic leader and an entrepreneur Mr. Brahmanage is one of the co-founders of Prime Group and also the current Chairman. He, being a Chartered Management Accountant, has steered Prime Group to its current status as Sri Lanka’s leading property development conglomerate within a short span of two decades. He is also the Deputy Chairman of HNB Grameen Finance Limited and the Group Chairman of Prime Finance PLC, first listed finance company under Prime umbrella.

He is a Fellow Member of the Institute of Chartered Management Accountants (UK), Chartered Business Administrator (Canada), Member of Sri Lanka Institute of Marketing and holds a Postgraduate Diploma in Marketing from the University of Sri Jayewardenepura. He was conferred with the prestigious UCD Entrepreneur of the Year in 2011 considering his vast experience in the real estate industry and exposure to many other industries as an entrepreneur.

He was also awarded with ‘Most Outstanding Sri Lankan Award 2018’ for his outstanding contribution to the advancement of entrepreneurship for the betterment of Sri Lankan society by the International Association of Lions Clubs. Under his leadership Prime has won many national and international accolades and has earned the reputation of being placed among the great workplaces in Sri Lanka for the 3rd consecutive year in 2017.

Mr. Mangala Goonatilleke

Chairman / Independent Non-Executive Director

Appointed to the Board on 06th February 2017. Appointed as the Chairman of the Company w.e.f. 03rd March 2017. Chairman of the Related Party Transaction Review Committee. He is also a member of Integrated Risk Management Committee and the Audit Committee.

Mr. Goonatilleke is a financial professional with over 30 years post qualification experience. He has held senior managerial positions in leading public, multinational and private companies during his career.

He serves as the Group Director at Douglas & Sons (Pvt) Ltd and DSL Group of Companies. Mr Goonatilleke is an Associate Member of the Institute of Chartered Management Accountants (U.K) and Certified Global Management

Board of Directors

Accountant. He is a passed finalist of Institute of Chartered Accountants of Sri Lanka and holds a post Graduate Diploma in Management from the Postgraduate Institute of Management of University of Sri Jayawardenapura.

He also serves as a Non-Executive Independent Director at Colombo Land & Development PLC and has previously served in the Board of Vallibel Finance PLC, LB Finance PLC and Pan Asia Bank PLC in addition to having held directorates in several other public companies.

Mrs. Sandamini Rukmal Perera

Executive Director

Appointed to the Board on 06th February 2017.

Mrs. Perera is one of the co-founders and the Deputy Chairperson of Prime Group with well over 25 years of experience in the real estate industry.

She was recognized as the 3rd most powerful business woman in Sri Lanka by Echelon Magazine, a leading business magazine in Sri Lanka in 2013 and was awarded the “Honored Leaders Excellence Award 2014” for excellence in women’s empowerment from World Consulting and Research Corporation in New-Delhi. She is also the recipient of "Best Woman Entrepreneur" - Large category 2014/2015 in professional


& career women award from Women in Management in Sri Lanka. She has also won several other awards on “innovation and entrepreneurship” in the global arena. Being an entrepreneur she has achieved remarkable results for her own organization as well as her professional career.

Mrs. Perera holds a MSc in Strategic Marketing from the Asia e-University, Malaysia, and is a member of the Sri Lanka Institute of Marketing (SLIM) and a practicing marketer. She is passionately involved in social and environmental protection activities and contributes immensely towards empowering women in Sri Lanka.

Mr. Mahinda Perera

Non-Independent Non-Executive Director

Appointed to the Board on 07th February 2017. Chairman of the Integrated Risk Management Committee. He is also a member of Remuneration Committee and Related Party Transaction Review Committee.

Mr. Perera is an Independent Director in terms of Rule 7.10.4 of the Listing Rules of the Colombo Stock Exchange and Section A.5.5 of the Code of Best Practice on Corporate Governance issued jointly by the Institute of Chartered Accountants of Sri Lanka and the Securities and Exchange Commission of Sri Lanka

but is classified as Non Independent Non-Executive Director in terms of Finance Companies (Corporate Governance) Direction No. 03 of 2008.

Mr. Perera counts over 30 years of professional experience in the commercial sector in finance, management and legal disciplines. He commenced his professional career as a Management Accountant and is a Fellow of the Chartered Institute of Management Accountants (FCMA, UK) and a CGMA. Mr. Perera obtained a Master’s Degree in Business Management (MBA) from the Postgraduate Institute of Management of the University of Sri Jayawardenapura and a Bachelor of laws (LLB) from the Open University of Sri Lanka keeping in line with his career development. He was admitted to the Bar as an Attorney-at-Law in 2008.

He has wide experience in manufacturing and export industries having held senior positions in entitles in multiples sectors such as food and beverage, packaging and ceramic industries. In addition to many years of experience in Accounting and Finance, he has gained extensive experience in corporate management as a Director / Chief Executive Officer of listed and unlisted companies. He also has held board positions in several listed and unlisted entities. Mr. Perera also served as an Executive Director

of Varners International (Pvt) Ltd, which provides legal advice and professional services on corporate and regulatory matters to clients. At present he is engaged in providing legal advice on commercial and corporate law as well as professional consultancy services.

Mr. Nandana A. Wickramage


Appointed to the Board on 07th February 2017.

Commencing the career at the bottom of the ladder in sales, today Mr. Nandana A. Wickramage serves on the main board of CBL group (CBL Investments Pvt Ltd) - the largest FMCG conglomerate in Sri Lanka – as a Group Director and also serves on the Main Board of Prime Group (Prime Lands Pvt Ltd & Prime Residencies Pvt Ltd – the local leader in real-estate - as a Group Director (Non- Executive).

Mr. Wickramage is a Master Practitioner of NLP – Certified by the American Board of Neuro-Linguistic Programming (ABNLP) and International Hypnosis Association LLC. (IHA). He holds a Post Graduate Diploma in Marketing Management (UK), Post Graduate Diploma in Sales Management (UK), Post Graduate Diploma in Retail Management (UK) and is a Fellow of the Society of Sales & Marketing (UK). In addition to being a Director of main group board

22

of CBL group, Mr. Wickramage also serves as a Director of CBL Foods International (Pvt) Limited, Plenty Foods (Pvt) Limited, Convenience Foods PLC, CBL Canneries (Pvt) Limited.

As a passionate leader & hands-on practical marketer, Mr Nandana A. Wickramage is renowned for his ability to turnaround brands and drive them to market leadership, a trait he has demonstrated across various sectors. Over his 37 years professional career, he has built a strong reputation as an excellent creative conceptualizer, a brilliant strategist, a great motivator and local and international trainer cum Peak Performance Coach. What is perhaps most amazing is his versatility. His creativity reaches far beyond the confines of Leadership or Marketing. He is a highly accomplished lyricist, having written over 500 songs of which many have become local chart toppers.

Mr Wickramage’s leadership and his professional excellence have also been recognized by local and international bodies where he has been presented with many prestigious Global and Local awards, the most notable of them being Global Brand Leadership Award in 2010, Prestige Golden MACO Special Award 2010 – Business Sector (Marketing & Sales), Marketing Leader of the Year 2010 - Asian Mass Media Awards 2010, Marketing professional of the year

(Asia Region) at CMO Asia Awards 2011, Most Outstanding Marketing Professional of the Year (Global) at World Brand Congress 2011, listed amongst 50 Most Talented CEO Awards at World Marketing Summit 2013, People’s Leader 2014 awarded by IPM Sri Lanka and Global Marketing Excellence Award for the contribution made to Marketing by World Marketing Congress in 2014.

Mr. Hennayake Bandara

Independent Non-Executive Director

Appointed to the Board on 03rd March 2017. Chairman of the Audit Committee and a member of the Integrated Risk Management Committee.

Mr. Bandara is the former General Manager/CEO of National Savings Bank and a Director, NSB Fund Management Company Ltd. He is a past President of Association of Professional Bankers-Sri Lanka (APB) and Association of Accounting Technicians of Sri Lanka (AATSL). He served as a Director of World Savings Banks Institute, Institute of Bankers of Sri Lanka, Sri Lanka Banks’ Association (Guarantee) Ltd, Financial Ombudsman Sri Lanka, and a Council Member of CA Sri Lanka.

He is a recipient of the award for "Excellence in Business Management’’ from CMA Sri Lanka and has undergone training programs on Postal Savings

Banking System in Japan and advanced training program on Risk Management in Banking in Sweden and Tanzania. Mr Bandara was a member of the Expert Group appointed by the Central Bank of Sri Lanka to provide expertise to Registered Finance Companies (RFCs) and Specialized Leasing Companies (SLCs).

Mr. Bandara is a Fellow member (FCA) of CA Sri Lanka, Certified Management Accountants (FCMA) of Sri Lanka, AAT Sri Lanka (FMAAT), Member of Association of Professional Bankers of Sri Lanka and holds B(Com) Special Degree from the University of Sri Jayewardenepura.

Mr. Dhammika Kalapuge


Appointed to the Board on 07th February 2017. Chairman of the Remuneration Committee and a member of the Related Party Transaction Review Committee.

Mr. Kalapuge is a Director at SIPCOM - 1 (Pvt) Ltd, a company involved in Total People Development. He was the former Vice President–Marketing at DFCC Bank and also held senior marketing positions at Sampath Bank, Eagle Insurance and Eagle NDB Fund Management and had served as a Chief Examiner at the Institute of Bankers of Sri Lanka.

Board of Directors


Over the last two decades, he has conducted nearly 2,500 inspirational workshops in Management, Entrepreneurial Development, Customer Care, Service Excellence, Relationship Marketing and Motivation with over 500 leading public and private sector institutions in Sri Lanka and abroad with nearly 250,000 participants. In year 2000 he was presented with the Sri Lanka Institute of marketing first ever ‘Recognition Award’ for the contribution made to enhance the professional competence of the customer interface community in Sri Lanka.

Mr Kalapuge is a Member of the Chartered Institute of Marketing (CIM, UK), Post Graduate Diploma holder of CIM (UK), Diploma holder of Marketing from Marketing Council of Australia and a Fellow of the Australian Marketing Institute.

He also holds an Advanced Diploma in Business Administration from Association of Business Executives (UK) and is a Fellow Member.

Mr. Anura Pathirage


Appointed to the Board on 03rd March 2017. A member of the Audit Committee.

Mr. Pathirage is a professional in the finance field counting over 20 years of experience in the private sector. He holds a B.Sc. Management (Special) Degree with the Second Class Hons., from University of Sri Jayewardenepura and is a Chartered Tax Advisor of the Institute of Chartered Accountants of Sri Lanka. He is an Associate Member of the Sri Lanka Institute of Taxation and a member of AAT Sri Lanka.

Currently he is serving as the Head of Finance of Prime Group and prior to that Mr Pathirage was the Senior Management Consultant at Baker Tilly- Sri Lanka, Chartered Accountants. He was a Director of Corporate Secretaries Practice (Pvt) Ltd, the Secretarial unit of the Accountancy Firm. He also gained over six years of financial management experience overseas in the areas of international trade and tourism as the Chief Accountant of Cyprea Group of Companies in Maldives as well as apparel and insurance sector in Sri Lanka.

24

Mr. Rasika KaluarachchiChief Executive Officer

Skills and ExperienceMr. Rasika Kaluarachchi is an exceptional and dynamic professional with proven expertise in the Banking and Finance industry for over 20 years. Mr. Kaluarachchi holds a Master’s Degree (MBA) in Banking and Finance from the Postgraduate Institute of Management (PIM) of the University of Sri Jayawardenepura, Postgraduate Dip. in Business Management from University of Colombo and a BSc Degree from the University of Sri Jayawardenapura. He has contributed to several research projects in Credit, Risk Management and Marketing in the financial services sector. He is also recognized as an expert in Corporate Strategic Management and Marketing.

Current appointmentsHe currently serves as the Chief Executive Officer of Prime Finance PLC.

Previous appointmentsHe possesses wide and diverse experience having held various senior positions in leading Finance Companies registered with the Central Bank of Sri Lanka. Prior to joining Prime Finance PLC, he functioned as the Chief Executive Officer at TKS Finance for six years. Furthermore, he has held the position Head of Credit and Marketing at Abans Finance PLC for six years., AGM Operations at Sarvodaya Development Finance Limited and Executive positions at LOLC Finance PLC, People’s Leasing & Finance PLC and LB Finance PLC.

Mr. Samantha FernandoChief Operating Officer

Skills and ExperienceMr. Samantha counts for over two decades of experience in leasing and finance industry covering the areas of Recovery, Credit, Marketing and overall operations in leading Finance companies in Sri Lanka.

Current appointmentsHe currently serves as the Chief Operating Officer of Prime Finance PLC.

Previous appointmentsHe has held several senior positions in many finance companies, which include the positions of Head of Leasing and Asset Financing at Richard Pieris Finance, Senior Manager Branch Operations at Peoples Leasing and Snr Executive – Recoveries at LB Finance.

Mr. T.M. Manjula TennakoonAssistant General Manager- Finance

Skills and ExperienceMr. Tennakoon has had a lucrative academic career, and well horned experience. He is a member of the Institute of Chartered Accountants of Sri Lanka, and a member of the Institute of Certified Management Accountants of Sri Lanka. He holds a Bachelor of Business Administration Special degree from University of Colombo, a Diploma in Taxation from Sri Lanka Institute of Taxation while been a Certified Information System Auditor. He is presently reading for a MBA program at the Postgraduate Institute of Management (PIM).

Current appointmentsHe currently serves as Assistant General Manager Finance of Prime Finance PLC.

Previous appointmentsManjula commenced his career as a Management Trainee at George Steuart & Co. Ltd and has over 12 years of experience in non-bank financial institutions. He served in numerous carders at The Finance Company PLC, which include Administrative Manager, Branch Manager, Head of Internal Audit and his last stint with them as Chief Manager Finance.

Corporate Management


Mr. Niroshan PereraHead of Branch Operations

Skills and ExperienceMr.Niroshan holds a Bachelor of Accountancy Special Degree from the University of Sri Jayawardenepura. He also holds a MBA from the University of Colombo.

Current appointments He currently serves as Head of Branch Operations at Prime Finance PLC.

Previous appointmentsHe started his career in Ernst & Young as an Audit Trainee and counts over 15 years of experience purely in the Finance industry. He has held various senior positions in leading Finance companies in Sri Lanka covering Credit, Marketing and Recoveries functions.

Mr. Mahadevan SuthakarHead of Risk and Compliance / Compliance Officer

Skills and ExperienceMr. Suthakar is an Associate Member of Institute of Bankers of Sri Lanka (AIB - Sri Lanka) and Chartered Institute for Securities and Investments (ACSI - UK). He obtained a Master’s Degree in Business Administration with specialization in Finance (MBA Finance) from the University of Sri Jayewardenepura and a Bachelor of Business Administration from the University of Jaffna.

Current appointments

He currently serves as Head of Risk and Compliance / Compliance Officer at Prime Finance PLC. He is also functioning as an Executive Committee Member of the Sub-Committee for Compliance of the Finance Houses Association of Sri Lanka.

Previous appointmentsMr. Mahadevan Suthakar’s career spans over a decade in the Financial Services Sector having held several positions in the fields of Internal Audit, Accounting & Finance (Financial Reporting, Treasury Management, Tax Planning & Management and Payroll Management), Risk Management and Compliance. Mr. Suthakar last held the position of Head of Risk & Compliance/ Compliance Officer of Abans Finance PLC up to December 2017.

Mr. Indika DissanayakeHead of Information Technology

Skills and ExperienceMr. Dissanayake counts 20 over years of experience in the field of IT. He was graduated with an upper class honours degree in Information Technology from London Metropolitan university. He holds NCC (UK) International Higher Diploma, NCC (UK) International Diploma and other IT Diplomas. Additionally, he has completed Australian Computer Society examinations (ACS) and BCS examinations. He is certified Ethical Hacker, a Certified Microsoft System Engineer and has completed other Microsoft certifications.

Current appointmentsHe currently serves as Head of IT at Prime Finance PLC.

Previous appointmentsMr. Dissanayake has held numerous roles in the field of IT in the organizations which he has previously worked in , among them are the positions of Assistant General Manager IT at Entrust Limited, Systems Engineer at AE Logistics Pvt Ltd, Branch Manager and Lecturer cum Network Administrator at IDM Computer Studies (Pvt.) Ltd.

26

Mrs. Rasangi WithanaSenior Manager Funding

Skills and ExperienceMs. Withana holds a Special Honors Degree in Information Technology [BSc(Hon).IT] from the Sri Lanka Institute of Information Technology (SLIIT) and has completed a certificate course in Islamic Banking & Finance from the Institute of Bankers of Sri Lanka (IBSL). Ms. Withana is currently reading for her Master’s Degree at the in University of Wolverhampton (UK).

Current appointmentsMs. Rasangi Withana currently holds the position of Senior Manager Funding at Prime Finance PLC, where she manages the Fixed Deposit and Savings portfolio of the Company.

Previous appointmentsPrior to joining Prime Finance, she was attached to Asian Finance Ltd as a Branch Manager. She has over 13 years of industry experience.

Mrs. Nishanthi HennadigeManager Legal

Skills and ExperienceMrs. Nishanthi is an Attorney-at-Law and holds a LLB degree from the Open University of Sri Lanka and a Master’s degree in Commercial & Telecommunication Law from the University of Hertfordshire, UK. She possesses more than 19 years of experience in the field.

Current appointmentsHe currently serves as Manager Legal at Prime Finance PLC.

Previous appointmentsPrior to joining Prime Finance PLC she has served at Mercantile Investments Ltd. and Seylan Merchant Bank in the same position.

Mrs. Sumudu WanniachchiManager Recoveries

Skills and ExperienceMrs. Sumudu possesses 30 years of experience in the field of leasing and finance in the areas of Credit, Branch Operations, and Collections with exposure to Litigation & Debt recovery.

Current appointmentsMs Wanniachchi leads the Recoveries division of the Company.

Previous appointmentsHer wide experience in the financial services includes Managerial & Senior Managerial positions at Commercial Leasing & Finance PLC, LB Finance PLC, Asian Finance PLC and Bartleet Finance PLC.

Senior Management and Unit Heads


Mr. Senaka Kumarasinghe Head of Administration and Investigations

Skills and ExperienceMr. Senaka has held many senior positions in Criminal Investigation Department (CID) and retired as an Assistant Superintendent of Police (ASP) after working 32 years in CID. He has obtained his training at the FBI head quarters in USA and Australian Federal Police. He holds a Diploma in Criminology at University of Sri Jayawardanapura and a diploma in

Human Rights at Police Academy.

Current appointmentsHe currently serves as Head of Administrations and Investigations at Prime Finance PLC.

Mr. Chryshan FerdinandoManager Credit Operations

Skills and ExperienceMr. Chryshan possesses over 25 years of experience in the field of Leasing and Finance. Prior to joining Prime Finance PLC, he has held various positions at Commercial Leasing & Finance PLC, Ceylinco Leasing Corporation Ltd. and Arpico Finance Company PLC.

Current appointments He currently serves as Manager Credit Operations at Prime Finance PLC.

Mr. Nuwan SamarasingheManager Real Estate

Skills and ExperienceNuwan holds a Higher Diploma in Agriculture and he has more than 20 years of experience in Real Estate sector. He started his career as a Real Estate Executive at The Finance Company PLC and has been working at Prime Group over 5 years.

Current appointments He currently serves as Manager Real Estate at Prime Finance PLC.

28

116%Assets Base Growth


Management Discussion and Analysis

CorporateStrategies

Productivity

Performance

Friendly & personalized

Customer Service

Sustainability

High Technology Platform

Risk Management Framework

Property Finance & Mortgage Loans

Business Loans

Good Corporate Governance

Competent Work Force & Team Spirit

Real Estate

Home Loans

Capital & Fund Base

Professional Board of Directors & Management

Leasing

Fixed & Savings Deposits

20 years of trust and stability of

the Group

Corporate Strategies

Increasing the wealth of Stakeholders

30

Operational Review

During the financial year 2017/18, Prime Finance displayed encouraging growth levels in its performance. While the economic conditions continued to be challenging, the Company achieved its growth targets and continued its journey of success in almost all aspects of financial performance. These achievements can be attributed to the dedication and hard work of our employees, the continued trust and confidence of our customers, and the leadership and strategic foresight provided by the Board of Directors and management. The Company’s focused strategies aligned to its business values of been customer centric, winning with integrity and employee value have proved to be invaluable in this journey to success. As a comparatively young Company in the finance industry market space since its relaunch, Prime Finance

is proud of having achieved this success.

While the Company plans for greater success in the years to come, we work on improving; and further refining our innovative and unique product offerings, our efforts to provide exceptional customer service, simplifying the processes of accessing the Company’s products and our corporate governance and sustainable business practices. It is Prime Finance’s belief that such efforts will only reap many rewards for the Company, our investors, customers, employees and other stakeholders by creating long term value for all.

Market Conditions

The Economy in Perspective Global Economic Outlook

World growth levels displayed signs of recovery in 2017 with a growth level of 3.8%, with a notable rebound

in global trade. It was driven by an investment recovery in advanced economies, continued strong growth in emerging Asia, a notable upswing in emerging Europe, and signs of recovery in several commodity exporters. Global growth is expected to tick up to 3.9 % this year and the next, supported by strong momentum, favourable market sentiment, accommodative financial conditions, and the domestic and international repercussions of the expansionary fiscal policy in the United States. The partial recovery in commodity prices should allow conditions in commodity exporters to gradually improve. Over the medium term, global growth is projected to decline to about 3.7 %. Once the cyclical upswing and US fiscal stimulus have run their course, prospects for advanced economies remain subdued, given their slow potential growth. In emerging market and developing


Stakeholder Analysis

Stakeholders can be defined as parties that have an interest in the company and can either affect or be affected by the decisions and strategies of the business. Connecting with stakeholders is an integral part in the development and progress of the Company. Identification and timely engagement of stakeholders is more important to the Company since key stakeholders contribute significantly towards the value creation of the organization. The Company has identified investors, customers, employees, government entities, regulators and society as its stakeholders.

The Company places significant emphasis on understanding and effectively responding to the concerns of the stakeholders. Using varying mechanisms to engage with the stakeholders, we strive to ensure that our chosen strategies and means of addressing issues and performance levels are satisfactory. Material concerns that have a significant impact on the stakeholders and the Company are given priority by setting strategic priorities to address them effectively.


economies, in contrast, growth will remain close to its 2018–19 level as the gradual recovery in commodity exporters and a projected increase in India’s growth provide some offset to China’s gradual slowdown and emerging Europe’s return to its lower-trend growth rate. Nevertheless, 40 emerging market and developing economies are projected to grow more slowly in per capita terms than advanced economies, failing to narrow income gaps vis-à-vis the group of more prosperous countries. Despite strong aggregate figures in the baseline forecast and buoyant market sentiment, the current momentum is not assured. Upside and downside risks are broadly balanced over the next several quarters but risks farther down the road are skewed to the downside.

With still-easy financial conditions and persistently low inflation that has required protracted monetary policy accommodation, a potential further build-up of financial vulnerabilities could give way to rapid tightening of global financial conditions, denting confidence and growth. The support to growth that comes from pro-cyclical policies, including in the United States, will eventually need to be reversed. Other risks include a shift toward

inward-looking policies that harm international trade and a worsening of geopolitical tensions and strife. The current favourable juncture offers a window to enact policies and reforms that protect the upswing and raise medium-term growth to the benefit of all—strengthening the potential for higher and more inclusive growth, building buffers that will help deal more effectively with the next downturn, improving financial resilience to contain financial market risks, and fostering international cooperation.

Sri Lankan Economic Outlook

The Sri Lankan economy too expanded by 3.7%, driven by services and manufacturing and a sustained increase in expenditure on large infrastructure projects countrywide. However, for the third consecutive year, growth in the agricultural sector was hampered by unfavourable weather conditions. Inflation rose slightly more than the usual mid-single digit level, ending the year above 7%. The rising cost of living and shrinking disposable income prompted changes to consumer spending and market demand and supply trends. With margins shrinking across the financial sector, competition in the non- bank financial services sector, intensified. Financial markets

remained volatile during 2017, in line with the changing local and global economic environment. Excess rupee liquidity in the money market, which declined gradually during the first half of the year, increased to a higher level during the second half of the year. The undue pressure on short-term interest rates emanating from volatile liquidity conditions was addressed through active Open Market Operations (OMO) by the Central Bank. The Sri Lankan rupee continued to depreciate gradually against the US dollar during the year, in an environment of allowing greater flexibility in exchange.

32


Five Year Summary

Year ended 31st March 2014 2015 2016 2017 2018

Rs. Rs. Rs. Rs. Rs.

Operating Results

Gross income 290,318,262 295,340,750 296,912,509 299,180,910 532,771,091

Interest Income 279,881,303 289,636,782 289,589,051 291,728,251 445,450,360

Interest expenses 124,141,286 131,142,196 125,889,086 133,371,807 209,450,069

Net interest income 155,740,016 158,494,586 163,699,965 158,356,444 236,000,292

Other income 10,436,959 5,703,968 7,323,458 7,452,659 87,320,731

Total operating income 166,176,975 164,198,554 171,023,423 165,809,103 323,321,022

Operating expenses 125,875,768 120,639,577 112,454,878 138,625,335 180,602,228

Impairment losses 32,688,871 116,444,776 11,813,583 9,027,486 107,632,627

Profit/(loss) before VAT on FS 7,612,337 (72,885,799) 46,754,962 18,156,282 35,086,167

Profit/(loss) before income tax 5,922,213 (72,885,799) 38,422,020 8,812,546 27,123,586

Income tax expenses/(reversal) (721,507) (28,145,030) 3,456,047 6,289,588 14,032,874

Profit/(loss) after tax 6,643,720 (44,740,769) 34,965,973 2,522,957 13,090,713

As at 31st March 2014 2015 2016 2017 2018

Restated Restated

Assets

Cash and Cash Equivalents 62,839,788 55,332,422 75,829,061 128,416,689 417,958,339

Financial Investments - Held for Trading 460,190 1,356 700 520 -

Loans and Receivables 1,038,846,237 854,280,775 1,169,225,527 1,166,100,905 2,680,733,887

Financial Investments - Available for Sale 8,928,700 56,300 56,300 56,300 56,300

Financial Investments - Held to Maturity 62,186,192 20,989,927 72,294,832 89,482,222 122,468,456

Financial Investments 242,706,680 62,917,381 16,602,880 - -

Other Financial Assets 12,490,095 292,286,542 83,843,230 213,682,831 153,375,687

Inventories - Real Estate Stock 24,771,529 8,031,216 2,607,728 38,532,048 129,266,607

Investment Property - - - - 105,439,534

Property, Plant and Equipment 26,290,859 19,346,374 23,919,889 21,792,581 30,747,452

Other Assets 22,805,718 44,761,960 45,503,191 43,706,195 31,328,590

Total Assets 1,502,325,988 1,358,004,253 1,489,883,336 1,701,770,291 3,671,374,853


Product Portfolio

With the Company’s strategic focus on serving the diverse needs and aspirations of individuals in the country, a comprehensive product portfolio has been introduced by the Company. This includes Fixed Deposits, Savings Accounts, Leasing, Vehicle Loans, Home Loans, Housing Projects, Property Financing, Business Loans and Real Estate. While each of these products cater to personal financing needs, Prime Finance particularly hopes to target a niche segment – that of self-

employed women who otherwise have limited access to financial assistance from existing finance products in the market space. The Company hopes to fill a vacuum in the market by eliminating this gap while meeting the customer’s requirements for such products in the medium to longer terms. This product which has been designed mainly for women, will help empower women to become confident business owners with a long-term view to expanding home businesses to a larger scale.

Product Diversification - 2017/18

23.2%

7.9%

15.5%

3.6%

21.2%

18.5%

10.1%

Term Loans

Short Term Loans

Easy Payment Loans

Loans against Deposits

Mortgage Loan

Lease & HP

Other Loans

2014 2015 2016 2017 2018

Liabilities

Due to Banks 72,954,644 10,691,213 47,225,971 39,424,575 192,350,891

Due to Customers 1,065,307,791 1,034,978,467 1,105,657,981 1,311,055,978 2,399,149,502

Other Financial Liabilities 2,529,515 2,803,084 1,614,474 6,434,521 240,422,196

Other Non Financial Liabilities 28,529,288 30,057,653 20,295,824 26,231,948 223,210,025

Post Employment Benefit Liability 1,174,397 1,347,764 1,556,138 2,184,180 3,167,412

Other Liabilities 3,068,989 - - - -

Total Liabilities 1,173,564,623 1,079,878,181 1,176,350,388 1,385,331,202 3,058,300,026

2014 2015 2016 2017 2018

Shareholders' Funds

Stated Capital 225,000,000 225,000,000 225,000,000 225,000,000 508,500,000

Reserves 103,761,363 53,126,072 88,532,948 91,439,089 104,574,827

Total Equity 328,761,363 278,126,072 313,532,948 316,439,089 613,074,827

34

During the year the Company focused on marketing and PR campaigns which further helped boost the existing product portfolio. This contributed in enhancing the bottom line of the Company. The Company hopes to venture into many more areas to serve market niches, by rolling out new products and services in the coming years to further strengthen their product portfolio and create individualized products which will cater to the emerging needs.

The Company’s unique competitive advantage lies in its group expertise in real estate products especially in apartments and housing products. These products which can be categorized as low risk financing, will yield a steady business flow. The strategy of the Company is focused on secured lending to strengthen portfolio quality in the medium and long term thus yielding sustainable growth. Further the Company will focus on accessing low cost funding lines to increase its competitiveness in the market.

Performance Review

The year 2017/18 heralded some key achievements for Prime Finance, ensuring that the Company created value to its stakeholders from a financial and non-financial perspective. The growth achieved by the Company in pre-tax profits of LKR 35.1Mn resulted in a 93% increase compared to LKR 18.2 Mn earned in the previous year. The total assets exceeded LKR. 3,671 Mn during the year under review, which was a 116% growth compared to the previous year as well as a landmark

achievement for the Company. These encouraging performance levels could be benchmarked with other players in the industry.

The Company’s asset quality profile has also considerably improved in the year under review; resulting in an improved non-performing loan ratio of 7.40%, as at 31st March 2018 compared to 13.8 % as at 31st March 2017. In order to strengthen the recovery process, the Company is looking to employ an experienced team which will include investigators and three experienced lawyers.

Another accomplishment for the Company was the increase in the public deposits base to LKR 2.4Bn as at 31st March 2018, which resulted in a growth of 83% compared to the previous year. This ensures that the Company is recognized within the Licensed Finance Companies as a Company which possesses a notable deposit base. The Company’s total lending product portfolio achieved a 130% growth in the year under review to reach LKR 2.6 Bn as at 31st March 2018.

During the year under review, the company concentrated more on secured lending options such as Mortgage loans, Lease facilities, Loans against FDs, and Easy Payment loans. The Easy Payment loans represented loans which were given on plots of lands sold by the company as well as Prime Lands (Pvt.) Ltd. Out of the total portfolio as at 31st March 2018, 60% falls into the category of secured loans. During 2018/19, the Company plans to finance more products of Prime Lands (Pvt.) Ltd.


The Company foresees a portfolio balance of approximately LKR 5.6Bn as at 31st March 2019 with this extended portfolio.

With the growth in real estate, currently on an uphill climb and given that the parent company has strong roots in the real estate sector, the Company plans to invest more on real estate products in the coming years. In addition, canvassing business through Prime Group’s branch network has been another initiative the Management has planned for the next two years.

Further the Company has acquired a land in Pepiliyana, which will be utilized for the development of a housing project. This venture has already shown encouraging progress, with many plots already been sold.

The funding strategy of the Company is to source low cost funds. A rights issue of ordinary shares in the proportion of six (06) ordinary shares for every five (05) ordinary shares in the capital of the Company is in progress and is excepted to generate a cash flow of LKR 864Mn. The Management always complied with the required regulatory requirements in order to mobilize deposits. In order to further strengthen this area, the Company strengthened the Fixed Deposits team with the required expertise.

The staffing levels of branches have also been increased; with dedicated staff been allocated to the fixed deposit sector. This has laid the necessary foundation for the Company to aggressively promote its fixed deposits.


Financial Capital

During the year the Company has achieved a significant increase in its profitability levels by achieving a Net Profit before Tax of LKR 35.1 Million. This reflects an increase of 93% compared to the Profit Before Tax of LKR 18.2 Million achieved in the previous year.

The Company’s asset base increased consistently during the latter part of the 2017/18 financial year showing a monthly increase of LKR 310Mn from the period of January to March 2018. This is indeed a progressive increase in comparison to the performance levels of the Company, prior to the takeover, where the business levels were stagnant. The growth of the asset base was driven predominantly by the lending portfolio which increased by LKR 1.5Bn from the previous year, while total assets of the Company stood at LKR 3.7Bn as at 31 March 2018, showing a growth of 116% from the previous year (LKR 1.7Bn as at 31.3.17).

Growth in Total Assets

Rs. Bn

1.5

2.0

2.5

3.0

3.5

4.0

Apr

-17

May

-17

Jun-

17

Jul-

17

Aug

-17

Sep-

17

Oct

-17

Nov

-17

Dec

-17

Jan-

18

Feb-

18

Mar

-18

During recent months, the Company has increased its drive towards Fixed Deposits portfolio as a source of funding working capital and a means of maintaining a sound liquidity position. The total public deposit base has grown from LKR.1.3Bn as at 31.3.17 to LKR 2.4Bn as at 31.3.18, and during the period from December’17 to March’18, net deposits has grown at an average of LKR 207Mn a month. The Company’s asset quality remained strong owing to proactive recovery strategies deployed during the last quarter of the year. The NPL ratio reached 7.4% as at 31st March 2018.

Total interest income for the year increased to LKR 445.4Mn which represents an increase of 53% compared to the previous financial year. This increase is attributed to a more secured loan portfolio which was maintained throughout the year ensuring sustainable growth in interest income. In line with the gradual increase in the lending portfolio, the fee and commission income followed an upward increase of a 130% compared to last financial year.

Overhead expenses increased by 30% in comparison to the previous year, which is mainly due to the increase in advertising and promotional expenses. This increase is in line with the enhanced business volumes. The staff expenses too depicted an increase due to the Human Resource management initiatives where the recruitments increased during the year. Shareholders’ funds increased to LKR 613Mn at the close of the fiscal year.

36

Intellectual Capital

The Company has a clear strategy of leveraging IT to drive the business to greater heights. This will enable the Company to provide end to end solutions to meet customer expectations. Having this vision, we are in line with our technology road map to enable an ultramodern IT platform. We have strengthened the IT security to comply with industry standards and regulatory requirements. Policies, procedures and controls are in place to safeguard both customer and shareholder interests. However, being in a digital era which is constantly evolving, it is necessary to constantly keep abreast with

these changes. Hence the Company continues to focus on core business system enhancements and seamless integration with business related solutions, which provides the flexibility necessary to expand the business. It is our belief that strategic investments made on technology, improvements ensures return on investment. Through continuous training and development programs conducted in Information Technology we will ensure that the staff is on par with the business needs.



Human Capital

During the transition and post-acquisition phase, the Company focused on strengthening the team by recruiting professionals with the requisite expertise and strength.

Through focused selection processes in keeping with our recruitment policies we managed to acquire the best talent from the industry to enhance the expertise levels of the Company. In order to induct them to the Company’s business a training and knowledge sharing program was introduced where the core management team shared their experiences and business acumen with the others.

A special incentive scheme titled ‘pay spin’ was implemented to incentive the top performers who have contributed immensely in transforming the organization. Performance levels were closely monitored and constantly rewarded with the intention of nurturing the best contribution from all staff members. Job rotation, work enlargement and enrichment were also carried out with the intention to create the ‘right size’ department and branches.

A Proper value based human intervention will be implemented in the years to come, to develop a rich performance culture which is unique to Prime Finance PLC. Efforts will be made to define job roles

to enhance the output which will be supported by a reward system, to cultivate a performance driven work environment within which every employee is encouraged to work with responsibility and accountability. We have provided an environment to work and progress by obtaining responsibility and accountability in what they do by developing a culture where everyone is respected.

A robust technical and human skills development process was

implemented within the year. We have taken into account that this is a restructured organization and have harnessed the technical and human skills with the intention to provide the right direction. Wherever needed we have used external resources especially the Central Bank Training Centre in order to provide the necessary acumen to our employees. Through such educational programs, the Company expects to create a customer centric service culture with a combination of mature and young employees.

Mr. Dhammika Kalapuge, our own Director conducting a training program on customer care to the staff

Prime Award Ceremony 2017 at Galadari Hotel

38


We understand that the performance of both frontline and operational staff members have a direct impact on service provided to the customers, while also impacting our bottom line. We have identified well defined job descriptions and job roles for our staff members. Periodic reviews of the marketing team and bi-annual and annual reviews of all staff members are conducted to monitor and realign their individual performance. All staff members are rewarded based on their performance.

In order to ensure that the staff members have a proper work-life balance the company provides ample sports and recreational opportunities to further enhance their performance. The Company initiated an employee welfare society and sports club through which all recreational activities are conducted. The Company conducted several activities which had the participation of many members of staff including a Sports Day and a Get Together.

Since the Company values training and education, it has embarked on a scheme to help many of the employees to engage in higher educational programmes which will be of mutual benefit.

Annual Get Together 2017

Sinhala Avurudu Celebrations


Social and Relationship Capital

Customer

In line with our strategies, we were able to double the public deposit base from LKR 1.3Bn in the previous year to LKR 2.4Bn as at March 2018 while maintaining an average monthly renewal ratio of more than 85% continuously. This signifies the trust and confidence our depositors have placed in the Company. We in return have personalized our offerings, in order to create a mutual bond with the customer while ensuring that they receive the best level of service at all times. We use group synergies and practice cross selling to give customer all financial and investment facilities under one roof.

Looking Forward

Being a part of an industry with many leading players in a highly competitive market place, Prime Finance places critical importance towards safeguarding the Company’s market share of products and services. Accordingly, much emphasis and effort are expended to promote our products and services in the right way, at the right time, using the correct media to existing customers and identified new target markets. The marketing strategies of the Company continue to be refined and updated according to changing consumer demands, and the new age communication methodologies

available to corporates to penetrate our selected target markets. In the year under review, Prime Finance drove market penetration strategies with the objective of increasing the cross-selling opportunities of our increasing product range to existing loyal customers.

In the year under review we increased the number of strategically placed hoarding, bill boards and street name board advertising and also continued with other advertising and promotional campaigns. Further, with the increased use of digital platforms for marketing and promotional activities, the Company also magnified its digital and social media presence. The Company also undertook some special island wide promotional campaigns together with our partners to attract new customers to our leading auto finance related product range. The door-to-door marketing and personalized promotions of Prime Finance’s product range was increased during the year to aid in the strategy to increase the Company’s market share and manage cash flows. The dynamic and segregated market place for finance products makes it vital for Prime Finance to continuously focus on bringing a high quality unparalleled service to our customers. Accordingly, the Company increased its focus on customer retention and satisfaction during the year under review.

Natural Capital

Prime Finance PLC as a responsible corporate citizen has taken additional steps to conserve the environment and to ensure that the environmental impact is minimized. During the year the Company focused on implementing energy saving initiatives within the Head Office and its branch network. Accordingly LED lighting systems were introduced to minimize the usage of electricity. Awareness level of the staff of the Company has been increased by sharing best environmental practices such as minimizing paper wastage, optimizing the Air Conditioner usage by setting the temperature to 24 degrees etc. The Company hopes to introduce green friendly practices through its new processes which are introduced thereby moving to a paperless office concept.

40

Risk Management Review

Integrated Risk Management Framework

The Company adopts an Integrated Risk Management Framework to manage business and financial risks. It provides a structured approach for the Company to form a consolidated view of all risks and to manage these risks in a holistic manner, alongside business and compliance requirements.

Board Integrated Risk Management Committee (BIRMC) ensures that Risk Management strategies, policies and processes are in place to manage events that could impact the Company’s earnings performance. The BIRMC functions under the responsibilities set out in the Board approved Terms of Reference, which incorporates the requirements in terms of Finance Companies (Corporate Governance) Direction No. 03 of 2008 issued

by the Central Bank of Sri Lanka (CBSL). BIRMC sets the policies for Company-wide risk management including credit risk, market risk, operational risk and liquidity risk. A summary of the responsibilities and functions of the BIRMC is given in the Report on the Board Integrated Risk Management Committee on page 93 of this Annual Report.

Risk Governance and Organization

The Company has a well-established risk governance structure, with guidance of Board of Directors supported by an experienced management team. The Company adopts three (3) lines of defence in managing risks, and each line of defence has

clear areas of responsibility. The governance structure encompasses accountability, responsibility, independence, reporting, communication and transparency, both internally and with our relevant external stakeholders. In this risk governance structure, employees in every area of the organization are responsible for risk management.

Overview

The primary objectives of risk management are to ensure that the outcomes of risk-taking activities are consistent with the Company’s strategies and risk appetite. It ensures that an appropriate balance between risks and rewards are maintained in order to maximize returns to shareholders. The Company’s Integrated Risk Management Framework provides the foundation for achieving these objectives. Prime Finance has a strong, disciplined risk culture where managing risk is an integral part of the day-to-day operations with the responsibility shared by all employees.


Board of Directors

CEO and Leadership Team Board Integrated

Risk Management CommitteeBoard Audit Committee

Risk Owners

Own the risks generated by their

activities.

Design and execute internal

controls.

Ensure the risks generated are

identified, assessed, managed and

monitored, are within risk appetite,

and are in compliance with relevant

policies, guidelines and limits.

Risk Owner’s Oversight

Establish risk appetite, risk limits,

policies and frameworks, in

accordance with best practice and

regulatory requirements.

Measure, monitor and report on

risks taken in relation to limits and

risk appetite, and on emerging risks

Must be independent of the first

line to be able to perform its

function in an objective manner.

Independent Assurance

Provide reasonable assurance

to Board of Directors through

Board Audit Committee that the

first and second lines of defence

are effectively managing and

controlling risks.

The Internal Audit Department

provides independent objective

assurance over the design and

operation of the Company’s internal

controls and operational processes.

1 2 3

Credit Risk

Credit risk is the risk of loss resulting from the failure of a borrower or counterparty to honour its financial or contractual obligations to the Company. Credit risk arises in the Company’s direct lending operations and in its investment / Treasury activities where counterparties have repayment or other obligations to the Company. The effective management of credit risk requires the establishment of an appropriate credit risk culture. Credit risk management objectives are to:

® maintain a framework of controls to enable credit risk taking to be based on sound credit risk management principles

® identify, assess and measure credit risk clearly and accurately across the Company and within each product lines, from the level of individual facilities up to the total portfolio

® control and plan credit risk taking in line with risk appetite and avoiding undesirable concentrations

® monitor credit risk and adherence to agreed controls

® enable risk-reward objectives to be met

Operationally, exposure to credit risk is managed through regular analysis of the ability of borrowers and potential borrowers to meet

interest and principal repayment obligations. Exposure to credit risk is also managed partly by obtaining collateral and guarantees.

Credit Process

The credit process comprises of processing and evaluating loan applications, documenting loan decisions, distributing loan funds, credit classification and managing problem credits. This process covers the entire credit cycle starting from the origination of the credit in books to the point the credit is extinguished from the books. The credit process follows the following five steps:

42

Credit processing is the pre-qualification screening criteria where all required information on credit is gathered and applications are screened. The Company is equipped with well-designed credit appraisal criteria to ensure that facilities are granted only to creditworthy customers who

can make repayments from reasonably determinable sources of cash flow on a timely basis.

Credit risk is evaluated by specialists who have high level expertise and experience and demonstrated judgment in assessing and managing credit risk. Board of Directors delegated Approval Authorities commensurate to their positions as well as their expertise. An accountability regime also established for the decision-making process, accompanied by a clear audit trail, with proper identification of individuals involved.

Documentation is an essential part of the credit process and it is the responsibility of Credit Administration to ensure completeness of documentation such as (loan agreements, guarantees, transfer of title of collaterals etc). The Disbursement will be effected only after completion of covenants, and receipt of collateral holdings, insurance cover in the Company’s favour and the vetting of documents by an expert.

This process keeps track of borrowers’ compliance with credit terms, identifying early signs of irregularity, conducting periodic valuation of collateral, monitoring timely repayments and a deterioration in the borrower’s operating environment. This credit monitoring system provides the basis for taking prompt corrective actions when warning signs point to deterioration in the financial health of the borrower.

A separate Recoveries Unit follows all aspects of the problem credit, including rehabilitation of the borrower, restructuring of credit, monitoring the value of applicable collateral, scrutiny of legal documents, and dealing with borrower until the recovery matters are finalized. Legal steps are initiated and the collateral will be liquidated as a last resort.

Credit Processing / Appraisal

Credit-Approval /Sanction

Credit Documentation & Disbursement

Delinquency Monitoring and

Control

Managing Problem Credits/

Recovery

Managing Delinquent Loans and Impairment Process

Credit Risk Management has its priority to the maintenance of Asset quality of the Company’s loans and advances portfolio. Company’s non-performing loans and advances portfolio is monitored on a proactive basis through regular follow up. Recoveries Department monitors the watch list of accounts by initiating recoveries action plans and close monitoring to prevent such borrowers becoming non-performing.

NPL to Gross Loans and Advances

0

500

1000

1500

2000

2500

3000

14/15 15/16 16/17 17/18

Rs. Mn %

5

10

15

20

25

30

35

Gross Loans & AdvancesNon Performing PortfolioGross NPL Ratio



Impairment charges are calculated on the lending portfolio both on an individual basis for individually significant loans and advances and on a collective basis for the rest of the loans and advances portfolio by grouping the Loans and Advances with similar risk characteristics. In determining impairment charges, at each reporting date, the Company assesses whether there is objective evidence for specific loss events. The impairment charge is included in the Income Statement as credit cost due to asset quality deterioration.

Allowance for impairment to Loans & Advances

0

500

1,000

1,500

2,000

2,500

3,000

14/15 15/16 16/17 17/18

Rs. Mn %

0

5

10

15

20

Allowances for ImpairmentLoans & AdvancesAllowances for Impairment to Loans & Advances

Credit Cost Ratio

0

500

1,000

1,500

2,000

2,500

14/15 15/16 16/17 17/18

Rs. Mn %

0

2

4

6

8

10

12

ImpairmentAverage Loans & AdvancesCredit Cost Ratio

Concentration Risk

The term “concentration risk” in the context of finance business generally denotes the risk arising from an uneven distribution of counterparties in credit or any other business relationships or from a concentration in business sectors or geographical regions which is capable of generating large losses.

The Company assesses two types of concentration risks. i.e. single borrower concentration and sector-wise concentration. Single borrower concentration measures the uneven distribution of loans and advances to its borrowers. Sector-wise concentration is the uneven distribution of exposure to particular sectors, geographical regions and products.

Exposure to Top 20 Borrorwers2017/18

20.9%

79.1%

Top 20 Borrorwers (in Rs.)

Others (in Rs.)

Exposure to Top 20 Borrorwers2016/17

24.5%

75.5%

Top 20 Borrorwers (in Rs.)

Others (in Rs.)

Geographical Concentration - 2017/18

53.4%

7.1%

11.1%

5.0%

8.9%

11.7%

2.8%

Colombo

Gampaha

Kalutara

Kandy

Kurunegala

Negombo

Wennappuwa

Geographical Concentration - 2016/17

43.8%

6.6%11.6%

3.6%

11.2%

15.8%

7.4%

Colombo

Gampaha

Kalutara

Kandy

Kurunegala

Negombo

Wennappuwa

44

Sector Concentration - 2017/18

10.0%

13.8%

1.9%

10.5%

3.3%0.2%

51.8%

8.5%

Agriculture

Manufacturing

Construction

Financial Services

Trading

Transport

Infrastructure

Services

Sector Concentration - 2016/2017

11.1%

4.8%

2.2%

19.5%

7.2%

41.8%

13.4%

Agriculture

Manufacturing

Construction

Financial Services

Trading

Transport

Services

Product Concentration - 2017/18

23.2%

7.9%

15.5%

3.6%

21.2%

18.5%

10.1%

Term Loans

Short Term Loans

Easy Payment Loans


Mortgage Loan

Lease & HP

Other Loans

Product Concentration - 2016/17

70.2%

9.2%

2.5%

1.8%

7.9%

8.4%

Term Loans

Short Term Loans

Easy Payment Loans


Lease & HP

Other Loans

Exposure to Large Borrowers(> 5% of Core Capital) - 2017/18

90.9%

9.1%

Large Borrowers Other Borrowers

Exposure to Large Borrowers (> 5% of Core Capital) - 2016/17

88.2%

11.8%

Large Borrowers Other Borrowers

Liquidity Risk

Liquidity risk is the risk that the Company is unable to meet its financial obligations in a timely manner at reasonable prices. Financial obligations include liabilities to depositors, payments due, disbursement of loans and advances, settlement of banks and other borrowing and repurchase transactions, and investment commitments.

The Company maintains adequate holdings of unencumbered liquid assets to support its operations. These assets generally can also be sold or pledged to meet the obligations. Operationally, the Finance Department plays a vital role in assessing and managing liquidity risk in day-to-day operations. The Finance Department projects cash flow needs in consultation with Deposits, Credit and Recoveries Division and determines the level of liquidity required in response to the findings.



Oversight responsibility for monitoring and managing liquidity risk is vested with Assets and Liabilities Committee (ALCO), which ensures that a sufficient liquidity buffer is maintained to meet the funding obligations. The Company’s liquidity management process includes,

(i) Monitoring future cash flows and liquidity on a daily basis;

(ii) Maintaining a portfolio of highly marketable assets that can be liquidated quickly as protection against any unforeseen interruption of cash flow;

(iii) Monitoring the liquidity ratios of the Company against internal and regulatory requirements;

(iv) Managing the funding concentration and the maturity profile of the Assets and Liabilities, as well as undrawn lending commitments; and

(v) Liquidity stress testing and contingency planning.

Liquid Asset and Statutory Liquid Asset Ratio

0

100

200

300

400

500

600

700

Mar-17 Jun-17 Sep-17 Dec-17 Mar-18

Rs.Mn %

10

15

20

25

30

35

Liquid AssetsSLAR

Net Loans to Total Assets Ratio

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

Mar-17 Jun-17 Sep-17 Dec-17 Mar-18

Rs. Mn %

50

55

60

65

70

75

80

Net LoansTotal Assets

Net Loans to Total Assets Ratio

Deposit Renewal Ratio - 2017/18

%

75

80

85

90

95

100

Apr

-17

May

-17

Jun-

17

Jul-

17

Aug

-17

Sep-

17

Oct

-17

Nov

-17

Dec

-17

Jan-

18

Feb-

18

Mar

-18

Funding Mix -2017/18

5.6%

69.7%

17.8%

6.9%

Due to Banks

Due to Customers

Equity

Debt Instruments

Funding Mix -2016/17

2.4%

78.7%

18.9%

Due to Banks

Due to Customers

Equity

Contingent Funding Line

The Company ensures access to the contingent funding lines as a buffer to support any deficiency in liquidity. The ALCO is having the primary responsibility of monitoring the liquidity position of the Company and contingency funding sources.

Interest Rate Risk

Interest rate risk is a key component of the market risk exposure of the Company arising from adverse and unanticipated movements in future interest rates that could impact core business activities of the Company. Interest Rate Risk is defined as the potential loss from unexpected changes in interest rates which significantly alter Company’s profitability (earnings prospective) and market value of equity (market value prospective). Due to the nature of operations of the Company, the impact of interest rate risk is mainly on the earnings of the Company rather than the market value of portfolios.

46

The Company manages its interest rate risks primarily through asset liability repricing gap analysis, which distributes interest rate sensitive asset and liability positions into several maturity buckets. ALCO oversees the interest rate environment and monitors the movement of market interest rates. The net interest income position and the asset liability repricing gap are evaluated periodically. Asset liability repricing gap analysis is prepared considering rate sensitive assets and rate sensitive liabilities which enable to assess the impact on net interest income resulting from interest rate movements in the market. Sensitivity analysis is carried out on interest rate scenarios to decide on the risk exposure and to assess the impact on net interest income.

Market Interest Rate Movements 2017/2018

%

7

8

9

10

11

12

Apr

-17

May

-17

Jun-

17

Jul-

17

Aug

-17

Sep-

17

Oct

-17

Nov

-17

Dec

-17

Jan-

18

Feb-

18

Mar

-18

Average Weighted Prime Lending Rate364 Days Treasury Bill Rate91 Days Treasury Bill Rate

Repricing Gap - As at 31.03.2018

-1,000

-500

0

500

1,000

1,500

2,000

< 3

Mon

ths

3-12

Mon

ths

1-3

Year

s

3-5

Year

s

> 5

Year

s

Rs. Mn

Rate Sensitive AssetsRate Sensitive LiabilitiesRepricing Gap

Repricing Gap - As at 31.03.2017

-1,000

-500

0

500

1,000

1,500

2,000

Rs. Mn %

Rate Sensitive AssetsRate Sensitive LiabilitiesRepricing Gap

< 3

Mon

ths

3-12

Mon

ths

1-3

Year

s

3-5

Year

s

> 5

Year

s

Operational Risk

Operational Risk is defined as the risk that losses will occur due to weaknesses or failure in internal processes and/or systems, human errors, or outside events. Examples of Operational Risks include Information Technology failures, shortcomings in the organizational structure, the absence of / or inadequate internal controls, human error, fraud and external threats.

Information Technology Risk has been identified as a major source

of Operational Risk. Information Technology Risk is defined as the business risk associated with the use, ownership, operation, involvement, influence and adoption of Information Technology within the Company including outsourcing partners or suppliers. Information Technology Department manages the Information technology risks and advises operational management on system control, and assists in the identification and analysis of information technology risks.

Awareness and management commitment is fundamental to identifying and analyzing operational risks and implementing adequate internal control measures. In mitigating operational risk, the Company has established robust controls with well-defined segregation of duties, policies and procedures. The Internal Audit function performs a monitoring role involving operational audits.

The prime responsibility for the management of operational risk and compliance with control requirements rests with the business and functional units where the risk arises. Integrated Risk Management Committee acts in a Second Line of Defence capacity, and is responsible for defining and overseeing the implementation of the framework and monitoring operational risk profile.

Reputation Risk

Reputation risk can be defined as the risk arising from negative perception on the part of customers,



counterparties, shareholders, investors or regulators that can adversely affect Company’s ability to maintain existing, or establish new, business relationships and continued access to sources of funding.

Reputation risk is by nature pervasive and can be difficult to quantify, requiring more subjective judgement than other risks. The primary responsibility for identifying and managing reputation risk and adherence to the control requirements vested with the business and support functions where the risk arises.

Compliance Risk

Compliance risk is the risk of legal or regulatory sanctions or material financial losses as a result of failure to comply with laws, regulations, rules and codes of conduct applicable to the Company’s activities.

The Company’s compliance function provides support in managing compliance risks by embedding and improving compliance arrangements at all levels. The objective of the compliance function is to promote compliance, assurance standards and management for external and internal legislation, regulations, best practices and code of conduct that serve to control integrity risks while ensuring the integrity of management and employees. Risk and Compliance Department forms the organization’s second line of defence and reporting to BIRMC.

Strategic Risk

Strategic risk is the risk of loss or harm arising from strategic decisions or poor implementation of decisions affecting the long-term interests of the Company’s main stakeholders, or inability to adopt to changes in the environment. The Company’s business model is a key factor for strategic risk. It has to be viable and sustainable, and capable of generating results in line with the Company’s objectives and over time. Within the strategic risk, three components are differentiated,

® Business Model Risk: the risk associated with the Company’s viability business model. This risk is caused both by external factors and as well as internal factors.

® Strategy Design Risk: the risk associated with the strategy set out in the Company’s strategic plan.

® Strategy Execution Risk: the risk associated with executing long term strategic financial plans including inability to react to changes in the business environment.

Capital Risk

Capital risk is the risk that the Company does not have sufficient capital, in quantitative or qualitative terms, to fulfil its internal business objectives, regulatory requirements, or market expectations. The capital management function, in its capacity as second line of defence, controls and oversees the activities of the

first line of defence mainly by means of the following processes:

® Supervision of capital planning and adequacy exercises through a review of all their components (Financial Position, Income Statement, Risk-Weighted Assets and available Capital).

® Ongoing supervision of the Company’s Capital measurement activities.

The main purposes of capital management are to support the Company’s business strategy and to ensure that Company is sufficiently capitalized to withstand even severe macro-economic downturns. The regulation on Capital Adequacy prescribes that Financial Institutions should maintain a minimum level of regulatory Capital and Capital Adequacy Ratios measures the amount of Capital expressed as a percentage of its Risk Weighted Exposures. ALCO oversees the Capital Management process of the Company.

Capital Adequacy

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

14/15 15/16 16/17 17/18

Rs. Mn %

0

5

10

15

20

25

30

35

Tier I (Core) Capital

Total Assets

Total Risk Weighted Assets

Core Capital Ratio

Required Minimum Core Capital Ratio

48

Corporate Governance

Chairman’s Statement on Corporate Governance

Dear Stakeholder,

It is my pleasure to present to you, on behalf of Board of Directors, the Corporate Governance Report of Prime Finance PLC for 2017/18.

The Company has instilled the philosophy of Corporate Governance into all of its activities. The philosophy on Corporate Governance is a vital tool for achieving performance targets while protecting all stakeholder interests. The fundamental principles such as independence, accountability, responsibility, transparency, fair and timely disclosures, credibility etc. serve as the means for implementing the philosophy of Corporate Governance in letter and spirit.

Our Company is committed to values of ethical and transparent business conduct. The Board of Directors believes that Corporate Governance is respect for the inalienable rights of the shareholders as the true owners of the Company. It also perceives maximization of other stakeholders’ interest for the long term interest of the shareholders and thereby long term efficiency and progress of the Company.

The Board and the Board Sub-Committees plays a dynamic role in implementing good Governance practices. We recognize the importance of, and are committed to, high standards of Corporate Governance, aligned with the needs of the company and the interests of all our stakeholders.

Corporate Governance Report on pages 48 to 89 is an integral part of Annual Report as mandated by Finance Companies (Corporate Governance) Direction No. 3 of 2008 issued by the Central Bank of Sri Lanka and contain comprehensive governance arrangements as required under the regulations and details on the extent of the adoption by the Company with the provisions set out in the regulations.

M. D. S. M. GoonatillekeChairman / Independent Non-Executive Director


Introduction

The Board of Directors of Prime Finance PLC views good Corporate Governance as fundamental to the creation, protection and enhancement of the value of the Company, and to achieve sustainable growth. We aim to set the right tone and to encourage a culture that is entrepreneurial and yet risk-focused, and safeguards the long-term interests of our stakeholders, while remaining fair and accountable in our activities and practices. Our corporate culture is based on competent leadership, effective internal controls, strong risk culture and accountability to shareholders.

Regulatory Framework

Whilst ensuring that the business is carried on adhering to the generally accepted Corporate Governance practices, the Board of Directors also ensures compliance with the provisions of the Finance Companies (Corporate Governance) Direction No.3 of 2008 as amended, Code of Best Practice on Corporate Governance 2013 issued jointly by the Institute of Chartered Accountants of Sri Lanka and the Securities and Exchange Commission of Sri Lanka and the Listing Rules of the Colombo Stock Exchange in order to achieve and maintain the highest standards of Corporate Governance to ensure greater transparency.

Board Composition and Balance

The Board has adopted a diversity policy, which recognizes the importance of having an appropriate balance of industry knowledge, skills, experience, professional qualifications and gender to build an effective and cohesive board. The Board members of the Company are from diverse backgrounds and qualifications, and bring a wide range of commercial and financial experience to the Board. We have a high proportion of Non-Executive Directors (seven out of eight directors). The Non-Executive Directors are independent of the management. Their role is to constructively challenge the Management and monitor the success of Management in delivering the approved results within the risk appetite set by the Board.

Board Composition

Chairman

Executive Director

ChairmanBRPTRC

ChairmanBAC

ChairmanBIRMC

ChairmanBRC

Board Balance

Executive Director

Non- Independent Non-Executive


TotalDirectors

Technical Skills and Experience Matrix

Technical Skills and Experience

No. of Directors

Financial Acumen 05

Banking & Financial Services

06

Human Resources 03

Risk Management 05

Marketing and Strategy

05

Legal 01

Compliance 03

Business and Entrepreneurship

03

General Management 08

Corporate Governance 06

An individual Director may represent more than one discipline.

50

Directors Age Analysis

12.5%

62.5%

25%

Age 45 - 54 Years

Age 60 - 65 Years

Age 55 - 59 Years

Directors Gender Analysis

87.5%

12.5%

Female

Male

The Board is of the view that the current Board size is appropriate to facilitates effective decision making, taking into account the scope and nature of the operations of the Company. A list of the individual directors and their profiles including dates of appointment to the Board and their Committee memberships are set out in the Directors’ profile on pages 18 to 23 of the Annual Report.

Division of Responsibilities - Chairman and Chief Executive Officer (CEO)

The leadership model of the Company ensures an appropriate balance of power, accountability and independence in decision-making. The positions of the Chairman and the CEO are kept separate with a clear distinction between the responsibilities.

The Board Chairman, Mr. M. D. S. M. Goonatilleke, is an Independent Non-Executive Director. He provides leadership to the Board, approves the meeting agenda of the Board, ensures that Directors receive timely and comprehensive information for them to discharge their duties, promotes an open environment for constructive debate at meetings, facilitates collaboration between the Board and Management and oversees Corporate Governance matters. He also plays an active role in ensuring that the continuous development programme for Directors is relevant and appropriate. During General Meetings of Shareholders, he fosters open dialogue among shareholders, the Board and Management. Sitting on most of the Board Sub-Committees, the Board Chairman has a good overview of the activities of all Board Sub-Committees and is able to guide the Board and the Board Sub-Committees to better performance.

Mr. R. P. Kaluarachchi, the CEO, leads the management team, implements the Board’s decisions, and promotes a values-based culture and an environment that is conducive to professional and personal development. The CEO provides leadership through developing strategy, delivering an integrated plan across the business and functions and balancing strategy, people and talent, risk management, governance and stakeholder management. The CEO reviews the Board papers and ensures that Board members are provided with accurate, timely and clear information. Assisted by Heads of Departments , the CEO bears executive responsibility for the Company’s day-to-day operations and business, including seeking business opportunities and ensuring the continued relevance, adequacy and effectiveness of the Company’s system of internal controls and risk management.

Board of Directors’ access to information

In order to ensure that the Board is able to fulfil its responsibilities, directors have unrestricted access to information. The Directors also have independent access to the Company Secretaries, who assists them in the discharge of their duties. The Company Secretaries responsibilities include advising the Board on Corporate Governance and ensuring that Board procedures and applicable regulations are complied with.



All Directors receive a set of Board papers at least seven days prior to the Board meeting to give sufficient time for Directors to obtain further explanations where necessary. The Board papers include, among others, the following documents and details;

® Agenda for the Board Meeting

® Background or explanation on matters brought before the Board for decision or information

® Minutes of the preceding Board Meeting; and

® Approved minutes of the Board Sub-Committee Meeting held since the previous meeting of the Board.

Heads of the Departments are present at meetings to provide additional information or clarification as required. The Board approved policy in place to support the Board of any independent professional advice by a director, at the expense of the Company, if necessary, in order for the Director to effectively discharge his duties and responsibilities.

Board and Board Sub-Committees

The Board has established a number of Board Sub-Committees to assist it in carrying out more effectively its oversight of the operations and business affairs of the Company. These Board Sub-Committees currently comprise of Board Audit Committee, Board Integrated Risk Management Committee, Board Remuneration Committee and Board Related Party Transactions Review Committee. The Board Sub- Committees have been constituted with clear Board-approved terms of reference. Minutes of Board Sub-Committee meetings, which provide a fair and accurate record of the discussions and the key deliberations and decisions taken during the meetings are maintained, and circulated to the Board on a regular basis. Details of the principal roles and responsibilities of the Board and Board Sub-Committees are illustrated below,

52

The Board of Directors

® Chairman/Independent Non-Executive Director Mr. M. D. S. M. Goonatilleke

® Independent Non-Executive Director Mr. D. H. Kalapuge Mr. H. M. Hennayake Bandara

® Non Independent Non-Executive Director Mr. B. Premalal Mr. M. Perera Mr. P. A. W. Perera Mr. N. A. Wickramage

® Executive Director

Ms. H. K. S. R. Perera

The Role and Responsibilities of the Board

® Approving and overseeing the Strategic Objectives and Corporate values.

® Ensuring the formulation and implementation of an overall business strategy including an overall risk policy for next three years.

® Ensuring all stakeholder interests are considered in corporate decisions and such decisions are communicated amongst all stakeholders including depositors, creditors, shareholders and borrowers.

® Ensuring effective systems to secure integrity of information, internal controls, and risk management.

® Ensuring that the Chief Executive Officer (CEO) and Key Management Personnel (KMP) possess the required skills, experience and knowledge and defining authority and key responsibilities.

® Ensuring the adoption of an effective CEO and KMP succession strategy.

® Ensuring that meetings are held regularly with KMP to establish lines of communication and monitor progress towards corporate objectives.

® Understanding the regulatory environment and ensuring compliance with laws, regulations and ethical standard.

® Ensuring due diligence in the hiring and oversight of external auditors.

® Ensuring that the Company’s values and standards are set with emphasis on adopting appropriate accounting policies and fostering compliance with financial regulations; and fulfilling such other Board functions as are vital, given the scale, nature and complexity of the business concerned.



Board Audit Committee

Members∫ Mr. H. M. Hennayake Bandara

(Chairman)

∫ Mr. M. D. S. M. Goonatilleke

∫ Mr. P. A. W. Perera

ScopeAssist the Board of Directors in its general oversight on financial reporting, internal controls, internal and external audits.

Board Integrated Risk Management Committee

Members∫ Mr. M. Perera (Chairman)

∫ Mr. H. M. Hennayake Bandara

∫ Mr. M. D. S. M. Goonatilleke

ScopeAssist the Board of Directors in ensuring the adequacy and effectiveness of the Company’s risk management framework and capabilities to achieve the strategic objectives.

Board Related Party Transaction Review Committee

Members

∫ Mr. M. D. S. M. Goonatilleke (Chairman)

∫ Mr. D. H. Kalapuge

∫ Mr. M. Perera

ScopeAssist the Board of Directors in ensuring that the interest of shareholders as a whole are taken into consideration by the Company when entering into transactions with Related Parties.

Board Remuneration Committee

Members∫ Mr. D. H. Kalapuge (Chairman)

∫ Mr. B. Premalal

∫ Mr. M. Perera

ScopeAssist the Board of Directors in fulfilling its oversight responsibility on the compensation and benefits granted to the Directors, CEO and KMPs of the Company.

54

Board and Board Sub-Committee Meetings and Directors’ Attendance

The Board met monthly during the year to review the business performance and key activities of the Company presented by Management, and to deliberate significant business proposals presented by Management. The Board Sub-Committees too met regularly to fulfills its scope approved by the Board of Directors. All members of the Board participated actively in Board

Directors’ Attendance at Board and Board Sub-Committee Meetings

Name of Director Board Board Audit Committee

IRMC Remuneration Committee

RPTRC

B.PREMALAL 13/13 - - 2/2 -

M.D.S.M. GOONATILLEKE 13/13 9/9 6/6 - 4/4

H.K.S.R.PERERA 13/13 - - - -

M.PERERA 11/13 - 6/6 1/2 4/4

N.A.WICKRAMAGE 11/13 - - - -

H.M.H.BANDARA 13/13 9/9 6/6 - -

D.H.KALAPUGE 13/13 - - 2/2 2/4

P.A.W.PERERA 13/13 9/9 - - -

Selection to the Board and Appointment

The Board is responsible for identifying candidates, reviewing and approving nominations of Directors on the Board and Board Sub-Committees. Proposals for the appointment of new Directors are reviewed by the Board taking into account the competencies and skills required to the Board based on the outcome of annual evaluation of effectiveness of the Board. Candidates are assessed on their suitability taking into consideration, amongst others, their professional qualifications, integrity, financial and commercial business expertise

discussions and decisions and taken objectively in the interests of the Company.

Directors’ attendance at Board and Board Sub-Committee meetings in 2017/18 is set out in the table below.


0

3

6

9

12

15

Board Board Audit Committee Board Integrated Risk Management Committee

Board Remuneration Committee Board Related Party Transactions Review Committee

Absent in Board or Board Sub -Committee Meetings

Directors’ Attendance at Board and Board Sub-Committee Meetings

B.P

RE

MA

LAL

M.D

.S.M

. GO

ON

AT

ILLE

KE

H.K

.S.R

.PE

RE

RA

M.P

ER

ER

A

N.A

.WIC

KR

AM

AG

E

H.M

.H.B

AN

DA

RA

D.H

.KA

LAP

UG

E

P.A

.W.P

ER

ER

A


and field of expertise relevant to the Company, potential to contribute to the effectiveness of the Board and to complement the skills, knowledge and expertise of the Board.

Further, Board determines the proposed candidate’s independence under Corporate Governance regulations and ensures that the proposed appointment would not result in non-compliance with any of the composition requirements for the Board and Board Sub-Committees. Board also evaluates the fit and proper requirements in terms of Finance Companies (Assessment of Fitness and Propriety of Directors and Officers Performing Executive Functions) Direction No. 03 of 2011 and obtains prior approval of the Central Bank of Sri Lanka in terms of the same direction.

Re-nomination and Re-election of Directors

All Directors of the Board are required to submit themselves for re-election at regular intervals, at least once every three years in compliance with the Code of Best Practice on Corporate Governance 2013. In terms of Section 4 (10) of the Finance Companies (Corporate Governance) Direction No. 03 of 2008, newly appointed Directors will hold office until the next AGM, and if eligible, can stand for re-election. Retiring Directors are eligible for re-election when re-nominated by

the Board, taking into account the Directors’ attendance at meetings, their expertise, knowledge and commitment, and their contributions to Board discussions and to the effectiveness of the Board.

Directors who are nominated for re-election submits affidavits and declarations and obtain prior approval from the Central Bank of Sri Lanka in terms of Section 3.4 of the Finance Companies (Assessment of fitness and propriety of Directors and Officers performing executive functions) Direction No. 03 of 2011. All Directors were appointed during 2016/17 financial year after Prime Lands (Pvt.) Limited acquired the Company and all Directors retired at the last Annual General Meeting and re-elected by the Shareholders with the unanimous support of the other Directors and no Directors of the Company is required to retire at this Annual General Meeting being eligible, offer themselves for re-election.

Determination of Independence of Non-Executive Directors

The Board evaluates annually whether each of the Non-Executive Directors is independent in terms of independent criteria set out in the Finance Companies (Corporate Governance) Direction No. 03 of 2008, Listing Rules of the Colombo Stock Exchange and Code of Best Practice on Corporate Governance 2013. The Non-Executive Directors also submitted declarations on their independence in terms of rule 7.10.2(b) of the Listing Rules of the Colombo Stock Exchange to facilitate the Board to decide on their independence. At the end of the process, the Board concluded the states of Independence of Non-Executive Directors as follows,

Name of the Director Independent / Non Independent

Finance Companies (Corporate Governance) Direction No. 03 of 2008

Listing Rules of the Colombo Stock Exchange & Code of Best Practice on Corporate Governance 2013

Mr. M. D. S. M. Goonatilleke Independent Independent

Mr. B. Premalal Non Independent Non Independent

Mr. M. Perera Non Independent Independent

Mr. D. H. Kalapuge Independent Independent

Mr. N. A. Wickramage Non Independent Non Independent

Mr. P. A. W. Perera Non Independent Non Independent

Mr. H. M. Hennayake Bandara

Independent Independent

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Performance of the Board

The Board of Directors has adopted an annual process for evaluating the effectiveness of the Board. The evaluation was based on the schedule - B (Board Performance Evaluation Checklist) suggested in the Code of Best Practice on Corporate Governance 2013. The Board evaluation process promotes Board effectiveness by identifying areas for improvement. The Company Secretaries facilitated the evaluation process. The Board discussed the findings of the evaluation and agreed to follow-up on certain items.

Management of Conflicts of Interests

A conflict of interest arises when what is in a Director’s best interest is not in the best interest of the Company to which the Director owes loyalty. The Company has adopted a Board approved policy on the Management of Conflicts of Interests which specifies the processes and procedures to be followed to manage conflicts. Accordingly, all directors must notify the Company in a timely manner of any change in their interests or directorates or equivalent positions in other entities. Where a director has an interest in a matter being discussed, he/she is required to recuse himself/herself from the discussion and abstain from voting on the matter. Directors’ direct and deemed interests in shares of the Company are disclosed

in the Annual Report of the Board of Directors on the Affairs of the Company on page 102 of the Annual Report.

Reviewing independence and objectivity of external auditor

The Company has implemented a Policy on External Auditor Appointment, Re-Appointment, Resignation or Removal, Rotation of Audit Partner & Independence and Policy and Procedure on the Engagement of an External Auditor to provide Non-Audit Services in order to ensure that the External Auditors’ independence is not compromised at all times. The external auditor M/s. Ernst & Young have provided an affirmation of their independence to the Board Audit Committee and the Committee evaluated their relationship with the Company, including the fees paid to the Non-Audit services provided by them. The Board Audit Committee being satisfied with their independence, objectivity and effectiveness of the audit process recommended to the Board for the re-appointment of the external auditor for the ensuing year including their remuneration and terms of engagement. Further, the Board of Directors has approved the same and the re-appointment of the external auditor is subject to approval of the Shareholders’ at the Annual General Meeting.

Delegation of Authority

The Board established a framework of delegation of authority to discharge its stewardship and fiduciary obligations effectively and to set out a clear structure for the sources of authority flowing from the Board to the Board Sub-Committees, Management Committees and the respective business functions throughout the Company. Further, all such delegations are made in a manner that it would not hinder the Board’s ability to discharge its functions. The roles and responsibilities of each Board Committees are well-defined in their respective terms of reference and are reviewed annually for continued relevance. The Board also periodically reviews the powers delegated to respective business functions to ensure that they remain relevant to the needs of the company.

Status of Adoption with Corporate Governance Regulations

The status of adoption with the regulations on Corporate Governance is presented under the three sections given below.

Part One – The level of compliance with the Code of Best Practice on Corporate Governance 2013, issued jointly by the Securities and Exchange Commission of Sri Lanka and the Institute of Chartered Accountants of Sri Lanka.



Part Two – The level of compliance with the Listing Rules - Section 7.10 on Corporate Governance for Listed Companies issued by the Colombo Stock Exchange.

Part Three – The level of compliance with Finance Companies (Corporate Governance) Direction No. 03 of 2008 and subsequent amendments thereto issued by the Central Bank of Sri Lanka.

Part One - Code of Best Practice on Corporate Governance 2013, issued jointly by the Securities and Exchange Commission of Sri Lanka and the Institute of Chartered Accountants of Sri Lanka

The Code of Best Practice on Corporate Governance issued jointly by the Institute of Chartered Accountants of Sri Lanka and the Securities and Exchange Commission of Sri Lanka provides for the prerequisites for the establishment and maintenance of a sound corporate governance environment. The Code encompasses the following seven fundamental principles that should be focused upon by companies in discharging their responsibilities.

A. Directors

B. Directors’ Remuneration

C. Relations with Shareholders

D. Accountability and Audit

E. Institutional Shareholders

F. Other Investors

G. Sustainability Reporting

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The Company’s level of adoption with the Code of Best Practice on Corporate Governance is tabulated below.

SectionReference Principle Status of Adoption

A. DIRECTORSThe Company is led, directed and controlled by the Board of Directors. The Directors possess the skills, experience and knowledge complemented with a high sense of integrity and independent judgment. The Board is equipped with members having sufficient financial acumen and knowledge. The Company has established a clear division of responsibilities between the Chairman and CEO to ensure balance of power and authority, in such a way that no individual has unfettered powers of decision.

A.1 The Board

Prime Finance PLC is headed by a Board of Directors with a diverse mix of professional, academic and entrepreneurial perspectives, in the field of banking, accounting and finance, law, management, marketing, and human resources. All Directors possess the skills, experience and knowledge complemented with a high sense of integrity and independent judgment. They provide leadership in setting strategic direction and a sound control framework to achieve the objectives of the Company set out in the corporate plan and the annual budget to satisfy the expectations of stakeholders.

A.1.1. Board meetings –

The Board should meet at least once in every quarter

The Board usually meets monthly and special meetings are convened wherever necessary. During the year, the Board met 13 times. Please refer “Board and Board Sub-Committee Meetings and Directors’ Attendance” on page 54 for the details of attendance at Board meetings held during the year.

A.1.2 Board’s responsibilities –

- Formulation and implementation of a sound business strategy

The Board of Directors is responsible for setting strategic objectives of the Company and for determining its operational policies and performance criteria. The Company’s strategic business plan covering the period up to 2019/20 as approved by the Board in June 2017 provides for overall risk management policy, procedures and mechanisms with measurable goals. The budget is approved annually and the achievement of the objectives set out therein and the business plan is reviewed by the Board on a regular basis with management updates at Board meetings.

- CEO, Executive Directors and Senior Management team possess the skills, experience and knowledge

The Executive Director, CEO and other Corporate Management team possess extensive skills, knowledge, competencies and experience. The profiles of the CEO and the Corporate Management are presented on pages 24 to 27.

- CEO and Key Management Personnel (KMP) succession planning

A Board approved Succession Plan for the key management personnel of the company is in place and the Company is in the process of reviewing the same considering the recent changes to the Management Positions.

- Implementing security and integrity of information, internal controls, business continuity and risk management

The Board ensures that an effective system is in place to secure the integrity of information, internal controls and risk management. The Board Audit Committee on behalf of the Board monitor the integrity of financial information, the robustness of financial control and system of risk management of the Company.




- Ensuring compliance with laws, regulations and ethical standards

The Company has established an independent Compliance Function whose task is to monitor and assess the Company’s compliance with laws, regulations, regulatory guidelines, internal controls and approved policies on all areas of business operations. The Compliance Officer reports to the Board Integrated Risk Management Committee.

- Ensuring all stakeholder interests are considered in corporate decisions

The Board considers the stakeholder interests in the decision making process.

- Recognizing sustainable business development.

The Board recognizes the importance of sustainable development in corporate strategy and business development.

- Ensuring that the Company’s values and standards are set with emphasis on adopting appropriate Accounting Policies

The Company’s accounting policies are reviewed annually so as to be current with new developments, changing business requirements and best practices in the industry. An affirmation that the Company’s Financial Statements are in line with the applicable standards is contained in the “Directors’ Statement on Internal Controls over Financial Reporting” on page 105.

- Fulfilling other Board functions is vital, given the scale, nature and the complexity of the organization.

The Board has attempted to fulfill the obligations towards all stakeholders during the year under review.

A.1.3 Compliance with laws and access to independent professional advice.

The Board collectively and Directors individually, recognize their duty to comply with laws of the country. The Board of Directors ensures that procedures and processes are in place to ensure that the Company complies with all applicable laws and regulations. The Board has approved a procedure to seek Independent Professional advice by Directors at the expense of the Company.

A.1.4 All Directors should have access to the services and advice of the Company Secretary.

A Board approved policy is in place to enable all Directors to have access to the Company Secretaries. Directors are authorized to access the Company Secretaries to obtain advice and services as and when required on any matter relating to the Board procedures and all applicable rules and regulations.

A.1.5 Independent judgment of Directors

All Directors are responsible for bringing independent judgment on issues of strategy, performance, resources and standard of business conduct. Non-Executive Directors are responsible for providing independent judgment for the proposals made by the Management.

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A.1.6 Every Director should dedicate adequate time and effort to the matters of the Board and the Company

Every Director dedicated adequate time and effort to the meetings of the Board and Board Sub-committee meetings to ensure that the duties and responsibilities are satisfactorily discharged. The Company circulates Board papers and relevant information with adequate notice in order for them to review before the Board / Board Sub Committee meetings. The number of Board / Board Sub-Committee meetings held and attendance is presented on page 54.

A.1.7 Every Director should receive appropriate training

Every Director was given appropriate induction when first appointed to the Board with regard to the affairs of the Company and laws and regulations applicable to the Company and subsequent training on latest trends and issues facing the Company and the industry in general.

A.2 Chairman and Chief Executive Officer –

The Company has established a clear division of responsibilities between the Chairman and CEO to ensure the balance of power and authority, in such a way that no individual has unfettered powers of decision. The Chairman is responsible for leading the Board effectively to discharge all responsibilities and CEO is responsible for management of the Company’s business operation with the assistance of Corporate Management.

A.2.1. If CEO and Chairman is one person justification in the Annual Report

Since CEO’s and Chairman’s roles are segregated, a specific disclosure is not required.

A.3 Chairman’s Role –

The Chairman is responsible for providing effective leadership to the Board in preserving sound Corporate Governance and facilitating effective discharge of Board functions.

A.3.1 Chairman’s role Complied with. The extent of compliance with this requirement is disclosed on page 50 under “Division of Responsibilities - Chairman and Chief Executive Officer (CEO)”

A.4 Financial Acumen –

The Board should ensure the availability of those with sufficient financial acumen and knowledge to offer guidance on matters of finance within the Board.

A.4.1 Financial Acumen The Board is comprised with sufficient number of directors with financial acumen who provide guidance to the Board on matters relating to finance. Please refer “Board Composition and Balance” on page 49 and pages 18 to 23 of the Annual Report for the profile of the Directors.




A.5 Board Balance –

Maintaining a balanced Board between Executive Directors and Non-Executive Directors is required as per the Code to ensure that no individual or small group of individuals can dominate the Board’s decision making. More than half of the Company Board members are Non-Executive Directors and each of them bring wide experience to the Board and ability to exercise independent judgment when taking informed decisions.

A.5.1 Board should include at least two Non- Executive Directors or one-third of total Directors, whichever is higher

Complied with. The extent of compliance with this requirement is disclosed on page 49 under “ Board Composition and Balance”

A.5.2 Two or one-third of Non- Executive Directors whichever is higher should be independent.

Complied with. The extent of compliance with this requirement is disclosed on page 49 under “ Board Composition and Balance”

A.5.3 Evaluation of independence of Non- Executive Directors

Complied with. The extent of compliance with this requirement is disclosed on page 55 under “Determination of Independence of Non-Executive Directors”

A.5.4 Signed declaration of Independence by the Non- Executive Directors

A.5.5 Determination of the independence and non-independence of each Non- Executive Directors annually.

A.5.6 Alternate Directors to meet the criteria for independence / Non-Executive status of the appointer.

No alternate Directors were appointed during the year under review.

A.5.7 Senior Independent Director (SID)

A Senior Independent Director’s role was not required as the Chairman is an Independent non-executive Director.A.5.8 Confidential discussion

with other Directors by the Senior Independent Director

62


A.5.9 Meetings held by the Chairman with Non-Executive Directors

The Chairman did not hold meetings with non-executive Directors.

A.5.10 Recording of concerns of Directors in Board minutes where they cannot be unanimously resolved.

There were no instances where the Directors could not unanimously resolve the matter and accordingly no such matters were recorded in the minutes.

A.6 Supply of Information –

The Board should be provided with timely information in a comprehensive and timely manner to enable it to discharge its duties.

A.6.1 Management should provide timely information to the Board Complied with. The extent of compliance with this requirement is disclosed on

page 50 under “Board of Directors’ access to information”A.6.2 Adequate time for effective

Board meetings.

A.7 Appointments to the Board –

There should be a formal and transparent procedure for the appointment of new Directors to the Board.

A.7.1 Nomination Committee The role of the Nomination Committee was looked after by the Board of Directors.

A.7.2 Assessment of Board composition by the Nomination Committee

The Board as a whole assesses its own composition to ascertain whether the experience and the exposure of the Board members are adequate to meet the strategic demands faced by the Company and satisfied with the current Composition of the Board.

A.7.3 Disclosure requirements when appointing new Directors to the Board

Details of new Directors are disclosed to shareholders when appointed, with immediate notification to the Colombo Stock Exchange along with a brief resume of such Director.

A.8 Re Election –

All Directors should be required to submit themselves for re-election at regular intervals and at least once in every three years.

A.8.1 – A.8.2 Re-election of Directors Complied with. The extent of compliance with this requirement is disclosed on page 55 under “Re-nomination and Re-election of Directors”




A.9 Appraisal of Board Performance -

The Board should periodically appraise their own performance in order to ensure that Board responsibilities are satisfactorily discharged.

A.9.1 - A.9.3 Appraisal of Board Performance

Annual self-evaluation by the Board members and of its committees

Disclosure of evaluation process

The extent of compliance with this requirement is disclosed on page 56 under “Performance of the Board”

A.10 Disclosure of information in respect of Directors

Shareholders should be kept advised of relevant details in respect of Directors.

A.10.1 Annual Report disclosure in respect of Directors (Name, Qualifications, etc.)

Profiles of the Board of Directors are given on pages 18 to 23.

A.11 Appraisal of Chief Executive Officer (CEO)

The Board should require at least annually to assess the performance of the CEO.

A.11.1 Targets for CEO at the commencement of each fiscal year

CEO’s performance targets are aligned with business strategies of the Company. Targets are set at the beginning of every financial year by the Board which is in line with the short, medium and long-term objectives of the Company.

A.11.2 Evaluation of the performance at the end of each fiscal year

At the end of each financial year the Board evaluates the set targets and the actual performance.

B. DIRECTORS’ REMUNERATIONThe Company has a well-established, formal and transparent procedure for executive remuneration and fixing the remuneration packages of individual Directors. The level of remuneration of both Executive and Non-Executive Directors is sufficient to attract and retain the Directors needed to manage the company successfully.

B.1 Remuneration procedure

The Company has a formal and transparent procedure for developing policy on executive remuneration and for fixing the remuneration packages of individual Directors. No Director should be involved in deciding his / her remuneration.

64


B.1.1 Setting up of Remuneration Committee

The functions of the Committee include determination of compensation and benefits of the CEO and Executive Directors while ensuring no Director is involved in setting his/her own remuneration. Further, the Committee is responsible for deciding the overall remuneration structure of the Company.

B.1.2 Composition of Remuneration Committee

Remuneration Committee is comprised of Non-Executive Directors. Refer the Remuneration Committee report on page 92.

B.1.3 Disclosure in the Annual Report about the Remuneration Committee members

Remuneration Committee report is given on page 92.

B.1.4 Remuneration of Non-Executive Directors

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

B.1.5 Consultation of the Chairman / CEO and other Executive Directors and access to the professional advice.

The Terms of Reference of the Remuneration Committee empowers it to seek appropriate professional advice inside and outside the Company as and when it is deemed necessary by the Committee.

B.2 The level and make up of Remuneration

Level of remuneration of both Executive and Non-Executive Directors should be sufficient to attract and retain the Directors’ to run the company successfully. A proportion of Executive Director’s remuneration should be structured to link rewards to corporate and individual performance.

B.2.1 – B.2.9 Level and make up of remuneration of Executive Directors including performance element in pay structure

- Remuneration packages in line with industry practices

- Executive share option

- Non Executive Directors’ remuneration

The Remuneration Committee gives due consideration to the provisions of these sections and arrives at final recommendations as specified.

Remuneration Committee ensures that remuneration packages are in line with the industry practices.

The Company does not have an executive share option scheme

The Non-Executive Directors receive a fee for attending meetings of the Board and additional fee whenever they serve on Board Sub-committees.




B.3 Disclosure of Remuneration

Annual Report of the Company should contain a statement of remuneration policy and details of remuneration of the Board as a whole.

B.3.1 Disclosure in the Annual report about the

(a) Remuneration Committee members

(b) statement of remuneration policy

(c) aggregate remuneration paid

Please refer the Remuneration Committee report on page 92 and Note No. 42.2.1 to the Financial Statements on page 160.

C. RELATIONS WITH SHAREHOLDERSThe Company uses the Annual General Meeting to communicate with its shareholders and the company focuses on open communication and fair disclosure, with emphasis on the integrity, timeliness and relevance of the information provided. Further during 2017/18, the company had not engaged in or committed to any major and material transactions which affected the Company’s net asset base.

C.1 Constructive use of the Annual General Meeting (AGM) and Conduct of General Meetings.

Board should use the AGM to communicate with shareholders and should encourage their participation.

C.1.1 Use of proxy votes The Company has recorded all proxy votes for each resolution prior to the general meeting.

C.1.2 Separate resolutions for separate issues

Separate resolutions are placed before shareholders for business transactions at the AGM.

C.1.3 Arrangement made by the Chairman of Board that all Chairmen of sub-committees make themselves available at the AGM

All Directors including Board Sub-Committee Chairmen were available at the AGM.

C.1.4 Adequate notice for the AGM to the shareholders

Adequate notice is given to shareholders for the AGM.

C.1.5 Procedure of voting at general meeting

A summary of procedure relating to voting at General Meetings is set out in the Notice of Meeting itself sent to each shareholder.

66


C.2 Communication with Shareholders

The Board should implement effective communication with shareholders.

C.2.1 Channel to reach all shareholders to disseminate timely information

The Board approved communication policy addresses this matter.

C.2.2 Policy and methodology of communicating

The Annual General Meeting of the Company is the main forum where the Board maintains effective communication with the shareholders. Hence all shareholders are encouraged to participate at the AGM. Further, the Company’s website, corporate disclosures and other news releases to the Colombo Stock Exchange function as additional communication channels.

C.2.3 Implementation of the methodology

The Communication Policy of the Company provides for the manner of implementation thereof and points of responsibility for the same.

C.2.4 Contact person in relation to communications

Contact persons for communications with different stakeholders of the Company are specified in the Communication Policy.

C.2.5 Awareness of Directors on major issues and concerns of shareholders

The Company Secretaries maintain records of all correspondence received from shareholders and direct the same to appropriate channels for resolution.

C.2.6 Contact person in relation to shareholders’ matters

The Company Secretaries can be contacted for any queries of shareholders.

C.2.7 Process for responding to shareholders

The disclosure on principle C.2.5 address the same.

C.3 Major and material transactions

Directors should disclose all proposed corporate transactions which would materially alter the net asset base of the Company.

C.3.1 Disclosure of major and material transactions

The Company did not enter into any major transactions during the year.

D. ACCOUNTABILITY AND AUDITThe Company Board has presented a balanced and understandable assessment of the Company’s financial position, performance and prospects during 2017/18. The Board has established a sound framework of risk management and internal control. The Company has developed a Policy on Code of Conduct & Ethics applicable to all employees, and has also addressed conflicts of interest, financial irregularities, IT system password control, entertainment and gifts and confidentiality.




D.1 Financial Reporting

The Board should present a balanced and an understandable assessment of the Company’s financial position and prospects.

D.1.1 The Board should present interim and other price sensitive information to the public and reports to regulators

The Board is well aware of its responsibility to present balanced & understandable financial statements in compliance with statutory & regulatory requirements. In the preparation of quarterly and annual financial statements, the Company has complied with the requirements of the Companies Act No. 07 of 2007, the Finance Business Act No. 42 of 2011, and presented in conformity with Sri Lanka Financial Reporting Standards and comply with the reporting requirements prescribed by the Regulatory Authorities such as the Central Bank of Sri Lanka and Colombo Stock Exchange.

D.1.2 Directors’ Report in the Annual Report

Refer the “Annual Report of the Board of Directors on the Affairs of the Company” on pages 96 to 104.

D.1.3 Annual Report disclosure stating Board’s and Auditors’ responsibility

The Statement of Directors’ responsibility for the preparation and presentation of Financial Statements is disclosed in the “Statement of Directors’ Responsibilities for Financial Reporting” on page 108 and the Auditors’ responsibility over Financial Statements is set out in the “Independent Auditors’ Report” on page 111.

D.1.4 Management discussion and analysis

Management Discussion and Analysis is given on pages 29 to 39.

D.1.5 Directors’ assumption of the going concern of the business

Refer the “Annual Report of the Board of Directors on the Affairs of the Company” on pages 96 to 104.

D.1.6 Serious loss of Capital This situation has not arisen during the year and the likelihood of such a situation is remote.

D.1.7 Disclosure of related party transactions

Refer the Note No. 42 to the Audited Financial Statements and “Annual Report of the Board of Directors on the Affairs of the Company” on page 101.

D.2 Internal control

The Board should maintain a sound system of internal control to safeguard shareholders’ investments and Company assets.

D.2.1 Evaluation of internal controls by the Board

The adequacy and the integrity of the Company’s internal control system are reviewed by the Board Audit Committee through internal audit reports and system reviews.

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D.2.2 Internal Audit function The Company’s internal audit function is outsourced and carried out by BDO Partners, Chartered Accountants, Charter House, 65/2, Sir Chittampalam A Gardiner Mw, Colombo - 02 and the audit reports were discussed at the Audit Committee meetings. Based on the findings, appropriate recommendations / actions were made/taken.

D.2.3 Evaluation of the process and effectiveness of risk management and internal controls.

The Internal Audit Division regularly reviews and reports to the Audit Committee on Risk Management measures and internal control system. The Audit Committee on behalf of the Board monitors and takes corrective action where necessary on the said controls and risk management measures.

D.2.4 Responsibilities of Directors in maintaining a sound system of internal control and statement of internal control

Directors’ responsibility for maintaining a sound system of internal control is given in the “Directors Statement on Internal Controls over Financial Reporting” on page 105.

D.3 Audit Committee

The Board should establish formal and transparent arrangements for considering how they should select and apply accounting policies, financial reporting and internal control principles and maintain an appropriate relationship with the Company’s Auditors.

D.3.1 Composition of the Audit Committee

Audit Committee is comprised of three Non-Executive Directors and two of them are Independent Non-Executive Directors and hence complied with the requirements.

D.3.2 Reviewing the scope and results of the audit and its effectiveness and independence and objectivity of the Auditors

Complied with. The extent of compliance with this requirement is disclosed on pages 90 to 91 under “Board Audit Committee Report”

D.3.3 Terms of reference of the Audit Committee

The Audit Committee is guided by the Terms of Reference approved by the Board which outlines its authority and responsibility.

D.3.4 Disclosure made in the Annual Report about the Audit Committee.

Refer the Audit Committee Report on pages 90 to 91.

D.4 Code of Business Conduct and Ethics

The Company must adopt a Code of Business Conduct and Ethics for Directors and members of the Senior Management team. Any non-compliance with the said Code should be promptly disclosed.




D.4.1 Code of business conduct and ethics

The Company has developed a Code of Business Conduct for all Staff Members, which addresses conflict of interest, receiving gifts or any other benefit, accurate accounting and record keeping, corporate opportunities, confidentiality of information, fair dealing, protection and proper use of the Company’s assets and compliance with applicable laws and regulations including insider trading laws and, encouraging the reporting of any illegal or unethical behavior. The code of business conduct and ethics has been adhered to in all respects by the Directors and key Management Personnel.

D.4.2 Chairman’s confirmations for any violation of code of conduct and ethics

The Chairman confirms that he is not aware of any material violations of the Code of Conduct.

D.5 Corporate Governance disclosures

The Board should include this in the Annual Report setting out the manner and extent for it to be complied.

D.5.1 Disclosure of corporate governance compliance

This requirement is met through presentation of this Corporate Governance Report.

E. INSTITUTIONAL INVESTORSThe Board has encouraged the institutional shareholders to make considered use of their votes, ensure that their voting intentions are translated into practice and to give due weightage to all relevant factors drawn to their attention when evaluating the Governance arrangements of the Company.

E.1 Shareholder voting

Institutional shareholders are required to make considered use of their votes and encouraged to ensure that their voting intentions are translated into practice.

E.1.1 Regular dialogue to be maintained with shareholders and Chairman to communicate shareholders views to the Board

The Annual General Meeting is used for effective dialogue with the shareholders on matters which are relevant and of concern to the general membership. The Chairman communicates the views and queries of the shareholders to the Board and Senior Management, in order to ensure that the views are properly communicated and acted upon.

E.2 Evaluation of Governance disclosure

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

F. OTHER INVESTORSThe Company has encouraged individual shareholders to carry out adequate analysis or obtain independent advice in investing and divesting decisions and to participate and exercise their voting rights at the General Meeting.

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F.1 Investing / Divesting Decisions

The Code requires individual shareholders to carry out adequate analysis or obtain independent advice in investing and divesting decisions.

F.1 Individual shareholders’ investment decisions

Individual shareholders are encouraged to carry out adequate analysis or seek independent advice on investing or divesting decisions.

F.2 Shareholder Voting

Individual shareholders should be encouraged to participate and exercise their voting rights in General Meetings.

F.2 Individual shareholder voting

Individual shareholders are encouraged to participate at General Meetings and exercise their voting rights. The Company adequately communicates with all shareholders by ensuring that they are duly informed by dispatching necessary Notices.

G. SUSTAINABILITY REPORTINGThe Company has created long term stakeholder value by embracing opportunities, managing risks and impact on business activities from economic, environmental and social developments through sustainability reporting.

G.1 Principles of Sustainability Reporting

Sustainability is a business approach that creates long-term stakeholder value by embracing opportunities, managing risks derived from economic, environmental and social developments and their potential implications and impacts on the business activities of the entity. Sustainability reporting is the practice of recognizing, measuring, disclosing and being accountable to all stakeholders for organizational performance towards the goals of sustainable development in the context of the overall business activities and strategy of the entity. Hence, the Code requires to maintain Policies and Procedures to develop a sustainable business environment and make adequate disclosures on sustainability.

G.1.1 Economic Sustainability Refer Page 35 to the Annual Report.

G.1.2 The Environment Refer Page 39 to the Annual Report.




G.1.3 Labour Practice Refer Pages 37 to 78 to the Annual Report.

G.1.4 Society Refer Page 39 to the Annual Report.

G.1.5 Product Responsibility Refer Page 33 to the Annual Report.

G.1.6 Stakeholder identification, engagement and effective communication

Refer Page 30 to the Annual Report.

G.1.7 Sustainable reporting and disclosure should be formalized.

Refer Pages 29 to 39 to the Annual Report.

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Part Two - Listing Rules - Section 7.10 on Corporate Governance for Listed Companies issued by the Colombo Stock Exchange

The Listing Rules – Section 7.10 of the Colombo Stock Exchange (CSE) mandates listed companies to adopt the Corporate Governance rules specified in the Listing Rules. The said Listing Rules addresses the following areas,

1. Non-Executive Directors

2. Independent Directors

3. Disclosures relating to Directors

4. Criteria for determination of Independence of Directors

5. Remuneration Committee and

6. Audit Committee.

The Company’s level of adoption with the Listing Rules (Section 7.10) is tabulated below.

Rule Reference Principle Status of Adoption

7.10.1 NON EXECUTIVE DIRECTORS

7.10.1 (a) Two or one third of the Directors, whichever is higher, should be Non-Executive Directors

Complied with. The extent of compliance with this requirement is disclosed on page 49 under “Board Composition and Balance”.

7.10.2 INDEPENDENT DIRECTORS

7.10.2 (a) Two or one third of Non-Executive Directors, whichever is higher, should be independent.

Complied with. The extent of compliance with this requirement is disclosed on page 49 under “Board Composition and Balance”.

7.10.2 (b) Each Non-Executive Director should submit a declaration of independence/non-independence in the prescribed format.


7.10.3 DISCLOSURES RELATING TO DIRECTORS

7.10.3 (a) The Board shall make determination of Independence / Non Independence annually and Names of Independent Directors should be disclosed in the Annual Report.


7.10.3 (b) In the event a Director does not qualify as independent as per the Rules on Corporate Governance but if the Board is of the opinion that the Director is nevertheless independent, it shall specify the basis of the determination in the Annual Report

No such determination was required since all Independent Directors have qualified as independent as per the said rules.




7.10.3 (c) A brief resume of each Director should be published in the Annual Report including the areas of expertise.

Please refer pages 18 to 23 for the profiles of the Board of Directors to the Annual Report.

7.10.3 (d) A brief resume of any new Director appointed to the Board should be provided to the Exchange for Dissemination to the public.

No new Directors were appointed to the Board during the year under review.

7.10.4 CRITERIA FOR DETERMINATION OF INDEPENDENCE OF DIRECTORS

7.10.4

(a-h)

Requirements for meeting criteria to be independent

All Independent Directors of the Company met the criteria for independence specified in this rule.

7.10.5 REMUNERATION COMMITTEE

7.10.5 (a) The Remuneration Committee shall comprise a minimum of two Independent Non-Executive Directors or a majority of Independent Non-Executive Directors, whichever is higher.

Remuneration Committee comprised of three Directors and out of which two of them are Independent Non-Executive Directors in terms of Rule 7.10.4 of the Listing Rules of the Colombo Stock Exchange.

Refer the Remuneration Committee Report on page 92.

7.10.5 (b) Functions of Remuneration Committee shall be to recommend the remuneration of the Chief Executive Officer and the Executive Directors.

Refer the Remuneration Committee Report on page 92 for details.

7.10.5 (c) The Annual Report shall set out;

(i) The names of the Directors that comprise the Remuneration Committee;

(ii) A statement of remuneration policy;

(iii) Aggregate remuneration paid to Executive and Non-Executive Directors.

Refer the Remuneration Committee Report on page 92 for details.

7.10.6 AUDIT COMMITTEE

7.10.6 (a) The Audit Committee shall comprise a minimum of two Independent Non-Executive Directors or a majority of Independent Non-Executive Directors whichever is higher.

Audit Committee is comprised of three Non-Executive Directors and two of them are Independent Non-Executive Directors and hence complied with the requirements.

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One Non-Executive Director shall be appointed as Chairman of the Audit Committee by the Board.

Mr. Hennayake Bandara (Independent Non- Executive Director) functions as the Chairman of the Board Audit Committee.

The Chief Executive Officer and Chief Financial Officer shall attend Audit Committee meetings.

Chief Executive Officer and Assistant General Manager - Finance attends the meetings regularly by invitation.

The Chairman or one member of the Committee should be a member of a recognized professional accounting body.

Mr. Hennayake Bandara is a Fellow member (FCA) of CA Sri Lanka, Certified Management Accountants (FCMA) of Sri Lanka, AAT Sri Lanka (FMAAT) and holds B(Com) Special Degree from the University of Sri Jayewardenepura with over 30 years’ experience in the Banking and Finance field. Please refer page 22 for the complete profile of Mr. Hennayake Bandara.

7.10.6 (b) The functions of the Audit Committee shall be as set out in section 7.10 of the Listing Rules.

Please refer Audit Committee Report on pages 90 to 91 of the Annual Report for description of its functions.

7.10.6 (c) Annual Report shall set out;

(i) The names of the Directors who comprise the Audit Committee.

Please refer Audit Committee Report on pages 90 to 91 for the composition of the Audit Committee.

(ii) The Audit Committee shall make a determination of the independence of the auditors and disclose the basis for such determination.

Complied with. The extent of compliance with this requirement is disclosed on pages 90 to 91 under “Reviewing independence and objectivity of external auditor”

(iii) A report by the Audit Committee setting out the manner of compliance of the functions set out in section 7.10 of the listing rules.

Please refer Audit Committee Report on pages 90 to 91 for the composition of the Audit Committee.



Part Three - Finance Companies (Corporate Governance) Direction No. 03 of 2008 and subsequent amendments thereto) on Corporate Governance for Licensed Finance Companies in Sri Lanka

The Central Bank of Sri Lanka issued the Direction on Corporate Governance in order to improve and sustain the Corporate Governance processes across the LFCs. This Direction is identified as the Finance Companies (Corporate Governance) Direction No. 03 of 2008 and the amendments are referred to as Finance Companies (Corporate Governance – Amendment) Direction No. 04 of 2008 and Finance Companies (Corporate Governance – Amendment) Direction No. 06 of 2013. These Directions based on the following fundamental principles set out the corporate governance requirements to be adhered to by LFCs.

1. Responsibilities of the Board

2. Meetings of the Board

3. Composition of the Board

4. Fitness and Propriety of Directors

5. Delegation of Functions

6. The Chairman and the Chief Executive Officer

7. Board Appointed Committees

8. Related Party Transactions

9. Disclosures

The Company’s level of adoption with the Corporate Governance Directions is tabulated below.

Section Reference Principle Status of Adoption

2. THE RESPONSIBILITIES OF THE BOARD OF DIRECTORS

2 (1) Strengthening the safety and soundness of the Company

(a) Approving and overseeing the strategic objectives and corporate values and ensuring that the same is communicated throughout the Company

Corporate values and Strategic Objective have been approved by the Board of Directors and the views relating to the above are communicated throughout the Company.

(b) Approving the overall business strategy of the Company, including the overall risk policy and risk management procedures and mechanisms with measurable goals, for at least immediate next three years

Company’s strategic business plan covering the period up to 2019/20 as approved by the Board in June 2017 provides for overall risk management policy, procedures and mechanisms with measurable goals.

The Company is in the process of reviewing the aforesaid business plan vis-a-vis the performance of the Company and extending it up to 2020/21 with measurable goals.

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(c) Identifying risks and ensuring implementation of appropriate systems to manage the risks prudently

The Board as a whole remains primarily responsible for the overall risk framework of the Company. Board Integrated Risk Management Committee, on behalf of the Board, identifies risks and ensures implementation of appropriate systems to manage risks prudently and report to the Board on a regular basis.

(d) Approving a policy of communication with all stakeholders, including depositors, creditors, shareholders and borrowers

The Board approved Communication Policy is available to ensure effective internal & external communication of corporate information with all stakeholders including depositors, creditors, shareholders and borrowers of the Company.

(e) Reviewing the adequacy and the integrity of the Company’s internal control systems and the adequacy and the integrity of Management Information Systems (MIS).

There is a mechanism at the company to identify the accuracy of the internal control by the Board of Directors through the process over design and effectiveness of internal control over financial reporting. Further Internal Audit Division of the company adds value to the process verifying the effectiveness of the above process. Board has confirmed that the Management Information provided is adequate for their decision making process. Further, the Company is in the process of reviewing the accuracy of Non-Financial information used by the Board / Board Sub-Committees.

(f) Identifying and designating Key Management Personnel, who are in a position to: (i) significantly influence policy; (ii) direct activities; and (iii) exercise control over business activities, operations and risk management

As per the Audited Financial Statements of the Company key management personnel include the Board of Directors of the Company and the Company is in the process of expanding the other Key Management Personnel required in terms of this section.

(g) Defining the areas of authority and key responsibilities for the Board and for the Key Management Personnel.

Company’s Article 22 speaks of the powers and duties of directors. Functions and responsibilities of the CEO is defined and approved by the Board. Responsibilities of Board of Directors have been defined under the note “Matters specifically reserved for the Board” and are approved by the Board.

(h) Ensuring that there is appropriate oversight of the affairs of the Company by Key Management Personnel, that is consistent with the Company’s policy.

Oversights of the affairs of the Company by its Key Management Personnel takes place at the regular Board meetings and Sub-committee meetings and Head of Departments makes regular presentation to the Board on matters under their purview.




(i) Periodically assessing the effectiveness of its governance practices, including:

i) the selection, nomination and election of Directors and appointment of Key Management Personnel;

ii) the management of conflicts of interests; and

iii) the determination of weaknesses and implementation of changes where necessary.

The Company’s Article 21 of the Articles of Association describes the general procedure for appointment of new directors to the company by the Board. The process adopted by the Board is disclosed on page 54 under “ Selection to the Board and Appointment”

Complied with. The extent of compliance with this requirement is disclosed on page 56 under “ Management of Conflicts of Interest”

The Board have a formal self-evaluation process annually in order to identify and rectify the weaknesses.

(j) Ensuring that the Company has an appropriate succession plan for Key Management Personnel.

A Board approved Succession Plan for the key management personnel of the company is in place and the Company is in the process of reviewing the same considering the recent changes to the Management Positions.

(k) Meeting regularly with the Key Management Personnel to review policies, establish lines of communication and monitor progress towards corporate objectives.

The Key Management personnel participate in the Board meetings to review policies and monitor the Company’s progress towards its corporate objectives.

(l) Understanding the regulatory environment.

The Board of Directors closely monitors regulatory compliances at monthly Board meetings through by means of a regular monthly board paper on compliance. Further, the Compliance Officer presents to the Board new Directions and any other necessary information issued time to time by the regulators.

(m) Exercising due diligence in the hiring and oversight of External Auditor

Hiring of external auditors is carried out by the Board with the recommendation of the Board Audit Committee after the review of independence and objectivity of external auditor and it is approved by shareholders at the Annual General Meeting (AGM).

2 (2) Appointment of the Chairman and the Chief Executive Officer and defining and approving their functions and responsibilities.

Complied with. The extent of compliance with this requirement is disclosed on page 50 under “ Division of Responsibilities - Chairman and Chief Executive Officer (CEO)”

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2 (3) Availability of a procedure determined by the Board to enable Directors, to seek independent professional advice at the Company’s expense.

The Directors are able to obtain independent professional advice as and when necessary at Company expense and a Board approved procedure is in place. However, no such instances have occurred during the year.

2 (4) Avoidance of conflicts of interest. Complied with. The extent of compliance with this requirement is disclosed on page 56 under “ Management of Conflicts of Interest”

2 (5) Availability of a formal schedule of matters specifically reserved to the Board for decision

A Board approved formal schedule of matters specifically reserved for Board decisions is in place which ensures that the direction and control of the Company is firmly under its authority.

2 (6) Disclosure of insolvency to the Director of the Department of Supervision of Non-Bank Financial Institutions

The Board of Directors is aware of the need to inform the Director, Department of Supervision of Non-Bank Financial Institutions and no such situation has arisen during the year.

2 (7) Inclusion of an annual corporate governance report on compliance with the Corporate Governance Directions in the Annual Report

This report from pages 48 to 89 serves this requirement.

2 (8) Adoption of an annual scheme of self-assessment by the Directors

Complied with. The extent of compliance with this requirement is disclosed on page 56 under “Performance of the Board”.

3. MEETINGS OF THE BOARD

3 (1) Convening Board meetings at least twelve times a financial year at monthly intervals

The Board has conducted 13 meetings during the year. The consent of the Board is usually obtained at meetings with due notice given with Board papers. Obtaining the Boards’ consent via circulation was kept to a minimum of Thirty two (32) instances during the year.

3 (2) Making arrangements to enable Directors to include matters and proposals in the agenda for regular Board meetings.

A formal procedure has been implemented to enable all directors to include matters and proposals in the agenda for regular board meetings.

3 (3) Giving adequate notice of Board meetings.

Complied with. The extent of compliance with this requirement is disclosed on page 50 under “Board of Directors’ access to information”.




3 (4) Attendance of Directors at Board meetings

The extent of compliance with this requirement is disclosed on page 54 under “Board and Board Sub-Committee Meetings and Directors’ Attendance”.

3 (5) Appointment of a Company Secretary to handle the secretarial services to the Board

The Board has appointed S S P Corporate Services (Private) Limited, 546/7, Galle Road, Colombo – 03 as Secretaries to the Company. The Company Secretaries advise the Board and ensure that matters concerning the Companies Act, Board procedures and other applicable rules and regulations are followed.

3 (6) Responsibility of preparation of agenda for a Board meeting.

The Chairman has delegated to the Company Secretaries the function of preparing the Agenda for Board Meetings and for circulation to the Board.

3 (7) Directors’ access to advice and services of the Company Secretaries

Complied with. The extent of compliance with this requirement is disclosed on page 50 under “Board of Directors’ access to information”.

3 (8) Maintenance of Board minutes. The Company Secretaries maintain and circulate the minutes to Board members and provide certified copies of the Minutes at any time at the request of any director of the Company. A formal procedure is in place to enable directors to inspect the minutes.

3 (9) Recording of minutes of Board meetings in sufficient detail.

The Company Secretary records the proceedings of the meetings and the decisions taken thereat in sufficient detail so as to satisfy all the requirements specified in this section.

4. COMPOSITION OF THE BOARD

4 (1) Number of Directors on the Board Complied with. The extent of compliance with this requirement is disclosed on page 49 under “ Board Composition and Balance”

4 (2) Period of service of a Director The total period of service of all non-executive Directors does not exceed nine years.

4 (3) Appointment, election or Nomination of an employee as a Director of the Company

The Board consisted of only one Executive Director and does not exceed one-half of the number of directors of the Board.

4 (4) Independent Non-Executive Directors and the criteria for independence.

Complied with. The extent of compliance with this requirement is disclosed on page 49 under “Board Composition and Balance “ and on page 55 under “Determination of Independence of Non-Executive Directors.”

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4 (5) Appointment of Alternate Directors No alternate directors were appointed during the year.

4 (6) Skills and experience of the Non-Executive Directors to bring an objective judgement to bear on issues of strategy, performance and resources.

Complied with. The extent of compliance with this requirement is disclosed on page 49 under” Board Composition and Balance”

4 (7) Presence of Non-Executive Directors to satisfy the quorum for meetings of the Board.

All Board meetings held during the Financial Year were duly constituted with one half of the number of Directors present and one half of the number of Directors constituting the quorum being non-executive Directors.

4 (8) Disclosure of Independent Non-Executive Directors, Board composition in corporate communications and in the annual corporate governance report.

Please refer the profiles of Board of Directors on pages 18 to 23 and Annual Report of the Board of Directors on the Affairs of the Company on pages 96 to 104.

4 (9) Availability of a formal, and transparent procedure for the appointment of new Directors

Complied with. The extent of compliance with this requirement is disclosed on page 54 under “Selection to the Board and Appointment”

4 (10) Re-election of Directors appointed to fill a casual vacancy at the first General Meeting after their appointment.

Complied with. The extent of compliance with this requirement is disclosed on page 55 under “Re-nomination and Re-election of Directors”

4 (11) Communication of reasons for removal or resignation of Directors.

Appointment, removal or resignation of Directors are informed to shareholders, with immediate notification to the Colombo Stock Exchange (CSE). Prior approval is obtained from the Central Bank of Sri Lanka (CBSL) on such circumstances.

5. CRITERIA TO ASSESS THE FITNESS AND THE PROPRIETY OF DIRECTORS

5 (1) The age of a Director shall not exceed 70 years.

All the Directors were below the age of 70 years during the year under review.

5 (2) Directors shall not hold office as a Director of more than 20 Companies / Societies / Corporate bodies including Associate and Subsidiary Companies.

There were no directors who held directorships in more than twenty (20) companies / entities/ institutions inclusive of subsidiaries or associates during the year under review and Page 100 under “Annual Report of the Board of Directors on the Affairs of the Company” discloses other directorships of Directors.




6. DELEGATION OF FUNCTIONS

6 (1) Delegation of work to the Management. Complied with. The extent of compliance with this requirement is disclosed on page 56 under “Delegation of Authority”

6 (2) Periodical review of the delegation process.

Complied with. The extent of compliance with this requirement is disclosed on page 56 under “Delegation of Authority”

7. THE CHAIRMAN AND THE CHIEF EXECUTIVE OFFICER

7 (1) Division of the roles of the Chairman and Chief Executive Officer

Complied with. The extent of compliance with this requirement is disclosed on page 50 under “Division of Responsibilities - Chairman and Chief Executive Officer (CEO)”

7 (2) Designation of an Independent Non-Executive Director as the Senior Director if the Chairman is not an Independent Non-Executive Director.

The Chairman is an Independent Non-Executive Director.

7 (3) Disclosure of relationship between the Chairman, Chief Executive Officer and members of the Board in the Corporate Governance Report

As declared by the members of the Board and the CEO, there are no relationships whatsoever, including financial, business, family, or other material relationship between the Chairman/CEO and/or other members of the Board which will impair their respective roles. Details of the Chairman and Chief Executive Officer are disclosed in the Annual Report on page 50.

7 (4) Chairman to;

(a) provide leadership to the Board;

(b) ensure that the Board works effectively and discharges its responsibilities; and

(c) ensure that all key and appropriate issues are discussed by the Board in a timely manner

Complied with. The role and responsibilities of the Chairman is disclosed on page 50 under “Division of Responsibilities - Chairman and Chief Executive Officer (CEO)”. Further, the annual self-assessment process of the Board of Directors ensures that the said requirements are fulfilled.

7 (5) Role of the Chairman in the preparation of the agenda for Board meetings.

The Chairman has delegated this function to Company Secretaries, to prepare the agenda of Board Meetings with his consent.

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7 (6) Duty of the Chairman to ensure that all Directors are informed adequately and timely of the issues arising at Board meetings

All Directors have actively participated & contributed in Board affairs.

7 (7) Role of the Chairman in encouraging Directors to make an active contribution to the Board’s affairs.

The Chairman ensures that all Directors make a full and active contribution to the Board’s affairs and the Board acts in the best interests of the Company.

7 (8) Role of the Chairman in ensuring constructive relationships between Executive and Non-Executive Directors.

The Chairman facilitates the contribution of Non-Executive Directors and ensures constructive relationships between Executive and Non–Executive Directors.

7 (9) Refrain from engaging in activities involving direct supervision of Key Management Personnel or any other Executive Duties by the Chairman

The Chairman is a Non-Executive Director who does not get involved directly in any of the executive duties of the Company or the direct supervision of the Key Management Personnel.

7 (10) Role of the Chairman in maintaining effective communication with shareholders and communicating the views of shareholders to the Board.

The AGM of the Company is the main forum where the Board maintains effective communication with shareholders. Further, the Board approved communication policy evidences the Company’s process in this regard.

7 (11) Role of the Chief Executive Officer The role and responsibilities of the CEO is disclosed on page 50 under “Division of Responsibilities - Chairman and Chief Executive Officer (CEO)”.

8. BOARD APPOINTED COMMITTEES

8 (1) Establishing Board committees, their functions and reporting.

Complied with. The extent of compliance with this requirement is disclosed on page 51 under “Board and Board Sub-Committees” and a report on the performance, duties and functions of each Board Sub-Committee is disclosed on pages 90 to 94.

8 (2) Audit Committee

(a) The Chairman of the Board Audit Committee

The Chairman of the Audit Committee Mr. Hennayake Bandara is an Independent Non- Executive Director. Mr. Hennayake Bandara is a Fellow member (FCA) of CA Sri Lanka, Certified Management Accountants (FCMA) of Sri Lanka, AAT Sri Lanka (FMAAT) and holds B(Com) Special Degree from the University of Sri Jayewardenepura with over 30 years’ experience in the Banking and Finance field.




(b) Composition of the Board Audit Committee

All members of the Audit Committee are Non-Executive Directors.

(c) Functions of the Board Audit Committee include;

(i) The appointment of the External Auditors

(ii) The implementation of the Central Bank Guidelines issued to Auditors

(iii) The application of the relevant accounting standards; and

(iv) The service period, audit fee and any resignation or dismissal of the Auditor;

The Audit Committee has recommended,

i. re-appointment of M/s. Ernst & Young, Chartered Accountants as External Auditors for Audit Services

ii. the implementation of guidelines issued by Central Bank of Sri Lanka to auditors from time to time

iii. the application of Accounting Standards in consultation with the AGM-Finance and External Auditors.

iv. the service period, audit fees, resignation or dismissal of an auditor, re-engaging the audit partner in line with the regulatory requirements. No resignation or dismissal of the auditor has taken place during the year under review.

(d) Responsibility of the Board Audit Committee to review and monitor the External Auditor’s Independence and objectivity and the effectiveness of the audit processes

Complied with. The extent of compliance with this requirement is disclosed in the Board Audit Committee Report on pages 90 to 91 under “ External Audit”

(e) Responsibility of the Board Audit Committee to develop and implement a Board approved policy on the engagement of an External Auditor to provide non-audit services

Complied with. The extent of compliance with this requirement is disclosed on page 56 under “Reviewing independence and objectivity of external auditor”

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(f) Responsibility of the Board Audit Committee to discuss and finalize with the External Auditor’s nature and scope of the audit.

The Audit Committee met with External Auditors, M/s. Ernst and Young and discussed the Audit Plan, nature and scope before the commencement of the Audit.

(g) Review the financial information of the Company.

The Board Audit Committee periodically reviews the financial information of the Company in order to monitor the integrity of the financial statements of the Company and other financial disclosures.

The Committee has reviewed the Company’s Audited Financial Statements and Quarterly Financial Statements before submission thereof to the Board for approval.

(h) Meeting of External Auditors to discuss issues and problems of Interim and Final audits in the absence of Key Management Personnel (if necessary)

The Audit Committee has met the External Auditors twice, without Key Management Personnel during the year under review.

(i) Responsibility of the Board Audit Committee to review the External Auditor’s Management Letter and the Management’s response thereto.

The Audit Committee has reviewed the Management Letter issued by the External Auditors with the responses of the Management.

(j) Responsibility of the Board Audit Committee to take the following steps with regard to the internal audit function of the Company,

- Review the scope, function and resources

- Review of Internal Audit Program

- Review of Internal Audit Department

- Recommendations on Internal Audit Functions

The Audit Committee has reviewed the scope, functions and resources of the Internal Audit Dept. and the outsourced Internal Audit Services provider is sufficient to carry out its functions.

The Audit Committee has reviewed and approved the Internal Audit Program.

The Audit Committee has carried out a performance appraisal of the Outsourced Internal Audit Provider.

Audit Committee has recommended the appointment of BDO Partners to carry out the internal audit function of the Company.




- Appraise the resignation of Senior staff of Internal Audit and any outsourced service providers.

- Independence of Internal Audit Functions

The Committee has appraised the resignation of the Asst. Manager – Internal Audit.

The Committee ensured the independence of the Internal Audit Function.

(k) Responsibility of the Audit Committee to consider the major findings of internal investigations and Management’s responses thereto.

No such issues or occurrence discussed during the year 2017/18.

(l) Participants at the Board Audit Committee meetings and the need to meet with the External Auditor without the presence of the Executive Directors.

The CEO, AGM - Finance, Head of Risk & Compliance and the Internal Auditors normally attend all meetings. Where it is deemed necessary, members of the Corporate Management may also attend meetings by invitation. The Committee met twice with the External Auditors without the presence of the CEO and Corporate Management.

(m) Explicit authority, adequate resources, access to information and obtain external professional advice wherever necessary.

The Board approved Terms of Reference of the Board Audit Committee mandates explicit authority to investigate into any matter within its purview and take necessary action thereto.

(n) Meetings of the Audit Committee There were nine (09) meetings of the Board Audit Committee held during the year 2017/18.

(o) Disclosure of activities of the Board Audit Committee and attendance of members at meetings thereof in the Annual Report

The “Board Audit Committee report” on pages 90 to 91 include the details of activities of the Audit Committee. Please refer page 54 for details of attendance of the committee members.

(p) Recording and maintenance of detailed minutes of the Audit Committee meetings

The Company Secretaries act as the Secretary to the Audit Committee and maintain the minutes of the meetings.

(q) Whistle Blower Policy ‘Whistle Blower Policy’ is in place approved by the Board Audit Committee. Contents of this policy will be strengthened to cover the process of dealing with the internal control and to monitor appropriate follow- up action.

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8 (3) Integrated Risk Management

(a) The composition of Board Integrated Risk Management Committee

The Board Integrated Risk Management Committee is chaired by a Non-Executive Director and comprises of two Independent Non-Executive Directors. Other Key Management Personnel who supervise the broad risk categories such as Credit, Market, Liquidity, Operational and Strategic risks are also regular attendees to the meeting by invitation.

(b) Periodical risk assessment Committee has a process to assess risks such as credit, market and operational risks of the Company.

(c) Review the adequacy and effectiveness of Management level Committees to manage risk.

Asset and Liability Committee and Credit Committee reviewed the adequacy and effectiveness in addressing the specific risks and managing risks. However, the committee is in the process of reviewing specific quantitative and qualitative risk limits. Further, the Committee is in the process of evaluating the effectiveness of the Asset and Liability Committee and the Credit Committee.

(d) Corrective action to mitigate the risk The Committee is in the process of establishing Risk Limits and Key Risk Indicators and review and consider all risk indicators which have gone beyond the limits.

(e) Frequency of meetings The Committee has met six times during the year.

(f) Actions against the officers responsible for failure to identify risks and take prompt corrective actions.

At the company specific risks and the limits are identified by the Committee and decisions are taken collectively.

(g) Risk assessment report to the Board The Committee submits the approved Minutes of the Meeting to the subsequent board meeting for their review. Going forward the Company has initiated to submit a risk assessment report to the Board of Directors within a week of each Committee meeting.

(h) Establishment of a compliance function

A Compliance Officer (Head of Risk & Compliance) selected from Key Management Personnel has been appointed to carry out the Compliance function. Compliance Unit reviews the Company’s compliance with laws, regulations guidelines and rules on a regular basis and reports non-compliances, if any, to the Board. Further, the Company is in the process of strengthening the Compliance Function by monitoring the compliance with policies and business operations of the Company.




9. RELATED PARTY TRANSACTIONS

9 (2) Responsibility of the Board to take necessary steps to avoid any conflicts of interest that may arise from any transaction of the Company with related parties.

The Company is in the process of developing Related Party Transaction Policy to suit the regulatory requirements. Further, the Company does not involve in any transactions, which gives favourable treatment to such parties and the Board Related Party Transactions Review Committee monitors the same.

9 (3) Related party transactions. The Company is in the process of developing Related Party Transaction Policy to suit the regulatory requirements. Further, the Company does not involve in any transactions, which gives favourable treatment to such parties and the Board Related Party Transactions Review Committee monitors the same.

The proposed Related Party Transaction Policy will identify and report the types of transactions with related parties that is covered by this Direction identified under section 9(3) (a) to (d).

9 (4) Responsibility of the Board to ensure that the Company does not engage in transactions with a related party in a manner that would grant such party “more favourable treatment” and maintaining reporitng lines and information flows.

The Board Related Party Transactions Review Committee ensures that the Company does not engage any transaction with related parties in a manner that would grant such party “more favourable treatment”. Further, the Company is in the process of implementing a preventive process through the Core System to effectively monitor the Related Party Transactions.

10. DISCLOSURES

10 (1) (a) Preparation and publication of Annual Audited Financial Statements and periodical Financial Statements in accordance with the formats prescribed by the regulatory and supervisory authorities and applicable accounting standards.

The audited financial statements and periodical financial statements were prepared in accordance with the formats prescribed by regulatory and supervisory authorities and applicable accounting standards.

(b) Publication of abovementioned statements in the newspapers in an abridged form, in Sinhala, Tamil and English

The Audited Financial Statements and the Bi-annual financial statements have been published in an abridged form in Sinhala, Tamil and English languages.

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10 (2) The Board shall ensure that at least the following disclosures are made in the Annual Report;

(a) A statement to the effect that the Annual Audited Financial Statements have been prepared in line with applicable accounting standards and regulatory requirements, inclusive of specific disclosures.

Compliance with applicable Accounting Standards and regulatory requirements has been reported under “Statement of Directors’ responsibility for Financial Reporting” on page 108.

(b) A report by the Board on the Company’s internal control mechanism confirming 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.

Directors’ Statement on the Internal Control system over financial reporting is given on page 105.

(c) External Auditor’s Certification on the effectiveness of the internal control mechanism

The Company has obtained an assurance report from the External Auditors on the effectiveness of the Internal Control Mechanism.

(d) Details of Directors, including names, transactions with the Company

This is disclosed under “Report of the Board of Directors on the affairs of the Company” on pages 96 to 104.

(e) Fees/remuneration paid by the Company to the Directors in aggregate

Fees and remuneration paid is disclosed under note No. 42.2.1 to the Financial Statements.

(f) Total net accommodation and the net accommodation outstanding to the related parties as a percentage of the capital funds.

There were no outstanding accommodations as at the year end.




(g) Aggregate values of remuneration paid by the Company to its Key Management Personnel and the aggregate values of the transactions of the Company with its Key Management Personnel during the financial year.

Key Management Personnel of the Company are only the board of directors (executive and non- executive directors). The aggregate values of remuneration paid by the finance company to its key management personnel are disclosed under Director’s Emoluments on page 160 (under Note 42.2.1 to the Financial Statements).

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

There are no significant lapses which require to be disclosed to the public.

(i) A statement of the regulatory and supervisory concerns on lapses in the Company’s risk management, or non-compliance (if any) with the Finance Business Act, and rules and directions that need to be disclosed to the public as directed by the Monetary Board

There were no supervisory concerns on lapses in the Company’s risk management system or non- compliance with the Finance Business Act and rules and directions thereunder that have been required by the Monetary Board to be disclosed to the public.

(j) External Auditor Certification of the compliance with the Corporate Governance Directions.

Board has obtained the Corporate Governance Factual Finding report from external auditors in this regard.

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Board Audit Committee Report

The Board Audit Committee (“the Committee”) is a Sub-Committee of the Board of Directors established in compliance with Finance Companies (Corporate Governance) Direction No.03 of 2008, the Listing Rules of the Colombo Stock Exchange and Code of Best Practice on Corporate Governance issued jointly by the Institute of Chartered Accountants of Sri Lanka and the Securities and Exchange Commission of Sri Lanka.

The Terms of Reference of the Committee clearly defines the mandate and role of the Committee. The Committee is responsible to the Board of Directors and reports on its activities regularly. The Committee assists the Board of Directors in discharging its general oversight responsibilities for financial reporting, internal controls, internal and external audits.

Composition of the Committee

The Committee chaired by an Independent Non-Executive Director and comprising exclusively of Non-Executive Directors. The following members served in the Committee during the twelve-month period ended 31 March 2018;

® Mr. H. M. Hennayake Bandara - Chairman (Independent Non-Executive Director)

® Mr. M. D. S. Mangala Goonatilleke - Member (Independent Non-Executive Director)

® Mr. P. A. W. Perera - Member (Non-Executive Director)

The Company Secretaries functions as the Secretary to the Committee. The Chairman of the Committee is a Fellow Member of the Institute of Chartered Accountants of Sri Lanka and of the Certified Management Accountants of Sri Lanka and counts many years of experience in the Financial Services Sector.

Brief profiles of the members are given on pages 18 to 23 of the Annual Report.

Committee Meetings

The Committee held nine meetings during the year under review to discuss the matters coming under their preview. Attendance of the Committee members are given on page 54. The approved Minutes of the Committee meetings are regularly tabled at Board meetings.

The Chief Executive Officer, Chief Operating Officer, AGM Finance and Head of Risk and Compliance attend meetings by invitation. Senior Management also attend

the meetings on invitation in order to brief the Audit Committee on specific matters. The Committee held two confidential meetings with the External Auditor without the presence of executive management, to discuss the progress and conclusion of the Audit.

Summary of Activities in 2017/2018

Financial Reporting

The Committee as part of its responsibility to oversee the Company’s financial reporting process on behalf of the Board of Directors, has reviewed and discussed with the Management and the External Auditors, the Interim and the Annual Financial Statements prior to their release. The review included,

a) The underlying assumptions for estimates and judgments

b) Any changes in accounting policies and practices

c) Significant adjustments arising from the audit

d) Disclosures made under financial reporting

e) The going concern assumption, and

f) Compliance with Sri Lanka accounting standards (SLFRS / LKAS) and other regulatory provisions.


Internal Controls

The Committee reviews the effectiveness of the Company’s internal controls through review and follow-up of the internal audit reports. The review includes the effectiveness of the internal controls such as financial, operations, compliance and information technology controls and as well as accounting policies and systems. The Committee also regularly reviews the Internal Control Procedures in place to ensure that necessary control and mitigating measures are available in respect of identified new risks.

Internal Audit

The Committee ensures that the Internal Audit function is independent of the activities it audits and that it is performed with impartiality, proficiency and due professional care. The audit plan for 2017/18 was approved by the Committee covering all significant operational areas and the Committee periodically reviewed the progress of the Internal Audit plan.

The Committee with the concurrence of the Board of Directors, engaged the services of BDO Partners, Chartered Accountants to supplement the Company’s Internal Audit function in carrying out periodic audits at branches and few other

assignments for the period ended 31 March 2018. The Committee reviewed the Internal Audit Reports including the evaluations of the Company’s Internal Control Systems and consideration of findings, recommendations and corrective action taken by the Management to mitigate recurrence of issues identified, with a view to managing significant risks and improving controls.

External Audit

The Committee reviewed and monitored the External Auditors’ independence and objectivity and the effectiveness of the audit process, taking into consideration relevant professional and regulatory requirements. Board approved policy on the recommendation of the Committee is in place on External Auditors Independence.

The Committee discussed with the Auditors their audit plan, scope and the methodology they propose to adopt in conducting the annual audit prior to its commencement. The Committee also reviewed the Management Letter issued by the External Auditor and the management responses thereto.

The Committee has recommended to the Board of Directors that Messrs. Ernst & Young be reappointed as External Auditors of the Company for the financial year ending 31 March 2019 subject to the approval of the shareholders at the next Annual General Meeting.

On behalf of the Audit Committee,

H. M. Hennayake Bandara Chairman / Board Audit Committee

18th June 2018

92

Board Remuneration Committee Report

The Remuneration Committee (“the Committee”) was reconstituted by the Board of Directors as a Board Sub Committee in conformity with Rule 7.10.5 of the Listing Rules of the Colombo Stock Exchange and Code of Best Practice on Corporate Governance issued jointly by the Institute of Chartered Accountants of Sri Lanka and the Securities and Exchange Commission of Sri Lanka. The Committee assists the Board of Directors in fulfilling its oversight responsibility on the compensation and benefits granted to the Directors, Chief Executive Officer and Key Management Personnel of the Company, and on other specific matters referred to the Committee by the Board.

The Composition

The Committee comprises of three Non-Executive Directors as follows,

® Mr. Dhammika H. Kalapuge – Chairman of the Committee (Independent Non-Executive Director)

® Mr. Mahinda Perera – Member (Non-Executive Director)

® Mr. B. Premalal – Member (Non-Executive Director)

Brief profiles of the members are given on pages 18 to 23 of the Annual Report. The Confidential Secretary of the CEO functions as the Secretary to the Committee.

The Executive Director and Chief Executive Officer attended meetings by invitation and participated in its deliberations except when his own evaluation and remuneration was under discussion. The proceedings of the Committee were duly reported to the Board.

Meetings

During the financial year ended 31st March, 2018 two meetings were held. The attendance of the members is given on page 54 of the Annual Report.

Remuneration Policy and Reward Strategy

A primary objective of the Remuneration Policy of the Company is to attract and retain staff with required qualification and experience and reward their performance commensurate with each employee’s skills, experience and level of responsibility, taking into consideration business performance and long term shareholder return.

Directors Remuneration

The total of Directors’ emoluments paid during the year under review is set out in Note No. 42.2.1 to the Financial Statements.

Role and Responsibilities

The Role and Responsibilities of the Committee includes,

a) Recommend / propose the remuneration policies relating to Directors, Chief Executive Officer and Key Management Personnel of the Company.

b) Evaluate the performance of the CEO and other Key Management Personnel against set targets and goals and propose the basis for revising remuneration, benefits and other performance based incentives.

c) Recruitment of staff at management level are also considered and recommended based on proposals submitted by the CEO following a formal process of evaluation.

d) Recommendation of annual increments and performance incentives for CEO and Key Management Personnel.

On Behalf of the Remuneration Committee,

Dhammika H. KalapugeChairman / Remuneration Committee

18th June 2018


Board Integrated Risk Management Committee Report

The Board Integrated Risk Management Committee (“the Committee”) was reconstituted on 3rd March, 2017 as a Sub-Committee of the Board of Directors in conformity with Section 8 (3) of the Finance Companies (Corporate Governance) Direction No. 03 of 2008. The Committee assists the Board of Directors in ensuring the adequacy and effectiveness of the Company’s risk management framework and capabilities to achieve the strategic objectives.

The Composition

The Committee comprises of three Non-Executive Directors as follows,

® Mr. Mahinda Perera – Chairman of the Committee (Non-Executive Director)

® Mr. H. M. Hennayake Bandara – Member (Independent Non-Executive Director)

® Mr. M. D. S. Mangala Goonatilleke – Member (Independent Non-Executive Director)

The Confidential Secretary of the CEO functions as the Secretary to the Committee. The following Key Management Personnel (KMPs) supervising Credit, Market, Liquidity, Operational and Strategic Risks are regular attendees by invitation.

® Mr. Rasika Kaluarachchi – Chief Executive Officer

® Mr. Samantha Fernando – Chief Operating Officer

® Mr. Manjula Tennakoon – Assistant General Manager (Finance)

® Mr. Mahadevan Suthakar – Head of Risk & Compliance / Compliance Officer.

Brief profiles of the Directors representing the Committee and the KMPs supervising risks (regular attendees) are given on pages 18 to 25 of the Annual Report.

Meetings

The Committee held six meetings during the year under review. The attendance of the Committee members at each of these meetings is given in the table on page 54 of the Annual Report. Minutes of the Committee meetings held were submitted to the Board seeking their views, concurrence and/or specific directions.

Role and Responsibilities

The Committee focused on the following activities during the year under review,

a) Assessed all broad risk categories such as credit, market, liquidity, operational, strategic and regulatory risks of the Company through appropriate risk indicators.

b) Reviewed the Risk appetite limits

and periodic monitoring of risk reports.

c) Assessed whether the processes are in place to maintain risks within the parameters.

d) Reviewed the Credit Quality including delinquency monitoring and Credit Concentration.

e) Reviewed the Capital Adequacy and the Balance Sheet structure of the Company.

f) Reviewed the progress on operational risk throughout the Company.

g) Reviewed the Information Technology risk and the Business Continuity Plan including Disaster Recovery related matters.

h) Reviewed and recommended to the Board on Policies and Procedures on Anti-Money Laundering and Combating the Financing of Terrorism.

i) Reviewed the Companies compliance with laws, directions / regulations and rules issued by the Central Bank of Sri Lanka.

On behalf of the Integrated Risk Management Committee,

Mahinda PereraChairman / Integrated Risk Management Committee

18th June 2018

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Board Related Party Transactions Review Committee Report

The Board Related Party Transactions Review Committee (“the Committee”) comprises three Non-Executive Directors appointed by the Board of Directors in conformity with Section – 9 of the Listing Rules of the Colombo Stock Exchange. The Committee is responsible to the Board of Directors in ensuring that the interest of shareholders as a whole are taken into consideration by the Company when entering into transactions with Related Parties.

The following Directors whose profiles are given on pages 18 to 23 of the Annual Report, served on the Committee throughout the year under review,

® Mr. M. D. S. Mangala Goonatilleke – Chairman of the Committee (Independent Non-Executive Director)

® Mr. Dhammika H. Kalapuge – Member (Independent Non-Executive Director)

® Mr. Mahinda Perera – Member (Non-Executive Director)

The Confidential Secretary of the CEO functions as the Secretary to the Committee. The Chief Executive Officer, Chief Operating Officer, AGM Finance and Head of Risk and Compliance attend meetings by invitation.

Meetings

The Committee met four times during the year under review.

Attendance of the members at each of these meetings is given in the table on page 54 of this Annual Report. The Minutes of the Committee meetings are tabled at Board meetings enabling all members of the Board to have access to same.

Scope of the Committee

The Committee adopted as its scope, the tasks specified in Rule – 9 of the Listing Rules of the Colombo Stock Exchange which includes,

a) Reviewing in advance all proposed related party transactions of the Company except those explicitly exempted by Rule 9.5 of the Listing Rules of the Colombo Stock Exchange.

b) Advising the Board to convene a shareholder’s meeting and to obtain shareholder approval by way of a special resolution as and when mandatorily required in terms of Rule 9.1 of the Listing Rules of the Colombo Stock Exchange.

c) Oversees the implementation of the system for identifying, monitoring, and reporting Related Party Transactions, including a periodic review of the Related Party Transactions Policy.

d) Ensuring that every Related Party Transaction is conducted in a manner that will protect the Company from conflict of interest which may arise between the Company and its Related Parties.

e) Ensuing that immediate market disclosures and disclosures in the Annual report as required by the Listing Rules of the Colombo Stock Exchange are made in timely manner.

f) Performs other activities which the Committee deems appropriate as necessary for the performance of its duties and other responsibilities which the Board may assign to the Committee from time to time.

Key focus areas in 2017/18

The Committee reviewed the Related Party Transactions entered into and between Related Parties of the Company during the year under review. Details of Related Party Transactions are disclosed under Note 42 on pages 160 to 163 of the Financial Statements.

Declaration

The Declaration by the Board of Directors on the compliance with the Listing Rules of the Colombo on Related Party Transaction is contained in the Annual Report of the Board of Directors on the Affairs of the Company on page 101 of the Annual Report.

On behalf of the Related Party Transactions Review Committee,

M. D. S. Mangala GoonatillekeChairman / Related Party Transactions Review Committee

18th June 2018


Profit Growth

419%

96

Annual Report of the Board of Directors on the Affairs of the Company

01. General

The Board of Directors of Prime Finance PLC has pleasure in presenting its Annual Report on the State of Affairs of the Company to the members of Prime Finance PLC for the Financial Year ended 31st March 2018 together with the audited Financial Statements of the Company and the Auditors’ Report on those Financial Statements, conforming to all statutory requirements. The Audited Financial Statements reviewed and recommended by the Board Audit Committee were approved by the Board of Directors on 18th June 2018. The Annual Report of the Board of Directors on the Affairs of the Company was also approved by the Board of Directors on 18th June 2018.

This Report includes the information as required by the Companies Act No. 07 of 2007, Finance Business Act 42 of 2011 and the Directions issued thereunder, the Listing Rules of the Colombo Stock Exchange and Code of Best Practice on Corporate Governance.

02. Legal Form

Prime Finance PLC (the Company) formerly known as Summit Finance PLC, is a Public Limited Liability Company incorporated in Sri Lanka on 10th September 2004 under the Companies Act No. 17 of 1982 and re-registered under the Companies Act No. 07 of

2007 bearing Registration No. PB 351 PQ and a licensed Finance Company under the Finance Business Act 42 of 2011. The Ordinary Shares of the Company are listed on the Diri Savi board of the Colombo Stock Exchange since 12th September, 2012.

03. Location

The Company’s Registered Office, which is also its Head Office, is located at No. 61, D.S.Senanayake Mawatha, Colombo – 08.

04. Principal Activities and Nature of Operations

The Company’s principal business activities, which remained unchanged during the year are acceptance of deposits, granting of lease facilities, hire purchase facilities, mortgage loans, other credit facilities, real estate development and other related services.

05. Review of Performance and Future Development Plan

The Chairman’s Message (pages 10 to 13), Group Chairman’s Message (pages 6 to 9), Chief Executive Officer’s Review (pages 14 to 17) and the Management Discussion and Analysis (pages 29 to 39) provide a comprehensive analysis of the financial performance, financial position, and the state of affairs of the Company together with the important events that took

place during the year under review and future development plans. These reports form an integral part of the Annual Report of the Board of Directors.

06. Financial Statements

The Financial Statements of the Company has been prepared in accordance with the Sri Lanka Accounting Standards (SLFRSs and LKASs) laid down by the Institute of Chartered Accountants of Sri Lanka, and comply with the requirements of the Companies Act No. 07 of 2007, the Finance Business Act No. 42 of 2011 and regulatory requirements inclusive of specific disclosures. These Financial Statements of the Company for the year ended 31st March, 2018 duly certified by the Assistant General Manager – Finance, Chief Executive Officer and have been approved by the Board of Directors and signed on behalf of the Board by two Directors in accordance with the Companies Act No. 7 of 2007. The Financial Statements of the Company are given on pages 112 to 177 and form an integral part of the Annual Report of the Board of Directors.

07. Directors Responsibility For Financial Reporting

The Directors are responsible for the preparation of Financial Statements of the Company to reflect a true and fair view of its state of affairs.

97Prime Finance PLC | Annual Report 2017/18

The Directors are of the view that these Financial Statements appearing on pages 112 to 177 have been prepared in conformity with the requirements of the Sri Lanka Accounting Standards, Companies Act No. 07 of 2007, Sri Lanka Accounting and Auditing Standards Act No. 15 of 1995, the Finance Business Act No. 42 of 2011 and the Listing Rules of the Colombo Stock Exchange. The Statement of Directors’ responsibility for Financial Reporting is given on page 108 and forms an integral part of the Annual Report of the Board of Directors.

08. Directors Statement of Internal Control

The Board of Directors has issued a report on the internal control mechanism of the Company in terms of Section 10 (2) (b) of the Finance Companies (Corporate Governance) Direction No. 03 of 2008. The Board has confirmed that the financial reporting system has been designed to provide reasonable assurance regarding the reliability of the financial reporting and the preparation of the Financial Statements for external purposes has been done in accordance with relevant accounting principles and regulatory requirements. The above report which forms an integral part of the Report of the Board of Directors is given on page 105 of the Annual Report.

09. Independent Auditor’s Report

The Auditors of the Company are Messrs. Ernst & Young, Chartered Accountants. Messrs. Ernst & Young carried out the audit on the Financial Statements of the Company for the year ended 31st March, 2018 and their report on those Financial Statements, as required by Section 168(1)(c) of the Companies Act is given on pages 109 to 111.

10. Significant Accounting Policies

The significant accounting policies adopted in the preparation of the Financial Statements are given on the pages 119 to 130 of the Annual Report.

11. Financial Performance

11.1 Income

Gross income of the Company for the year ended 31st March, 2018 was Rs. 532,771,091/- whilst for the year ended 31st March, 2017 was Rs.299,180,910/-.

11.2 Profit and Appropriations

The Company’s Profit before Taxation amounted to Rs. 35,086,167/- (after deducting VAT on Financial Services of Rs. 27,123,586/-) in comparison to Rs.18,156,282/ - in 2016/2017. After deducting Rs. 14,032,874/- (Rs. 6,289,588/- in 2016/2017) for Taxation, the Profit after Tax for the year amounted to Rs. 13,090,713 /- (Rs. 2,522,957 /- in 2016/2017). This represents Profit after tax growth by 419% compared to the previous financial year. Details are given in the Statement of Comprehensive Income on page 114 of the Financial Statements. A detailed breakup of the profits and appropriations of the Company is given below,

Description 2017/2018 (Rs.) 2016/2017 (Rs.)

Profit before Taxation from Operations 27,123,586 8,812,546

Provision for Income Tax (14,032,874) (6,289,588)

Profit for the Year 13,090,713 2,522,957

Transfer to Statutory Reserve Fund (654,536) (126,148)

Retained Profit Brought Forward From the Previous Year

83,402,419 80,622,426

Other Comprehensive Income Net of Tax 45,025 383,184

Retained Earnings Carried Forward 95,883,621 83,402,419

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11.3 Total Operating Income

The Total Operating Income of the Company for 2017/2018 was Rs. 323,321,022/- compared to Rs. 165,809,103/- in 2016/2017. An analysis of the Income is given on Note Nos. 6 to 8 of the Financial Statements.

12. Equity And Reserves

The Equity and Reserves of the Company as at 31st March, 2018 and as at 31st March 2017 were as follows,

Description 31st March 2018 31st March 2017

Stated Capital * 508,500,000 225,000,000

Retained Earnings 95,883,621 83,402,419

Statutory Reserve 8,691,206 8,036,670

Total Shareholders’ Funds 613,074,827 316,439,089

* The increase in Stated Capital is due to issue and allotment of 13,500,000 new ordinary shares (for cash consideration) by way of a Rights Issue (offered to the existing holders in the proportion of One (03) three ordinary share for every Five (05) existing ordinary shares held in the Capital of the Company) at a consideration of Rupees Twenty-One (Rs.21/-) per share amounting to a total consideration of Rupees Two Hundred and Eighty-Three Million Five Hundred Thousand (Rs. 283,500,000/-) with the approval of Shareholders at an Extraordinary General Meeting held on 31st July, 2017.

Continuous disclose regarding status of utilization of funds raised via Rights Issue (Rights Issue Proceeds utilization) as at 31.03.2018 (Listed on 11th September, 2017) are disclosed in Note No. 45 to the Audited Financial Statements.

13. Dividends

No dividends were paid during the year ended 31st March 2018 and no dividends are proposed for distribution from and out of the Profits for the year ended 31st March 2018.

14. Share Information

Information relating to earnings, dividends and net asset value per share is given in the Financial Highlights on page 4. Information of the trading of the shares and movement in the number of shares of the Company is given in the Investor Information section on pages 179 to 182.

15. Shareholding

There were 891 registered ordinary shareholders as at 31st March, 2018 (31st March 2017: 794). The Company’s parent Company, Prime Lands (Private) Limited, is the major shareholder, with a total of 32,191,761 ordinary shares amounting to 89.42% of the issued share capital of the Company at the Statement of Financial Position date. Information on the distribution of shareholding and the respective percentages are given on pages 179 to 182 of the Annual Report. Details of top twenty shareholders, percentages of their holding, public shareholding and number of public shareholders are given in the Investor Information section on pages 179 to 182. The Company has at all times ensured that all shareholders are treated equitably.

16. Capital Expenditure

The total capital expenditure on acquisition of property, plant and equipment and intangible assets of the Company amounted to Rs. 20,690,895/- (2016/17 Rs. 8,232,114/-). Details are given in Notes 26 and 27 to the Audited Financial Statements.

17. The Board 0f Directors

The Board of Directors of the Company comprises of eight Directors with proven



experience in the fields of financial, law, marketing, human resources, sector specific and general business skills and with many years of experience in leading business. Their brief profiles are given on pages 18 to 23 of the Annual Report. The names of the Directors of the Company during the period 1st March, 2017 to 31st March, 2018 (held office as at the end of the financial year) including dates of appointment to the Board, are tabulated below in terms of Section 168 (1) (h) of the Companies Act No. 07 of 2007. Further, the categorization of Executive and Non-Executive, Independent and Non-Independent as at 31st March, 2018 is given against their name as per Finance Companies (Corporate Governance) Direction No. 03 of 2008 issued by the Central Bank of Sri Lanka.

Name of the Director Date of Appointment to the Board

Executive / Non-Executive

Independent / Non Independent

Mr. M. D. S. M. Goonatilleke

6th Feb, 2017 Non-Executive Independent

Ms. H. K. S. R. Perera 6th Feb, 2017 Executive Non Independent

Mr. B. Premalal 7th Feb, 2017 Non-Executive Non Independent

Mr. M. Perera 7th Feb, 2017 Non-Executive Non Independent *

Mr. D. H. Kalapuge 7th Feb, 2017 Non-Executive Independent

Mr. N. A. Wickramage 7th Feb, 2017 Non-Executive Non Independent

Mr. P. A. W. Perera 3rd Mar, 2017 Non-Executive Non Independent


3rd Mar, 2017 Non-Executive Independent

* Mr. Mahinda Perera is an Independent Director in terms of Rule 7.10.4 of the Listing Rules of the Colombo Stock Exchange and Section A.5.5 of the Code of Best Practice on Corporate Governance issued jointly by the Institute of Chartered Accountants of Sri Lanka and the Securities and Exchange Commission of Sri Lanka but is classified as Non-Independent in terms of Finance Companies (Corporate Governance) Direction No. 03 of 2008.

No alternate directors were appointed during the year 2017/18.

18. Retirement /Cessation and New Appointment of Directors

No Directors of the Company has retired / ceased or newly appointed during the year under review.

19. Re – Election Of Directors

All Directors were appointed during 2016/17 financial year after Prime Lands (Pvt.) Limited acquired the Company and all Directors retired at the last Annual General Meeting and re-elected by the Shareholders with the unanimous support of the other Directors in terms of Section 4 (10) of the Finance Companies (Corporate Governance) Direction No. 03 of 2008 and in terms of Section A.8 of the Code of Best Practice on Corporate Governance issued jointly by the Institute of Chartered Accountants of Sri Lanka and the Securities and Exchange Commission of Sri Lanka. Accordingly, no Directors of the Company is required to retire at this Annual General Meeting being eligible, offer themselves for re-election.

100

20. Other Directorships of Directors

Information on other directorship of the present directors of the Company are tabulated below,

Name of the Director Name of the Entity

Mr. M. D. S. M. Goonatilleke - Colombo Land & Development Company PLC

- Douglas & Sons (Pvt.) Ltd.

- DSL Lanka (Pvt.) Ltd.

- G.C.Roche & Co (Pvt.) Ltd.

- Inter Ocean Automibles (Pvt.) Ltd.

Ms. H. K. S. R. Perera - Prime Lands (Pvt.) Ltd.

- Prime Lands Residencies (Pvt.) Ltd.

Mr. B. Premalal - Prime Lands (Pvt.) Ltd.

- Prime Lands Residencies (Pvt.) Ltd.

- HNB Grameen Finance Ltd.

- Condominium Management Authority of Sri Lanka

Mr. M. Perera - Industrial Asphalts (Ceylon) PLC

- Centre for Humanitarian Assistance (Gte) Company Ltd.(Cha.)

- Pele Consulting (Pvt.) Ltd.

- HNB Grameen Finance Limited

Mr. D. H. Kalapuge - SIPCOM-1 (Pvt.) Ltd

Mr. N. A. Wickramage - JAT Holdings (Pvt.) Ltd

Mr. P. A. W. Perera Nil

Mr. H. M. Hennayake Bandara - National Wealth Corporation Ltd

- Natwealth Securities Ltd

- K Seeds Investments (Pvt.) Ltd

- Institute of Certified Management Accountants of Sri Lanka

- Association of Professional Bankers of Sri Lanka

- Organization of Professional Association of Sri Lanka

- Institute of Certified Professional Managers



21. Board Sub-Committees

The Board in compliance with Finance Companies (Corporate Governance) Direction No. 03 of 2008 issued by the Central Bank of Sri Lanka and the Listing Rules of the Colombo Stock Exchange formed four mandatory Board Sub-Committees namely, Audit Committee, Integrated Risk Management Committee, Remuneration Committee and Related Party Transactions Review Committee. The Composition of these four Sub-Committees as at 31st March 2018 were as follows,

Name of the Director Audit Committee

Integrated Risk Management Committee

Remuneration Committee

Related Party Transactions Review Committee

Mr. M. D. S. M. Goonatilleke

Member Member Chairman

Ms. H. K. S. R. Perera - - - -

Mr. B. Premalal - - Member -

Mr. M. Perera - Chairman Member Member

Mr. D. H. Kalapuge - - Chairman Member

Mr. N. A. Wickramage - - - -

Mr. P. A. W. Perera Member - - -


Chairman Member - -

The Scope and the Role and Responsibilities / Activities during the year of all the above Board Sub-Committees are given in reports of these Board Sub-Committee on pages 90 to 94.

22. Directors’ Meetings

The details of Directors meetings which comprises Board Meetings and the Board Sub-Committee meetings and the attendance of Directors at these meetings are given in the Corporate Governance Report on Page 54 of the Annual Report.

23. Related Party Transactions

The details of the Related Party Transactions are set out in Note 42 to the Audited Financial Statements on pages 160 to 163. As required in terms of Rule 9.3.2 (d) of the Listing Rules of the Colombo Stock Exchange, the Board of Directors confirms that the Company has complied with the rules pertaining to the Related Party Transactions.

In terms of Rule 9.3.2 (b) of the Listing Rules of the Colombo Stock Exchange, recurrent Related Party Transaction which exceeds 10% of the grosses revenue are tabulated below,

102

Name of the Related Party

Relationship Nature of Transaction Aggregate value of Related Party Transactions entered into during the financial year

Aggregate value of Related Party Transactions as a % of Net Revenue / Income

Terms and Conditions of the Related Party Transactions

Prime Lands (Pvt.) Ltd.

Parent Savings deposit made (Funds in the deposit will be utilized as a part of the consideration to the allotment of rights issue)

Rs.450,000,000/- 139% Usual Terms available to the general public. (Interest offered to Savings Deposits is 6% p.a.)


Parent Fixed Deposits withdrawal (utilized the same as a part of the consideration to the allotment of rights issue (Rights issue concluded on 11th September, 2017)

Rs.207,735,000/- 67% This deposit is made, as per the requirements of the Central Bank of Sri Lanka to convert the same as Core Capital. The depositor and the Company agreed to treat this as an interest free deposit.


Parent Easy Payment Loan granted on the guarantee given by Prime Lands (Pvt.) Ltd. through a Tri Partite Agreement.

Rs.512,404,809/- (Outstanding as at 31/03/2018 – Rs. 414,295,908/-)

158% As a part of normal lending process.

24. Disclosure of Directors and Chief Executive Officer’s Interests In Shares

The Shareholding of Directors and Chief Executive Officer’s as at 31st March, 2018 and as at 31st March, 2017 were as follows,

Name of the Director / Chief Executive Officer

No. of Shares as at 31st March 2018

No. of Shares as at 31st March 2017

Mr. M. D. S. M. Goonatilleke 10,000 Nil

Ms. H. K. S. R. Perera 50,000 Nil

Mr. B. Premalal 50,000 Nil

Mr. M. Perera Nil Nil

Mr. D. H. Kalapuge Nil Nil

Mr. N. A. Wickramage 20,000 Nil

Mr. P. A. W. Perera 10,000 Nil

Mr. H. M. Hennayake Bandara Nil Nil

Mr. R.P. Kaluarachchi Nil Nil



25. Director’s Remuneration

As requested under the Section 168(1)(f), details of Directors’ emoluments and other benefits paid during the financial year under review are given in Note 42 to the Audited Financial Statements.

26. Environmental Protection

To the best knowledge of the Board of Directors, the Company has not engaged in any activity that is harmful or hazardous to the environment. The Directors also confirm that to the best of their knowledge and belief the Company has complied with the relevant environment laws and regulations.

27. Statutory Payments

The Directors, to the best of their knowledge and belief, are satisfied that all statutory payments in relation to the Government, Other Regulatory Bodies and related to Employees have been paid on a timely basis.

28. Outstanding Litigation

The Directors are of the opinion that pending litigation against the Company will not have any material impact on the financial position of the Company.

29. Events after the Reporting Period

No circumstances have arisen since the Statement of Financial Position date which

would require adjustments to, or disclosure in, the accounts, except those disclosed in Note 41 to the Audited Financial Statements

30. Going Concern

The Board of Directors had reviewed the Company’s business plans for the ensuing year and is satisfied that the Company has adequate resources to continue its operation in the foreseeable future. Accordingly, the Financial Statements of the Company prepared based on the going concern concept.

31. Donations

No Donations were paid during the year ended 31st March, 2018 and Rs. 115,000/- paid during the year ended 31st March 2017.

32. System of Internal Control

The Board of Directors ensures that an effective and robust internal control procedure is in place to safeguard the Company’s Assets. The Board Audit Committee reviews the adequacy and the integrity of the internal control systems relating to compliance and risk management.

Further, the Board has issued a Statement on the Internal Controls for Financial Reporting and an Assurance Report from External Auditors in terms of the Finance Companies

(Corporate Governance) Direction No. 3 of 2008 has also been obtained.

33. Corporate Governance

The Board of Directors of the Company are committed towards maintaining effective Corporate Governance Framework to ensure that the Company is compliant with the provisions of the Finance Companies (Corporate Governance) Direction No.3 of 2008 as amended, Code of Best Practice on Corporate Governance 2013 issued jointly by the Institute of Chartered Accountants of Sri Lanka and the Securities and Exchange Commission of Sri Lanka and the Listing Rules of the Colombo Stock Exchange. The development of an effective Corporate Governance framework is a priority on the agenda of the Board. The report on Corporate Governance given on pages 48 to 89 of the Annual Report covers the extent of compliance with Corporate Governance regulations.

34. Auditors

The Company’s Auditors during the year under review were Messrs Ernst & Young, Chartered Accountants. The Audit and Non-Audit fees paid to Messrs Ernst & Young during the year under review is disclosed in the Note 12 to the Audited Financial Statements in Page 133 of the Annual Report.

104

The retiring Auditors Messrs Ernst & Young have expressed their willingness to continue in office and a resolution to re-appoint them as Auditors and authorizing the Directors to fix their remuneration will be proposed at the Annual General Meeting. The Audit Committee evaluated the independence and objectivity of the External Auditors, Messrs. Ernst & Young, Chartered Accountants and recommended the re-appointment of the Auditors.

35. Annual General Meeting

The 14th Annual General Meeting will be held at the Lecture Hall 08, Sri Lanka Foundation, No.100, Sri Lanka Padanama Mawatha, Independence Square , Colombo 07 on 06th August 2018 at 9.30 a.m. Notice of the meeting relating to the 14th Annual General Meeting is enclosed at the end of the Annual Report.

For and on behalf of the Board of Directors of Prime Finance PLC,

M. D. S. Mangala GoonatillekeChairman / Independent Non-Executive Director

H. M. Hennayake BandaraIndependent Non-Executive Director

S S P Corporate Services (Private) LimitedSecretaries

18th June, 2018



Directors’ Statement on Internal Control over Financial Reporting

Responsibility

In line with the section 10(2)(b) of the Finance Companies Direction No. 03 of 2008 as amended by the Direction No. 06 of 2013, the Board of Directors presents this report on Internal Control over Financial Reporting.

The Board of Directors (“the Board”) is responsible for the adequacy and effectiveness of the internal control over financial reporting in place at Prime Finance PLC. (“the Company”).

The Board has established an on-going process for identifying, evaluating and managing the significant risks faced by the Company and this process includes the system of Internal Control over Financial Reporting. The process is regularly reviewed by the Board.

The Board is of the view that the system of Internal Control over Financial Reporting 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.

The management assists the Board in the implementation of the Board’s policies and procedures pertaining to Internal Control over Financial Reporting. The management is continuously in the process of enhancing the documentation of the system of Internal Control over Financial Reporting. In assessing the Internal Control System over Financial Reporting, identified officers of the

Company are continuously improving the processes and procedures in line with the industry best practices and regulatory reporting requirements. These in turn are being observed and checked by the Internal Auditors of the Company for suitability of design and effectiveness on an on-going basis.

Since the adoption of Sri Lanka Accounting Standards comprising LKASs and SLFRSs in 2012/13, continuous monitoring is in progress and steps are being taken for improvements where required. The Company is in the process of further upgrading relevant processes embedding all requirements to existing processes to comply with requirements of recognition, measurement, classification and disclosures required under the new Sri Lanka Accounting Standards.

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 and 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 Auditors

The External Auditor, Messrs. Ernst & Young, has reviewed the above Directors’ Statement on Internal Control for the year ended 31 March

2018 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.

H. M. Hennayake BandaraChairman - Board Audit Committee

M. D. S. M. Goonatilleke Chairman

18th June 2018

106

The Financial Statements of Prime Finance PLC (the Company) as at 31 March 2018 are prepared and presented in conformity with the following requirements:

i. Sri Lanka Accounting Standards issued by The Institute of Chartered Accountants of Sri Lanka (CA Sri Lanka)

ii. Companies Act No. 07 of 2007

iii. Sri Lanka Accounting and Auditing Standards Act No. 15 of 1995

iv. Directions, circulars and guidelines issued to Licensed Finance Companies by the Central Bank of Sri Lanka (CBSL) under the Finance Business Act No. 42 of 2011

v. Listing Rules of the Colombo Stock Exchange

vi. Code of Best Practice on Corporate Governance issued jointly by The Institute of Chartered Accountants of Sri Lanka and the Securities and Exchange Commission of Sri Lanka.

The formats used in the preparation of the Financial Statements and disclosures made comply with the formats prescribed by the Central Bank of Sri Lanka. The Company on a quarterly basis presents Financial Statements to its shareholders in compliance with the Listing Rules of the Colombo Stock Exchange.

The Accounting Policies used in the preparation of the Financial Statements are appropriate and are consistently applied by the Company. There are no departures from the prescribed Accounting Standards in their adoption. Comparative information has been reclassified wherever necessary to comply with the current presentation and material departures, if any, have been disclosed and explained. Significant accounting policies and estimates that involved a high degree of judgment and complexity were discussed with the External Auditor and the Board Audit Committee.

The Board of Directors and the Management of the Company accept responsibility for the integrity and objectivity of these Financial Statements. The estimates and judgments relating to the Financial Statements were made on a prudent and reasonable basis in order to ensure that the Financial Statements are reflected in a true and fair manner and the form and substance of transactions and the Company’s state of affairs is reasonably presented. We also confirm that the Company has adequate resources to continue in operation and has applied the going concern basis in preparing these Financial Statements.

To ensure this, the Company has taken proper and sufficient care in installing a system of internal control and accounting records, for safeguarding assets and for preventing

and detecting frauds as well as other irregularities, which is reviewed, evaluated and updated on an ongoing basis.

The Internal Auditors have conducted periodic audits to provide reasonable assurance that the established policies and procedures of the Company were consistently followed. However, there are inherent limitations that should be recognized in weighing the assurances provided by any system of internal controls and accounting.

The Board Audit Committee reviewed all of the internal and external audit and inspection programmes, the efficiency of the internal control systems and procedures, the quality of accounting policies and their adherence to statutory and regulatory requirements, the external audit plan and the management letters and also followed up on any issues raised during the statutory audit, the details of which are given in the ‘Board Audit Committee Report’ on page 90 of this Annual Report.

The Financial Statements of the Company were audited by Messrs. Ernst & Young, Chartered Accountants and their Report is given on page 109 of this Annual Report.

Chief Executive Officer’s and Assistant General Manager Finance’s Responsibility Statement


We confirm that:

• the Company has complied with all applicable laws and regulations and prudential requirements,

• there are no material non-compliances, there are no material litigations that are pending against the Company

• All taxes, duties, levies and other statutory payments by the Company and all contributions, levies and taxes payable on behalf of and in respect of the employees of the Company as at 31 March 2018 have been paid, or where relevant provided for.

Rasika KaluarachchiChief Executive Officer

T.M. Manjula TennakoonAssistant General Manager Finance

18th June 2018

108

This Statement of Directors’ Responsibilities is made to distinguish the respective responsibilities of the Directors and of the Auditors in relation to the Financial Statements of the Company for the year ended 31st March, 2018.

The Directors are required by the Companies Act, No. 7 of 2007 to prepare financial statements for each financial year, which give a true and fair view of the statement of affairs of the Company as at the end of the financial year and the income and expenditure of the Company for the financial year. The Directors are also responsible to ensure that the financial statements are prepared and presented in compliance with the required standards and any other requirements which apply to the Company’s financial statements under any other law.

The Directors confirm that the Financial Statements of the Company for the year ended 31st March, 2018 have been prepared and presented in conformity with the requirements of the Sri Lanka Accounting Standards, the regulations and directions of the Central Bank of Sri Lanka, the listing rules of the Colombo Stock Exchange and the Companies Act No.7 of 2007. In preparing the Financial Statements, the Directors have selected the appropriate accounting policies and have applied them consistently. Reasonable and prudent judgments and estimates have been made and

Statement of Directors’ Responsibilities for Financial Reporting

applicable accounting standards have been followed and the Financial Statements have been prepared on a going concern basis.

The Directors are of the view that adequate funds and other resources are available within the Company for the Company to continue in operation for the foreseeable future.

The Directors have taken all reasonable steps expected from them to safeguard the assets of the Company and to establish appropriate systems of internal controls in order to prevent, deter and detect any fraud, misappropriation or other irregularities. The Directors have also taken all reasonable steps to ensure that the Company maintains adequate and accurate accounting books of record which reflect the transparency of transactions and provide an accurate disclosure of the Company’s financial position.

The Directors are required to provide the Auditors with every opportunity to take whatever steps and undertake whatever inspection they consider appropriate for the purpose of enabling them to give their Audit Report. The Directors are of the view that they have discharged their responsibilities in this regard.

Compliance Report

The Directors confirm that, to the best of their knowledge, all taxes and levies payable by the Company and all contributions, levies and taxes payable on behalf of the employees of the Company, and all other known statutory obligations as at the balance sheet date have been paid or provided for in the Financial Statements.

On Behalf of the Board,

M. D. S. Mangala GoonatillekeChairman

18th June, 2018


Independent Auditor’s Report

Report on the audit of the Financial Statements

We have audited the financial statements of Prime Finance PLC (“ The Company”), which comprise the statement of financial position as at 31 March 2018, and the statement of comprehensive income, statement of changes in equity and, cash flow statement for the year then ended, and a summary of significant accounting policies and other explanatory information.

In our opinion, the accompanying financial statements of the Company give a true and fair view of the financial position of the Company as at 31 March 2018, and of its financial performance and cash flows for the year then ended in accordance with Sri Lanka Accounting Standards.

Basis for opinion

We conducted our audit in accordance with Sri Lanka Auditing Standards (SLAuSs). Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the financial statements section of our report. We are independent of the Company in accordance with the Code of Ethics issued by CA Sri Lanka (Code of Ethics) and we have fulfilled our other ethical responsibilities in accordance with

the Code of Ethics. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Key audit matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. For each matter below, our description of how our audit addressed the matter is provided in that context.

We have fulfilled the responsibilities described in the Auditor’s responsibilities for the audit of the financial statements section of our report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond to our assessment of the risks of material misstatement of the financial statements. The results of our audit procedures, including the procedures performed to address the matters below, provide the basis for our audit opinion on the accompanying financial statements.

Key audit matters specific to Company

Key audit matter How our audit addressed the key audit matter

Allowance for impairment of Loans and Advances and Lease Rentals Receivable & Stock Out on Hire

As at 31 March 2018, loans & advances and receivables from lease & hire purchase (net of impairment) amounted to Rs. 2,184,713,733 and Rs. 496,020,155 respectively. These collectively contributed 73% to the Company’s total assets.

To assess the reasonableness of the allowance for impairment, our audit procedures (among others) included the following:

∫ We understood & evaluated the key internal controls over estimation of the allowance for impairment including those over identifying occurrence of loss events;

110

Key audit matter How our audit addressed the key audit matter

The allowance for impairment (both specific and collective) of these financial assets is estimated by management. The estimation involves a complex calculation. Assumptions used by management in this calculation are inherently judgmental. Note 3.1 and 19.3 to the financial statements more fully describes the assumptions to which this estimate is most sensitive.

We considered the estimation of allowance for impairment as a Key Audit Matter due to sensitivity of reported results (on financial performance) to this allowance and the inherent uncertainty involved in its estimation.

∫ We test - checked the underlying calculations [and data used in such calculations] on a sample basis;

∫ In addition to the above, focused procedures were performed as follows:

Specific allowance for impairment:

For a sample of non – performing loans & leases, management’s forecasts of cash flows were test – checked to historical patterns of customer repayment. Among other procedures, forecast cash flows arising from collateral (or other source(s) of expected recovery) were verified to source documents;

Collective allowance for impairment:

For loss rates used by management, we assessed the appropriateness of the loss emergence period including consistency with historical loss experience; assumptions on effects arising from macro – economic factors were compared to published data;

We assessed the adequacy of the related financial statement disclosures as set out in note(s) 18.1 and 19.1.

Other information included in the Company’s 2018 Annual Report

Other information consists of the information included in the Company’s 2018 Annual Report, other than the financial statements and our auditor’s report thereon. Management is responsible for the other information. The Company’s 2018 annual report is expected to be made available to us after the date of this auditor’s report.

Our opinion on the financial statements does not cover the other information and we will not express any form of assurance conclusion thereon.

In connection with our audit of the financial statements, our responsibility is to read the other information identified above when it becomes available and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated.

Responsibilities of management and those charged with governance for the financial statements

Management is responsible for the preparation of financial statements that give a true and fair view in accordance with Sri Lanka Accounting Standards, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, management is responsible for assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Company’s financial reporting process.

Independent Auditor’s Report


Auditor’s responsibilities for the audit of the financial statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with SLAuSs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

As part of an audit in accordance with SLAuSs, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

∫ Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

∫ Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control.

∫ Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.

∫ Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or

conditions may cause the Company to cease to continue as a going concern.

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

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

Report on Other Legal and Regulatory Requirements

As required by section 163 (2) of the Companies Act No. 07 of 2007, we have obtained all the information and explanations that were required for the audit and, as far as appears from our examination, proper accounting records have been kept by the Company.

CA Sri Lanka membership number of the engagement partner responsible for signing this independent auditor’s report is 1420.

18 June 2018Colombo

112

Statement of Financial Position

As at 31st March 2018 2017

Notes Rs. Rs.

Assets

Cash & Cash Equivalents 16 417,958,339 128,416,689

Financial Investments - Held for Trading 17 - 520

Loans and Advances 18 2,184,713,733 1,074,545,486

Lease Rentals Receivable & Stock Out on Hire 19 496,020,155 91,555,419

Financial Investments - Available for Sale 20 56,300 56,300

Financial Investments - Held to Maturity 21 122,468,456 89,482,222

Other Financial Assets 22 153,375,687 213,682,831

Inventories - Real Estate Stock 23 129,266,607 38,532,048

Other Non Financial Assets 24 11,415,435 21,217,539

Investment Property 25 105,439,534 -

Property, Plant & Equipment 26 28,525,141 19,464,312

Intangible Assets 27 2,222,312 2,328,269

Deferred Tax Asset 28 19,913,154 22,488,656

Total Assets 3,671,374,853 1,701,770,291

Liabilities

Due to Banks 29 192,350,891 39,424,575

Due to Customers 30 2,399,149,502 1,311,055,978

Other Financial Liabilities 31 240,422,196 6,434,521

Other Non-Financial Liabilities 32 223,210,024 26,231,948

Retirement Benefit Liability 33 3,167,412 2,184,180

Total liabilities 3,058,300,025 1,385,331,202



Notes Rs. Rs.

Shareholders' Funds

Stated Capital 34 508,500,000 225,000,000

Retained Earnings 35 95,883,622 83,402,419

Other Reserves 36 8,691,206 8,036,670

Total Shareholders' Funds 613,074,827 316,439,089

Total Liabilities and Shareholders' Funds 3,671,374,853 1,701,770,291

Commitments and Contingencies 39 13,403,458 7,052,353

Net Assets Per Share (Rs.) 17.03 14.06

We certify that these Financial Statements are in compliance with the requirements of the Companies Act No. 07 of 2007.

T. M. M. Tennakoon Rasika KaluarachchiAGM - Finance Chief Executive Officer

The Board of Directors is responsible for these Financial Statements. Signed for and on behalf of the Board by,

M. D. S. Mangala Goonatilleke H. M. Hennayaka BandaraDirector Director


Accounting Policies & Notes from pages 118 to 177 form an integral part of these Financial Statements.

114

Statement of Comprehensive Income

Year ended 31st March 2018 2017

Notes Rs. Rs.

Interest Income 6.1 445,450,360 291,728,251

Interest Expenses 6.2 (209,450,069) (133,371,807)

Net Interest Income 6 236,000,292 158,356,444

Fee and Commission Income 12,419,392 5,352,276

Net Fee and Commission Income 7 12,419,392 5,352,276

Net Gain/(Loss) from Trading 8 (70) (180)

Other Operating Income (net) 9 74,901,409 2,100,563

Total Operating Income 323,321,022 165,809,103

Impairment (Charges)/Reversals for Loans and Other Credit Losses 10 (107,632,627) (9,027,486)

Net Operating Income 215,688,395 156,781,617

Operating Expenses

Personnel Costs 11 (74,277,599) (58,798,915)

Depreciation of Property Plant & Equipment (10,630,066) (9,548,944)

Amortisation of Intangible Assets (1,105,957) (810,478)

Other Operating Expenses 12 (94,588,605) (69,466,999)

Profit/ (Loss) before VAT on financial services 35,086,167 18,156,282

Value Added Tax on Financial Services (7,962,581) (9,343,736)

Profit/( Loss) from Operations before Taxation 27,123,586 8,812,546

(Provision)/Reversal for Income Taxation 13 (14,032,874) (6,289,588)

Profit/(Loss) for the Year 13,090,713 2,522,957

Other Comprehensive Income / (Expenses)

Other Comprehensive Income not to be reclassified to Profit or Loss

Actuarial Gain / ( Loss ) on Retirement Benefit Obligations 33 45,025 383,184

Other Comprehensive Income/(Expense) for the Year, net of taxes 45,025 383,184

Total Comprehensive Income/(Expense) for the Year 13,135,738 2,906,141

Earnings Per Share (Rs) 14 0.42 0.11



Statement of Changes in Equity

Year ended 31st March Retained Statutory

Stated Capital Earnings Reserve Total

Rs. Rs. Rs. Rs.

Balances as at 01st April 2016 225,000,000 80,622,426 7,910,522 313,532,948

Net Profit for the Year - 2,522,957 - 2,522,957

Other Comprehensive Income - 383,184 - 383,184

Transfer to Statutory Reserve - (126,148) 126,148 -

Balances as at 31st March 2017 225,000,000 83,402,419 8,036,670 316,439,089

Balances as at 01st April 2017 225,000,000 83,402,419 8,036,670 316,439,089

Net Profit for the Year - 13,090,713 - 13,090,713

Other Comprehensive Income - 45,025 - 45,025

Transfer to Statutory Reserve - (654,536) 654,536 -

Rights Issue 283,500,000 - - 283,500,000

Balances as at 31st March 2018 508,500,000 95,883,622 8,691,206 613,074,827


116

Statement of Cash Flows

Year ended 31st March Notes 2018 2017

Rs. Rs.

Cash Flows From / (Used in) Operating Activities

Profit/( Loss) before Income Tax Expense 27,123,586 8,812,546

Adjustments for

Depreciation 26.2 10,630,066 9,548,944

Amortisation of Intangible Assets 27 1,105,957 810,478

Impairment Provision 10 107,632,627 9,027,486

Interest Cost on Finance Lease 152,078 289,267

Diminution/(Appreciation) in value of investments 8 70 180

Loss/(Profit) on Disposal of Property & Equipment 9 - (260,870)

Provision/(Reversal) for Defined Benefit Plans 33.2 1,220,257 1,011,226

Dividend Received 9 (180,000) (58,502)

Notional Tax Credit on Interest on Treasury Bills (951,991) (901,027)

Fair Value - Investment Property 9 (28,925,534) -

Operating Profit before Working Capital Changes 117,807,118 28,279,727

(Increase)/Decrease in Real Estate Stock (90,734,559) (35,924,320)

(Increase)/Decrease in Loans and Advances (1,219,668,334) (48,195,279)

(Increase)/Decrease in Lease Rentals Receivable & Stock out on hire (402,597,275) 42,292,415

(Increase)/Decrease in Other Financial Assets (Excluding Investments in Banks & Other Financial Institutions) (768,303) (186,902)

(Increase)/Decrease in Financial Investments - 16,602,880

(Increase)/Decrease in Other Non Financial Assets 4,385,889 (2,761,387)

Increase/(Decrease) in Amounts Due to Customers 1,088,093,524 205,397,997

Increase/(Decrease) in Other Financial Liabilities (511,514) 4,820,047

Increase/(Decrease) in Other Non Financial Liabilities 196,978,076 5,896,995

Cash Generated from/( Used in) Operations (307,015,378) 216,222,171

Economic Service Charges Paid - (830,182)

Retirement Benefit Liabilities Paid 33 (192,000) -

Income Tax Paid (5,919,348) -

Net Cash From/(Used in) Operating Activities (313,126,726) 215,391,989


Year ended 31st March Notes 2018 2017

Rs. Rs.

Cash Flows from / (Used in) Investing Activities

Acquisition of Property, Plant & Equipment 26.1 (19,690,895) (6,740,974)

Acquisition of Intangible Assets 27 (1,000,000) (1,491,140)

Acquisition of Investment Property 25 (76,514,000)

Proceeds from Sales of Shares 450 -

Proceeds from Sales of Property , Plant & Equipment - 300,000

Investments in Banks & Other Financial Institutions 61,075,446 (129,652,699)

Sale/(Purchase) of Financial Investments- Held to Maturity (32,986,234) (17,187,389)

Dividend Received 9 180,000 58,502

Net Cash Flows from/(Used in) Investing Activities (68,935,233) (154,713,700)

Cash Flows from / (Used in) Financing Activities

Rights Issue 283,500,000 -

Payment under Finance Lease Liabilities (1,100,664) (1,100,664)

Net movement in the bank borrowings 385,146,038 -

Net Cash Flows from/(Used in) Financing Activities 667,545,374 (1,100,664)

Net Increase in Cash and Cash Equivalents 285,483,415 59,577,626

Net Cash and Cash Equivalents at the beginning of the Year 90,198,372 30,620,745

Net Cash and Cash Equivalents at the end of the year (Note 16.1) 375,681,787 90,198,372


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Notes to the Financial Statements

1. CORPORATE INFORMATION

1.1 Domicile and Legal Form

Prime Finance PLC, (“the Company”) is a Public Limited Liability Company incorporated in Sri Lanka under Companies Act No.07 of 2007. The registered office is located at No 61, D.S. Senanayake Mawatha, Colombo 08. The Company is registered as a Finance Company under the Finance Business Act No. 42 of 2011.

1.2 Principal Activities and Nature of Operations

The principal activities of the Company are acceptance of deposits, granting lease facilities, hire purchase, providing mortgage loans and other credit facilities, real estate development and related services.

1.3 Parent Entity and Ultimate Parent Entity

The Company’s parent undertaking is Prime Lands (Pvt) Ltd.

1.4 Date of Authorization for Issue

The Financial Statements of Prime Finance PLC for the year ended 31st March 2018 was authorized for issue by the board of directors on 18th June 2018.

2. BASIS OF PREPARATION

2.1 Statement of Compliance

The Statement of Financial Position, Statement of Comprehensive Income, Statement of Changes in Equity and Statement of Cash Flows, together with Accounting Policies and Notes, (Financial Statements), as at 31st March 2018 and for the year then ended, have been prepared in accordance with Sri Lanka Accounting Standards, laid down by the Institute of Chartered Accountants of Sri Lanka and in compliance with the requirements of the Companies Act No. 07 of 2007 and amendments thereto. Presentation of these Financial Statements is also in compliance with the requirement of Finance Business Act No.42 of 2011, listing rules of the Colombo Stock Exchange and the CBSL guidelines.

2.2 Responsibilities for the Financial Statement

The Board of Directors acknowledges the responsibility in relation to the Financial Statements, as set out in the ‘Statement of Directors’ Responsibilities’, ‘Annual Report of the Board of Directors’ and in the statement appearing in the Statement of Financial Position of the Annual Report.

2.3 Basis of Measurement

The financial statements have been prepared on the historical cost basis, except for the following items in the Statement of financial position, all of which are measured at fair value.

- Financial assets available for sale

- Other financial assets and liabilities held for trading

- Liabilities for defined obligations are recognized as the present value of the defined benefit obligation.

- Investment Property

2.4 Functional and Presentation Currency

The Financial Statements of the Company are presented in Sri Lanka Rupees, Which is the Currency of the primary economic environment in which the Company operates. The amounts in the Financial Statements have been rounded off to the nearest Rupees, except where otherwise indicated as permitted by the Sri Lanka Accounting Standard - LKAS 01 on “Presentation of Financial Statements”.

2.5 Presentation of Financial Statements

The Company presents its statement of financial position broadly in order of liquidity. An analysis regarding recovery or settlement within 12 months after the reporting date (current) and more than 12 months after the Reporting date (non–current) is presented in note 38.

2.6 Comparative Information

The accounting policies have been consistently applied by the Company and, are consistent with those used in the previous year.


3. SIGNIFICANT ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTIONS

In the process of applying the Company’s accounting policies, management has made the following judgments, which have the most significant effect on the amounts recognized in the financial statements:

3.1 Judgements, Estimates and Assumptions

The key assumptions concerning the future and other key sources of estimation at the reporting date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are described below.

Going concern

The Directors have made an assessment of the Company’s ability to continue as a going concern and are satisfied that it has the resources to continue in business for the foreseeable future. Furthermore, Board is not aware of any material uncertainties that may cast significant doubt upon the Company’s ability to continue as a going concern and they do not intend either to liquidate or to cease operations of the Company.

Though the Company has not yet met the core capital requirement imposed by the central bank of Sri Lanka, parent company has made a deposit with the company to compensate the shortfall at the request of Central Bank. Further, currently necessary steps are being taken by the Company to meet core capital requirement.

Therefore, the financial statements continue to be prepared on the going concern basis.

Impairment Losses on Leases, Hire Purchases and Other Loans and Advances

The Company reviews their individually significant loans and advances at each statement-of-financial-position date to assess whether an impairment loss should be recorded in the income statement. In particular, management’s judgment is required in the estimation of the amount and timing of future cash flows when determining the impairment loss. These

estimates are based on assumptions about a number of factors and actual results may differ, resulting in future changes to the impairment allowance.

Loans and advances that have been assessed individually and found to be not impaired and all individually insignificant loans and advances are then assessed collectively, in groups of assets with similar risk characteristics, to determine whether provision should be made due to incurred loss events for which there is objective evidence, but the effects of which are not yet evident. The collective assessment takes in to account data from the loan portfolio (such as levels of arrears, credit utilization, loan-to-collateral ratios, etc.), and judgments on the effect of concentrations of risks and economic data (including levels of unemployment, inflation and interest rates).

Defined benefit plans

The cost of defined benefit plans are determined using actuarial valuations. An actuarial valuation involves making various assumptions which may differ from actual developments in the future. These include the determination of the discount rate, future salary increases, mortality rates etc. Due to the complexity of the valuation, the underlying assumptions and their long term nature, a defined benefit obligation is highly sensitive to changes in these assumptions. All assumptions are reviewed at each reporting date.

In determining the appropriate discount rate, management considers the interest rates of Sri Lanka Government Bonds with extrapolated maturities corresponding to the expected duration of the defined benefit obligation. The mortality rate is based on publicly available mortality tables. Future salary increases are based on expected future inflation rates and expected future salary increase rate of the Company.

4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The significant accounting policies applied by the Company in preparation of its financial statements are included below. The accounting policies set out below have been applied consistently to all periods presented in theses financial statements, unless otherwise indicated.

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4.1 Financial Assets and Financial Liabilities – initial recognition and subsequent measurement

Financial assets within the scope of LKAS 39 are classified as , Loans and Advances, Financial investments held-to-maturity, Financial investments available-for-sale, Financial investments held for trading and other financial assets as appropriate.

Financial liabilities within the scope of LKAS 39 are classified as Due to Banks, Due to customers, and Other borrowed funds and Trade & Other Payables.

a) Date of recognition

All financial assets and liabilities are initially recognised on the trade date, i.e., the date that the Company becomes a party to the contractual provisions of the instrument. This includes regular trades, purchases or sales of financial assets that require delivery of assets within the time frame generally established by regulation or convention in the market place.

b) Initial measurement of Financial Instruments

The classification of Financial Assets and Financial Liabilities at initial recognition depends on their purpose and characteristics and the management’s intention in acquiring them. All Financial Assets and Financial Liabilities are measured initially at their fair value plus transaction costs, except in the case of financial assets and financial liabilities recorded at fair value through profit or loss.

1) Financial assets held for trading

Financial assets held for trading are recorded in the statement of financial position at fair value. Changes in fair value are recognized in ‘Net trading income’. Interest and dividend income or expense is recorded in ‘Net trading income’ according to the terms of the contract, or when the right to the payment has been established.

2) Held- to- maturity financial investments

Held to maturity financial investments are financial assets with fixed or determinable payments and fixed maturities, which the Company has the intention and ability to hold to maturity. Subsequent to initial

recognition, held to maturity financial investments are measured at amortized cost using the Effective Interest Rate (EIR), less impairment. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees that are an integral part of the EIR. The amortization is included in ‘Interest income’ in the income statement. The losses arising from impairment of such investments are recognized in the income statement line ‘Impairment (Charges) / Reversal for loans and other losses’.

If the company were to sell or reclassify more than an insignificant amount of held to maturity investments before maturity (other than in certain specific circumstances), the entire category would be tainted and would have to be reclassified as available for sale. Furthermore, the company would be prohibited from classifying any financial asset as held to maturity during the following two years.

3) Financial Assets classified as Loans and Receivables

Loans & advances to customers include financial assets with fixed or determinable payments that are not quoted in an active market.

After initial measurement, amounts ‘Fixed Deposits’, ‘Securities purchased under Repurchase Agreements’ and ‘Loans and advances to customers’ are subsequently measured at amortized cost using the EIR, less allowance for impairment. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees and costs that are an integral part of the EIR. The amortization is included in ‘Interest income’ in the income statement. The losses arising from impairment are recognized in the income statement in ‘Impairment charges on loans & other losses’.

4) Available for sale financial investments

Available for sale investments include equity and debt securities. Equity investments classified as available for sale are those which are neither classified as held for trading nor designated at fair value through profit or loss. Debt securities in this category are intended to be held for an indefinite period of time and may be sold in response to needs



for liquidity or in response to changes in the market conditions. The Company has not designated any loans or receivables as available for sale. After initial measurement, available for sale financial investments are subsequently measured at fair value. Unrealized gains and losses are recognized directly in equity (Other comprehensive income) in the available for sale reserve. When the investment is disposed of, the cumulative gain or loss previously recognized in equity is recognized in the income statement in other operating income. Where the company holds more than one investment in the same security, they are deemed to be disposed of on a first–in first–out basis. Interest earned whilst holding available for sale financial investments is reported as interest income using the EIR. Dividends earned whilst holding available for sale financial investments are recognized in the income statement as other operating income when the right of the payment has been established. The losses arising from impairment of such investments are recognized in the income statement in ‘Impairment losses on financial investments’ and removed from the ‘Available for sale reserve’.

5) Day 1’ profit or loss

When the transaction price differs from the fair value of other observable current market transactions in the same instrument, or based on a valuation technique whose variables include only data from observable markets, the company immediately recognizes the difference between the transaction price and fair value (a ‘Day 1’ profit or loss) in ‘Net gain/(loss) from trading’.

6) Financial liabilities

Financial liabilities within the scope of LKAS 39 are classified as Due to customers (Deposits), Due to Banks, Debt instruments issued and other borrowed funds and trade and other payables as appropriate. The Company determines the classification of its financial liabilities at initial recognition.

The Company classifies financial liabilities in to financial liabilities at FVTPL or other financial liabilities in accordance with the substance of the contractual arrangement and the definitions of financial liabilities.

The Company recognizes financial liabilities in the Statement of financial position when the Company becomes a party to the contractual provisions of the financial liability

c) Other Financial liabilities

Other financial liabilities including deposits, debt issued by the Company and the other borrowed funds are initially measured at fair value less transaction cost that are directly attributable to the acquisition and subsequently measured at amortized cost using the EIR method.

Amortized cost is calculated by taking into account any discount or premium on the issue and costs that are an integral part of the EIR.

4.2 De-recognition of financial assets and Liabilities

a) Financial asset

A financial asset (or, where applicable a part of a financial asset or part of a group of similar financial assets) is derecognized when:

• The rights to receive cash flows from the asset have expired

• The Company has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a ‘pass–through’ arrangement; and either:

• The Company has transferred substantially all the risks and rewards of the asset

• The Company has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset

When the Company has transferred its rights to receive cash flows from an asset or has entered into a pass–through arrangement, and has neither transferred nor retained substantially all of the risks and rewards of the asset nor transferred control

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of the asset, the asset is recognized to the extent of the Company’s continuing involvement in the asset. In that case, the Company also recognizes an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Company has retained.

Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Company could be required to repay.

b) De-recognition of financial liabilities

A financial liability is derecognized when the obligation under the liability is discharged or cancelled or expires. Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a de-recognition of the original liability and the recognition of a new liability. The difference between the carrying value of the original financial liability and the consideration paid is recognized in profit or loss.

4.3 Determination of fair value of Financial Instruments

The fair value for financial instruments traded in active markets at the reporting date is based on their quoted market price or dealer price quotations without any deduction for transaction costs.

For all other financial instruments not traded in an active market, the fair value is determined by using appropriate valuation techniques. Valuation techniques include the discounted cash flow method, comparison with similar instruments for which market observable prices exists, pricing models and other relevant valuation models.

4.4 Impairment of Financial Assets

The Company assesses at each reporting date, whether there is any objective evidence that a financial asset or a group of financial assets is impaired. A financial asset or a group of financial

assets is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events that have occurred after the initial recognition of the asset (an ‘incurred loss event’) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated.

a) Loans and advances to customers and leases and stock out on hire

Losses for impaired loans are recognized promptly when there is objective evidence that impairment of a loan or portfolio of loans has occurred. Impairment allowances are calculated on individual loans and for group of loans which is done collectively. Impairment losses are recorded as charges to the income statement. The carrying amount of impaired loans on the balance sheet is reduced through the use of impairment allowance accounts. Losses expected from future events are not recognized.

Collectively assessed loans and advances

Impairment is assessed on a collective basis in two circumstances:

- To cover losses which have been incurred but have not yet been identified on loans subject to individual assessment; and

- For homogeneous groups of loans those are not considered individually significant.

Incurred but not yet identified impairment

Individually assessed loans for which no evidence of loss has been specifically identified on an individual basis are grouped together according to their credit risk characteristics for the purpose of calculating an estimated collective loss. This reflects impairment losses that the company has incurred as a result of events occurring before the balance sheet date, which the company is not able to identify on an individual loan basis, and that can be reliably estimated. These losses will only be individually identified in the future. As soon as information becomes available which identifies losses on individual loans within the group, those loans


are removed from the group and assessed on an individual basis for impairment.

The collective impairment allowance is determined after taking into account:

- Historical loss experience in portfolios of similar credit risk; and

- Management’s experienced judgment as to whether current economic and credit conditions are such that the actual level of inherent losses at the balance sheet date is likely to be greater or less than that suggested by historical experience.

Homogeneous groups of loans and advances

Statistical methods are used to determine impairment losses on a collective basis for homogeneous groups of loans. Losses in these groups of loans are recorded on an individual basis when individual loans are written off, at which point they are removed from the group.

Following method is used to calculate historical loss experience on a collective basis:

• When the group of loans by nature is short term, the Company uses Net Flow Rate method

Under this methodology the movement in the outstanding balance of customers in to bad categories over the periods are used to estimate the amount of loans that will eventually be written off as a result of the events occurring before the balance sheet date which the Group is not able to identify on an individual loan basis, and that can be reliably estimated.

Under both methodologies, loans are grouped into ranges according to the number of days in arrears and statistical analysis is used to estimate the likelihood that loans in each range will progress through the various stages of delinquency, and ultimately prove irrecoverable.

Current economic conditions and portfolio risk factors are also evaluated when calculating the appropriate level of allowance required covering inherent loss.

These additional macro and portfolio risk factors may include:

Recent loan portfolio growth and product mix, unemployment rates, Gross Domestic Production (GDP) growth, inflation, exchange rates, interest rates and changes in government laws and regulations

Write-off of loans and advances

Loans (and the related impairment allowance accounts) are normally written off, either partially or in full, when there is no realistic prospect of recovery. Where loans are secured, this is generally after receipt of any proceeds from the realization of security.

Reversals of impairment

If the amount of an impairment loss decreases in a subsequent period, and the decrease can be related objectively to an event occurring after the impairment was recognized, the excess is written back by reducing the loan impairment allowance account accordingly. The write-back is recognized in the income statement.

b) Available for sale financial investments

For available for sale financial investments, the company assesses at each reporting date whether there is objective evidence that an investment is impaired. In the case of debt instruments classified as available for sale, the company assesses individually whether there is objective evidence of impairment.

However, the amount recorded for impairment is the cumulative loss measured as the difference between the amortized cost and the current fair value, less any impairment loss on that investment previously recognized in the income statement. Future interest income is based on the reduced carrying amount and is accrued using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. The interest income is recorded as part of ‘Interest and similar income’. If, in a subsequent period, the fair value of a debt instrument increases and the increase can be objectively related to a credit event occurring after

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the impairment loss was recognized in the income statement, the impairment loss is reversed through the income statement.

In the case of equity investments classified as available for sale, objective evidence would also include a ‘significant’ or ‘prolonged’ decline in the fair value of the investment below its cost. Where there is evidence of impairment, the cumulative loss measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that investment previously recognized in the income statement is removed from equity and recognized in the income statement. Impairment losses on equity investments are not reversed through the income statement; increases in the fair value after impairment are recognized in other comprehensive income.

c) Held-to-maturity financial assets

An impairment loss in respect of held-to-maturity financial assets measured at amortized cost is calculated as the difference between its carrying amount and the present value of estimated future cash flows discounted at the asset’s original EIR and is recognized in profit or loss. Interest on impaired assets continues to be recognized through the unwinding of discount. When a subsequent event caused the amount of impairment loss to decrease, the decrease in impairment loss is reversed through profit or loss.

4.5 Cash and Cash Equivalents

Cash and Cash Equivalents are defined as cash in hand, balances with banks and Investments with short maturities i.e. three months or less from the date of acquisition.

For the purpose of cash flow statement, cash and cash equivalents consist of cash in hand and balance with banks and Investments with short maturities i.e. three months or less from the date of acquisition net of outstanding bank overdrafts.

4.6 Finance and operating leases

The determination of whether an arrangement is a lease or it contains a lease, is based on the substance of the arrangement and requires an assessment of whether the fulfillment of the arrangement is dependent on the use of a specific asset or assets and the arrangement conveys a right to use the asset.

Finance lease

Agreements which transfer to counterparties substantially all the risks and rewards incidental to the ownership of assets, but not necessarily legal title, are classified as finance leases. When the Company is a lessor under finance leases the amounts due under the leases, after deduction of unearned charges, are included in ‘Loans and advances to Company or Loans and advances to customers, as appropriate. The finance income receivable is recognized in ‘Net interest income’ over the periods of the leases so as to give a constant rate of return on the net investment in the leases.

When the Company is a lessee under finance leases, the leased assets are capitalized and included in ‘Property, plant and equipment’ and the corresponding liability to the lessor is included in ‘Other liabilities’. A finance lease and its corresponding liability are recognized initially at the fair value of the asset or, if lower, the present value of the minimum lease payments. Finance charges payable are recognized in ‘Net interest income’ over the period of the lease based on the interest rate implicit in the lease so as to give a constant rate of interest on the remaining balance of the liability.

Operating lease

All other leases are classified as operating leases. When acting as lessor, the Company includes the assets subject to operating leases in ‘Property, plant and equipment’ and accounts for them accordingly. Impairment losses are recognized to the extent that residual values are not fully recoverable and the carrying value of the assets is thereby impaired.


When the Company is the lessee, leased assets are not recognized on the balance sheet. Rentals payable and receivable under operating leases are accounted for on a straight-line basis over the periods of the leases and are included in ‘General and administrative expenses’ and ‘other operating income’, respectively.

4.7 Non-Financial Assets

4.7.1 Real Estate Inventories

Real estate inventories are stated at cost or net realizable value whichever is lower. These costs include cost of purchases of the land and expenses on development that are capitalized.

4.7.2 Property and equipment

Property & Equipment are recognized if it is probable that future economic benefits associated with the asset will flow to the entity and the cost of the asset can be measured reliably in accordance with LKAS 16 on Property, Plant & Equipment. Initially property and equipment are measured at cost.

Recognition and measurement

Cost Model

Property and equipment is stated at cost, excluding the costs of day–to–day servicing, less accumulated depreciation and accumulated impairment in value. Such cost includes the cost of replacing part of the equipment when that cost is incurred, if the recognition criteria are met.

Subsequent Cost

These are costs that are recognized in the carrying amount of an item, if it is probable that the future economic benefits embodied within that part will flow to the Group and it can be reliably measured.

Depreciation

Depreciation is provided on a straight-line basis over the period appropriate to the estimated useful lives of different types of assets, at varying rates specified as follows;

Category Rate (per annum)

Motor Vehicles 25%

Furniture & Fittings 12.5%

(Up to 2012/13) 25%

Office Equipment 33.33%

Equipment 33.33%

Machinery 10%

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

The asset’s residual values, useful lives and methods of depreciation are reviewed, and adjusted if appropriate, at each financial year end.

De-recognition

Property and equipment is derecognized on disposal or when no future economic benefits are expected from its use. Any gain or loss arising on de-recognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is recognized in ‘Other operating income’ in the income statement in the year the asset is derecognized.

4.7.3 Intangible Assets

All computer software costs incurred for use by the Company which are not integrally related to associated hardware, and can be, clearly identifiable, reliably measured and it’s probable they will lead to future economic benefits, are included in the Balance Sheet under the category Intangible Assets and carried at cost less cumulative amortization and accumulated impairment losses.

Expenditure incurred on Intangible Assets is capitalized only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure is expensed as incurred.

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Intangible assets are amortized on a straight line basis to the Income Statement from the date when the asset is available for use, over the best estimate of its useful economic life.

Computer Software 20%

(Up to 2012/13) 50%

4.7.4 Impairment of non–financial assets

The Company assesses at each reporting date whether there is an indication that an asset may be impaired. If any indication exists, or when annual impairment testing for an asset is required, the Company estimates the asset’s recoverable amount. An asset’s recoverable amount is the higher of an asset’s or CGU’s fair value less costs to sell and its value in use. Where the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre–tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In determining fair value less costs to sell, an appropriate valuation model is used. These calculations are corroborated by valuation multiples, quoted share prices for publicly traded subsidiaries or other available fair value indicators.

For assets, 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. If such indication exists, the Company estimates the asset’s or CGU’s recoverable amount. A previously recognised impairment loss is reversed only if there has been a change in the assumptions used to determine the asset’s recoverable amount since the last impairment loss was recognised. The reversal is limited so that the carrying amount of the asset does not exceed its recoverable amount, nor exceeds the carrying amount that would have been determined, net of depreciation, had no impairment loss been

recognised for the asset in prior years. Such reversal is recognised in the income statement.

4.8 Non-Financial Liabilities

4.8.1 Retirement Benefit Obligations

(i) Gratuity

All the employees of the company are eligible for gratuity under the Payment of Gratuity Act No. 12 of 1983.

Employees who have resigned or whose services are terminated other than by retirement are eligible to receive the terminal gratuity under the Payment of Gratuity Act No. 12 of 1983 at the rate of half of the Gross Salary applicable to the last month of the financial year in which the employment is terminated or resigned, for each year of completed service, for those who have served in excess of 5 years.

An actuarial valuation is carried out at every year to ascertain the full liability under the Fund. The valuation was carried out as at 31st March 2018 by Actuarial & Management Consultants (Pvt) Ltd, a firm of professional actuaries.

Interest Cost

Interest cost is the expected increase due to interest during the period in the present value of the plan liabilities because the benefits are one year closer to settlement.

Actuarial Gain / (Loss)

The company recognize the total actuarial gain/(losses) that arise in calculating the Company’s obligation in respect of the plan in other comprehensive income during the period in which it occurs.

Funding Arrangements

The Gratuity liability is not externally funded.

(ii) Defined contribution plan

The Company also operates a defined contribution plan. The contribution payable to a defined


contribution plan is in proportion to the services rendered to the Company by the employees and is recorded as an expense under ‘Personnel expenses’. Unpaid contributions are recorded as a liability.

The Company contributes to the following Schemes:

Employees’ Provident Fund

The Company and employees contribute 12% and 8% respectively of the employee’s monthly gross salary (excluding overtime) to the Provident Fund. The Company’s Provident Fund is an approved fund under the Employees’ Provident Fund Act.

Employees’ Trust Fund

The Company contributes 3% of the employee’s monthly gross salary excluding overtime to the Employees’ Trust Fund maintained by the Employees' Trust Fund Board.

4.8.2 Taxation

Income Tax expense comprises of current and deferred tax. Income tax expense is recognized in the statement of comprehensive Income.

a) Current tax

Current tax assets and liabilities consist of amounts expected to be recovered from or paid to the Commissioner General of Inland Revenue in respect of the current year and any adjustment to tax payable in respect of prior years. The tax rates and tax laws used to compute the amount are those that are enacted or substantially enacted by the balance sheet date.

b) Deferred tax

Deferred tax is provided using the liability method on temporary differences at the Balance Sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purpose.

Deferred tax assets are recognized for all deductible differences. Carry forward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profits will be available against which the deductible temporary differences and the carry

forward of unused tax credits and unused tax losses can be utilized.

The carrying amount of a deferred tax asset is reviewed at each Balance Sheet date and reduced to the extent it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilized. Unrecognized deferred tax asset are reassessed at each Balance Sheet date and are recognized to the extent that is probable that future taxable profit will allow the deferred tax asset to be recovered.

Deferred tax assets and liabilities are measured at the tax rate that are expected to apply in the year when the assets are realized or the liabilities are settled, based on tax rates and tax laws that have been enacted or subsequently enacted at the Balance Sheet date.

c) VAT on Financial Services

VAT on Financial Services is calculated in accordance with VAT Act No. 14 of 2002 and subsequent amendment thereto.

4.9 Revenue and Expense Recognition

Revenue is recognized to the extent that it is probable that the economic benefits will flow to the company and the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognized.

4.9.1 Interest Income and Interest expense

For all financial instruments measured at amortized cost, interest bearing financial assets classified as available for sale and financial instruments designated at fair value through profit or loss, interest income or expense is recorded using the EIR. EIR is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or a shorter period, where appropriate, to the net carrying amount of the financial asset or financial liability.

The calculation takes into account all contractual terms of the financial instrument and includes any fees or incremental costs that are directly attributable to the instrument and are an integral part of the EIR, but not future credit losses. The carrying amount of

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the financial asset or financial liability is adjusted if the Company revises its estimates of payments or receipts. The adjusted carrying amount is calculated based on the original EIR and the change in carrying amount is recorded as Interest and similar income for financial assets and Interest and similar expense for financial liabilities. However, for a reclassified financial asset for which the Company subsequently increases its estimates of future cash receipts as a result of increased recoverability of those cash receipts, the effect of that increase is recognized as an adjustment to the EIR from the date of the change in estimate.

Once the recorded value of a financial asset or a group of similar financial assets has been reduced due to an impairment loss, interest income continues to be recognized using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss.

4.9.2 Dividend income

Dividend income is recognized when the right to receive the payment is established.

4.9.3 Net trading income

Net trading income includes all gains and losses from changes in fair value and related dividends for financial assets and financial liabilities ‘held for trading’ other than interest income.

4.9.4 Fee and commission income

The Company earns fee and commission income from a diverse range of services it provides to its customers. Fee income can be divided into the following two categories:

Fee income earned from services that are provided over a certain period of time. Fees earned for the provision of services over a period of time are accrued over that period.

Fee income from providing transaction services

Fees arising from negotiating or participating in the negotiation of a transaction for a third party are recognized on completion of the underlying transaction. Fees or components of fees that are

linked to a certain performance are recognized after fulfilling the corresponding criteria.

4.9.5 Income from Real Estate

Revenue from the real estate sale is recognized when the significant risks and rewards of ownership of the goods have passed to the buyer.

5. INVESTMENT PROPERTIES

Accounting Policy

Investment property is property held either to earn rental income or for capital appreciation or for both, but not for sale in the ordinary course of business, use in the production or supply of goods or services or for administrative purposes.

Investment property is initially recognised at cost. Subsequent to initial recognition the investment property is stated at fair values, which reflect market conditions at the Statement of Financial Position date. Gains or losses arising from changes in fair value are included in the Statement of Profit or Loss in the year in which they arise.

Derecognition

Investment property is derecognized when either they have been disposed of or when the investment property is permanently withdrawn from use and no future economic benefit is expected from its disposal. Any gains or losses on the retirement or disposal of an investment property are recognized in the Statement of Profit or Loss in the year of retirement or disposal.

Fair Value of Investment Property

Investment property of the Company is reflected at fair value using the income approach. When arriving for the income approach it took consideration of the discounted cash flow projections based on the monthly rental amount of the property and the discount rates that reflect uncertainty in the amount and timing of cash flows.

6. STANDARD ISSUED BUT NOT YET EFFECTIVE

The standards and interpretations that are issued


but not yet effective up to the date of issuance of the Company’s financial statements are disclosed below. The Company intends to adopt these standards, if applicable, when they become effective.

SLFRS 9 -Financial Instruments: Classification and Measurement

This standard will replace Sri Lanka Accounting Standard - LKAS 39 (Financial Instruments: Recognition and Measurement). The improvements introduced by SLFRS 9 includes a logical model for classification and measurement, a single, forward-looking ‘expected loss’ impairment model and a substantially - reformed approach to hedge accounting which are detailed below. SLFRS 9 will become effective on 01st January 2018.

Classification and Measurement

Classification determines how financial assets and financial liabilities are accounted for in the Financial Statements and, in particular, how they are measured on an ongoing basis. SLFRS 9 introduces a logical approach for the classification of financial assets driven by cash flow characteristics and the business model in which an asset is held. This single, principle based approach replaces existing rule-based requirements that are complex and difficult to apply. Accordingly, financial assets are measured at amortised cost, fair value through other comprehensive income (‘FVOCI’) or fair value through profit or loss (‘FVPL’).

Although the classification and measurement outcomes will be similar to LKAS 39 in many instances, the combined effect of the application of the business model and the contractual cash flow characteristics tests may result in some differences in the population of financial assets measured at amortised cost or fair value compared to LKAS 39.

The classification of financial liabilities is essentially unchanged.

Impairment

SLFRS 9 introduces a new, expected loss impairment model that will require more timely recognition of expected credit losses. Specifically, the new Standard

requires entities to account for expected credit losses from when financial instruments are first recognised. This credit loss (impairment) requirement applies to financial assets measured at amortised cost and FVOCI, lease receivables and certain loan commitments and financial guarantee contracts. At initial recognition, allowance (or provision in the case of commitments and guarantees) is required for expected credit losses (‘ECL’) resulting from default events that are possible within the next 12 months (’12 - month ECL’) for all financial assets to which impairment requirement is applied.

In the event of a significant increase in credit risk, allowance (or provision) is required for ECL resulting from all possible default events over the expected life of the financial instrument (‘lifetime ECL’).

The assessment of whether credit risk has increased significantly since initial recognition is performed for each reporting period by considering the change in the risk of default occurring over the remaining life of the financial instrument.

The assessment of credit risk and the estimation of ECL are required to be unbiased and probability-weighted, and should incorporate all available information which is relevant to the assessment including information about past events, current conditions and reasonable and supportable forecasts of economic conditions at the reporting date. In addition, the estimation of ECL should take into account the time value of money. As a result, the recognition and measurement of impairment is intended to be more forward-looking than under LAKS 39 and the resulting impairment charge will tend to be more volatile. It will also tend to result in an increase in the total level of impairment allowances, since all assets will be assessed for at least 12-month ECL and the population of financial assets to which lifetime ECL applies is likely to be larger than the population for which there is objective evidence of impairment in accordance with LKAS 39. Currently the Company is in the process of implementing SLFRS 09 and the impact has not yet been quantified.

130


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

The objective of this standard is to establish the principles that an entity shall apply to report useful information to users of financial statements about the nature, amount, timing and uncertainty of revenue and cash flows arising from a contract with a customer.

SLFRS 15 introduces a five step approach for revenue recognition from contracts with customers and replaces all other currently applicable revenue standards and related interpretations.

SLFRS 15 will become effective on 1st January 2018. The impact on the implementation of the above standard has not been quantified yet.

IFRIC 23 Uncertainty over Income Tax Treatments

This interpretation addresses the accounting for income taxes when tax treatments involve uncertainty that affects the application of Sri Lanka Accounting Standard - LKAS 12 “Income tax” and does not apply to taxes or levies outside the scope of LKAS 12, nor does it specifically include requirements relating to interest and penalties associated with uncertain tax treatments. The interpretation specifically addresses the following:

Whether an entity considers uncertain tax treatments separately. The assumptions an entity makes about the examination of tax treatments by taxation authorities. How an entity determines taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates. How an entity considers changes in facts and circumstances. An entity must determine whether to consider each uncertain tax treatment separately or together with one or more other uncertain tax treatments. The approach that better predicts the resolution of the uncertainty should be followed.

The interpretation is effective for annual reporting periods beginning on or after 1st January 2019, the Company may need to establish processes and procedures to obtain information that is necessary to apply the Interpretation on a timely basis.

SLFRS 16 – Leases

SLFRS 16 sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract, i.e. the customer (‘lessee’) and the supplier (‘lessor’). SLFRS 16 will replace Sri Lanka Accounting Standard - LKAS 17 - Leases and related interpretations. SLFRS 16 introduces a single accounting model for the lessee, eliminating the present classification of leases in LKAS 17 as either operating leases or finance leases.

SLFRS 16 will become effective on 1st January 2019. The impact on the implementation of the above Standard has not been quantified yet.



Rs. Rs.

6. INTEREST INCOME AND EXPENSES

6.1 Interest Income

Loans and Advances 344,778,683 228,825,209

Lease Rentals Receivable & Stock Out on Hire 31,508,527 19,910,112

Interest Income from Sri Lanka Government Securities 9,519,905 9,010,270

Other Financial Assets 59,643,245 33,982,660

Total Interest Income 445,450,360 291,728,251

Notional Tax Credit for withholding Tax on Government Securities on Secondary Market Transactions

The Inland Revenue Act No. 10 of 2007, provided that a company which derives interest income from the secondary market transactions in Government Securities (on or after April 1, 2002) 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 the net interest income earned from the secondary market transactions in Government Securities for the year, has been grossed up in these Financial Statements and the resulting notional tax credit amounted to Rs. 951,990.51 (2017 - Rs.901,027.00).


Rs. Rs.

6.2 Interest Expenses

Due to Banks 16,644,583 292,015

Due to Customers 192,805,486 133,079,791

Total Interest Expenses 209,450,069 133,371,807

Net Interest Income 236,000,292 158,356,444

132



Rs. Rs.

7. FEE AND COMMISSION INCOME

Credit Related Fees and Commissions 232,731 289,788

Service Charges 12,186,660 5,062,488

Total Fee and Commission Income 12,419,392 5,352,276

8. NET GAIN/(LOSS) FROM TRADING

Other Trading Income / (Expense) (70) (180)

(70) (180)

9. OTHER OPERATING INCOME (NET)

Real Estate Income 34,004,803 -

Profit/(Loss) on disposal of Property, Plant & Equipment - 260,870

Bad Debt Recoveries 2,178,133 552,028

Dividend Income 180,000 58,502

Sundry Income 5,226,399 1,229,163

Rent Income 4,386,540 -

Fair Value - Investment Property 28,925,534 -

Total Other Operating Income 74,901,409 2,100,563

10. IMPAIRMENT (CHARGES)/ REVERSAL FOR LOANS AND OTHER CREDIT LOSSES

Finance Lease (952,267) (443,997)

Hire Purchase 2,819,728 1,077,527

Loans and Advances (109,500,087) (9,661,016)

(107,632,627) (9,027,486)

11. PERSONNEL COSTS

Salaries and Bonus 58,603,927 44,438,717

Directors' Emoluments 1,743,651 4,528,968

Employer’s Contribution to EPF 6,544,815 5,525,028

Employer’s Contribution to ETF 1,636,206 1,390,801

Gratuity Charge/ (Reversals) for the Year 1,220,257 1,011,226

Other Staff related Expenses 4,528,743 1,904,174

74,277,599 58,798,915



Rs. Rs.

12. OTHER OPERATING EXPENSES

Auditors Fees 788,609 648,100

Professional & Legal Expenses 3,792,725 3,817,558

Office Administration & Establishment Expenses 70,373,679 55,539,353

Advertising & Business Promotion Expenses 5,563,851 1,858,188

Others 14,069,741 7,603,800

94,588,605 69,466,999

13. TAXATION

13.1 The major components of income tax expense for the years ended 31st March are as follows.


Rs. Rs.

Income Statement

Current Income Tax

Income Tax for the year 11,457,372 1,125,961

Deferred Tax

Deferred Taxation ( Charge) / Reversal (Refer Note 28) 2,575,502 5,163,627

14,032,874 6,289,588

134


13.2 Reconciliation of Accounting Profit and Taxable Income

A reconciliation between the tax expense and the accounting profit multiplied by Government of Sri Lanka’s tax rate for the Years ended 31st March 2018 and 2017 is as follows.


Rs. Rs.

Accounting Profit Before Income Taxation 27,123,586 8,812,546

Income Tax Expense at the Statutory Income Tax Rate of 28% 7,594,604 2,467,513

Tax Effect of Non Deductible Expenses 63,562,670 8,028,335

Tax Effect of Other Allowable Credits (59,699,902) (9,369,887)

Adjustments of Taxes in Respect of Prior Years - -

Charge/(Reversal) for Deferred Tax 2,575,502 5,163,627

14,032,874 6,289,588

Effective Tax Rate 52% 71%

14. EARNINGS PER ORDINARY SHARE

Basic earnings per share is calculated by dividing the net profit for the year attributable to ordinary shareholders by weighted average number of ordinary shares outstanding during the year, as per LKAS 33- Earnings Per Share.

Weighted Average Number of Ordinary Shares for Basic / Diluted EPS

Year ended 31st March Outstanding No. of Shares Weighted Average No. of Shares

2018 2017 2018 2017

Number of shares in issue as at 1 April 22,500,000 22,500,000 22,500,000 22,500,000

Add : Number of shares issued under rights issue September 2017 13,500,000 - - -

Add : Bonus element on number of shares issued under rights issue 2017 - - 613,636 613,636

Number of shares in issue / weighted average number of shares as at 31 March - - 7,875,000 -

36,000,000 22,500,000 30,988,636 23,113,636

Profit after tax for the year attributable to equity holders 13,090,713 2,522,957

Weighted average number of ordinary shares 30,988,636 23,113,636

Basic / diluted earnings per ordinary share (Rs) 0.42 0.11


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Rs. Rs.

16. CASH & CASH EQUIVALENTS

Cash in Hand 12,013,936 48,460,690

Balances with Banks 405,944,403 79,955,999

417,958,339 128,416,689

16.1 Net Cash and Cash Equivalents for the Purpose of the Cash Flow Statement

Favourable Cash & Cash Equivalents 417,958,339 128,416,689

Bank Overdrafts (Note 29) (42,276,552) (38,218,317)

Net Cash & Cash Equivalents 375,681,787 90,198,372

17. FINANCIAL INVESTMENTS - HELD FOR TRADING

Quoted Equity Securities (Note 17.1) - 520

- 520

17.1 Quoted Equity Securities

31.03.2018 31.03.2017

Number of Cost of Market Number of Cost of Market

shares Investment Value shares Investment Value

Rs. Rs. Rs. Rs.

The Bukit Darah PLC - - - 2 1,569 520

Total - - 1,569 520

138



Rs. Rs.

18 LOANS AND ADVANCES

Term Loans 740,312,642 872,472,321

Short Term Loans 214,400,790 41,337,278

Consent Motion Loan 48,954,624 -

PD Loan 88,517,079 -

Staff Loans 6,263,325 8,442,587

Vehicle Loans 72,736,795 56,869,956

Micro Loans - 473,998

Easy Payment Loans 414,295,908 29,720,282

Loans against Deposits 95,378,717 107,579,284

Personal Loans 44,334,797 23,363,802

Trade Loans 13,832,520 28,760,324

Mortgage Loan 569,349,713 -

2,308,376,910 1,169,019,832

Less : Allowance for Impairment Losses (Note 18.1) (123,663,178) (94,474,346)

Net Loans and Advances 2,184,713,733 1,074,545,486

18.1 Allowance for Impairment Losses

(a) As at 01st April 94,474,346 85,187,440

Charge/ (Reversal) for the year 90,748,909 9,661,015

Amounts written off (61,560,076) (374,110)

As at 31st March 123,663,178 94,474,346

(b) Individual Impairment 76,638,534 6,939,650

Collective Impairment 47,024,643 87,534,695

123,663,178 94,474,346


2018 2017

Rs. Rs.

19. LEASE RENTALS RECEIVABLE & STOCK OUT ON HIRE

Gross Rentals Receivables

- Lease Rentals 731,375,140 109,549,079

- Amounts Receivable from Hirers 5,964,925 59,538,535

737,340,065 169,087,614

Less: Unearned Income (237,277,620) (28,212,200)

Net Rentals Receivables 500,062,445 140,875,414

Less : Allowance for Impairment Losses (Note 19.1) (4,042,290) (49,319,995)

Total Net Rentals Receivable (Note 19.2 & 19.3) 496,020,155 91,555,419

19.1 Allowance for Impairment Losses

(a) As at 01st April 49,319,995 55,566,441

Charge/ (Reversal) for the Year (1,867,460) (633,530)

Interest Accrued on Repossessed & Sold Assets Written Off (3,187,585) (5,612,916)

Amounts Written Off (40,222,660) -

As at 31st March 4,042,290 49,319,995

(b) Individual Impairment 1,267,903 35,694,450

Collective Impairment 2,774,387 13,625,545

4,042,290 49,319,995

140


Within one

year 1 - 5 years Over 5 years Total

Rs. Rs. Rs. Rs.

19.2 As at 31st March 2018


- Lease Rentals 197,682,131 363,786,548 169,906,462 731,375,140

- Amounts Receivable from Hirers 3,346,058 2,618,867 - 5,964,925

201,028,188 366,405,415 169,906,462 737,340,065

Less: Unearned Income

Finance Lease (94,436,558) (113,613,945) (28,838,739) (236,889,243)

Hire Purchase (373,594) (14,783) - (388,377)

Net Rentals Receivables 106,218,036 252,776,687 169,906,462 500,062,446

Less : Allowance for Impairment Losses

Finance Lease (2,763,662)

Hire Purchase (1,278,629)

Total Net Rentals Receivable 496,020,155

19.3 As at 31st March 2017


- Lease Rentals 32,321,693 77,227,386 - 109,549,079

- Amounts Receivable from Hirers 34,857,480 24,681,055 - 59,538,535

67,179,173 101,908,441 - 169,087,614

Less: Unearned Income

Finance Lease (10,709,484) (12,580,218) - (23,289,702)

Hire Purchase (3,610,784) (1,311,714) - (4,922,498)

Net rentals receivables 52,858,905 88,016,509 - 140,875,414

Less : Allowance for Impairment Losses

Finance Lease (19,320,426)

Hire purchase (29,999,569)

Total net rentals receivable 91,555,419


The following table demonstrates the sensitivity to a reasonably possible change in the key assumption (LGD) employed with all other variables held constant with regard to Collective Impairment as at 31st March 2018.

Increase/ Decrease in Percentage LGD by

Overall Impact to the Profit and Loss in Rs.

Increase/ Decrease in Percentage LGD by +10% 1,495,955

-10% (1,495,955)


Rs. Rs.

20. FINANCIAL INVESTMENTS - AVAILABLE FOR SALE

Unquoted equities (Note 20.1) 56,300 56,300

56,300 56,300

20.1 Unquoted equities

31.03.2018 31.03.2017

Number of Cost of Number of Cost of

shares Investment Fair Value shares Investment Fair Value

Rs. Rs. Rs. Rs.

Credit Information Bureau of Sri Lanka 100 56,300 56,300 100 56,300 56,300

Total 56,300 56,300 56,300 56,300

(a) Cost is assumed to be the best approximation for the fair value of unquoted equity shares due to absence of most recent exist prices.

142



Rs. Rs.

21. FINANCIAL INVESTMENTS - HELD TO MATURITY

Government of Sri Lanka Treasury Bills 121,398,136 88,430,066

Government of Sri Lanka Treasury Bonds 1,070,320 1,052,156

122,468,456 89,482,222

22. OTHER FINANCIAL ASSETS

Deposits with Banks and Other Financial Institutions 152,081,166 213,156,613

Reimbursable Insurance - 526,218

Others 1,294,521 -

153,375,687 213,682,831

23. INVENTORIES

Real Estate Stock (Note 23.1) 129,266,607 38,532,048

129,266,607 38,532,048

23.1 Real Estate Stock

Balance at the beginning of the year 38,550,560 2,626,240

Additions during the year 200,683,913 35,924,320

Disposals during the Year (105,984,976) -

133,249,497 38,550,560

Less: Project Provision (3,982,891) (18,512)

Balance at the end of the year 129,266,607 38,532,048

24. OTHER NON FINANCIAL ASSETS

Taxes Receivable 8,581 4,594,614

Prepayments 7,778,196 11,150,156

ESC Receivable - 830,182

Others 3,628,658 4,642,587

11,415,435 21,217,539



Rs. Rs.

25. Investment Property

As at 31st March

Balance as at 1st April - -

Addition during the year 76,514,000 -

Gain from fair value adjustment 28,925,534 -

Balance as at 31st March 105,439,534 -

Land and building situated at No. 66, Attidiya Road, Ratmalana is being rented out to a third party by the Company and the Company intends to earn rent income. Accordingly, this land and building has been classified as an investment property in the Statement of Financial Position of the Company according to Sri Lanka Accounting Standard - LKAS 40 - “Investment Property”.

26. PROPERTY, PLANT AND EQUIPMENT

Balance Additions/ Disposals Balance

As at Acquisitions As at

01.04.2017 31.03.2018

Rs. Rs. Rs. Rs.

26.1 Gross Carrying Amounts

Cost

Freehold Assets

Equipment 2,252,037 4,617,024 - 6,869,061

Furniture & Fittings 15,503,109 5,740,210 - 21,243,319

Motor Vehicles - Company 7,688,952 - - 7,688,952

Office Equipment 27,057,209 9,333,661 - 36,390,870

Machinery 1,047,018 - - 1,047,018

Assets on Finance Lease

Motor Vehicle 3,886,596 - - 3,886,596

Total Value of Depreciable Assets 57,434,921 19,690,895 - 77,125,815

144


Balance Charge Disposals Balance

As at for the As at

01.04.2017 Year 31.03.2018

Rs. Rs. Rs. Rs.

26.2 Depreciation

Freehold Assets

Equipment 2,252,037 646,415 2,898,452

Furniture & Fittings 7,694,726 2,019,983 9,714,709

Motor Vehicles - Company 6,317,890 1,217,589 7,535,479

Office Equipment 17,704,735 6,194,159 23,898,894

Machinery 561,834 104,711 666,545


Motor Vehicle 3,439,386 447,210 3,886,596

37,970,608 10,630,066 - 48,600,675

Balance Additions/ Disposals Balance

As at Acquisitions As at

01.04.2016 31.03.2017

Rs. Rs. Rs. Rs.

26.3 Gross Carrying Amounts

Cost

Freehold Assets

Equipment 2,252,037 - - 2,252,037

Furniture & Fittings 14,853,898 649,211 - 15,503,109

Motor Vehicles - Company 8,960,863 - (1,271,911) 7,688,952


Machinery 1,047,018 - - 1,047,018


Motor Vehicle 3,886,596 - - 3,886,596

Total Value of Depreciable Assets 51,965,858 6,740,974 (1,271,911) 57,434,921


Year ended 31st March 2017 Balance Charge Disposals Balance

As at for the As at

01.04.2016 Year 31.03.2017

Rs. Rs. Rs. Rs.

26.4 Depreciation

Freehold Assets

Equipment 2,192,040 59,997 - 2,252,037

Furniture & Fittings 6,092,240 1,602,486 - 7,694,726

Motor Vehicles - Company 5,675,484 1,914,317 (1,271,911) 6,317,890


Machinery 457,136 104,698 - 561,834


Motor Vehicle 2,467,733 971,653 - 3,439,386

29,693,575 9,548,944 (1,271,911) 37,970,608


Rs. Rs.

26.5 Net Book Values

Equipment 3,970,609 -

Furniture & Fittings 11,528,610 7,808,382

Motor Vehicles - Company 153,473 1,371,062

Office Equipment 12,491,977 9,352,474

Machinery 380,473 485,183


Motor Vehicle - 447,211

Total Carrying Amount of Property, Plant & Equipment 28,525,141 19,464,312

146


26.6 Property, Plant and Equipment acquired during the Financial Year

During the financial year, the Company acquired Property, Plant and Equipment to the aggregate value of Rs. 19,690,895/- (2017 - Rs. 6,740,974/-). Cash payment amounting to Rs. 19,690,895/- (2017 - Rs. 6,740,974/-) was paid during the year for purchases of Property, Plant and Equipment.

26.7 Fully Depreciated Property, Plant and Equipment

The initial cost of fully depreciated Property, Plant and Equipment, which are still in use as at the reporting date is Rs. 30,217,812.46/- (2017 - Rs. 14,934,508/-).


Rs. Rs.

27. INTANGIBLE ASSETS

Cost

Cost as at 01st April 7,818,137 6,326,997

Additions and Improvements 1,000,000 1,491,140

Cost as at 31st March 8,818,137 7,818,137

Amortisation

Amortisation as at 01st April 5,489,869 4,679,391

Charge for the year 1,105,957 810,478

Accumulated amortisation as at 31st March 6,595,825 5,489,869

Net Book Value as at 31 March 2,222,312 2,328,269

27.1 Intangible Assets include computer software of the Company

During the financial year, the company acquired intangible assets to the value of Rs. 1,000,000/- (2017 - Rs. 1,491,140/-). Cash payments amounting to Rs. 1,000,000/-(2017- Rs.1,491,140/-) was paid during the year for purchases of intangible assets.

The initial cost of fully amortized intangible assets which are still in use as at the reporting date is Rs. 4,126,996/- (2017 - Rs. 1,666,666/-)


28. DEFERRED TAXATION

Deferred Tax Assets and Liabilities relates to the followings

Year ended 31st March Reflected in Reflected in

Statement of Statement of

Financial Position Comprehensive Income

2018 2017 2018 2017

Rs. Rs. Rs. Rs.

Deferred Tax Liability

Depreciation of Leased Assets 24,590,820 2,748,243 (21,842,577) (2,662,795)

Depreciation of Property Plant & Equipment 2,479,687 108,556 (2,371,131) 1,780,341

Investment Property 8,099,099 - (8,099,099) -

35,169,605 2,856,798 (32,312,807) (882,454)

Deferred Tax Assets

Defined Benefit Obligation 886,875 611,570 275,305 175,852

Provision for Impairment 54,195,884 24,733,884 29,462,001 (4,457,025)

55,082,760 25,345,454

Deferred Tax (Charge)/Reversal (2,575,502) (5,163,627)

Net Deferred Tax Liability/(Asset) (19,913,154) (22,488,656)


Rs. Rs.

29. DUE TO BANKS

Bank Overdrafts 42,276,552 38,218,317

Finance Lease (29.1 , 29.2) 257,672 1,206,258

Bank Loan 149,816,667 -

Total 192,350,891 39,424,575

148


Year ended 31st March 2018 As at New Leases As at

01.04.2017 Obtained Repayments 31.03.2018

Rs. Rs. Rs. Rs.

29.1 Finance Lease

Finance Leases 1,206,258 - (948,586) 257,672

1,206,258 - (948,586) 257,672

Gross Liability 1,559,274 458,610

Finance Charges Allocated for Future Periods (169,572) (17,494)

Down Payment (183,444) (183,444)

Net Finance Lease Liability 1,206,258 257,672

Year ended 31st March 2017 As at New Leases As at

01.04.2016 Obtained Repayments 31.03.2017

Rs. Rs. Rs. Rs.

Finance Leases 2,017,655 - (811,397) 1,206,258

2,017,655 - (811,397) 1,206,258

Gross Liability 2,659,938 1,559,274


Down Payment (183,444) (183,444)

Net Finance Lease Liability 2,017,655 1,206,258


Year ended 31st March 2018 2018 2017

Rs. Rs.

29.2 Finance Lease

Gross liability 458,610 1,559,274


Down Payment (183,444) (183,444)

Net Liability 257,672 1,206,258

Repayable within One Year

Gross liability 458,610 1,100,664


Down Payment (183,444) -

Net Liability 257,672 948,586

Repayable after One Year before Five Years

Gross liability - 458,610

Finance Charges Allocated for Future Periods - (17,494)

Down Payment - (183,444)

Net Liability - 257,672

Granted Facility Balance as at Interest

Name of the borrower date amount 31 March 2018 Period Rate Security status

Due to Banks

Lease - Union Bank PLC 30/08/2013 3,886,596 257,672 60 Months 17 %

NDB Bank PLC 30/11/2017 150,000,000 149,816,667 48 Months 15 % Corporate guarantee

150,074,339

Other Financial Liabilities

Loan - Agora Securities 20/12/2017 224,546,501 235,329,371 13 Months 17 % Easy Payments loan portfolio

235,329,371

150



Rs. Rs.

30. DUE TO CUSTOMERS

Fixed Deposits 1,884,024,267 1,283,554,769

Savings Deposits 515,125,235 27,501,209

2,399,149,502 1,311,055,978

30.1 Sri Lanka Deposit Insurance and Liquidity Support Scheme

Under the Direction No.02 of 2010 [Finance Companies (Insurance of Deposit Liabilities)] issued by the Central Bank of Sri Lanka,all the eligible deposit liabilities have been insured with the Sri Lanka Deposit Insurance and Liquidity Support Scheme implemented by the Monetary Board for compensation up to a maximum of Rs.600,000/- per depositor. The Company has paid Rs.1,834,058/- as the premium of the said insurance scheme during the current financial year. (2016/17 - Rs.1,468,925/-)


Rs. Rs.

31. OTHER FINANCIAL LIABILITIES

Other Creditors 2,516,317 6,353,911

Reimbursable Expenses & Other Payables 2,576,508 80,610

Loan - Agora Securities 235,329,371 -

240,422,196 6,434,521

32. OTHER NON-FINANCIAL LIABILITIES

WHT Payable 216,479 324,396

VAT Payable 1,166,479 220,313

Stamp Duty Payable 3,433,605 200,340

Provision for Financial VAT 4,605,026 1,954,280

Advance on Real Estate - 2,320,570

Accrual & Other Payable 213,788,435 21,212,049

223,210,024 26,231,948



Rs. Rs.

33. RETIREMENT BENEFIT OBLIGATIONS

Retirement Benefit Obligations - Gratuity

Balance at the Beginning of the Year 2,184,180 1,556,138

Amount Charged for the Year (Note 33.2) 1,220,257 1,011,226

Payments Made during the Year (192,000) -

Actuarial Losses / (Gains) on Obligation (45,025) (383,184)

Balance at the End of the Year 3,167,412 2,184,180

2018 2017

33.1 Assumptions

Discount Rate 10.0% 13.0%

Salary Increment 7.5% 10.0%

Staff Turnover

20 to 30 years 3.0% 2.0%

35 years 3.0% 2.0%

40 years 3.0% 2.0%

45 years 3.0% 2.0%

50 years 0.0% 0.0%

Average Future Working Life Time as per the assumptions made is

14.93 Years 17.06 Years

Mortality A 1967/70 Mortality Table A 1967/70 Mortality Table

Disability Varing percentage with age of A49-52 Mortality rates.

Varing percentage with age of A49-52 Mortality rates.

Retirement age Normal Retirement Age (55 years), The employees who are aged over the specified retirement age have been assumed to retire on their respective next birthdays.

Normal Retirement Age (55 years), The employees who are aged over the specified retirement age have been assumed to retire on their respective next birthdays.

An actuarial valuation of the retirement benefit obligation as at 31st March 2018 was carried out by Messrs. Actuarial & Management Consultants (Pvt) Ltd, a firm of professional actuaries. The valuation method used by the actuaries to value the Fund is the "Projected Unit Credit Method", recommended by LKAS 19 (Employee Benefits).

152



Rs. Rs.

33.2 Net benefit expense categorized under personal expenses.

Current Service Cost 936,314 832,271

Interest Cost 283,943 178,956

1,220,257 1,011,226

33.3 Sensitivity of Assumptions Employed in Actuarial Valuation

The following table demonstrates the sensitivity to a reasonably possible change in the key assumptions employed with all other variables held constant in the employment benefit liability measurement.

The sensitivity of the Income Statement and Statement of Financial Position is the effect of the assumed changes in discount rate and salary increment rate on the profit or loss and employment benefit obligation for the year.

2018

Increase/ (Decrease) in the discount rate

Increase/ (Decrease) in salary increment

Sensitivity Effect on Comprehensive Income Increase/ (Reduction) in

Results for the Year (Rs. Mn.)

Sensitivity Effect on Employment Benefit Obligation Increase/

(Decrease) in the Liability (Rs. Mn.)

1% 0.34 (0.34)

-1% (0.40) 0.40

1% (0.41) 0.41

-1% 0.35 (0.35)


34. STATED CAPITAL

2018 2017

No of Shares Rs. No of Shares Rs.

34.1 Issued and Fully Paid-Ordinary shares

At the beginning of the Year 22,500,000 225,000,000 22,500,000 225,000,000

Issued during the Year 13,500,000 283,500,000 - -

At the end of the Year 36,000,000 508,500,000 22,500,000 225,000,000

Total Stated Capital 36,000,000 508,500,000 22,500,000 225,000,000

34.2 Rights of Shareholders

The holders of ordinary shares confer their right to receive dividends as declared from time to time and are entitled to one vote per share at the meeting.

All shares rank equally with regard to the Company's residual assets.

2018 2017

Rs. Rs.

35. RETAINED EARNINGS

As at 01 April 83,402,420 80,622,426

Profit/(Loss) for the Year 13,090,713 2,522,957

Other Comprehensive Income/(Expense), net of tax 45,025 383,184

Transfers (to)/from Statutory Reserve Fund (Note 36) (654,536) (126,148)

As at 31 March 95,883,622 83,402,419

Retained earnings represent the undistributed earnings held by the Company to be used in the Company's operations. This could be used to absorb future possible losses or dividends payable.

154


Statutory

Reserve

Rs.

36. OTHER RESERVES

As at 01st April 2016 7,910,522

Transfers to/(from) during the year 126,148

As at 31st March 2017 8,036,670

Transfers to/(from) during the year 654,536

As at 31st March 2018 8,691,206

36.1 Reserve Fund is a capital reserve which contains profits transferred as required by Section 3 (b) (i) of Central Bank Direction No. 1 of 2003.

37. FAIR VALUE OF FINANCIAL INSTRUMENTS

Financial Instruments recorded at Fair Value

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

Financial Investments - Held for Trading and Available for Sale

The estimated fair values of quoted investments are based on quoted market prices in the active markets as at the reporting date and unquoted equity are valued using models that use observable market data.

37.1 Determination of Fair Value and Fair Value Hierarchy

The Company uses the following hierarchy for determining and disclosing the fair value of financial instruments by Valuation techniques.

Level 1 : quoted (unadjusted) prices in active markets for identical assets or liabilities.

Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly

Level 3: techniques which use inputs that have a significant effect on the recorded fair value that are not based on observable market data


The following table shows an analysis of financial instruments recorded at fair value by level of the fair value hierarchy.

As at 31st March 2018 Level 1 Level 2 Level 3 Total

Rs. Rs. Rs. Rs.

Investment Property 105,439,534 105,439,534

Financial Assets

Financial Investments - Held for Trading

Quoted Equities - - - -

Financial Investments - Available for Sale


Unquoted Equities - - 56,300 56,300

Total Financial Assets - - 105,495,834 105,495,834

As at 31st March 2017 Level 1 Level 2 Level 3 Total

Rs. Rs. Rs. Rs.

Financial Assets

Financial Investments - Held for Trading

Quoted Equities 520 - - 520

Financial Investments - Available for Sale


Unquoted Equities - - 56,300 56,300

Total Financial Assets 520 - 56,300 56,820

There were no financial liabilities recorded at fair value as at 31 March 2017 & 31 March 2018.

There were no transfers between Level 1 and Level 2 during 2016/2017 & 2017/2018.

Unquoted equities – cost is assumed to be the best approximation of the fair valve due to absence of most recent exist prices.

Investment property

Date of valuation - 31.03.2018

Valuation technique - Income base

Significant unobservable inputs - Estimated rental value per month Rs. 1,875,000/-

156


Set out below is the comparison of the carrying amounts by class and fair values of the Company's financial instruments that are not carried at fair value in the financial statements. This table does not include the fair values of non- financial assets and non- financial liabilities.


Fair Value Measurement using Fair Value Measurement using

Quoted prices Significant Significant Quoted prices Significant Significant

in active observable unobservable Carrying Value in active observable unobservable Carrying Value

markets inputs inputs at amortised markets inputs inputs at amortised

Level 1 Level 2 Level 3 Total Fair Value Cost Level 1 Level 2 Level 3 Fair Value Cost

Rs. Rs. Rs. Rs.

Financial Assets

Loans and Advances - - 2,163,368,910 2,163,368,910 2,184,713,733 - - 1,038,321,957 1,038,321,957 1,074,545,486

Lease Rentals Receivable & Stock Out on Hire - - 464,476,392 464,476,392 496,020,155 - - 84,093,159 84,093,159 91,555,419

Financial Investments - Held to Maturity 122,479,843 - - 122,479,843 122,468,456 89,410,809 - - 89,410,809 89,482,222

Total Financial Assets 122,479,843 - 2,627,845,301 2,750,325,144 2,803,202,344 89,410,809 - 1,122,415,116 1,211,825,925 1,255,583,127

Financial Liabilities

Due to Customers - - 2,399,134,286 2,399,134,286 2,399,149,502 - - 1,309,921,549 1,309,921,549 1,311,055,978

Total Financial Liabilities - - 2,399,134,286 2,399,134,286 2,399,149,502 - - 1,309,921,549 1,309,921,549 1,311,055,978

Fair Value of Financial Assets and Liabilities not Carried at Fair Value

The following describes the methodologies and assumptions used to determine the fair value for those financial instruments which are not already recorded at fair value in the Financial Statements.

Assets & Liabilities for which Fair Value Approximates Carrying Value

Carrying amounts of Cash and Bank Balances, Financial Investments,Other Financial Assets, Due to Banks & Other Financial Liabilities are approximate to their fair values

For financial assets and financial liabilities that have a short term maturity (original maturities less than a year), it is assumed that the carrying amounts approximate their fair values. This assumption is also applied to fixed deposits and savings deposits which doesn't have a specific maturity. Carrying amount of the finance lease liability approximates their fair value as there is no considerable difference in the interest rate at the granted date and as of the reporting date.


Set out below is the comparison of the carrying amounts by class and fair values of the Company's financial instruments that are not carried at fair value in the financial statements. This table does not include the fair values of non- financial assets and non- financial liabilities.


Fair Value Measurement using Fair Value Measurement using

Quoted prices Significant Significant Quoted prices Significant Significant

in active observable unobservable Carrying Value in active observable unobservable Carrying Value

markets inputs inputs at amortised markets inputs inputs at amortised

Level 1 Level 2 Level 3 Total Fair Value Cost Level 1 Level 2 Level 3 Fair Value Cost

Rs. Rs. Rs. Rs.

Financial Assets

Loans and Advances - - 2,163,368,910 2,163,368,910 2,184,713,733 - - 1,038,321,957 1,038,321,957 1,074,545,486

Lease Rentals Receivable & Stock Out on Hire - - 464,476,392 464,476,392 496,020,155 - - 84,093,159 84,093,159 91,555,419

Financial Investments - Held to Maturity 122,479,843 - - 122,479,843 122,468,456 89,410,809 - - 89,410,809 89,482,222

Total Financial Assets 122,479,843 - 2,627,845,301 2,750,325,144 2,803,202,344 89,410,809 - 1,122,415,116 1,211,825,925 1,255,583,127

Financial Liabilities

Due to Customers - - 2,399,134,286 2,399,134,286 2,399,149,502 - - 1,309,921,549 1,309,921,549 1,311,055,978

Total Financial Liabilities - - 2,399,134,286 2,399,134,286 2,399,149,502 - - 1,309,921,549 1,309,921,549 1,311,055,978

Long term deposits accepted from customers for which periodical interest is paid and loans and advances granted to customers with a variable rate are also considered to be carried at fair value in the books.

Fixed Rate Financial Instruments

Carrying amounts are considered as fair values for short term credit facilities. There is a significant difference between carrying value and fair value of Reverse Repurchase Agreements and Repurchase Agreements with original tenors above one year. In fair valuing held to maturity securities, rates published by the CBSL for similar trading securities were used. Loans and Advances with fixed interest rates were fair valued using market rates at which fresh loans were granted during the fourth quarter of the reporting year. Conversely, fixed deposits with original tenors above one year and interest paid at maturity were discounted using current market rates offered to customers during the fourth quarter of the reporting year.

Lease Rentals Receivable & Stock Out on Hire

Lease rentals receivable & stock out on hire with fixed interest rates were fair valued using market rates at which fresh loans were granted during the fourth quarter of the reporting year.

158


38.

CUR

RE

NT

AN

D N

ON

CU

RR

EN

T A

NA

LYSI

S O

F A

SSE

TS A

ND

LIA

BIL

ITIE

STh

e ta

ble

belo

w s

how

s an

ana

lysi

s of

ass

ets

and

liabi

litie

s an

alys

ed a

ccor

ding

to w

hen

they

are

exp

ecte

d to

be

reco

vere

d or

set

tled.

Year

end

ed 3

1st M

arch

2018

2017

Wit

h in

12

Aft

er 1

2To

tal a

s at

With

in 1

2A

fter

12

Tota

l as

atM

onth

sM

onth

s31

/03/

2018

Mon

ths

Mon

ths

31/0

3/20

17R

s.R

s.R

s.R

s.R

s.R

s.

Ass

ets

Cash

& C

ash

Equi

vale

nts

417,

958,

339

-41

7,95

8,33

912

8,41

6,68

9-

128,

416,

689

Fina

ncia

l Inv

estm

ents

- H

eld

for T

radi

ng-

--

520

-52

0

Loan

s an

d A

dvan

ces

536,

444,

517

1,648

,269

,216

2,18

4,71

3,73

373

3,81

9,13

434

0,7

26,3

531,0

74,5

45,4

87Le

ase

Ren

tals

Rec

eiva

ble

&

Stoc

k O

ut o

n H

ire7,

267,

823

488,

752,

332

496,

020

,155

32,9

35,5

2258

,619

,897

91,5

55,4

19

Fina

ncia

l Inv

estm

ents

-

Ava

ilabl

e fo

r Sal

e-

56,3

00

56,3

00

-56

,30

056

,30

0

Fina

ncia

l Inv

estm

ents

- H

eld

to M

atur

ity12

1,39

8,13

61,0

70,3

2012

2,46

8,45

688

,430

,066

1,052

,156

89,4

82,2

22

Fina

ncia

l Inv

estm

ents

--

--

--

Oth

er F

inan

cial

Ass

ets

153,

375,

687

-15

3,37

5,68

721

3,68

2,83

1-

213,

682,

831

Inve

ntor

ies

- R

eal E

stat

e St

ock

129,

266,

607

-12

9,26

6,60

738

,532

,048

-38

,532

,048

Oth

er N

on F

inan

cial

Ass

ets

9,13

5,43

52,

280

,00

011

,415

,435

19,13

7,53

92,

080

,00

021

,217

,539

Inve

stm

ent P

rope

rty

-10

5,43

9,53

410

5,43

9,53

4P

rope

rty,

Pla

nt &

Equ

ipm

ent

-28

,525

,141

28,5

25,14

1-

19,4

64,3

1219

,464

,312

Inta

ngib

le A

sset

s-

2,22

2,31

22,

222,

312

-2,

328,

269

2,32

8,26

9D

efer

red

tax

Ass

et-

19,9

13,15

419

,913

,154

-22

,488

,656

22,4

88,6

56To

tal A

sset

s1,

374,

846,

544

2,29

6,52

8,30

83,

671,

374,

853

1,254

,954

,350

446,

815,

941

1,70

1,770

,289

Liab

iliti

esD

ue to

Ban

ks42

,534

,224

149,

816,

667

192,

350

,891

39,16

6,90

325

7,672

39,4

24,5

75D

ue to

Cus

tom

ers

1,061

,593

,225

1,33

7,55

6,27

72,

399,

149,

502

1,145

,573

,30

116

5,48

2,67

71,3

11,0

55,9

78O

ther

Fin

anci

al L

iabi

litie

s24

0,4

22,19

6-

240

,422

,196

6,43

4,52

1-

6,43

4,52

1O

ther

Non

-Fin

anci

al L

iabi

litie

s22

3,21

0,0

24-

223,

210

,024

26,2

31,9

48-

26,2

31,9

48R

etire

men

t Ben

efit L

iabi

lity

-3,

167,

412

3,16

7,41

2-

2,18

4,18

02,

184,

180

Tota

l lia

bilit

ies

1,56

7,75

9,66

91,4

90,5

40,3

563,

058

,30

0,0

251,2

17,4

06,

673

167,9

24,5

301,3

85,3

31,2

01

Net

(192

,913

,125)

805,

987,

952

613,

074

,827

37,5

47,6

7727

8,89

1,411

316,

439,

088


39. COMMITMENTS AND CONTINGENCIES

There were no material contingent liabilities or capital commitments as at reporting date except for the undrawn loan commitment as follows :


Rs. Rs.

39.1 Commitments

Commitment for Unutilised Facilities 13,403,458 7,052,353

40. ASSETS PLEDGED

The following assets have been pledged as security for liabilities.

Nature of Assets Nature of Carrying Amount Pledged Included

Liability 2018 2017 Under

Rs. Rs.

Fixed Deposits Overdrafts 22,699,983 20,501,226 Deposits with Banks and

Other Financial Institutions

22,699,983 20,501,226

41. EVENTS OCCURRING AFTER THE REPORTING DATE

The Board of Directors has resolved to issue shares by way of a rights issue in the proportion of six ( 06 ) ordinary shares for every five ( 05 ) ordinary shares in the capital of the Company at a price of Rs.20/- per share to raise Rs.864Mn subject to the Colombo Stock Exchange approving in principle, the issue and listing of shares and obtaining shareholder approval at an Extra - Ordinary General meeting. The Company has obtained the approval of the Central Bank of Sri Lanka in compliance with Finance Companies (Structural Changes) Direction No.1 of 2013 by their letter dated 5th April 2018.

160


42. RELATED PARTY TRANSACTIONS

The Company carried out transactions in the ordinary course of business with parties who are defined as Related Parties as per the Sri Lanka Accounting Standard - LKAS 24 ‘Related Party Disclosures’.

42.1 Parent & Ultimate Controlling Party

In the opinion of Directors, the Company’s parent undertaking and also Company’s ultimate parent undertaking is Prime Lands (Pvt) Ltd as at the reporting date.

42.2 Transactions with Key Management Personnel (KMPs) and their Close Family Members (CFM)

Related party includes KMPs defined as those persons having authority and responsibility for planning directing and controlling the activities for the Company and its parent. Such KMPs include the board of directors of the Company (include executive and non executive directors).

CFMs of KMPs are those family members who may be expected to influence or be influenced by that KMP in their dealing with the entity. They may include KMP’s domestic partner and children, children of the KMP’s domestic partner and dependants of the KMP or the KMP’s domestic partner.

2018 2017

Rs. Rs.

42.2.1 Key Management Personnel Compensation

Short Term Employment Benefits 1,743,651 4,528,968

1,743,651 4,528,968



Rs. Rs.

42.3.1 Transactions with Parent Company

Deposits made by Parent Company (Prime Lands (Pvt) Ltd) 450,000,000 207,735,000

Items in statement of Financial Position Reported under

Deposits made in the Company Due to Customers 452,425,381 209,240,936

Interest payable on Deposits Due to Customers - 1,805,778

452,425,381 211,046,714

Items in Statement of Comprehensive Income Reported under

Interest Expense on Deposits Interest Expenses 9,688,837 3,479,041

Building rent Rent Expenses 7,070,300 -

Land (real estate stock) sold to Parent Company (Prime Lands (Pvt) Ltd) 54,300,000 _

Items in Statement of Comprehensive Income Reported under

Net gain from the above land sale Net gain/(loss) from trading 18,986,361 _

Prime Lands (Pvt) Ltd deposited Rs. 207,735,000 at a rate of 10.5% for the period from February 17 to August 17. Upon maturity, both parties agreed to retain this deposit as an interest free deposit and interest expense of Rs. 10,742,497/- relating to this deposit was waived off.

As at 31st March 2018 & 2017, the Company has capital and interest outstanding amounting to Rs. 414,295,908 and Rs. 29,720,282 respectively with relevant to Easy Payment Loans which is guaranteed by Prime Lands (Pvt) Ltd.

162


2018

Rs.

42.3.2 Transactions with Subsidiary of Parent's Company (Prime Residencies (Pvt) Ltd)

Items in Statement of Comprehensive Income

Interest Expense on Deposits 208,323

Items in statement of Financial Position Reported under

Deposits made as at 31st March 2018. 52,765,671

Interest Expense on Deposits Due to Customers 208,323

Withdrawals (52,973,995)

Balance as at 31.03.2018 Due to Customers -

42.3.3 Transactions with Directors' and CEO of the Company

B. Premalal H.K.S.R. Perera N.A. Wickramage R.P. Kaluarachchi

Rs. Rs. Rs. Rs.

Deposits made by Directors, their spouces and CEO and his spouce as at 31st March 2018. 11,848,869 33,195,652 5,288 34,056

Items in statement of Financial Position

Reported under

Net Deposits made Due to Customers - - - (10,800)

Interest payable on Deposits Due to Customers 414,366 1,018,938 85 936

Balance as at 31.03.2018 Due to Customers 12,263,235 34,214,590 5,373 24,193

Items in Statement of Comprehensive Income

Interest Expense on Deposits Interest Expenses 414,366 1,018,938 85 936

414,366 1,018,938 85 936


Terms and conditions of transactions with related parties

The above mentioned outstanding balances arose from the ordinary course of business. The interest rates charged to and by related parties are at normal commercial rates. The Company has not made any provision for doubtful debts relating to amounts owed by related parties (2017: Nil)

Prime Lands (Pvt) Ltd deposited Rs.450Mn (Rs.200Mn on 01st February 2018 and Rs.250Mn on 16th March 2018) in the savings account maintained with the company in order to utilize the same as part of the consideration to the allotment of rights issue planned in July 2018.

42.3.4 Change of Related party relationship consequent to the change of major shareholding

Prime Lands (Pvt) Ltd acquired 16,996,650 shares representing 75.54% of the stated capital of Summit Finance PLC (now known as Prime Finance PLC) on 16th January 2017 being the major shareholder of the Company.

Further to the Mandatory Offer made by Prime Lands (Pvt) Ltd (PLPL) to acquire all the remaining Ordinary Voting Shares of the Company in terms of rule 24 of the Take-overs and Mergers Code of 1995 as amended in 2003, total number of shares for which acceptance of the offer has been received as at 31st March 2017 were 4,277,965 shares representing 19.01% of the issued share capital of the Company and those shares were transferred to PLPL on 25th April 2017.

42.3.5 Related Party transactions for the year ended 31st March 2018 exceeding 10% of the Equity or 5% of the total Assets of the entity as per Audited Financial Statements, whichever is lower.

Name of the Terms of the Rationale for Entering

Related Party Relationship Transaction Date Amount Rs. Transaction

Prime Lands (Pvt) Ltd.

Parent Savings deposit made at 6% interest

1-Feb-18 200,000,000 * As per the requirement imposed by Central Bank of Sri Lanka

16-Mar-18 250,000,000

Prime Lands (Pvt) Ltd.

Parent Fixed Deposits withdrawal ( one month maturity at 10.50%)

23-Aug-17 207,735,000 In order to utilize as part of the Rights issue proceeds (Rights issue concluded in Sep' 2017)

* This deposit will be utilised for the Rights issue in order to increase the Core Capital of the Company as required by Central Bank of Sri Lanka.

164


43. CAPITAL

The Company maintains an actively managed capital base to cover risks inherent in the business. The adequacy of the company's capital is monitored based on the measures, rules and ratios adopted by Central Bank of Sri Lanka.

43.1 Capital Management

The primary objective of Company's capital management policy is to ensure that the company complies with externally imposed capital requirements and healthy capital ratios in order to support its business and to maximize shareholders' value.

44. RISK MANAGEMENT

44.1 Introduction

Risk is inherent in the Company’s activities, but is managed through a process of ongoing identification, measurement and monitoring, subject to risk limits and other controls. This process of risk management is critical to the Company’s continuing profitability and each individual within the Company is accountable for the risk exposures under his or her purview. The Company is exposed to credit risk, liquidity risk, market risk and operational risk.

Risk Management Structure

The Board of Directors is responsible for the overall risk management approach and for approving the risk management strategies and principles. The Board has appointed the Integrated Risk Management Committee.

The Company’s policy is that risk management processes throughout the company are audited and the Audit Committee meets at least each quarter to review the progress of the Internal Audit function, which examines both the adequacy of the internal controls and the company’s compliance with the procedures. Internal Auditors discuss the results of all assessments with the management and report their findings and recommendations to the Audit Committee.

Regular Heads of the Departments meetings are conducted by the Chief Executive Officer together with the senior management who are responsible for implementing the decisions made by the Board. The team reviews the operational and business processes carried out by the Company.

44.2 Credit Risk

Company views credit risk as the risk of a potential loss to the company when a borrower or counterparty is either unable or unwilling to meet its financial obligations. The Board of Directors has put in place the credit risk strategy and policies of the Company. The strategy includes identification of business sectors, target markets, level of diversification, and cost of capital and probability of bad debts.


Company’s Credit Policy that is laid down by the management which plays a central role in managing credit activities can be described as the rules and parameters within which the company’s credit environment operates. The policy defines the principles encompassing client selection, due diligence, lending criteria, credit approval discretion, early alert reporting, tolerable levels of concentration risk and portfolio monitoring in line with the company’s risk appetite.

Given the scale and materiality of the company’s loan book, managing the credit quality of the lending portfolio is a key focus area with the objective of minimizing probable losses and maintaining credit risk exposure within acceptable parameters. Hence, the company’s credit portfolio remains well diversified by business sector, asset type and customer.

Credit committee is involved in monitoring of credit risks by analyzing the credit risk using several measurement criteria like 20 largest exposures, 10 largest 3-6 months arrears, 10 largest non-performing advances and sectoral exposure. For some of these measurements, the Company has stipulated risk tolerance level and continually monitors the credit exposure in order to ensure the best credit quality possible.

Maximum Exposure to Credit Risk

The following table shows the maximum exposure to credit risk by class of financial asset and the net exposure to credit risk.


Maximum Maximum

Exposure to Net Exposure to Net

Credit Risk Exposure Credit Risk Exposure

Rs. Rs. Rs. Rs.

Cash and Bank Balances 417,958,339 412,052,389 128,416,689 123,335,756

Financial Investments - Held for Trading - - 520 520

Loans and Advances 2,184,713,733 509,674,625 1,074,545,486 137,299,570

Lease Rentals Receivable & Stock Out on Hire 496,020,155 322,413,101 91,555,419 59,511,022

Financial Investments - Available for Sale 56,300 56,300 56,300 56,300

Financial Investments - Held to Maturity 122,468,456 122,468,456 89,482,222 89,482,222

Other Financial Assets 153,375,687 153,375,687 213,682,831 213,682,831

Total Financial Assets 3,374,592,670 1,520,040,558 1,597,739,467 623,368,222

166


44.2.1 Credit Quality by Class of Financial Assets

The table below shows the credit quality by class of asset for all financial assets exposed to credit risk.

As at 31st March 2018 Neither Past

Due Nor Past Due But Individually

Impaired Not Impaired Impaired Total

Rs. Rs. Rs. Rs.

Assets

Cash and Bank Balances 417,958,339 - - 417,958,339

Financial Investments - Held for Trading - - - -

Loans and Advances (Gross) 38,829 2,231,699,547 76,638,534 2,308,376,910

Lease Rentals Receivable & Stock Out on Hire (Gross) 13,137 498,781,405 1,267,903 500,062,445

Financial Investments - Available for Sale 56,300 - - 56,300

Financial Investments - Held to Maturity 122,468,456 - - 122,468,456

Other Financial Assets 153,375,687 - - 153,375,687

Total Financial Assets 693,910,748 2,730,480,951 77,906,438 3,502,298,137

.

44.2.1.1 Aging Analysis of past due (i.e. facilities in arrears of 1 day and above) but not impaired loans by class of financial assets.

Past Due But Not Impaired

Less than 31 to 60 61 to 90 More than

30 days days days 91 days Total

Rs. Rs. Rs. Rs. Rs.

Loans and Advances 1,726,665,415 171,597,046 90,461,254 242,975,832 2,231,699,547

Lease Rentals Receivable & Stock Out on Hire 444,441,165 26,363,646 12,510,578 15,466,016 498,781,405

2,171,106,580 197,960,692 102,971,832 258,441,848 2,730,480,951


44.2.1.2 Credit Quality by Class of Financial Assets (Contd...)

As at 31st March 2017 Neither Past

Due Nor Past Due But Individually

Impaired Not Impaired Impaired Total

Rs. Rs. Rs. Rs.

Assets

Cash and Bank Balances 128,416,689 - - 128,416,689

Financial Investments - Held for Trading 520 - - 520

Loans and Advances (Gross) 698,311,764 463,768,418 6,939,650 1,169,019,832

Lease Rentals Receivable & Stock Out on Hire (Gross) 50,368,516 54,812,448 35,694,450 140,875,414

Financial Investments - Available for Sale 56,300 - - 56,300

Financial Investments - Held to Maturity 89,482,222 - - 89,482,222

Financial Investments - - - -

Other Financial Assets 213,682,831 - - 213,682,831

Total Financial Assets 1,180,318,842 518,580,866 42,634,100 1,741,533,808

44.2.1.3 Aging Analysis of past due (i.e. facilities in arrears of 1 day and above) but not impaired loans by class of financial assets.

Past Due But Not Impaired

Less than 31 to 60 61 to 90 More than

30 days days days 91 days Total

Rs. Rs. Rs. Rs. Rs.

Loans and Advances 92,060,497 112,735,515 21,076,418 237,895,988 463,768,418

Lease Rentals Receivable & Stock Out on Hire 13,461,859 8,671,837 18,595,454 14,083,298 54,812,448

105,522,355 121,407,352 39,671,872 251,979,286 518,580,866

168


44.2

.2A

naly

sis

of C

once

ntra

tion

Ris

kTh

e co

mpa

ny m

onito

rs c

once

ntra

tions

of c

redi

t ris

k by

sec

tor a

nd b

y ge

ogra

phic

loca

tion.

An

anal

ysis

of c

once

ntra

tions

of c

redi

t ris

k fr

om lo

ans

and

adva

nces

at t

he re

port

ing

date

is s

how

n be

low

.

44.2

.2.1

Indu

stry

Ana

lysi

s- A

s at

31s

t M

arch

20

18Th

e fo

llow

ing

tabl

e sh

ows

the

risk

conc

entr

atio

n by

indu

stry

for t

he c

ompo

nent

s of

the

Stat

emen

t of F

inan

cial

Pos

ition

.

Sect

or w

ise

Brea

kdow

n

Cash

and

Ba

nk

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Fina

ncia

l In

vest

men

ts

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d fo

r Tr

adin

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ans

and

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**

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&

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Fina

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ts

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ilabl

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e

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d to

M

atur

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Inve

stm

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Oth

er

finan

cial

as

sets

Tota

l Fin

anci

al

Asse

tsRs

.Rs

.Rs

.Rs

.Rs

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.

Agric

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5,66

8,81

841

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--

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--

213,

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--

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266,

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Cons

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--

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977,4

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--

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370,

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.2.2

.2In

dust

ry A

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t M

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17

The

follo

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ble

show

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k co

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trat

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by in

dust

ry fo

r the

com

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of th

e St

atem

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f Fin

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al P

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on.

Sect

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and

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5

170


44.3 Liquidity Risk & Funding Management

Liquidity risk is defined as the risk that the company will encounter in meeting obligations associated with financial liabilities that are settled by delivering cash or another financial asset. Liquidity risk arises as a result of the inability to meet its payment obligations when they fall due under both normal and stressful circumstances. To limit this risk, the management has arranged diversified funding sources in addition to its core deposit base and adopted a policy of managing assets with liquidity in mind and monitoring future cash flows and liquidity on a daily basis.

The Company has developed internal control processes and contingency plans for managing liquidity risk. This incorporates an assessment of expected future cash flows.

The Company maintains a portfolio of highly marketable assets that are assumed to be easily liquidated in the event of an unforeseen interruption of cash flow. The Company also has committed lines of credit from banks that it can access to meet liquidity needs. In addition, the company maintains a statutory deposit with the Central Bank of Sri Lanka for customer deposits. In accordance with the company’s policy, the liquidity position is assessed and managed under a variety of scenarios, giving due consideration to stress factors relating to both the market in general and specifically to the company.

44.3.1 Analysis of Financial Assets and Liabilities by Remaining Contractual Maturities

The table below summarises the maturity profile of the undiscounted cash flows of the Company’s financial assets and liabilities as at 31st March 2018.


.3.1

Ana

lysi

s of

Fin

anci

al A

sset

s an

d Li

abili

ties

by

Rem

aini

ng C

ontr

actu

al M

atur

itie

s

On

Less

than

0

1-0

5

Ove

r

Dem

and

03

Mon

ths

03-

12 M

onth

sYe

ars

05

Year

sTo

tal

Rs.

Rs.

Rs.

Rs.

Rs.

Rs.

Fina

ncia

l Ass

ets

Cash

and

Ban

k B

alan

ces

417

,958

,339

-

-

-

-

4

17,9

58,3

39

Fina

ncia

l Inv

estm

ents

- H

eld

for T

radi

ng -

-

-

-

-

-

Loan

s an

d A

dvan

ces

184

,939

,210

3

66,3

40,2

20

824

,536

,223

1

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3

35,4

51,2

96

3,4

52,16

2,84

3

Leas

e R

enta

ls R

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vabl

e &

St

ock

Out

on

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4

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4

9,86

6,37

0

150

,876

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5

23,6

36,5

63

5,7

41,5

10

734

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2

Fina

ncia

l Inv

estm

ents

-

Ava

ilabl

e fo

r Sal

e -

-

-

-

5

6,30

0

56,

300

Fina

ncia

l Inv

estm

ents

- H

eld

to M

atur

ity -

-

1

28,8

73,9

98

1,0

70,3

20

-

129

,944

,318

Fina

ncia

l Inv

estm

ents

-

-

-

-

-

-

Oth

er F

inan

cial

Ass

ets

54,

544,

521

27,1

61,6

41

10

0,9

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00

1

8,75

0,0

00

-

2

01,4

43,6

62

Tota

l Fin

anci

al A

sset

s 6

61,8

41,4

09

443

,368

,231

1

,20

5,27

4,24

2 2

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3

41,2

49,10

6 4

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,763

Fina

ncia

l Lia

bilit

ies

Due

to B

anks

42,

326,

552

3,8

89,4

51

32,

262,

00

9 1

14,0

57,12

0

-

192

,535

,132

Due

to C

usto

mer

s 5

15,12

5,23

4 5

16,9

71,2

55

1,0

04,

491,9

74

623

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,80

2 1

,219

,792

2

,661

,270

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Oth

er F

inan

cial

Lia

bilit

y 2

,516

,317

2

,576

,50

8 2

58,6

11,5

38

263

,70

4,36

3

Tota

l Fin

anci

al L

iabi

litie

s 5

59,9

68,10

3 5

23,4

37,2

13

1,2

95,3

65,5

21

737

,518

,922

1

,219

,792

3

,117,

509,

551

Tota

l Net

Fin

anci

al A

sset

s/(L

iabi

litie

s) 1

01,8

73,3

06

(80

,068

,982

) (9

0,0

91,2

80)

1,5

46,8

33,8

54

340

,029

,315

1

,818

,576

,212

172

Notes to the Financial Statements44

.3.2

Ana

lysi

s of

Fin

anci

al A

sset

s an

d Li

abili

ties

by

Rem

aini

ng C

ontr

actu

al M

atur

itie

s (C

ontd

...)

The

tabl

e be

low

sum

mar

ises

the

mat

urity

pro

file

of th

e un

disc

ount

ed c

ash

flow

s of

the

Com

pany

’s fi

nanc

ial a

sset

s an

d lia

bilit

ies

as

at 3

1st M

arch

20

17.

On

Less

than

01-

05

Ove

r

Dem

and

03

Mon

ths

03-

12 M

onth

sYe

ars

05

Year

sTo

tal

Rs.

Rs.

Rs.

Rs.

Rs.

Rs.

Fina

ncia

l Ass

ets

Cash

and

Ban

k B

alan

ces

128,

416,

689

--

--

128,

416,

689

Fina

ncia

l Inv

estm

ents

- H

eld

for T

radi

ng52

0-

--

-52

0

Loan

s an

d A

dvan

ces

158,

226,

622

292,

240

,962

577,6

53,5

3544

7,86

0,3

681,8

82,5

181,4

77,8

64,0

05

Leas

e R

enta

ls R

ecei

vabl

e &

St

ock

Out

on

Hire

15,2

96,3

7112

,828

,071

34,5

05,

419

116,

060

,527

178,

690

,388

Fina

ncia

l Inv

estm

ents

-

Ava

ilabl

e fo

r Sal

e-

--

-56

,30

056

,30

0

Fina

ncia

l Inv

estm

ents

- H

eld

to M

atur

ity-

15,7

67,2

00

77,7

33,9

351,5

45,5

00

-95

,046

,635

Fina

ncia

l Inv

estm

ents

--

--

--

Oth

er F

inan

cial

Ass

ets

777,9

05

142,

268,

123

77,7

71,7

12-

-22

0,8

17,7

40

Tota

l Fin

anci

al A

sset

s30

2,71

8,10

746

3,10

4,35

676

7,664

,60

156

5,46

6,39

51,9

38,8

182,

100

,892

,277

Fina

ncia

l Lia

bilit

ies

Due

to B

anks

38,2

18,3

1727

5,16

682

5,49

845

8,61

0-

39,7

77,5

91

Due

to C

usto

mer

s39

,012

,40

160

2,36

4,23

356

8,0

75,6

3218

2,64

4,20

5-

1,392

,096

,470

Oth

er F

inan

cial

Lia

bilit

y15

6,30

06,

278,

221

--

6,43

4,52

1

Tota

l Fin

anci

al L

iabi

litie

s77

,387

,018

608,

917,6

2056

8,90

1,130

183,

102,

815

-1,4

38,3

08,

582

Tota

l Net

Fin

anci

al A

sset

s/(L

iabi

litie

s)22

5,33

1,089

(145

,813

,264

)19

8,76

3,47

138

2,36

3,58

01,9

38,8

1866

2,58

3,69

5


44.3.3 Contractual Maturities of Commitments & Contingencies

The table below shows the contractual expiry by maturity of the Company’s contingent liabilities and commitments. Each undrawn loan commitment is included in the time band containing the earliest date it can be drawn down. There were no material contingent liabilities as at reporting date.

2018 2017

Rs. Rs.

Commitments

Commitment for Unutilized Facilities On Demand 13,403,458 7,052,353

44.4 Market Risk

Market risk is the risk that the fair value or future cash flows of financial instruments will fluctuate due to change in market variables such as interest rates and equity prices. Interest rate risk has been identified as the most critical risk in the company's business profile. The Board of Directors of the company monitors the market risk through the risk management policies of the company.

44.4.1 Interest Rate Risk

Interest rate risk is the risk of loss of net interest income of the company due to adverse change in market interest rates and inability to maximize benefits from favourable movements in the market interest rates. We mitigate this effect by balancing interest rates to maximize gains in a rising interest rate environment while minimizing losses in an environment of declining interest rates. We continually assess our asset and liability profile in terms of interest rate risk and depending on this assessment necessary realignment structures are undertaken. During the year careful monitoring was done to maintain our funding mix to minimize effects on interest rate movements.

174

Notes to the Financial Statements44

.4.2

Inte

rest

Rat

e R

isk

Exp

osur

e on

Fin

anci

al A

sset

& L

iabi

litie

s

The

tabl

e be

low

ana

lyse

s th

e co

mpa

ny's

inte

rest

rate

risk

exp

osur

e on

fina

ncia

l ass

ets

& li

abili

ties.

The

com

pany

's a

sset

s &

liab

ilitie

s ar

e in

clud

ed a

t car

ryin

g am

ount

and

cat

egor

ized

by

the

earli

er o

f con

trac

tual

repr

isin

g or

mat

urity

dat

es.

Up

to 0

30

3-12

Ove

r 05

Non

inte

rest

Tota

l as

at

Mon

ths

Mon

ths

01-

03

Year

s0

3-0

5 Ye

ars

Year

sbe

arin

g31

/03/

2018

Rs.

Rs.

Rs.

Rs.

Rs.

Rs.

Rs.

Ass

ets

Cash

and

Ban

k B

alan

ces

376,

561,6

69-

--

-41

,396

,670

417,

958,

339

Loan

s an

d A

dvan

ces

182,

644,

939

353,

799,

578

605,

262,

279

705,

176,

210

337,

830

,727

-2,

184,

713,

733

Leas

e R

enta

ls R

ecei

vabl

e &

Sto

ck O

ut o

n H

ire78

2,71

36,

485,

110

160

,716

,396

312,

554,

124

15,4

81,8

11-

496,

020

,154

Fina

ncia

l Inv

estm

ents

-

Ava

ilabl

e fo

r Sal

e-

--

--

56,3

00

56,3

00

Fina

ncia

l Inv

estm

ents

-

Hel

d to

Mat

urity

-12

1,398

,136

--

1,070

,320

-12

2,46

8,45

6

Oth

er F

inan

cial

Ass

ets

76,14

6,71

877

,228

,969

--

--

153,

375,

688

Tota

l Fin

anci

al A

sset

s63

6,13

6,0

4055

8,91

1,793

765,

978,

675

1,017

,730

,334

354,

382,

858

41,4

52,9

703,

374,

592,

670

Fina

ncia

l Lia

bilit

ies

Due

to B

anks

46,0

35,2

7532

,258

,465

85,5

42,8

4028

,514

,311

--

192,

350

,891

Due

to C

usto

mer

s63

1,024

,459

430

,568

,768

978,

973,

526

301,9

54,5

9756

,628

,153

-2,

399,

149,

502

Oth

er F

inan

cial

Lia

bilit

ies

--

--

-24

0,4

22,19

624

0,4

22,19

6

Tota

l Fin

anci

al L

iabi

litie

s67

7,059

,734

462,

827,

233

1,064

,516

,366

330

,468

,90

856

,628

,153

240

,422

,196

2,83

1,92

2,58

9

INTE

RE

ST S

EN

SITI

VIT

Y G

AP

(40

,923

,694

)96

,084

,560

(298

,537

,691

)68

7,26

1,426

297,7

54,7

06

(198

,969

,227

)54

2,67

0,0

81


.4.3

Inte

rest

Rat

e R

isk

Exp

osur

e on

Fin

anci

al A

sset

& L

iabi

litie

s

The

tabl

e be

low

ana

lyse

s th

e co

mpa

ny's

inte

rest

rate

risk

exp

osur

e on

fina

ncia

l ass

ets

& li

abili

ties.

The

com

pany

's a

sset

s &

liab

ilitie

s ar

e in

clud

ed a

t car

ryin

g am

ount

and

cat

egor

ized

by

the

earli

er o

f con

trac

tual

repr

isin

g or

mat

urity

dat

es.

Up

to 0

30

3-12

Ove

r 05

Non

inte

rest

Tota

l as

at

Mon

ths

Mon

ths

01-

03

Year

s0

3-0

5 Ye

ars

Year

sbe

arin

g31

/03/

2017

Rs.

Rs.

Rs.

Rs.

Rs.

Rs.

Rs.

Ass

ets

Cash

and

Ban

k B

alan

ces

73,6

64,2

38-

--

-54

,752

,451

128,

416,

689

Fina

ncia

l Inv

estm

ents

-

Hel

d fo

r Tra

ding

--

--

-52

052

0

Loan

s an

d A

dvan

ces

119,

121,4

03

378,

627,9

5334

5,40

2,10

219

3,46

9,63

937

,924

,389

-1,0

74,5

45,4

86

Leas

e R

enta

ls R

ecei

vabl

e &

Sto

ck O

ut o

n H

ire15

4,89

23,

847,

271

44,5

76,9

5539

,744

,458

3,23

1,843

-91

,555

,419

Fina

ncia

l Inv

estm

ents

-

Ava

ilabl

e fo

r Sal

e-

--

--

56,3

00

56,3

00

Fina

ncia

l Inv

estm

ents

-

Hel

d to

Mat

urity

15,6

87,0

2472

,743

,042

--

1,052

,156

-89

,482

,222

Fina

ncia

l Inv

estm

ents

--

--

--

-

Oth

er F

inan

cial

Ass

ets

163,

573,

271

50,10

9,56

0-

--

-21

3,68

2,83

1

Tota

l Fin

anci

al A

sset

s37

2,20

0,8

2850

5,32

7,82

638

9,97

9,0

5723

3,21

4,0

9742

,20

8,38

754

,80

9,27

11,5

97,7

39,4

67

Fina

ncia

l Lia

bilit

ies

Due

to B

anks

38,2

18,3

17-

1,20

6,25

8-

--

39,4

24,5

75

Due

to C

usto

mer

s62

2,90

9,10

651

8,36

4,19

516

0,19

0,0

949,

592,

584

--

1,311

,055

,978

Oth

er F

inan

cial

Lia

bilit

ies

--

--

-6,

434,

521

6,43

4,52

1

Tota

l Fin

anci

al L

iabi

litie

s66

1,127

,423

518,

364,

195

161,3

96,3

529,

592,

584

-6,

434,

521

1,356

,915

,074

INTE

RE

ST S

EN

SITI

VIT

Y G

AP

(288

,926

,595

)(1

3,0

36,3

69)

228,

582,

705

223,

621,5

1442

,20

8,38

748

,374

,750

240

,824

,392

176


44.5 OPERATIONAL RISK

Operational risk is the risk of loss arising from systems failure, human error, fraud or external events. When controls fail to operate effectively, operational risks can cause damage to reputation, have legal or regulatory implications, or lead to financial loss. The company cannot expect to eliminate all operational risks, but it endeavours to manage these risks through a control framework and by monitoring and responding to potential risks. Controls include effective segregation of duties, access, authorization and reconciliation procedures, staff education and assessment processes, such as the use of internal audit.

45 Continuous Disclosure regarding status of utilization of funds raised via Rights Issue.

Rights Issue proceeds utilization as at 31.03.2018

Objective Number

Objective as per circular

Amount allocated as per circular

in LKR

Proposed date of

utilization as per circular

Amount allocated

from proceeds in

LKR (A)

Percentage of total

proceeds

Amount utilized in

LKR (B)

Percentage utilized against

allocation (B/A)

Clarification if funds are not

fully utilized including where

the funds are invested(Whether

lent to related party/s etc.)

1

Expand the income earning assets base of the company.

283,500,000Financial

Year 2017/2018

283,500,000 100% 283,500,000 100% N/A

177Prime Finance PLC | Annual Report 2017/18SE

GM

EN

TAL

INFO

RM

ATIO

N

For m

anag

emen

t pur

pose

s, th

e Co

mpa

ny is

org

anis

ed in

to th

ree

oper

atin

g se

gmen

ts b

ased

on

serv

ices

off

ered

to c

usto

mer

s as

follo

ws.

The

follo

win

g ta

ble

pres

ents

inco

me

and

profi

t and

cer

tain

ass

et a

nd li

abili

ty in

form

atio

n re

gard

ing

the

Com

pany

’s o

pera

ting

segm

ents

.

Leas

ing

& S

tock

out

on

Hire

Loan

s &

Rec

eiva

bles

Oth

ers

Tota

l

2018

2017

2018

2017

2018

2017

2018

2017

Rs.

Rs.

Rs.

Rs.

Rs.

Rs.

Rs.

Rs.

Inte

rest

Inco

me

33,2

04,

069

22,3

72,12

536

6,68

9,23

724

4,83

4,27

345

,557

,054

24,5

21,8

5244

5,45

0,3

6029

1,728

,251

Inte

rest

Exp

ense

s(1

5,61

2,50

2)(1

0,2

28,0

49)

(172

,416

,711

)(1

11,9

32,9

01)

(21,4

20,8

56)

(11,2

10,8

57)

(20

9,45

0,0

69)

(133

,371

,80

7)

Net

Inte

rest

Inco

me/

(Exp

ense

s)17

,591

,567

12,14

4,0

7719

4,27

2,52

613

2,90

1,372

24,13

6,19

813

,310

,995

236,

00

0,2

9215

8,35

6,44

4

Fee

and

Com

mis

sion

In

com

e92

5,74

741

0,4

5710

,223

,490

4,49

1,922

1,270

,155

449,

897

12,4

19,3

925,

352,

276

Oth

er O

pera

ting

Inco

me

--

--

74,9

01,3

392,

100

,383

74,9

01,3

392,

100

,383

Impa

irmen

t (Ch

arge

)/R

ever

sal f

or L

oans

and

O

ther

Cre

dit L

osse

s1,8

67,4

6063

3,53

0(1

09,

500

,087

)(9

,661

,016

)-

-(1

07,6

32,6

27)

(9,0

27,4

86)

Net

Ope

ratin

g In

com

e20

,384

,775

13,18

8,0

6394

,995

,929

127,7

32,2

7910

0,3

07,6

9215

,861

,276

215,

688,

395

156,

781,6

17

Oth

er C

osts

12,5

87,3

629,

836,

487

139,

00

8,57

510

7,647

,757

17,2

70,2

6710

,781

,670

168,

866,

204

128,

265,

914

Dep

reci

atio

n &

A

mor

tisat

ion

874,

808

794,

446

9,66

0,9

498,

694,

192

1,20

0,2

6587

0,7

8411

,736

,023

10,3

59,4

22

Pro

fit/ (

Loss

) bef

ore

VAT

on fi

nanc

ial s

ervi

ces

6,92

2,60

42,

557,1

31(5

3,67

3,59

5)11

,390

,330

81,8

37,15

94,

208,

822

35,0

86,16

718

,156,

282

Valu

e A

dded

Tax

on

Fina

ncia

l Ser

vice

s &

In

com

e Ta

x(2

1,995

,455

)(1

5,63

3,32

4)

Pro

fit/(

Loss

) for

the

Year

13,0

90,7

132,

522,

957

Segm

enta

l Ass

ets

570

,630

,410

103,

329,

769

2,51

3,33

3,54

41,2

12,7

35,8

3858

7,410

,898

385,

704,

684

3,67

1,374

,853

1,70

1,770

,291

Segm

enta

l Lia

bilit

ies

475,

342,

091

84,11

5,91

02,

093

,637

,493

987,

231,2

3948

9,32

0,4

4231

3,98

4,0

533,

058

,30

0,0

251,3

85,3

31,2

02

178

For the Year ended 31st March 2018 2017 2016 2015 2014

Rs. Rs. Rs. Rs. Rs.

Value Added

Interest Income 445,450,360 291,728,251 289,589,051 289,636,782 279,881,303

Interest Expenses (209,450,069) (133,371,807) (125,889,086) (131,142,196) (124,141,286)

Cost of services (94,588,605) (69,466,999) (60,351,189) (70,639,813) (82,221,198)

Value added by financial services 141,411,686 88,889,445 103,348,776 87,854,773 73,518,818

Other income 87,320,731 7,452,659 7,323,458 5,703,968 10,436,959

Impairment charges (107,632,627) (9,027,486) (11,813,583) (116,444,776) (32,688,871)

Total 121,099,790 87,314,618 98,858,651 (22,886,035) 51,266,906

Distribution of value added

To employees

Salaries and other benefits 74,277,599 58,798,915 43,370,859 41,037,310 35,993,103

Total to employees 74,277,599 58,798,915 43,370,859 41,037,310 35,993,103

To providers of capital

Dividend to ordinary shareholders - - - - -

Total to providers of capital - - - - -

To the government

Income tax 16,608,375 1,125,961 2,540,809 3,491,480 1,198,136

Tax on financial service 7,962,581 9,343,736 8,332,942 - 1,690,124

Total to the government 24,570,956 10,469,697 10,873,752 3,491,480 2,888,260

To expansion and growth

Retained profits 13,090,713 2,522,957 34,965,973 (44,740,769) 6,643,720

Depreciation and amortisation 11,736,023 10,359,422 8,732,830 8,962,454 7,661,467

Deferred taxation (2,575,502) 5,163,627 915,238 (31,636,510) (1,919,643)

Total to the expansion and growth 22,251,235 18,046,007 44,614,041 (67,414,825) 12,385,544

121,099,790 87,314,618 98,858,651 (22,886,036) 51,266,907

Statement of Value Added


Investor Information

PUBLIC SHARE HOLDINGSThe percentage of shares held by the public as at 31st March 2018 was 10.05% and the number of public shareholders as at 31st March 2018 were 884

Director's share holding as at 31st March 2018The number of shares held by the Board of Directors are as follows;

Name of the director No. of shares ( % )

Mr. M. D. Saddha Mangala Goonatilleke 10,000 0.03 Ms. H. K. Sandamini Rukmal Perera 50,000 0.14 Mr. B. Premalal 50,000 0.14 Mr. Nandana A. Wickramage 20,000 0.06 Mr. P. Anura Wijesiri Perera 10,000 0.03 Mr. H. M. Hennayaka Bandara Nil NilMr. Mahinda Perera Nil NilMr. Dhammika Hemantha Kalapuge Nil Nil

Twenty largest shareholders as at 31st March 2018

Name No. of shares % of holding

Seylan Bank PLC/ M/s. Prime Lands (Pvt) Ltd 32,191,761 89.42%Mr. Peramuna Gamaethige Kumaradasa 1,227,428 3.41%Mr. Ruminda Randeniya 152,000 0.42%Mr. Francis Jayarupan Pradeep Raj 137,332 0.38%Mr. Lalith Rukman Jayaweera 113,795 0.32%Mr. Premadasa Manamperi 103,888 0.29%Mrs. Deyalage Janitha Shamali 100,100 0.28%Mr. Ranasinghe Halnetti Padmaperuma Dushantha Rangana 100,100 0.28%Mr. Mallikage Adisha Sagara Wijerathne 80,000 0.22%Bansei Securities Capital (Pvt) Ltd/M.A.U. Gnanatilake 66,779 0.19%The Victoria International Private Limited 65,069 0.18%Mr. Heenatigala Mudiyanselage Nalinda Udesh Kumara 50,000 0.14%Mrs.Hena Kankanamge Sandamini Rukmal Perera 50,000 0.14%Mr.Brahmanage Premalal 50,000 0.14%Mr. Herath Mudiyanselage Prabath Krishantha Bandara 50,000 0.14%Ms. Shehana Sonali Ann Piumi Brahmanage 50,000 0.14%Citizens Development Business Finance PLC/W.G.J.Banda 48,331 0.13%Mr. Herath Mudiyanselage Gayan Buddhika Piyabashitha Herath 48,000 0.13%Mr. Don Hema Jayantha Wijeratna Ponnamperuma 40,000 0.11%Bansei Securities Capital (Pvt) Ltd/M.A.Waas 38,000 0.11%

34,762,583 96.56%Others 1,237,417 3.44%

36,000,000 100.00%

180

Computation of Public Share Holding as at 31st March 2018

No. of shares % of shares

as at 31st March 2018

Parent, subsidiary or associate entities or any subsidiary or associates of its Parent Entity

Seylan Bank PLC/ M/s. Prime Lands (Pvt) Ltd 32,191,761 89.42%

Directors of the entity, their spouses and children under 18 years of age

Mr. M. D. Saddha Mangala Goonatilleke 10,000 0.03%

Ms. H. K. Sandamini Rukmal Perera 50,000 0.14%

Mr. B. Premalal 50,000 0.14%

Mr. Nandana A. Wickramage 20,000 0.06%

Mr. P. Anura Wijesiri Perera 10,000 0.03%

Mr. H. M. Hennayaka Bandara Nil Nil

Mr. Mahinda Perera Nil Nil

Mr. Dhammika Hemantha Kalapuge Nil Nil

Key Management personnel and their close family members Nil Nil

Other related entities/ parties

Mr. H.M.N.U. Kumara 50,000 0.14%

Total non-public share holding 32,381,761 89.95%

Public Share Holding 3,618,239 10.05%

Total Issued Share Capital 36,000,000 100.00%

Total number of non-public shareholders as at 31.03.2018 7

Total number of public shareholders as at 31.03.2018 884

Total number of shareholders as at 31.03.2018 891

Investor Information


Stated Capital

Stated Capital is represented by number of shares in issue as given below:

No of Shares as at

31-Mar-18 31-Mar-17

Ordinary Shares 36,000,000 22,500,000

Earning per share

Earning per share has been calculated, for all periods, based on the number of shares in issue as at 31st March 2018

Market value per share for the year ended

31-Mar-18 31-Mar-17

Rs. Rs.

Highest Price 31.00 35.00

Lowest Price 19.50 18.60

Last Traded 22.90 29.00

182

There were 891 Shareholders as at 31 March 2018 (2017 - 795) distributed as follows.

Shareholder Information

31st March 2018 31st March 2017

No. of. No. of No. of. No. of

Share Range Shareholders % Shares % Shareholders % Shares %

1 - 1000 668 74.97 131,957 0.37 627 78.87 130,316 0.58

1,001 - 10,000 181 20.31 692,207 1.92 143 17.99 478,942 2.13

10,001 - 100,000 34 3.82 1,049,432 2.92 22 2.77 502,332 2.23

100,001 - 1000,000 6 0.67 707,215 1.96 1 0.13 113,795 0.51

1,000,000 & Above 2 0.22 33,419,189 92.83 2 0.25 21,274,615 94.55

Total 891 100.00 36,000,000 100.00 795 100.00 22,500,000 100.00

Analysis of shareholders

Resident / Non Resident


No. of. No. of.

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

Resident Shareholders 887 35,965,266 99.90 790 22,437,435 99.72

Non Resident Shareholders 4 34,734 0.10 5 62,565 0.28

Individuals / Institutions


No. of. No. of.

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

Individuals 847 3,339,255 9.28 763 995,531 4.42

Institutions 44 32,660,745 90.72 32 21,504,469 95.58

Share Information


Branch Network

NORTHERN

NORTH CENTRAL

NORTH WESTERN

WESTERN

CENTRAL

SABARAGAMUWA

UVA

EASTERN

SOUTHERN

Kurunegala

No.155, Puttalam Road, Kurunegala.T (+94) 372 229 050 F (+94) 372 229 051eMail: [email protected]

Wennapuwa

No 23/1 Chilaw Road, Wennapuwa.T (+94) 312 250 906 F (+94) 312 255 577eMail: [email protected]

Negombo

No. 33, Old Chilaw Road,(Opposite St Peter’s Church) Negombo.T (+94) 312 233 366 F (+94) 312 224 910eMail: [email protected]

61, D.S.Senanayake Mw,Colombo 08T (+94) 112 679 280-2 F (+94) 112 679 284eMail: [email protected]

Kandy

Mulgampola, Kandy.T (+94) 812 237 962 F (+94) 812 237 963eMail: [email protected]

Kalutara

No. 336, Galle Road, Kalutara North, Kalutara.T (+94) 342 235 916 F (+94) 342 235 618eMail: [email protected]

Gampaha

No. 35 A, Queen Marry’s Road, Gampaha T (+94) 332 231 522 F (+94) 332 248 980eMail: [email protected]

12, 4th floor, Heerassagala Road,

184

Notes


186

Notice of the Annual General Meeting

Notice is hereby given that the fourteenth Annual General Meeting of the Shareholders of Prime Finance PLC will be held at the Lecture Hall 08, Sri Lanka Foundation, No.100, Sri Lanka Padanama Mawatha, Independence Square, Colombo 07 on this 06th day of August 2018 at 9.30 a.m. to conduct the following business:

AGENDA

(1) Notice of meeting

(2) To receive and consider the Report of the Directors and the Statements of Accounts for the year ended 31st March 2018 together with the Report of the Auditors thereon.

(3) To re-appoint Messrs. Ernst & Young, Chartered Accountants as the Auditors of the Company for the ensuing year and authorize the Directors to determine their remuneration.

(4) To authorize the Board of Directors to determine contributions to charities and other donations for the year 2018/2019.

By order of the Board of Directors of

PRIME FINANCE PLC

S S P CORPORATE SERVICES (PRIVATE) LIMITED

Secretaries

28th June 2018

Note:

1. A shareholder entitled to attend and

vote at the above meeting is entitled

to appoint a proxy to attend and vote

his/her behalf.

2. A proxy so appointed need not be a

member of the company.

3. A form of proxy accompanies this

notice.


Form of Proxy

I/We*............……....................………...……..........................................................................................................................................................………

(please indicate full name) bearing NIC No. …....................................................…….…………...of...........................…………….................................

..……….............................................................……….being a member/*members of Prime Finance PLC hereby appoint:

Mr/Ms.........……....................………............................................…….....................................................................……..............................................…

(please indicate full name) bearing NIC No……….…………….......................................................................................................……....................

of……………...…….………………………….......……...…………………or failing him/her.

Mr. M D S M Goonatilleke of Colombo or failing himMs. H K S R Perera of Colombo or failing her Mr. B Premalal of Colombo or failing himMr. P A W Perera of Colombo or failing him Mr. H M Hennayake Bandara of Colombo or failing him Mr. D Kalapuge of Colombo or failing him Mr. N A Wickramage of Colombo or failing himMr. M Perera of Colombo

as my/*our Proxy to represent me/*us and to vote as indicated below on my/*our behalf at the Annual General Meeting of the Company to be held on the 06th August 2018 and at any adjournment thereof and at every poll which may be taken in consequence of the aforesaid Meeting.

FOR AGAINST

(1) To receive and consider the Report of the Directors and the Statements of Accounts for the year ended 31st March 2018 together with the Report of the Auditors thereon.

(2) To re-appoint Messrs. Ernst & Young, Chartered Accountants as the Auditors of the Company for the ensuing year and authorize the Directors to determine their remuneration.

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

As witness my/our hand set hereto this …................. Day of …............................…….. Two Thousand and Eighteen.

Signature ……....................….………………

Note:

Instructions as to completion are given below. Please delete the inappropriate words, and mark ‘X’ in the appropriate cages to indicate your instructions as to voting.

A proxy need not be a member of the Company.

INSTRUCTIONS AS TO COMPLETION OF FORM OF PROXY

1. Kindly perfect the Form of Proxy by filling in legibly your full name and address, your instructions as to voting, by signing in the space provided and filling in the date of signature.

2. Please indicate with a ‘X’ in the cages provided how your proxy is to vote on the Resolutions. If no indication is given the Proxy in his/her discretion may vote as he/she thinks fit.

3. The completed Form of Proxy should be deposited at the Registered Office of the Company, No. 61, D S Senanayake Mawatha, Borella, not less than 48 hours before the time appointed for holding the meeting.

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

Corporate Information

Name of the CompanyPrime Finance PLC

Legal FormPublic Limited Liability Company domiciled in Sri Lankaand incorporated on 10th September 2004 under the-Companies Act No. 17 of 1982 and re-registered under theCompanies Act No. 07 of 2007.

The Company is licensed under the Finance Business Act,No. 42 of 2011.

A registered Financed Leasing Establishment in terms ofFinance Leasing Act No. 56 of 2000.

Date of Incorporation10th September 2004

Colombo Stock Exchange listing12th September 2012

Company Registration No.PB 351 PQ

VAT registration No.134011947 - 7000

DirectorsMangala GoonatillekeChairman / Independent Non-Executive Director

Brahmanage PremalalNon-Independent Non-Executive Director

Sandamini Rukmal PereraExecutive Director

Mahinda PereraNon-Independent Non-Executive Director

Nandana A. WickramageNon-Independent Non-Executive Director

Dhammika KalapugeIndependent Non-Executive Director

Anura PathirageNon- Independent Non-Executive Director

Hennayake BandaraIndependent Non-Executive Director

Registered OfficeNo. 61 ,D. S. Senanayake Mawatha, Colombo 08.Tel : + 94 112 679 280-82, 011 777 7222Fax : + 94 112 679 284Email : [email protected] : primefinance.lk

Secretaries & RegistrarsS S P Corporate Services (Private) LimitedNo 101, Inner Flower Road, Colombo 03.

BankersNational Development Bank PLC Commercial Bank of Ceylon PLCHatton National Bank PLCSeylan Bank PLCUnion Bank PLCDFCC Bank PLCBank of CeylonPeople’s BankSampath Bank PLCNations Trust Bank PLC

LawyersNithya PartnersNo.97A, Galle Road, Colombo 03.

AuditorsM/s. Ernst & Young Chartered AccountantsNo.201, De Saram Place, P.O Box 101, Colombo 10.

Designed & produced by REDWORKS

Photography by Taprobane Street (Pvt) Ltd

ANNUAL REPORT 2017/18

AN

NU

AL R

EP

OR

T 2017/18

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