Adam’s Peak… Sri Pada… Sivanolipatha Malai
one mountain peak… a footprint at its crest....
intrigues Buddhists who believe the foot print to be
that of Lord Buddha…
intrigues Hindus who think the footprint may be
that of Lord Shiva…
intrigues Christians and Muslims alike,
who surmise the foot print could be that of Adam
as he first set foot on earth…
and in being a focal point for the great religions
that most Sri Lankans are adherents of...
it intrigues us all...
as a telling symbol of Unity in Diversity…
to a Nation on the threshold of
Resurgence and Rebuilding
With a history dating back over 2500 years, Sri Lanka was truly the Pearl of the Indian Ocean. We were an important stop along the Silk Route… our spices drew traders from afar to our shores…after the traders, came the colonisers, the Portuguese, the Dutch and the British.
Our lush and verdant paddy lands gave way to tea, rubber and coffee… and to other infrastructural development such as roads and railways.
This is but a ‘thimbleful’ of the colourful history of the jewel shaped island, Sri Lanka, we call home.
As in all affairs of men, we embraced the good and the not so good! External influences brought diversity of races, religions, cultures, food and flora, to name a few. With such change came enrichment as well as enmity… the latter aspect brought into modern focus by an internecine terrorist conflict that had ravaged the country for almost 30 years.
And so, the one time ‘Pearl of the Indian Ocean’, ‘Taprobane’, ‘Serendip’ became a ‘Third World’, ‘developing’ and as some would have it, an ‘underdeveloped’ country.
Is this truly the real picture? Let’s take stock.
Sri Lanka consists of 65,610 square kilometers of unparalleled beauty, bounty and diversity… yes even after all the ravages of history, recent and long past! From the relative aridity of the North, from whence came ample produce and enterprise, to the green and fertile paddy and tea gardens and the urban industrial hubs, there is a nascent prosperity that needs a helping hand to reach full flower.
‘Green’ Sri Lanka existed long before the world woke up to environmental issues… and by and large we enjoy a way of life that supports our eco systems.
From Point Pedro to Dondra, ours is a land richly grounded in faith and morals providing a rich religious base for the community.
Ours is a highly literate community and one must not lose sight of the fact that we are descendants of a proud land that gave the world some of history’s most stupendous achievements, particularly in irrigation, water management and construction.
But time has paled the edge of accomplishment… and today, Sri Lanka stands in need of development to catalyse the resurgence of enterprise lying fallow and to rebuild previously war afflicted areas in the immediate aftermath of the war.
But we must realise… that through such development activity must flow true enrichment and safeguarding of national strengths and qualities.
It is within this context that one finds LOLC, a Company fully focused on extending the scope of its products and services into the vital areas of Resurgence and Rebuilding of Sri Lanka. We have an excellent pedigree in sustainable business; we espouse good governance practices of the highest standards and have built ourselves into a truly stable entity.
More importantly, we realise how vital these qualities are in the context of the renewal and development that must gather momentum.
This is an epic undertaking…. one in which YOU can Join us! Play an important role!
Photo Catching by LOLC
The photographs in
these pages,
of Sri Lanka in all its
diverse beauty, were captured not by
a professional photographic unit…
but by our own staff.They serve as a reminder of
the vast potential that
reposes in the country as
seen through the eyes of LOLC.
It is plainly evident that our task of
resurgence and rebuildingis in good hands… in the hands
of people who love and cherish
their country.
Contents
Financial Highlights 07 I Chairperson’s Statement 08 I Deputy Chairman’s Review 12 I Group Managing Director’s Review 16 I Board of Directors 22
Corporate Management Team 26 I Operational Management Team 30 I Business Impact Report 32 I Business Synergies 44
Sustainability Review 46 I Human Resources 54 I Expanding Our Reach 58 I Enterprise Governance 60
Enterprise Risk Management Report 72 I Financial Review 78
Financial Report 87 I Audit Committee Report 88 I Remuneration Committee Report 89 I Nominations Committee Report 89
Corporate Governance Committee Report 90 I Annual Report of the Directors on the Affairs of the Company 91 I Directors’ Responsibility for Financial Reporting 97
Chief Executive Officer’s and Chief Financial Officer’s Responsibility Statement 98 I Independent Auditor’s Report 99 I Income Statements 100 I Balance Sheets 101
Statements of Changes in Equity 102 I Cash Flow Statements 103 I Notes to the Financial Statements 105 I Milestones 140 I Ten Year Summary 142
Summarised Quarterly Statistics 143 I Value Addition 144 I Group Companies 146 I Investor Information 149 I Economic and Financial Indicators 151
Glossary 152 I Notice of Meeting 155 I Form of Proxy Enclosed I Corporate Information Inner Back Cover
6 | LOLC | Annual Report 2008/09
ORIX Corporation was established in 1964 in Osaka, Japan as Orient Leasing Company Ltd. by three trading companies and five banks, as a pioneer of leasing. Since its inception, ORIX has been on the leading edge of financial innovation and attributes its success to the ability to respond rapidly to changes in the market place. ORIX’s growth strategy has involved expansion strategically and geographically, with a boldness and scope that puts the Company in a class by itself among major Japanese financial services firms. ORIX has a diverse range of revenue streams, from operating and financing leases, low-margin business focused on auto and equipment leasing, insurance, corporate rehabilitation, loan servicing, real-estate related and other specialised finance, investments and retail banking and value-added services. The Company’s name was changed to ORIX Corporation in 1989 to reflect its increasingly international profile into financial services other than leasing and is listed in the Tokyo and New York Stock Exchanges.
Today, ORIX Corporation is the single largest leasing company in the world and the second largest financial solutions provider in Japan and has a global network of 231 consolidated subsidiaries and 100 affiliates throughout 27 countries worldwide. It has 1,208 offices in Japan, with 298 locations throughout the United States, Asia, Oceania, Europe, the Middle East and Northern Africa.
The financial year completed was challenging for ORIX, with the global business environment changing dramatically affecting most international businesses. The impact on ORIX’s dominant client base in Small and Medium - sized Enterprises (SMEs) in Japan, required the Company to adopt a strict approach towards credit. While many global financial giants faced financial crisis, ORIX has maintained a healthy level of profits and steered the Group towards long term economic sustainability in a turbulent environment.
Lanka ORIX Leasing Company PLC (LOLC) being the third Joint Venture of ORIX with the International Finance Corporation (IFC), has relentlessly
The ORIX Connection
added value to ORIX with its long track record of successful business innovation and diversification. LOLC’s dynamic diversification strategy is based on the driving principle that ‘expansion into new areas will increase our specialisation and competitiveness, which will then create new value for our customers. This strategy draws inspiration from the ‘ORIX-way’ and enables it to sustain Group synergy, professionalism, expertise, technology, innovative products and services and a dynamic corporate culture.
In addition to the parental guidance LOLC constantly receives from ORIX, it also benefits from the global ORIX network by way of knowledge transfer, technical expertise and compliance standards through its regular reviews and participation in ORIX conferences.
While LOLC gained pioneering status as a leasing entity in Sri Lanka 29 years ago, the Group has now morphed into a Total Financial Solutions Provider with an array of services beyond leasing such as insurance, factoring, savings and fixed deposits, pawning, micro finance, mortgage loans, islamic finance, working capital and stock brokering. The Group has also invested into other business streams in line with its long-term business goals.
With the end of the terrorist conflict in the Northern part of the country, LOLC look forward to playing a prominent role in the country’s economy to rebuild the nation, having a business model developed to suit financial needs of the most deserving SME and the Micro sectors. LOLC is also focusing on regional expansion opportunities with a view to facilitating cross-border knowledge and technology transfer, which will enable it to become a financial services leviathan.
LOLC will continue to follow in the footsteps of ORIX while pursuing its management strategy to contribute to the betterment of society and provide greater long-term benefits to its stakeholders by keeping abreast of market trends to continue to create new value.
01. Australia02. China03. China (Hong Kong)04. Egypt05. England06. France07. Germany 08. India09. Indonesia10. Ireland11. Japan12. Kazakhstan13. Malaysia
14. New Zealand15. Oman16. Pakistan17. Philippines18. Poland19. Saudi Arabia20. Singapore21. South Korea22. Sri Lanka23. Taiwan24. Thailand25. UAE26. USA
LOLC I Annual Report 2008/09 | 7
For the year ended 31 March 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009Restated
Company
PERFORMANCE INDICATORS(Rs. Mn)
Net Profit after Tax 118 181 213 256 418 562 664 987 1,059 504New Executions 2,152 2,437 2,242 3,189 4,427 4,972 8,858 12,068 12,127 12,170
Gross Portfolio (Rentals Receivables) 5,432 6,018 6,052 6,757 8,082 9,144 12,858 19,851 25,056 25,185Net Portfolio (Net Investment) 4,215 4,550 4,570 5,129 6,193 7,088 9,653 13,547 16,727 16,985Outstanding Borrowings 3,939 3,915 3,751 4,113 5,396 6,025 9,824 16,250 22,273 24,850Non-Performing Portfolio 378 556 715 815 883 865 113 137 443 538Interest in Suspense 45 68 87 101 107 149 18 14 47 148Provision 107 338 389 485 608 645 61 45 116 237
KEY INDICATORS(Rs. Per Share)Dividends per Share 2.25 3.00 3.25 3.25 1.95 2.32 3.00 1.50 2.25 2.80Market Price per Share 22.50 21.50 51.00 73.50 60.00 85.00 101.00 107.50 150.00 69.25Book Value per Share 29.84 28.00 30.81 35.31 38.81 48.57 59.98 77.74 100.21 107.35
(Times)Debt to Equity Ratio 2.78 2.97 2.56 2.45 2.93 2.61 3.45 4.40 4.68 4.87Interest Cover 1.22 1.32 1.38 1.52 1.85 2.56 1.96 1.63 1.28 1.14Dividend Cover 4.42 2.54 2.75 3.30 4.50 5.09 4.64 13.86 9.53 3.79
FinancialHighlights
8 | LOLC | Annual Report 2008/09
Dear Reader,
I have pleasure in presenting to you, the
Annual Report and Audited Accounts of
LOLC for the financial year 2008/09. This has
been a year of great challenge during which
the Group has performed commendably.
To perform well in a climate of challenge
requires resilience and a business model
that responds well to the need for change,
in the face of adversity. I believe that
LOLC’s strategic realignment and planning
process instituted two years ago, has given
us the ideal business platform to cope with
challenge and conduct our business affairs
with great success.
Partnerships of Strength
An unique aspect of LOLC’s operations and
one which we honour and cherish, is the
strong relationship we enjoy with a substantial
portfolio of global funding agencies.
In addition to our main shareholder, ORIX
Corporation of Japan, many of the world’s
top funding agencies not only channel
valuable resources through LOLC to meet
the country’s development requirements,
but also play an invaluable role in helping us
streamline our own processes and systems.
Such assistance flows from independent
transfer of expertise as well as through
compliance requirements of donor agencies
that LOLC needs to comply with.
Chairperson’s Statement
LOLC employs an optimum balance between collections and supportive credit that strives to deliver a win-win solution, safeguarding our own business interests whilst providing maximum leeway for the businesses of our customers to survive and grow
LOLC I Annual Report 2008/09 | 9
This has helped LOLC to strengthen its
corporate culture founded on transparency,
good governance and sustainability.
The Global and Domestic Economic Environment
The collapse of the sub-prime mortgage
markets in the US has triggered unprecedented
constraints on the performance of almost every
global economy. This is a ‘crisis of confidence’.
The global Banking and Financial Services
sector has been affected by greed, over
leveraging, poor risk management, lack of
integrity at the highest levels, failure to enforce
regulations and failure to respond with new
regulations to cope with new products and the
changing economic environment.
Consequently, by the end of 2008, we were
faced with an imminent worldwide economic
recession.
The Sri Lankan economy, which is heavily
dependent on imports, had to contend with
high oil and commodity prices that prevailed
in early 2008. Rapidly escalating prices, high
interest rates, high inflation and restrictions
on lending, all made 2008 a very difficult
year for Sri Lankan businesses.
By year end 2008, although inflation rates
were dropping towards a single digit regime,
interest rates remained high.
The Sri Lankan economy grew by 6% and
although the country has thus far been
relatively unaffected by the global crisis
largely due to Sri Lanka being insular and
less open to the global economy, the signs
are beginning to emerge, of hard times
ahead, particularly for the commodities
market such as tea, rubber and garments.
Some Implications for LOLC
The global economic crisis has had an
impact on LOLC due to the escalating cost
of financing and delays in repayment, where
businesses constrained by the crisis find it
difficult to keep to schedule in meeting their
obligations to LOLC.
In such a scenario, LOLC employs an
optimum balance between collections and
supportive credit that strives to deliver a
win-win solution - safeguarding our own
business interests whilst providing maximum
leeway for the businesses of our customers
to survive and grow.
The high interest rate regime is reflected in
high borrowing costs. Therefore, with the
rate of inflation coming down, we believe that
interest rates will follow suit, thus enabling us
to lend at reasonable rates and pass on the
benefits to our valued clientele.
Chairperson’s Statement I
VIBRANCEBlue Pansy -This uncommon and fast flying butterfly
is one of the 244 species found in the country
Highlights of 2008/09
Before I detail specific highlights, I believe it is important to emphasise that LOLC concentrates on serving the SME and Micro Finance sectors. A good 90% of our clientele are to be found within these categories.
Apart from business potential, we see that these are the categories that will require valuable input in the country’s drive towards resurgence of enterprise and as peace returns to the Northern and Eastern Provinces, towards rebuilding of communities and businesses.
Today, an analysis of contribution to GDP by Province reveals that the Western Province contributes 50.8% whilst all other Provinces together account for the balance 49.2%. This reveals quite clearly, the need to focus on development, in areas outside of the Western Province.
Despite the turbulent environment in which the Company had to operate during the financial year, carefully planned and proactively executed strategies enabled the Group to deliver resilient profits to the
shareholders. The Group recorded PBT of Rs. 1,247 Mn, a growth of 5.4% over last year. However, the Company profits saw a dip mainly seeing a shift in profits to its subsidiaries. Most companies made positive contributions to the bottom line of the Group and will continue to make a significant contribution in the coming years.
The company declared an interim dividend of Rs. 2.80 per share. The EPS for the Group was Rs. 22.18 The market capitalisation was Rs. 3.3 Bn and LOLC’s share price was stable at Rs. 69.25 per share at the year end.
Two Key Events Distinguished the Year for LOLC
The first was our acquisition of Commercial Leasing Company PLC (CLC). Being a profitable company, CLC with its strong leasing operation offered many areas of synergy to LOLC. Jointly, LOLC Group achieves an expanded outreach, a combined strength of formidable proportions in the sphere of leasing products to market and an added strength to the Group’s portfolio and Balance Sheet.
The other event of note came through our decision to spin off our Micro Credit business as a separate Company. LOLC Micro Credit Ltd. (LOMC) was constituted through a partnership with one of our funding agencies, The Netherlands Development Finance Company (FMO) which took a 20% stake in the new company, whilst also providing a credit line.
I believe this is the first Sri Lankan private sector Micro Credit Company incorporated with foreign partnership.
The business plan of the new Company envisages taking micro credit facilities to the provinces. Our goal is to develop rural entrepreneurship by combining credit lines with relevant training in areas such as Finance, Bookkeeping, Marketing and other
BLESSINGS OF CO-EXISTENCEDevalaya, Kirinda Temple - An ancient Hindu Kovil, alongside the historic Buddhist Temple signifies the religious harmony that goes back centuries
10 | Chairperson’s Statement I LOLC | Annual Report 2008/09
LOLC I Annual Report 2008/09 | 11
disciplines. Through such development, we expect to fulfil the hopes and aspirations and improve the quality of life of our clientele, whilst meeting Company objectives.
It has always been my belief that access to credit alone will not help our micro sector clientele and their enterprises to survive and be viable in a sustainable manner. We must look beyond credit lines to the provision of total financial solutions that are especially tailored for the sector.
LOLC Micro Credit Ltd. endeavours to achieve this and more, networking with other external agencies to provide its fullest support where necessary.
Through our microfinancing activities we also plan to empower women and help them emerge as entrepreneurs in their own right. This is an aspect we know is very close to the hearts of our donor agencies, not only in terms of gender issues, but in the way women bring intrinsic qualities to business - frugality, meeting commitments - among others.
We are honoured to report that LOLC was affirmed its rating this year at A(lka) by Fitch Ratings, whilst our finance company, Lanka ORIX Finance Company Ltd. (LOFIN) received an upgrade from BBB+(lka) to A - (lka). This is a significant achievement in the context of the domestic and global environments that prevailed during the year under review.
I would also like to note the recent developments and turmoil that have beset the informal finance markets of the country in recent times, which have resulted not only in the erosion of investor confidence but in many personal concerns and difficulties.
In this context, LOLC has maintained a responsible and stable profile, due to its continuous emphasis on good governance, transparency and a sustainable business model. Under the circumstances, the
positive performance of this year can also be attributed to a loyal customer base as well as to the high standards of integrity and professionalism of our Board of Directors and the Management Team.
I am happy to state that one of our key strengths is our young and professional team of employees, who are highly specialised in their respective disciplines and extremely focused. This is exemplified in their flexibility and swift response to change, both of which are highly desirable attributes, given the current volatile business environment.
LOLC ensures that a high level of skill and motivation prevails through its training and development structure as well as its reward and recognition schemes.
I am confident that the strategic direction of LOLC as a total financial solutions provider, will facilitate our contribution to the resurgence and rebuilding of the Nation.
On a personal note, mine has been a journey of 50 years through the banking and financial sector. Through these years, there have been many challenges to be met and surmounted; there have been good and bad times. I am happy that the present finds me with the LOLC Group, where I feel my skills and expertise are a source of strength and are put to good use in service to our stakeholders.
In conclusion, I would like to thank all employees, the Corporate Management and the Board of Directors of the Group for another year of yeoman endeavour, support and guidance, which has yielded good results.
The years ahead are full of promise and I believe that we have what is necessary to progress from promise to fulfilment.
Rohini NanayakkaraChairperson
29 May 2009
Chairperson’s Statement I
CHARM UNFADEDFrangipani flowers floating on water - Beauty and fragrance of
these flowers remain for sometime
CELEBRATION OF LIFEPurple Coot - Engaged in courtship display,
at Nawadankulama Tank, one of the 439 species of birds found in the country
12 | LOLC | Annual Report 2008/09
DeputyChairman’sReview
Renewed purpose
At the backdrop of the global economic
crisis of the past two years and our own
debilitating civil war for the past 27 years,
there is no better time than now for a
resurgence of the nation and her peoples.
With the recent conclusion of the civil war,
we are honoured and proud to be one nation
once again! And with new life renewed
energy, we will endeavour, persevere to
make up for the lost time and embark on
that momentous, meaningful growth that this
country deserves. Once again, we at LOLC
are ready and focused to drive this initiative
of resurgence and rebuilding.
LOLC’s involvement in economic
development has a long story. Twenty-
nine years ago the country embarked on
an ambitious programme of accelerating
infrastructure development planned for
30 years to a 5 - year period. The financial
services sector of the day did not provide
viable asset financing and management
options which were prerequisites for
accelerated development. In order to bridge
this gap, LOLC was launched on a solid
foundation provided by the IFC, which is
the private sector arm of the World Bank,
At the dawn of the long awaited peace, enterprise must start up and communities must aspire to a sustainable prosperity. Steeped as we are in the SME sector, we at LOLC began to see an evolution of our operations towards fulfilling yet another National need - uplifting the much needed Microfinancing sector
LOLC I Annual Report 2008/09 | 13
ORIX Corporation of Japan together with
the Government of Sri Lanka and pioneered
Leasing in Sri Lanka.
With the incorporation of LOLC and
introduction of leasing, new worlds of
opportunity opened up for the SME sector...
they were able to access that essential
capital which had previously been restricted
to a segment with acceptable collateral and
realise the dreams of their entrepreneurial
spirit. And from this stems our mission,
assist those driven by the spirit of enterprise
to reach greater heights, through our
innovative, personalised and wide-ranging
financial solutions.
In effect, we added a new segment, a new
base to the national economy.
Leasing has not only revolutionised the SME
sector but also the financial sector of the
country. Today there are over 100 institutions
engaged in leasing in one form or another
and LOLC remains the market leader.
But our story is different. As pioneers, we
identified the needs, the potential and the
opportunities of the market. Having gained in
depth insight into the businesses, lifestyles,
needs and aspirations of our clientele, we
were able to look beyond and link them with
more expansive solutions that go beyond
immediate needs to other areas of the value
chain. As a result, LOLC has strategically
diversified into group of business entities
that offer a varied portfolio of solutions such
as factoring, insurance, stock brokering,
working capital, savings and deposits, SME
and microfinancing, fleet management,
information technology, Islamic financing,
foreign currency deposits, covering the
entire value chain. This related diversification
was also supported with our sustainable
business model, proactive reinforcement
of our internal processes and corporate
governance, the solid partnerships we enjoy
with our funding partners and regulators,
and our ability to keep sustainable business
processes operating for our prime customer
segments without compromise even in the
face of current trends.
Today, with more than 8 subsidiaries and
many associate companies, coupled with
a reach and a brand that goes to every
household and a loyal customer base,
LOLC is in a stronger position to fulfil both
timely roles that the nation is longing for-
Resurgence and Rebuilding !
Strategy in Action
At the dawn of the long awaited peace,
enterprise must start up and communities
must aspire to a sustainable prosperity.
Steeped as we are in the SME sector,
Deputy Chairman’s Review I
ENERGIZING DAWNBandarawela - All forms of life living in these cold areas
depend on the warmth and the light of the Sun. Have we truly harnessed its constant energy?
we at LOLC began to see an evolution of
our operations towards fulfilling yet another
national need - uplifting the much needed
Microfinancing sector. According to the
study done by GTZ, a leading technical
assistance provider for Microfinancing
in Germany & the Ministry of Finance &
Planning Sri Lanka, in 2008, it is estimated
that 50% of Sri Lankan households totalling
to 4.5 Mn do not have access to credit and
this unmet demand for micro finance in
Sri Lanka is estimated at Rs. 125 Bn.
Back in 2003, LOLC ventured into the Micro
Finance sector through RERED (Renewable
Energy for Rural Economic Development) a
solar power financing project initiated by the
World Bank to promote rural electrification
and we became the largest private sector
financier of solar panels in the country.
Today we have Sundaya Lanka (Pvt) Ltd.
(SLPL) one of the largest solar assembling
companies in Sri Lanka under our wing.
Through SLPL system we have a continued
vendor presence to ensure consistent
service in the deployed areas.
Serving closely to this grass root level
customer over the past seven years made
us realise the absence of access to capital,
the lack of required knowledge and technical
know-how as well as the infrastructure for
this segment. LOLC’s experience in the SME
sector coupled with the in house expertise
enabled us to foresee not only the great need
of the hour but also the unlimited potential of
this untapped market across the country in
particular in the North and East areas.
We realised that the only way we can make
a meaningful contribution towards the
sustainable development and progress of a
micro client is by offering a comprehensive
products and services range that covers this
entire value chain. Thus, we do not just offer
credit - together with our external partners
with whom we share this developmental
goal, LOLC offers technical know-how, help
in finding market linkages, conduct training
and community development programmes
and above all, have become an important
platform to uplift their quality of living.
Our unprecedented growth in microfinancing
was also reinforced by the fact that we
acquired a substantial stake in PRASAC,
Cambodia. PRASAC is one of the leading
Micro Finance institutions in Asia, and LOLC
has benefited immensely from their expertise
and of the other bi-lateral agencies all
engaged in Microfinancing.
At the time of renaissance in the
country, we made another vital initiative
in Microfinancing. Together with The
Netherlands Development Finance
Company FMO, we converted our rapidly
growing Microfinancing business unit
into a standalone business entity - LOLC
Micro Credit Ltd. This is the first and the
only regulated Micro Finance Company
with foreign equity in the country. It’s yet
another addition to our track record of
‘firsts’. With this solid partnership, our focus
in microfinancing will extend well beyond
the core, in to the periphery, to create and
address the entire value chain. This is
illustrated in detail in the sustainability review
in pages 46 and 53.
Going further on the Company’s business
model on sustainable development, LOLC’s
investment in Touchwood Investments
Ltd. (TIL) has been promising. TIL has
established more than 20 greenfield sites
across Sri Lanka and LOLC’s involvement
is aimed at catalysing an expansion of size
and scope of the project whilst stimulating
large scale reforestation activity. Through
this initiative we are safeguarding and
A GLORIOUS BEGINNINGWarakapola - Sunrise is as magnificent as can be in the very early hours of the morning.
WATCHFULYala National Park - These Whistling Teal like many birds look for a safe place such as this dead tree in the water to avoid the ground dwelling predators at night.
14 | Deputy Chairman’s Review I LOLC | Annual Report 2008/09
LOLC I Annual Report 2008/09 | 15
replenishing rain forests. The project, whilst
generating considerable commercial benefit
is also a major earner of carbon credits.
Thus in Touchwood we have a two pronged
strategy - long-term reforestation and
propagation of valuable timber resources as
well as short-term intermediate cash crops.
Another ongoing project of note is the
revitalisation of the Gal Oya Plantations,
formerly known as Hingurana Sugar
Industries. This is a successful Public/Private
sector initiative where the Government has
a shareholding of 51%, whilst LOLC and
Brown & Company hold the balance 49%
along with the management rights. This was
a project that had been neglected for over
a decade before it was resuscitated. This is
yet another facet of our sustainable business
model as in the process of sugar production,
alternative energy sources such as ethanol
and e-diesel can be produced. This will also
facilitate our micro initiatives of the ‘farmer
out-grower system’.
Funding Partners and LOLC… A mutually honoured trust
We count it a great honour that LOLC has
been able to establish and maintain an
excellent track record with a most illustrious
portfolio of funding partners, over many
years.
A listing of these entities appears on pages
42 and 43 of this report.
Fundamentally, funding agencies have
two main goals for channelling resources-
commercial progress and developmental
progress of recipients.
LOLC has an exemplary record in the
effective deployment of these funds
and delivering desired results. Over
the years, they have come to know and
trust LOLC as a perfect conduit for the
successful implementation of their resource
programmes. Our processes have been
perfected throughout to report to these
agencies on the impact they have created.
Therefore it comes as no surprise, while it
is always an honour for us to realise that we
are the first non-banking financial institution
to be recognised by these funding entities,
to be included in their developmental and
commercial road maps.
I am truly excited by the times that lie ahead
of LOLC. Resurgence and Rebuilding that
must spread through our country, now lies in
our path.
There is room for and a role for everyone…
all of us at LOLC, our funding partners,
regulators, customers… all stakeholders.
Lets journey together!
Ishara Nanayakkara
Deputy Chairman
29 May 2009
Deputy Chairman’s Review I
BEAUTY AND PURPOSEMahakanadarawe Tank - In all Sri Lankan villages both life and
livelihood revolves around the Sun and water from a nearby Tank.
16 | LOLC | Annual Report 2008/09
Highlights
Looking back at the year under review, we
have performed well in these exceptional
circumstances in the market, we have fine
tuned our internal processes to optimise
resources and efficiencies, we have
continued to grow true to the spirit of the
business model in acquiring and diversifying
our portfolio and reach when necessary, we
have worked closely with all stakeholders in
achieving developmental and commercial
Group ManagingDirector’s Review
goals, and that’s not all. We have been
recognised by the regulators and rating
agencies which we consider a great honour.
Lanka ORIX Finance Company Ltd. (LOFIN)
was upgraded to A- from BBB+, by Fitch
Ratings and this was the only upgrade of
an institution of this magnitude among the
non-bank financial institutions in the year
under review.
The consistency and strength of LOLC’s
performance, the good governance
We have continued to grow true to the spirit of the business model in acquiring and diversifying our portfolio and reach when necessary, we have worked closely with all stakeholders in achieving developmental and commercial goals, and that’s not all. We have been recognised by the regulators and rating agencies which we consider a great honour
LOLC I Annual Report 2008/09 | 17
processes and the credibility have always
been recognised by the regulators and
was reaffirmed when the Central Bank of
Sri Lanka in a landmark decision granted
approval for LOFIN to engage in foreign
currency business. We are the only
non-bank financial institution in Sri Lanka to
enjoy this privilege of opening NRFC and
RFC accounts for clients. This is a significant
achievement in light of the recent adverse
developments in the financial sector.
In further recognition of our stability and
financial strength, the Central Bank also
granted approval for LOLC to enter into
SWAP agreements effectively reducing the
borrowing costs of the Group and allowing
the Company to compete in the banking
sector, for funding.
In line with our acquisition strategy, we have
invested in Commercial Leasing Company
PLC (CLC), one of the largest leasing
institutions in the country. This has been one
of the biggest transactions to take place on
the Colombo Stock Exchange during the year
and has made LOLC the market leader in
both leasing and factoring. Notwithstanding
the obvious synergies that emerged from
this move, this merger has inarguably
strengthened the Group’s Balance Sheet. It has
also created new opportunities by reaching a
diversified customer base accessed through
varied distribution channels.
Always aspiring for opportunities to thrive in
our core business lines, LOLC converted its
steadfast microfinancing arm to a stand-
alone business entity together with The
Netherlands Development Finance Company
(FMO) and we are proud to state that this is
the first micro finance company in Sri Lanka
with foreign equity.
The current perception of LOLC links us with
microfinancing and the SME and Agricultural
sectors. It is a compelling association of
thought that is totally evocative of the manner
in which our business has developed over
the years - from a basic leasing operation, to
becoming a total financial solutions provider
in the most important sectors of endeavour
in this country - the SMEs and the Micro
Finance seekers.
It is this evolution in business that places
our theme in context - the Resurgence and
Rebuilding of a Nation.
Group Managing Director’s Review I
BLESSEDDalada Maligawa, Kandy - The Temple of the Tooth Relic
overlooking the lake enshrines the sacred tooth relic of Lord Buddha. The rulers of the land, then and now,
sought its blessings and protection
Strategic initiatives
From the commencement of the financial
year 2008/09, LOLC recognised that the
local and global economies were going to
face a rough year. Long before the global
economic crisis made its impact, LOLC had
effected strategic change and repositioned
its business model to meet future challenge.
That this was a timely measure is clearly
evident in the resilience and flexibility with
which the Group has responded in the year
under review. I believe this to be a unique
strength of LOLC.
From a strategic perspective, we reaffirmed
our long-term focus to become a total
financial solutions provider with short-term
strategies and implemented a Quarterly
Roadmap, which has been invaluable,
particularly in addressing the increasingly
turbulent and volatile economic scenario
unfolding at present.
With weekly Management reviews to closely
follow up its progress, we made conscious
decisions to streamline business processes
and enhance operations.
One such endeavour has been on stringent
credit measures alongside focus on the
collections and recoveries regime.
Within the prevailing environment, we have
seen that many institutions in our line of
business are struggling with collections -
striving to achieve a balance between
timely recoveries whilst being supportive
of their clients. In this respect, LOLC is
on a better footing than most. We have
proactively revamped our collection and
recovery initiatives, minimising the impact to
our customers from the recurrent negative
economic conditions.
Another key initiative we took in coping with
this era of challenge was to parallel our
other initiatives with an inward look at better
cost management. Everyone at LOLC took
genuine efforts to minimise waste, recycle
and other initiatives to curtail expenses
which made a significant difference to the
cost base in a very short time span. From a
30% reduction in mobile telephony costs and
a 10% reduction in electricity consumption,
to so many more achievements of this kind,
we have been making progress over the year
in reducing costs and achieving a healthier
balance between costs and revenue.
Although there were internal cost
management measures, LOLC’s spirit
of enterprise and ‘service first’ mindset
remained strong. In keeping with our
strategy of enhancing reach for our
customers, we formed a strategic tie-up with
Sri Lanka post where LOLC has a presence
in many Post Offices around the country.
This is a particularly useful initiative, given
that the markets we are targeting are often
situated in the peripheries of the country.
LEADERSHIPElephants, Udawalawe - This family of elephants though concealed in the grass, were able to find their way towards a small water hole guided by their matriarch
18 | Group Managing Director’s Review | LOLC | Annual Report 2008/09
In this manner, the Group increased its
presence around the country with the opening
of 5 new LOLC centres within the LIOC fuel
station network, 15 centres within Post Offices
and 2 fully fledged branches in Horana and
Wellawatta and a mini branch in Ampara.
In the area of fleet management, we
streamlined processes and introduced
several new enhancements such as the
integration of all vehicle yards into one
location, and a new loyalty card programme
to reward our loyal customers with many
benefits such as breakdown assistance,
rent-a-car facilities and more. We are also
completing the construction of a state-of-the
art work shop, a much needed addition to
service our fleet management clients more
efficiently and effectively.
Capitalising on the opportunities that
lie in diversification and enhancing our
portfolio towards becoming a total financial
solutions provider, we transformed our
Islamic finance division into a fully fledged,
Shar’iah approved Islamic business unit
under our Finance Company. It is the first
finance company to receive Central Bank
approval to launch an Islamic finance unit.
We offer a full range of Islamic financing
products and are now ours is one of the
largest Islamic financial service providers in
the country. For further convenience of our
customers, the Group also launched its own
ATM programme linked with the Commercial
Bank of Ceylon’s ATM network, with over 300
outlets across the country.
Realising that markets were becoming
increasingly volatile and that funding would
also be more difficult to source, especially
with the increasing borrowing cost in the
local market we focussed heavily on liquidity
management. In the year under review, we
engaged in many successful dialogues
for attractive fund procurement with our
external funding agencies on account of our
longstanding relationship and integrity we
earned throughout. Thus, LOLC possesses
a very strong funding pipeline into the future,
which is amazing when one considers the
magnitude of the global economic crisis, which
has made funding very difficult to source.
During the year, LOLC was successful in
mobilising international funding of Rs. 3.8 Bn
and US $ 30 Mn, from multilateral agencies,
which in these times of hardship, is a
commendable achievement.
The Year 2008/09 and LOLC
Whilst gearing for the year, we also worked
towards maintaining that consistency of
performance which our stakeholders deserve
and which we have steadfastly striven to
deliver, year after year. If one looks at LOLC’s
performance over the past 10 years, it is clear
that LOLC has recorded superior performance
with consistent growth throughout.
During the early part of the year, the
Company continued on its strategy of top line
growth and during the latter part of the year,
consolidated the position achieved during
the last few years. Stringent credit evaluation
criteria coupled with the renewed focus on
collections and recoveries saw the Company
managing the NPLs effectively maintaining
same at healthy levels compared with the
industry and other financial institutions.
The total executions for the year was
Rs. 12.2 Bn maintained at the same level as
the previous year.
Group Managing Director’s Review I
SAFEGUARDKirinda Beach - An enclave on the kirinda beach
protected from the turbulent waves
PRECISION EXTENDEDGardens of King Kashyapa Sigiriya - Lush green in an arid zone, a
result of the hydro engineering expertise thousands of years ago
LOLC I Annual Report 2008/09 | 19
The working capital business completed the
year with funds in use of Rs. 3 Bn, a marginal
increase over last year.
The deposit base of the finance company,
saw significant growth, which is considered
remarkable given the turbulent times during
the year, recording a growth from Rs. 3.3 Bn
to Rs. 5.3 Bn, a 59% increase compared with
the previous year.
The total interest costs of the Group grew
from Rs. 3.4 Bn to Rs. 6.4 Bn, an 89% growth
over last year.
Provisions on account of bad and doubtful
debt too saw an increase over the year, but
far less than that of the industry in the current
environment. The total provisions for the
Group was Rs. 370 Mn.
The profit before tax recorded by the Group
was Rs. 1,247 Mn, an increase of 5.4% over
last year.
CONTEMPLATIONPelican, Kandy Lake - Enjoying the beauty of the sun’s ripples on the water and its warmth
EAGLE EYE VIEWKnuckles range - A natural pool in the rocky mountains, carved out by the water fall
We made significant inroads with the
Sri Lankan diaspora abroad in its first year
of operations in foreign currency business,
achieving a deposit base of US$ 1.5 Mn by
the year end.
The insurance business grew along with
the lending operations of the group and
achieved the milestone of collecting
Rs. 1 Bn as Gross Written Premium with a
resultant commission income contribution
to the Group of Rs. 144 Mn.
The significant increase in interest costs, had
a negative impact on the profit before tax.
A major contribution to the profits came from
the newly acquired CLC, giving the group
immediate returns on the investment made.
The rest of the businesses too made positive
contribution to the bottom line of the Group.
In terms of Human Resources, LOLC has
proven its status as a desired employer. We
have been constantly growing our employee
retention ratio - it stands at 86% for the year
under review, up from 83% the previous year
and 78% in 2006.
20 | Group Managing Director’s Review | LOLC | Annual Report 2008/09
Looking Ahead
Our focus is on resurgence and rebuilding
and our strategy to give effect to this focus is
through addressing the needs of SMEs and
Micro Finance seekers all over the country
and when enterprise returns, to the North
and East of the country.
It is our ultimate goal to improve access
to financial solutions for people in these
sectors. As war recedes and peace and
enterprise gradually begin to return to the
Northern and Eastern Provinces, we see vast
potential for what we have to offer in terms of
products and services.
These are the areas of focus that we have
begun to plan for. These and other areas
of relative impoverishment and lack of
opportunity will form the basis of our drive
to boost the resurgence and rebuilding that
must happen, to return Sri Lanka to stability
and prosperity.
The future will also see a continued
emphasis on the strengthening of LOLC’s
infrastructure, our access to funding and
our constant pursuit of sustainability of our
business through exemplary governance
and implementation of best practice across
all disciplines, among other factors.
I truly believe that there is a role of great
significance reserved for LOLC, in the
progress of Sri Lanka in the years ahead.
Our track record so far has been remarkable
with direction and guidance from the
Board led by Mrs. Rohini Nanayakkara who
completed 50 years of service in the banking
and financial sector.
REACHING FOR THE SUNTortoise, Kandy Lake - A common sight during the day
I am confident that we can discharge this
role with benefit to all. It is a journey in which
all stakeholders have partnership - our
funding agencies, regulators, customers,
depositors, and all of us at LOLC.
There is a role for us all, in the years ahead.
Kapila Jayawardena
Group Managing Director/Chief Executive Officer
29 May 2009
Group Managing Director’s Review I LOLC I Annual Report 2008/09 | 21
22 | LOLC | Annual Report 2008/09
Board ofDirectors
Mrs. R.L. Nanayakkara
Rohini Nanayakkara obtained her BA Second Class
Honours Degree from the University of Peradeniya,
Sri Lanka and a Diploma in French from the
Chamber of Commerce, Brussels. She is a Fellow
of the Institute of Management and the Institute
Manager of the Bank of Ceylon, CEO of the Private
Sector Infrastructure Development Fund, a World
Bank funded project, Director/CEO of Seylan Bank
and Chairman/Director of several other financial
institutions and business organisations.
In January 2005, H.E. the President of Sri Lanka
appointed her as a Member of the Task Force to
Rebuild the Nation (TAFREN).
Mr. I.C. Nanayakkara
Mr. Nanayakkara is instrumental in all investment
strategies adopted by the LOLC Group, leading the
group towards diversification and risk mitigation.
He holds a Diploma in Business Accounting from
Australia and started his career as the Managing
Director of the Ishara Traders Group. Mr. Nanayakkara
also worked in Japan for two years with the largest
exporter of reconditioned motor vehicles - Yamagin
Corporation. He serves as the Deputy Chairman
of the Board of LOLC and all its subsidiaries and
associate companies, including Commercial Leasing
Company PLC. He is also a Director of Colombo
Mr. W.D.K. Jayawardena
Kapila Jayawardena holds an MBA in Financial
Management from the American University of
Asia. He is also a Fellow Member of the Institute of
Bankers and an Associate of the Institute of Cost
and Executive Accountants, London. He served
as the Country Head and CEO (Sri Lanka and
Maldives) of Citibank N.A. from 1999 to 2007.
He has varied experience in the fields of Banking
Operations, Audit, Relationship Management,
Corporate Finance, Corporate Banking and
Treasury Management with Citibank of which
8 years were as CEO.
Mr. Jayawardena was appointed as the Chairman
the Sri Lanka Banks’ Association (SLBA) in
2003/04. He has also served as the President of
the American Chamber of Commerce in Sri Lanka
and was appointed to the Financial Sector Reforms
Committee (FSRC) by the Prime Minister and is a
Land Exchange and Taprobane Fund Management
Ltd., focusing on primary markets.
Mr. Nanayakkara is a Director of Associated Battery
Manufacturers (Cey) Ltd and Browns Group of
Companies, a conglomerate with exposure in trade,
leisure and manufacturing.
With the exposure in the SME sector and going
further into the Micro sector, he is a Director of the
companies he spearheads - LOLC Micro Credit Ltd.
and Sundaya Lanka (Pvt) Ltd., and PRASAC, the
largest micro finance Company in Cambodia.
Focusing on sustainable forestry and plantations,
Mr. Nanayakkara is also the Deputy Chairman of
Touchwood Investments Ltd. He is a Director of
Maturata and Pussallawa Plantations and the Sugar
manufacturing Company - Gal Oya Plantations, which
is a Public - Private Partnership with the Government
of Sri Lanka.
LOLC I Annual Report 2008/09 | 23Board of Directors I
Mrs. K.U. Amarasinghe
Kalsha Amarasinghe holds an Honours Degree
in Economics. She serves on the Boards of all the
LOLC Group Companies, on the Boards of Ishara
Traders (Pvt) Ltd. and its Group Companies and
also on the Board of Touchwood Investments Ltd.
Mr. R.M. Nanayakkara
Rajah Nanayakkara is the founder and
Executive Chairman of Ishara Traders (Pvt) Ltd., a
business which pioneered the import and sale of
new and reconditioned motor vehicles. Thirty years
later, this organisation remains an industry leader.
He was also the founder Chairman of the Motor
Vehicle Importers’ Association of Sri Lanka and
continues to play a significant role.
Mr. Nanayakkara is also the Chairman of Ishara
Plantations - an award winning Estate of Tea
and Spices and Chairman of Ishara Property
Development, a company which has been involved
in construction for the past 18 years.
Member of the Finance Sector and Capital Markets
Cluster of the National Council of Economic
Development (NCED).
He joined LOLC in the year 2007 as Group Managing
Director and CEO. He is also on the Boards of Lanka
ORIX Factors Ltd., Lanka ORIX Insurance Brokers
Ltd., Lanka ORIX Finance Company Ltd., LOLC
Micro Credit Ltd., Lanka ORIX Information Technology
Ltd. and LOIB Financial Services Ltd. which are
subsidiaries of the LOLC Group.
Mr. Jayawardena is also a Director of Touchwood
Investments Ltd., Sundaya Lanka (Pvt) Ltd. and
People’s Merchant Bank.
A BIRD’S EYE VIEWNuwara Eliya -The cold mountains of ‘Little England’
Deshamanya M.D.D. Pieris
Deshamanya Dharmasiri Pieris is a Fellow of the
Chartered Management Institute, U.K. and has
been conferred the Degree of Doctor of Letters
(Honoris Causa) by the University of Colombo.
He is an illustrious retired Civil Servant, who in the
course of his distinguished career in the public
service has held several important posts, including
Secretary to the Prime Minister; Secretary, Ministry
of Public Administration, Provincial Councils and
Home Affairs; Secretary, Ministry of Agriculture,
Food and Co-operatives; Secretary, Ministry of
Education and Higher Education and Chairman
and Director General of Broadcasting.
He also serves as Director in Lanka ORIX Factors
Ltd., Lanka ORIX Insurance Brokers Ltd., Lanka ORIX
Mr. M.T.L. Fernando
Lal Fernando is a Fellow of the Institute of
Chartered Accountants, England & Wales and Sri
Lanka. He was the Precedent Partner of Ernst &
Young, Sri Lanka for over 30 years.
He has served on the Board of The Colombo Stock
Exchange and was a Member of the Council of the
Institute of Chartered Accountants of Sri Lanka, Past
Chairman - Taxation Committee and a Committee
Member of the Ceylon Chamber of Commerce.
Mr. R.A. Fernando
Ravi Fernando holds an MBA from the University
of Colombo and is a Fellow of the Chartered
Institute of Marketing (UK). He holds a Diploma in
International Management (1999) and completed
the Advanced Management Programme (2001) at
the INSEAD Business School in France. He is an
Alumni of the University of Cambridge University
Programme for Industry having done the Climate
Leadership Programme in 2007.
Ravi started his career at Unilever (Sri Lanka) as
a Management Trainee (Marketing) and left as
Senior Brand Manager (DT Foods) in 1987. He
commenced his International Career with Sterling
Winthrop as Regional Marketing Director, East
Africa moved to General Manager Gulf Region and
Regional Marketing Director, Middle East to Chief
Resident Representative/Operations Director of
Smithkline Beecham International, Vietnam during
the period of 1988 to 1999. Between 2000-02, he
was Managing Director/CEO of Reckitt Benckiser
(Lanka) Ltd., and is currently Director, Corporate
Branding & Strategic CSR at MAS Holdings Ltd.,
and on the Board of MAS Fabric Park. He is
the United Nations Global Compact Focal point
for Sri Lanka and on its Barcelona Centre and
Asian Faculty on ‘Progress and Values’. He is on
the Boards of LOLC, World Vision, Habitat for
Humanity, Environmental Foundation of Lanka
and the Duncan White Sports Foundation. He is a
Guest Lecturer on Strategic CSR at the Advanced
Management Programmes at INSEAD (France)
since 2005 and leads the course Advanced Brand
Management at the University of Colombo MBA
programme. He functions as Marketing Advisor to
the Hayleys Group affiliate Mabroc/Kelani Valley
Plantations. In September 2007, he won a ‘Global
Strategy Leadership Award’ at the World Strategy
Summit for his work on Ethical Branding for the Sri
Lankan Apparel and Tea Sectors.
PANORAMIC VISIONView of the hills from Nuwara Eliya -The diversity of terrain just three hours from the shores
BEAUTY IN DIVERSITYKudawella beach - Indigo sea against charcoal rocks, bordered by verdant shores
24 | Board of Directors | LOLC | Annual Report 2008/09
Board of Directors I
Mr. T.H.M. Wickramasinghe
Tushan Wickramasinghe has over 16 years of
extensive experience in a wide range of financial
services. He has over 11 years experience in the area
of education and is the Founder Chairman of Shakthi
Institute (Pvt) Ltd., a leader in the field of Education.
He currently serves as the Managing Director of
Lanka ORIX Securities (Pvt) Ltd.
Finance Company Ltd., Lanka ORIX Information
Technology Ltd., and LOIB Financial Services Ltd.
which are subsidiaries of the LOLC Group.
Mr. Hideo Ichida
Hideo Ichida joined ORIX Corporation in 1982. Since
then, he has served in ORIX Group of Companies in
Japan and the United States of America. This year, he
was appointed Executive Vice-President of the ORIX
Corporation.
Mr. Makoto Inoue
Makoto Inoue joined ORIX Corporation in1975. Since
then, he has served in ORIX Group of Companies in
Japan. He has now been appointed the Corporate
Senior Vice-President of Global Business and
Alternative Investment Headquarters.
Miss C. S. Emmanuel
Chrishanthi Emmanuel is a Fellow of the Institute of
Chartered Secretaries and Administrators - UK. She
is the Company Secretary of all companies within the
LOLC Group, including Touchwood Investments Ltd.
and Sundaya Lanka (Pvt) Ltd. She is also Secretary of
the Leasing Association of Sri Lanka.
A GOOD BEGINNINGMorning, Dickwella beach - A fisherman pulling ashore
his boat after a long night at sea
LOLC I Annual Report 2008/09 | 25
26 | LOLC | Annual Report 2008/09
CorporateManagementTeam
Brindley de Zylva Managing Director/Chief Executive Officer Lanka ORIX Finance Co. Ltd.
Joined LOLC in 2003. Counts over 25 years of
experience in both Registered Finance Companies
and Finance Leasing Establishments. Member of
the Council of Management of the Finance Houses
Association since 2005.
Conrad DiasManaging Director/Chief Executive Officer Lanka ORIX Information Technology Ltd.
Chief Information Officer - LOLC Group
Joined the LOLC Group in 2006. Counts over
18 years of experience in both Finance and
IT Management in Trading, Banking & Finance and
Manufacturing sectors.
Gunendra JayasenaGeneral Manager - LOLC Ventures
Joined LOLC in 2007. Counts over 16 years
of experience in Manufacturing, Human
Resource Management, General Trading
& Plantation Management.
AN EARLY STARTSeaside dawn at Tangalle beach - Fishermen drawing in a net cast in the shallow waters of the bay
LOLC I Annual Report 2008/09 | 27Corporate Management Team I
Jayantha Kelegama Chief Credit Officer
Joined LOLC in 2005. Has over 15 years experience in Leasing & Asset Financing, Credit Risk Management and commercial Banking. Director of the Leasing Association of Sri Lanka.
Anura L. DharmapremaCorporate Executive Officer - Recoveries
Joined LOLC in 1998. He has over 20 years of experience in recoveries in the Financial Services Industry. Was previously Senior Collections Manager of a leading Finance Company.
Kithsiri GunawardeneChief Operating Officer & Chief Legal Officer
Joined LOLC in 2004. Counts over 19 years of experience with the State as well as the Private Bar.
Sanjiv KeerthiratneChief Executive Officer Lanka ORIX Insurance Brokers Ltd.
Joined LOLC in 1999 and played a key role
in setting up Lanka ORIX Insurance Brokers
Ltd. Counts over 21 years of experience in the
Insurance Industry. Council Member of the Sri
Lanka Insurance Brokers Association and the Sri
Lanka Insurance Institute.
Sunjeevani KotakadeniyaChief Financial Officer - LOLC Group
Joined in 2005. Counts over 21 years of experience
in Financial Management in Insurance, Asset
Management and Financial Services. Many years
of experience in Strategic and Business Planning,
Treasury Management, Project Management, IT,
Administration and ERP Solutions Implementation.
Held a number of important positions in the State including the Office of State Counsel attached to the Attorney General’s Department, the Office of Director, Legal of the Securities and Exchange Commission and the Insurance Board of Sri Lanka and was involved in setting up the Consumer
Affairs Authority as its first Director General.
OCEAN OF OPPORTUNITYTangalle Beach - Southern dawn brings a bountiful harvest
GLOWING FINALEPolhena beach - A sunset of calm warmth
Jacqueline LordChief HR Officer - LOLC Group
Joined in 2006. Counts over 18 years of
experience in Human Resource Management and
Development, including HR Strategy, Restructuring
Automation of HR Processes, etc. Gained exposure
in Intrastructure Management Encompassing
Building and Office Services.
Rohan PereraGroup Treasurer
Joined LOLC in 2007. Counts over 21 years
of experience in Treasury Management, Banking
& Corporate sector, including Strategic Risk
Management & Cash Management. Pioneer in
introducing the concept of Corporate Treasury in
Sri Lanka. President of the Association of Corporate
Treasurers in Sri Lanka and involved in setting up of
the Association as its first President.
Ravi TisseraDirector/Chief Executive OfficerLOLC Micro Credit Ltd.
Joined LOLC in 1993 and has experience in Branch Management, Strategic Partnerships,Commercial Banking and Credit Policy Formulation. Conceptualised and introduced Micro Finance to LOLC in 2003. Member of the Steering Committee on Promotion of the Micro Finance Sector PROMIS.
Sharmini WickremasekeraChief Risk Officer
Counts 25 years of experience covering Finance, Accounting, Credit, Auditing, Risk Management and Business Process Re-engineering. Introduced the concept of Enterprise Risk Management (ERM), Insurance Broking and IT Auditing to LOLC. President of the ISACA (USA) - Sri Lanka Chapter, and she is the first female to head a professional IT Association in Sri Lanka. She also sits on the Boards of SLCERT and Infotel and was appointed to the SPTAC on ICT Industry Sector by the TVE Commission.
HIGH WIREThe tappers, Galle - Traditional craft of tapping the coconut palm for its sap which has a multitude of uses
REJUVENATINGKukule Ganga Falls - One of many spectacular water falls in the wet zone of the country
28 | Corporate Management Team | LOLC | Annual Report 2008/09
Nimal MendisChief Executive OfficerLanka ORIX Project Development Ltd.
DirectorAgrisel Holdings Ltd.
Joined LOLC in 2005. Possess 39 years experience in General Management, Engineering, Project - Contracts - Construction & Maintenance Management. 23 years at overseas locations and balance in Sri Lanka. A professional Civil, Building & Building Services Engineer.
Krishan ThilakaratneChief Executive Officer Auto Finance
Deputy Chief Executive Officer Commercial Leasing Company PLC
Joined LOLC in 1995. He counts over 17 years experience in Banking, Credit, Leasing andBranch Management. Conceptualised and introduced Islamic Finance to LOLC.
Tushan WickramasingheManaging Director Lanka ORIX Securities (Pvt) Ltd.
Joined the LOLC Group in 2002. Chairman of Shakthi Institute (Pvt) Ltd. and Director ofseveral other companies. Counts 18 years of experience in Financial Services. Accounts for many strategic transactions in the Colombo Stock Exchange.
Dr. H.S.D. SoysaGeneral Manager/CEOCommercial Leasing Company PLC
He joined the Commercial Leasing Company PLC in 2002. Counts over 25 years experience in the financial sector. He is a committee member of Ceylon Chamber of Commerce and is the former Chairman of the Leasing Association of Sri Lanka.
Corporate Management Team I
A BRILLIANT DISPLAYPainted Stork - Of the 5 species of storks in the country, these photographed
at Bundala National Park is the most colourful
LOLC I Annual Report 2008/09 | 29
30 | LOLC | Annual Report 2008/09
OperationalManagementTeam
Sujeewa Vidanapathirana
AGM - Insurance
Jithendra Gunatilake
DGM - Finance Operations
Soloman Jesudason
Head of Marketing Operations
Graham Lawrence
CEO Working CapitalHead of Metropolitan Branch Network
Gayani de Silva
Head of Corporate MARCOM & CRM
Mehra Mendis
AGM - Fleet Management
LIGHT AT THE END ...Kadugannawa Railway Tunnel - One can only imagine the courage and hard work that resulted in the completion of this railway tunnel, built more than a century ago
NOURISHING SURROUNDINGSYoung elephant, Udawalawe - The lush vegetation provides ample nutrition for the young and growing!
LOLC I Annual Report 2008/09 | 31
Chrishanthi Emmanuel
Company Secretary
Operational Management Team I
Chandana Jayanath
AGM - Recoveries
Dilum Mahawatte
DGM - Finance Corporate
Ashan Nissanka
Head of Regional Branch Network
Rohana Kumara
AGM - Micro Finance
VERSATILITYFarm land, Knuckles range - The ground preparation is referred to as ‘Hel Malu’ in Sinhala,
meaning steps along the slope, the only way to take full advantage of the fertile soil
32 | LOLC | Annual Report 2008/09
The Contours of sustainability
Two words in our theme this year have
special significance - Resurgence and
Rebuilding.
At its inception, LOLC was instrumental
in giving effect to resurgence in Sri Lanka
through the introduction of leasing, which
provided economic support and placed
financial solutions in the hands of a needy
sector of our population who had no
access to formal financing options from the
conventional financial sources of the day.
The resultant resurgence of viable and
sustainable enterprise from such financially
impoverished sectors led to a rebuilding of
livelihoods and put them on the road to a
better future. These customers have graduated
to the SME sector and many businesses have
evolved to the corporate level.
BusinessImpactReport
With our strategy aimed at revolutionising the
microfinance sector through an innovative
and comprehensive offering of products,
services and know-how, we will strive to
drive the resurgence and rebuilding of our
country’s economy.
The creation of Business Units consequent
to the restructure of the business model
of the LOLC Group has resulted in the
development of products and services to
cater to the financial needs of our customers.
Some Highlights of the Year
A new Company, LOLC Micro Credit Limited
(LOMC) was incorporated during the year
under review, with a 20% foreign investment
from one of our long-standing funding
partners, FMO, a reputed AAA rated (by
Standard & Poor’s Rating) development
financial institution in Europe. The unique
aspect of the new Company is that, it is the
first microfinancing establishment to be set
up with foreign investment in Sri Lanka.
One of the biggest transactions to take
place through the Colombo Stock Exchange,
LOLC acquired Commercial Leasing
Company PLC (CLC), one of the largest and
successful leasing companies in Sri Lanka.
During the year, the Company acquired over
98% of CLC. The investment made in CLC
has brought significant benefits to the Group
not only in terms of leadership in the leasing
industry, but also, through the integration
of the distribution channels, increasing the
customer base and room for future synergies
in middle and back office operations.
Lanka ORIX Factors Ltd., was merged
with the Parent Company creating new
opportunities and scope for the working
capital business.
With our strategy aimed at revolutionising the microfinance sector through an innovative and comprehensive offering of products, services and know-how, we will strive to drive the resurgence and rebuilding of our country’s economy
LOLC I Annual Report 2008/09 | 33
Performance Highlights of Business Units
Auto
The Auto Business Unit is the single largest
Business Unit within the Group offering a
varied portfolio of more than twenty products
and service options rooted in auto financing
and other instruments that use motor vehicles
and equipment as collateral.
This Business Unit remains as the biggest
income generator for the Group and the key
contributor to LOLC’s bottom line during the
year under review. The portfolio of the Group
saw a drastic increase due to the acquisition
of CLC, which essentially revolves around
auto finance business.
Due to the negative economic sentiments
in the market, the rate of growth was
consciously curtailed in this sector. The
finance lease industry remained stagnant
due to the fiscal policies prevalent. This
was a time for consolidation and acquiring
a debt conscious customer base. Auto BU
has been able to cater to the demands of the
customer with innovative financial solutions
and continued to lead the industry.
To manage the negative impacts from the
economic crisis, strict credit evaluation
policies were introduced and the focus was
shifted from executions to collections and
much effort was put in for active recoveries
which enabled the Company to manage the
NPLs within acceptable levels.
During the year, we strived to achieve a
balance between business growth and
quality of portfolio. We also capitalised on
the branch and broker distribution network of
CLC to offer customer solutions considering
their needs of the day. Many initiatives were
taken to streamline operations and improve
customer services and one such initiative
was the introduction of the Internal Valuation
Unit. Customers are now able to benefit
from this service and the Company is able
to assess the true value of the assets that
are taken as collateral. LOLC is a registered
valuer with the Leasing Association of Sri
Lanka. We are the only Valuer-cum-Leasing
Company in the Association. The Valuation
Unit is expanding its reach to cover key
regions in the country.
In terms of new product offers, we extended
a special loan scheme targeting holders
of Government permits to import motor
vehicles. The new product solutions offered
to the customers of the Islamic Finance
Business Unit saw significant growth
considering that this business commenced
only recently.
Strategic business promotion campaigns
carried out with our business partners,
DIMO, Toyota Lanka and Micro Cars Ltd.
Business Impact Report I
NEW DISCOVERIESBlue Whale - The adult whale, is the largest mammal to
have ever lived on earth, photographed off Mirissa in the South, a surprising find in Sri Lanka
in packaged offers drew customer interest in
the total solutions we provide.
Development Finance
LOLC has been actively seeking business
opportunities that help develop various
sectors of the economy and the Development
Finance Unit of LOLC has been engaged in
this business since the late 90’s formed with
the participation in the SMAP loan scheme
funded by JBJ Nippon Fund. Since then, the
Company has participated in several such
credit lines and is the largest financier of
refinance loan schemes among the non-
banking financial institutions.
The development finance portfolio under
LOLC is as follows:
Tea Development Project - LOLC was
the first non-banking financial institution
to be recognised as a PFI (Participating
Financial Institution) under this project
funded by ADB, which is aimed at
supporting the tea smallholder sector.
The Company so far has funded over 60
projects.
Plantation Development Project – LOLC
is also a PFI for the ADB funding
scheme for long-term sustainability and
development of the plantations sector
and improving the living and working
conditions of the estate workforce.
Second Perennial Crop Development
Project (SPCDP) – LOLC is a PFI for the
disbursement of the revolving fund set
up for the support and development of
the perennial crops sector.
Environmentally Friendly Solutions
Fund Project II (E-Friends II) - A special
fund set up to support environmental
protection projects. LOLC is a PFI for
this funding line and provides facilities
to enterprises that engage in pollution
control and waste management in
industries, resource saving initiatives,
recycling of waste and energy saving
projects. LOLC has disbursed funds
for projects involved in waste water
treatment plants and converting
industries from fossil fuel to biomass
energy saving projects.
EIB Post-Tsunami Credit Line - LOLC
is a PFI for the disbursement of funding
made available by the European
Investment Bank at the request of the
Government of Sri Lanka for tsunami -
affected small-to medium-sized industries.
Construction Sector Development
Project (CSDP) - LOLC is also a PFI
for the fund set up by AFD (French
Development Agency) which facilitates
financial and technical capacity building
of local private businesses in post-
tsunami reconstruction.
Micro
LOLC Micro Credit Ltd. (LOMC) is the new
Company set up for our microfinancing activity.
Our business consists mainly of extending
loans to individuals and communities
of less affluent circumstances who are
predominantly located in rural areas of the
country. Our focus is mainly on assisting
those engaged in agriculture, skill-enabled
small businesses, dairy and other small
business activities who have little or no
access to mainstream financial services.
Our foray into microfinancing began many
years ago, through projects that provided
rural communities with solar power, where
access to electricity from the national grid
was unavailable.
CONSERVING FOR TOMMORROWThe Thalangama tank - A tank in protected wetlands in the suburbs of Colombo
THE SILVER LININGBlue Mist - This is an endemic species found commonly in the dry zone. These flowers blooming together add striking colours to the otherwise dry forest
34 | Business Impact Report | LOLC | Annual Report 2008/09
Today, LOLC provides financial instruments
that help rural communities to start
enterprises through access to agricultural
machinery and equipment such as two-
wheel and four-wheel tractors, water pumps,
motor vehicles such as three-wheelers and
motor bikes. Solar home systems as well as
group loans offered to women’s groups are
becoming very popular.
During the year under review, our three-
wheeler business saw a growth of 26%
over the last year and we have granted
skill-enabled facilities and agriculture-
related facilities which are distributed in
the rural areas through a dedicated Micro
Finance sales team. With the strengthened
distribution channels and dedicated efforts,
collections are maintained at competitive
levels despite the negative economic climate
that prevailed during the year.
We are committed to uplift and provide
access to credit to the Micro sector. Having
identified reach as a key element of its
strategy, the Company leveraged on the
strategic alliances entered into with the
Lanka Indian Oil Company (LIOC) which
has over 150 fuel stations island-wide and
opened 14 service centres during the year.
In another strategic move we partnered
Sri Lanka Post (SLP), which has 641 Post
Offices and over 3,000 Sub-Post Offices
Island-wide. During the year, 10 Post Office
centres were opened.
The BU also continues to benefit from the
tie-up with Sundaya Lanka Ltd., a solar
component assembly and marketing facility.
The BU leads the market in Solar Financing,
to uplift the living conditions of the rural
poor and facilitates this through the
RERED fund (Refinancing loan scheme
of the World Bank).
The Micro Business Unit exceeded budgeted
growth by 13.2%, which is commendable
given the turbulent business environment
that prevailed during the year. The Company
hopes to continue to grow with the additional
strength of the new alliance formed with FMO
and other multinational funding partners who
have pledged their support and commitment
to provide Micro Finance opportunities
to a much needy sector in the Sri Lankan
economy. Each of these funding agencies
have different developmental goals and LOMC
is becoming the conduit in achieving these
goals for them. Several initiatives have already
taken shape benefiting the rural sector.
the BU established 20 rural internet
centres under the aegis of the Last
Mile Initiative of USAID. GTZ provides
technical assistance to scale up micro
loans for Self-Help Groups and to extend
microfinancing to post-conflict areas in
Sri Lanka including the North and the
East. They also provide assistance in
staff training and help LOMC staff to get
exposure in overseas environments for
better service for its clients.
Business Impact Report I
SPIRITEDLong-snouted Spinner Dolphin - Large pods of these playful
mammals, sometimes comprising of thousands of animals can be seen off the sea in Kalpitiya
LOLC I Annual Report 2008/09 | 35
Through our involvement in the South
Asia Micro Finance Network, ACTED
provides technical assistance to the
BU to help improve the standards and
technical soundness of the staff.
Success was driven through a mix of
innovative products and services tailored
for the sector, the strong performance of
the country’s agricultural sector, the strong
and visible presence of the Company on
the ground where it matters, well trained and
knowledgeable staff coupled with
stringent monitoring and supervision
of processes.
For the future, in a macro sense, we see the
fast returning normalcy to the Eastern and
Northern Provinces of the country as areas
of huge potential, where the core purposes
and benefits of microfinancing will need to
be deployed to the fullest, as we stimulate
resurgence and rebuilding of the livelihoods of
individuals and communities in those regions.
We will continue to increase the range of
products and services. One such product
is the Bio-Digester, which converts cattle
dung to eco-friendly, clean fuel. The slurry
that is left from this process makes excellent
compost, which the farmer can employ in
his cultivation, completing the cycle. The
product cycle will begin in reality, with the
Company facilitating the farmer to purchase
the cow - then help him produce and market
the dairy products. The cycle is completed
with the Bio-Digester.
We have already commissioned a feasibility
study in Sri Lanka with the assistance of the
University of Colombo and a consultant from
Holland and hope to begin pilot projects shortly.
Outreach, sustainability of operations, and
achieving greater operational efficiencies
that will benchmark the BU as the best in
South Asia are a few of the future objectives
of the BU.
Savings
Lanka ORIX Finance Company Ltd. (LOFIN)
is Sri Lanka’s only finance company with
a direct association with a reputed global
financial entity.
LOFIN is registered and licensed with
the Monetary Board of the Central Bank
of Sri Lanka (CBSL) and in a significant
development during the year under review,
the CBSL has extended this licence, allowing
LOFIN to engage in foreign currency
business, the only finance company to
receive such approval.
Thus in July 2008, LOFIN commenced
deposit mobilisation of foreign currencies.
Almost 85% of the foreign currency deposits
are remittances from overseas.
In the financial year 2008/09, the Company’s
deposit base exceeded Rs. 5 Bn, a growth
of 55% compared with the last year and
OPPORTUNITYMannar - With the arrival of peace, the true potential of the wide open spaces of the North and East can now be realised
36 | Business Impact Report | LOLC | Annual Report 2008/09
LOLC I Annual Report 2008/09 | 37
almost a 50% growth in market share. This
is considered remarkable given the negative
market sentiments that prevailed during the
2nd half of the year due to the collapse of
several registered and unregistered financial
institutions in the country.
In terms of products, LOFIN launched an
ATM operation for all its SLR account holders,
in collaboration with Commercial Bank. Our
first LOLC branded ATM was commissioned
at our Head Office at Rajagiriya. Now, all
savings account holders can access their
account from over 300 ATMs island-wide.
LOFIN continues to offer a wide range of
products - from savings schemes for minors,
through corporate entities to senior citizens.
We also offer tailored savings instruments to
the rural community.
During the year, LOFIN offered an
unconventional deposit product, ‘unfixed
deposits’ with greater flexibility to the investor
considering the current market conditions.
This is the first time a Finance Company has
offered such a product in the country.
We widened reach through the opening of
two new branches at Horana and Wellawatte
and nine new Savings Centres located within
LIOC fuel stations around the country.
LOFIN was also honoured this year when
Fitch upgraded its rating from BBB+(lka)
to A-(lka), thus reinforcing the strength and
stability of the Company. This is another
milestone which depicts the success of the
finance company given the current market
trend on downgrading ratings in the banking
and finance industry.
Islamic Finance Business Unit
We are honoured to report the formation of
the Islamic Finance Business Unit which
functions under LOFIN.
The concept of Islamic Finance is firmly
based on Shar’iah Law and an in-house
Shar’iah Supervisory Board oversees the
functioning of the Unit. This Unit operates
under the guidance of the All Ceylon
Jamiyyathul Ulama (ACJU), the official
proponent of the Shar’iah Law Supervisory
in Sri Lanka.
Products offered include Mudharabah
(Profit Sharing Investments), Ijarah (Leasing),
Murabaha (Trade Finance) and Diminishing
Musharakah (Property Development Finance).
During the year under review, the portfolio
of the unit grew from Rs. 50 Mn to Rs. 450
Mn. It also paid the highest quantum of
profit share to its investors, of all the Islamic
Finance Institutions in the country.
The IBU identifying the need of the
community for these products, is expecting
to broadbase its operations to the regions
with the wealth of knowledge and expertise
gained in the field during the past year.
LOFIN is the only entity to have received
approval and is registered with the Central
Bank to conduct Islamic Finance Business.
Insurance
Lanka ORIX Insurance Brokers Ltd. (LOIB)
chalked up several milestones this year.
The Company completed 10 years of
enterprise in the field of Insurance Brokering.
During the year under review, LOIB surpassed
the Rs. 1 Bn mark by achieving a total Gross
Written Premium of Rs. 1.26 Bn, a growth of
38% over the last year. This can be regarded
as a singular achievement in the face of the
inhospitable financial climate within which the
Company operated.
Business Impact Report I
APPRECIATING MICROBrazil Clover - Even though only a little larger than a pin head,
there is great beauty hidden in these flowers, which can be enjoyed by only those who would take the time to look
FINDING MIRACLESKap ruka, Thundola - Rice is the staple food of Sri Lankans. Coconut too plays an integral role, and the palm is referred
to as the ‘miracle tree’ since all parts of it is used by the peoples of this land
The Company carried out new business
promotions and capitalised on Group
synergies by offering a wide range of
products to the customers, especially to
leasing and factoring customers.
The Company operates through all branches
of LOLC and has expanded the reach with
the establishment of LIOC branches and
offers its services through the post offices
having LOLC centres. These strategies
enable the Company to broadbase its
customer segments with access to the SME
and now the Micro sector. The growth in the
corporate sector too paid dividends during
the year recording a threefold increase.
The innovative ‘Guardian’ product range
caters to the SME and Micro sectors and the
personal Guardian product was the latest
addition to the range.
Fleet Management
Over the past few years, the Fleet
Management unit of LOLC has become
popular with large corporates and even
with the state sector as the choice for
total solutions in fleet management. The
popularity of the products and services
offered by this unit is an indicator of the
potential that lies within this field of asset
management business.
Fleet management solutions lie beyond
the leasing of individual vehicles to single
parties with LOLC offering a complete
transport solution to large corporates/
institutions. We take care of their transport
solutions by freeing the customers from
the infrastructural ‘headaches’ of running
a vehicle pool of their own. The short-term
hire market essentially targets the individual
customer who needs a vehicle for short-term
hires. The demand for short-term hires have
shown an increase due to the high cost of
owning and maintaining vehicles.
This year, the Company strove to consolidate
its position in fleet management services whilst
investing in infrastructure needed to pursue
opportunities in the short-term hire market.
We also introduced many enhancements
to products and services offered. The
introduction of the ‘Royalty’ privilege card
rewards loyal customers with value added
services such as breakdown assistance,
rent-a-car facilities and discounts on
selected items for vehicles.
With the expansion of the fleet of vehicles
managed by this Business Unit, the
Company identified the immediate
requirement to have its own workshop which
will bring immense service-related benefits
to the customers as well as cost effective
maintenance for the Company. The state-
of-the-art workshop is being constructed
in Gothatuwa with significant additional
capacity to accept outside business
as well. The workshop is expected to
generate future revenues for the Group, once
commissioned.
Working Capital
Through the solutions it offers, the Working
Capital Business Unit of LOLC enables SME
sector entrepreneurs to generate steady cash
inflows required for their ongoing cashflow
needs, growth and expansion.
The year in review brought with it a
restructuring of the unit, which saw
Lanka ORIX Factors (LOFAC), a Group
Company since its incorporation in 1992,
fully amalgamating with LOLC in February
2009. The working capital business of CLC
operates independently and is popularly
MAMMOTH POTENTIALAsian Elephant - This lone bull elephant, one of the 91 species of wild mammals found in the country caused a ‘road block’ at Udawalawe National Park.
HERALDING PROPERITYDrummers, Lankathilaka Viharaya, Kandy - The ‘Kohomba Kankariya’ performed here, is a ritual to ensure freedom from diseases and invoke blessings
38 | Business Impact Report | LOLC | Annual Report 2008/09
LOLC I Annual Report 2008/09 | 39
known as ‘ComFactors’. This strengthens
the leadership position LOLC has in the
factoring market.
With these two independent operations
the Working Capital Business Units target
different market segments and also reach
customers using independent distribution
channels, thus, creating an effective
diversification in the distribution strategy with
a wide ranging customer base.
The amalgamation of LOFAC with LOLC was
a strategic move to strengthen the Business
Unit with much needed additional capacity to
grow. Now the business expansion strategies
will focus on regional expansion using the
branch network.
We persisted with new market penetration
strategies, introducing factoring products
and solutions to suburban and rural sectors,
where research indicates that significant
potential exits.
Despite intense competition, the Business
Unit continued to achieve operational
efficiencies through internal reorganisation of
functions and cost management measures.
However, high costs of borrowing and
adverse impacts experienced in the finance
industry pushed lending rates up and also
reduced demand for working capital facilities.
The Business Unit will in the short-to
medium-term, concentrate on leveraging on
the leadership position within the industry.
We are confident that economic conditions
and interest rates will both improve during
the forthcoming financial year.
Returning peace to the country also
promises new market opportunities which
will greatly benefit the industry.
Stockbroking
The latter half of 2008 was an extremely
challenging period for the stockbroking
industry. Many international institutional
investors took flight from emerging markets
such as Sri Lanka, which in turn depressed
activity levels.
During 2008, the price indices, the ASPI
and MPI, decreased by 41% and 50%
respectively. Market capitalisation decreased
by 40% to close at Rs. 489 Bn. The total
turnover at the Colombo Stock Exchange
was Rs. 110 Mn.
The gloom lifted somewhat in early 2009,
emboldened by military victory in the
conflict areas.
Lanka ORIX Securities (LOSEC) maintained
steady momentum in this mercurial
environment, serving the client base
with undiminished vigour and maintaining
the outreach intact, at a time when many
others in the industry were cutting back
on resources.
Performance Highlights of Other Subsidiaries
Information Technology
The financial year 2008/09 presented an
unprecedented challenge for LOLC Group IT
as well as new entity, Lanka ORIX Information
Technology Ltd. (LOIT), the latter just stepping
into business, where turbulence in the
A PILGRIMAGE OF REMEMBARANCEA buddhist monk climbing up the Kirinda rock - Kirinda has a
special significance in the history of Sri Lanka as the place where the ship carrying benevalant queen
Vihara Maha Devi came ashore
Business Impact Report I
local arena was exacerbated by the global
economic crisis.
Though the market for direct business looked
bleak, a decision was made to remain
proactive and the Company went ahead
with strategic investments, which reaped
good results for the Group during the year
under review, with LOIT supporting many IT
initiatives undertaken by the Group.
The Company strengthened the Information
Security domain by investing in a data centre
grade firewall solution. Network connectivity
to the Head Office was strengthened by
investing in a dark fibre metro ethernet
solution, which is efficient and cost effective.
Following the principles of ‘Green IT’
practices an investment was made in
a server virtualisation environment that
will enable LOIT team to reduce server
administration load, cut costs and boost
efficiency by moving from physical servers to
virtual servers.
To support the all round growth of the Group,
investments were made in bandwidth
optimisation hardware and software solutions
that enables the Group and its branches
to increase the speed and efficiency of
customer service.
LOIT also designed and implemented a new
application for the new Micro Credit Company.
The all new Group website was launched
and in its second phase of development,
online access will be incorporated for clients
as an added feature.
LOIT in its short journey was able to achieve
the Gold Certified Partner Level from
Microsoft Corporation, USA, the highest
level of partnership that an IT company can
achieve with Microsoft.
Project Development
Lanka ORIX Project Development
Company Ltd. (LOPD) was constituted
to pursue two objectives - to partner with
reputed, experienced foreign organisations
and to participate in infrastructure and
related projects in Sri Lanka and other
regional countries.
During the year under review, LOPD
prepares to commence a project in offshore
sand mining to supply to the construction
and other related industries.
The project will be a collaboration with
Dredging International N.V. of Belgium
with financial assistance from the
Government of Belgium.
Another project involves Precipitated Silica
manufacture from rice husk ash, for which
a project company, Agrisil Holdings Limited
was incorporated this year. This Company
is a partnership between LOPD and Agritec
Incorporated - USA. BOI approval has been
obtained for the project and arrangements are
under way for implementing our first plant in
Thailand with Thai partners, ING Fund.
PURITYStream, Knucles range - A pristine stream of unpolluted water flowing through the rainforests
40 | Business Impact Report | LOLC | Annual Report 2008/09
LOLC I Annual Report 2008/09 | 41
Global Alliances and Funding Partners
Over its twenty-eight years, LOLC has
evolved as a total financial solutions provider
and is recognised today as a significant
player in the industry. The Company’s
long-term vision of sustainable growth and
development of the SME and Micro sectors
is a vision that is aligned very clearly with
the goals of many multilateral and bilateral
agencies. LOLC would not have been able to
realise its dreams and successes if not for the
backing of these funding institutions which,
having understood the vision of the Company,
have supported us with long-term funding
solutions at attractive terms and conditions.
In 1994, LOLC for the first time secured
a long term funding line from FMO - the
Development Finance Company of the
Netherlands, marking the beginning of
its success at securing many more such
funding lines for SME and microfinancing
activities. Today, LOLC is one of a handful
of Sri Lankan private sector entities that
partners many of these funding institutions
around the world in providing long-term
funding. The full list of LOLC’s partner
funding institutions is given below.
LOLC’s vision for sustainable development,
its drive to develop the SME and the Micro
sectors and its superior performance have
convinced many funding institutions to
consider LOLC, as their preferred local
partner to fulfil their developmental goals,
that cover attractive long-term funding and on
capacity building and technical assistance.
In addition to providing funding for lending
to the customer, these agencies have driven
LOLC to reach the highest standards of
ethics, transparency and accountability;
they ensure that LOLC follows internationally
accepted guidelines such as Anti-Money
Laundering (AML) policies, Know Your
Client (KYC) policies, and environmental
protection procedures and also ensures
that the Company manages risks involved
in its business effectively. They have been
instrumental in providing expertise and
know-how for the implementation of the
environmental and AML policies at LOLC
which have enabled us to enhance our
knowledge and in turn, support our clients
better. The agencies’ expertise has been
transferred to LOLC, with support to train
our staff, knowledge transfer and even IT
systems support for the development of risk
management tools.
While the foreign bilateral and multilateral
agencies support the business with attractive
funding options, the local commercial banks
too play an equal important role in having
confidence in LOLC and extending support
with further funding lines for business
expansion, over the years.
These long-term mutually beneficial
partnerships between LOLC and our funding
institutions not only provide long-term
funding solutions to us, but also provide
LOLC with a total solution that helps us
ingrain best practices into our operations.
ALERT AND RESPONSIVESpotted Deer - In Yala National Park the
difference between life and death for these deer can be their vigilance
MELODY OF NATURESpot-winged Thrush - At Sinharaja forest, this is one of the main contributors to the sweet dawn course of bird calls. It is one of the 33 endemic
birds found in the country
Business Impact Report I
Institution Type of Facility Purpose of Funding Value Addition
Organisation of the Petroleum Exporting Countries Fund for International Development(OPEC)
Long-term US$ Loan
SME sector financing and development
The Netherlands DevelopmentFinance Company (FMO) - Netherland
Long-term Rupee Loan/Equity Tier I & II and debt capital for the micro finance company
SME and Micro Finance sector financing and development
Environmental policy; Anti Money Laundering policy
French DevelopmentAgency Group (PROPARCO) - France
Long-term US$ loan Tsunami-affected SME sector financing
Environmental policy; Anti Money Laundering policy
DeutscheInvestitions-und Entwicklungs-gesellschaft mbH (DEG) - Germany
Long-term US$ loan SME sector financing and development
Environmental policy; Anti Money Laundering Policy, Liquidity Risk Managementtechnology
Belgium Investment Organisation (BIO) - Belgium
Long-term US$ loan SME sector financing and development
Environmental policy; Anti Money Laundering policy
Overseas Private InvestmentCorporation (OPIC)
Risk sharing facility with Citi Bank, Colombo
SME sector financing and development
Environmental policy; Anti Money Laundering policy
United States Agency for International Development(USAID) - USA
Portable guarantee scheme
Micro Finance Sector development in Eastern and Uva province
Environmental policy; Anti Money Laundering policy
Finish Development Finance Company (FINNFUND) - Finland
Long-term US$ loan SME sector financing and development
Environmental policy; Anti Money Laundering policy
European Investment Bank (EIB)
Long-term Rupee/Euro refinancing scheme
Tsunami-affected SME sector development and support in tourism sector
Environmental policy; Anti Money Laundering policy
World Bank Long-term refinancing Rupee loan
Refinancing of rural sector renewable energy development
Environmental policy; Anti Money Laundering policy
Global Funding Partners
WELCOMING DIVERSITYIndian Pea-fowl - Commonly seen at Yala National Park, one of the most popular game reserves in the country
42 | Business Impact Report | LOLC | Annual Report 2008/09
LOLC I Annual Report 2008/09 | 43
Institution Type of Facility Purpose of Funding Value Addition
Japan Bank for International Corporation (JBIC) - Japan
Long-term Rupee loan/ Refinancing scheme
Environmental Protection/ Mitigate & eliminate industrial pollution and waste / Energy saving, Recycling & resource recovery in industries
Environmental policy; Anti Money Laundering policy
Asian Development Bank (ADB)
Long-term Rupee loan/ refinancing scheme
SME sector financing and development / Tea smallholders income improvement and development. Development of the plantation sector in enhancing profitability. Improve the living and working conditions of the workforce
Environmental policy; Anti Money Laundering policy
DeutscheGesellschaftfür Technische Zusammenarbeit(GTZ) - Germany
Technical assistance for Micro Finance
Development of Micro finance sectors
Promotion of Micro Finance Sector
Export DevelopmentCorporation (EDC) - Canada
Long-term US$ loan SME Sector financing & development with Canadian Imports
Nippon Export and InvestmentInsurance (NEXI) - Japan
Long-term US$ loan Citi Bank and ING Bank Tokyo being the lenders and Nexi as the guarantor
ING Bank - Japan
Citi - Japan
Triple Jump - Netherlands
Long-term EURO loan
Micro finance sector development
Triodos Bank - Netherlands
Long-term US$ loan Micro finance sector development
Sybiotics -Switzerland
Long-term US$ loan Micro finance sector development proposal
PERSEVERANCE AND SUCCESSCarpenter Bee on Vogel’s Tepharosia - This industrious insect
photographed at Haldummulla, visits hundreds of flowers to find enough nectar to sustain it
Business Impact Report I
LOLC I Annual Report 2008/09 | 45Business Synergies I
DIVING INMuthurajawela, Negambo - Two birds diving in
for delicious lake fish
TAKING FLIGHTA Purple Heron – Mirroring the air craft at the international
airport minutes away from this site
46 | LOLC | Annual Report 2008/09
A Closely-Woven Fabric of Responsible Development and Upliftment
From the inception LOLC has been ‘in the
ground’ of sustainability. From the moment
we pioneered leasing, we were placing a
unique portfolio of products, services and
solutions at the service of a sector of the
population who had no such support from
traditional financial sources.
Today, LOLC’s business model finds us
drilling downwards, as we increasingly
enhance our services to the grass root level
of the society, micro credit. Almost 80%
of our business targets the micro credit
sector. In the simplest of terms, our aim is to
progress and develop the recipients of micro
credit to advance to the status of an SME
and even beyond, to the Corporate.
We believe that, unlike many other
enterprises, LOLC is uniquely placed in
direct contact with the ‘sustainability tripod’
of economic, social and environmental
factors where they are most apparent and
have the most impact. Our business scope
spans to all segments of the society.
Our business begins often in the rural
heartlands of the country, with start up
enterprises, with farmers, with people who
have a small dream and no money to make
it come true. We go to them. We take in the
location, the project, the environment, the
economic implications, the social aspects…
this is as ‘hands on’ as you can get.
As our own business evolved in service
to this sector, we structured products,
services and a business model that placed
uncompromising responsibility towards
safeguarding the sustainabiity tripod.
We have developed a visual interpretation of
the ‘value chain’ that exemplifies the manner
in which we progress our business and the
development of the recipients of our products
and services, through which the latter uplift
their economic and social well being. All
processes are environmentally friendly.
The examples we have used are those of an
agri-farmer and a dairy - farmer - however,
the model works across every business/
entrepreneurial segment in the microfinancing
sector. In that respect, the chain also
encompasses LOLC’s products and services
to the SME and Corporate sectors as well.
Our business begins often in the rural heartlands of the country, with start up enterprises, with farmers, with people who have a small dream and no money to make it come true. We go to them. We take in the location, the project, the environment, the economic implications, the social aspects… this is as ‘hands on’ as you can get
SustainabilityReview
LOLC I Annual Report 2008/09 | 47
Across the Chain
Typically, a recipient of LOLC support at the
start of the ‘value chain’ would begin with
Cycle 1 of our Group Loan facility, as
a member of a Group in the community.
The Group Loan scheme spans three cycles
and loans progress from the starting point
of Rs. 20,000/- up to Rs. 65,000/-, as at
end of Cycle 3.
At the initial point on our ‘value chain’ the
facilities offered by LOLC to the farmer are
loans for acquisition of tractors, loan, leasing
and hire purchase facilities for acquisition
of cattle and/or farming equipment, crop
insurance (loss of income) plus loans for skill
development and a savings facility.
Let’s look at this, in operation.
Sustainability Review I
OVERFLOW OF ABUNDANCEThudugala Falls - Water, so precious, in gushing abundance
Farmer X is identified for assistance with
LOLC’s Group Loan facilities under Cycle 1
of the scheme. He takes a loan to purchase
equipment he needs for his farm. His monthly
premium for payback includes a contribution
to the savings account. At the end of one
year, he would have repaid part of his loan
and have also saved for his future, gradually
he will qualify for Cycle 2 of the Company’s
Group Loan scheme.
Along the way LOLC will provide Farmer X
with a Crop Insurance, which not only covers
his repayments to LOLC in any eventuality, but
also provides a quantum financial assistance
for personal use, to ride over the crisis.
To dairy farmers we offer a facility to purchase
cattle and to develop his infrastructure.
The Company also offers a Skill
Development Loan facility which we regard
as a support service to the main products.
This facility provides for knowledge
enhancement across enterprises enabling
subjects such as bookkeeping, marketing
and general business skills.
Since LOLC operates across the entire
spectrum - i.e. the Micro, SME and Corporate
- we also offer support to our customers to
establish the relevant market linkages they
need, to carry their business forward and to
obtain fair and lucrative returns for their efforts.
Lets look at some examples where LOLC
catalysed the market linkage process for
our customers.
In Embilipitiya, we work with a group of spice
growers who are recipients of our Group
Loan facility. We also have a customer who
is a wholesaler in the area in the spice trade.
We made the connection between the two
and today the growers have their market at
fair price whilst the wholesaler gets a reliable
supply of quality produce from the area.
LOLC has facilitated similar linkages
between top corporates and Corn growers,
Gherkin farmers, Big Onion growers etc.
Self-help is also a quality the Company
that fully supports. We quote an example
of a group of LOLC customers who have
been successful at bargaining for and
clinching a lucrative supply arrangement
for their produce, with one of the country’s
top supermarket chains. Individually none
of them would have had the required ‘clout’
CATCHING THE ELUSIVECeylon Trogon - Photographed at Sinharaja World Heritage Site, this is one of the most beautiful but extremely elusive birds of this ancient forest.
AT GRASS ROOT LEVELGrass Flower - These tiny flowers, photographed at Tangalle, are extremely common in most grass fields. One has to be at ground level to appreciate their beauty
48 | Sustainability Review | LOLC | Annual Report 2008/09
LOLC I Annual Report 2008/09 | 49
but together, aided by their own growing
knowledge of market dynamics and business
skills, they have had the strength and acumen
to establish their own market linkages.
Another example of self-help in seeking
markets comes from the tea smallholder
sector. In the areas of Matugama and
Badureliya, there are around 1,200 families
engaged in growing tea. Typically, they
each may own a half or quarter acre plot
producing anywhere between 10 kg and 20
kg of tea. Around 100 of these families are
LOLC customers.
These smallholders have had great difficulty
in getting their produce to market, since
collectors do not find it a viable proposition
to travel around the area, to collect such
small quantities from each farmer. The
farmers banded themselves together, hired
their own transport, collected their produce
and delivered it directly to a tea factory,
thus getting over the hurdle of dealing with
a collector and establishing a vital direct
connection with a tea manufacturer.
Today, these farmers have worked out a
lucrative price for their produce and have
developed their relationship with the tea
factory to a point where they enjoy a barter
facility - taking a portion of remuneration in
processed tea.
It’s a great win-win example of empowered
business at the most basic level.
At the end of the third cycle in the Group
Loan facility, the customer is ready to
progress towards an Individual Loan facility.
The range of support in this category
provides for loans above Rs. 65,000/- and up
to a maximum of Rs. 200,000/-.
Our target is to migrate at least 50% of
our Group Loan customers to the individual
loan category.
Looking at our value chain depiction,
our farmer would now be eligible for an
equipment lease and or loan to purchase
harvesting equipment or, in the case of a
dairy farmer, a means of transport to get his
produce to a milk collection point, such as a
motor cycle.
The Company’s Individual Loan facility also
has a Savings scheme in built, as for the
Group Loan structure. Thus we continue
to encourage the recipient to build and
maintain financial stability.
The dairy farmer is at this point, also eligible
to participate in an exciting new project
which we have launched this year - the
Bio-digester. This is a project which has
been extensively researched by LOLC
along with a Dutch consultancy firm, where
our feasibility studies show a significant
degree of success and benefit across the
sustainability tripod.
The Bio-digester is a processing plant
whereby, cattle waste (dung) or any other
biodegradable waste is the input. Once
Sustainability Review I
A PERFECT BLENDJezebel - One of the few species of butterflies which is commonly seen in the city, this one at
‘Meemure’ in the Knukles mountain range.
processed, it yields a ‘clean’, bio-efficient
gas ideal for cooking purposes. The slurry
that emerges as waste from the Bio-digester
constitutes excellent organic compost and
can even be used as fish food.
The final three points in the ‘chain’ find us
now in SME and Corporate territory where
our products and services cater not only
to the customer rising through the ranks,
but to many of our customers who join the
change at different points or are already
entrepreneurs at these points.
At the Distribution point, LOLC provides
facilities such as Factoring, Leasing,
Insurance and Fleet Management.
At the Marketing point, we offer Factoring
and Insurance.
Now, let us examine the benefits of LOLC’s
enterprise against our ‘sustainability tripod’.
Economic Impact
The Company’s financial input at the
commencement of the value chain
empowers, start up, nascent or struggling
ventures to develop profitably. Incorporating
a savings facility helps establish and grow
the financial stability of the customer.
The crop insurance facility provides real
protection in a sector where crop failure can
have immediate and drastic economic effects
LOLC’s products at the Collection/
Processing point of the chain include Debt
Factoring, Invoice Discounting, Insurance,
Intermediary facilities to set up Milling
Machines, Freezer facilities, Processing and
Packaging, Rice Milling Machines, Paddy
Stocking, Transport facilities and Provision
for Working Capital.
for the farmer. Providing market linkages
opens up lucrative and fair returns to the
customer, increasing wealth and well-being.
The markets targeted by our customers with
their enterprise are often ‘peopled’ by other
customers of LOLC. They benefit from a direct
supply of goods and services that are of good
A FRAGRANT CUPPussellawa plantations - Perfectly manicured tea plantations, spanning acres across the hill country. Ceylon tea is renowned for its unmatched flavor and remains a top export earner, sustaining the economy
50 | Sustainability Review | LOLC | Annual Report 2008/09
LOLC I Annual Report 2008/09 | 51
quality, often at their doorstep, which saves
on transport costs and helps them progress
with their own businesses leading to their own
economic development and well-being.
LOLC’s support across the value chain, to
customers in the SME and Corporate sectors
empowers a range of business enterprises
placing financial support where it’s needed
most and ultimately ensuring that businesses
thrive and prosper sustainably.
The Company maintains its assets and
liabilities portfolios in a manner that optimises
overall profitability, proactively explores
investment opportunities and identifies and
works with funding partners who share similar
values and development goals.
In a landmark achievement, LOLC became
the only non-banking financial institution to
become a Participating Financial Institution
(PFI) for the ADB-funded Tea Development
Project in 2001, which seeks to develop
the tea smallholder sector in Sri Lanka.
To date the Company has disbursed over
Rs. 225 Mn across more than 60 projects.
In 2005, LOLC became a PFI for the
ADB-funded Plantation Development
Project aimed at improving the long-term
sustainability of the plantations sector.
The aims of the project are twofold - to
enhance the profitability of the sector
through transformation of Regional Plantation
Companies from primary producers to
agri-business entities and to improve
the living and working conditions of
the estate sector workforce to achieve
parity with other sectors.
The ravages of the tsunami of 2004 are
still being repaired today in our land. The
Government with the assistance of the
European Investment Bank (EIB) established
a Post-Tsunami Project as a dedicated credit
line of finance for small and medium-scale
enterprises in industry, tourism and other
service sectors which had been directly/
indirectly affected.
The Construction Sector Development
Project is funded by AFD (the French
Development Agency) and aims to
strengthen the financial and technical
capacities of private local businesses
to participate effectively in construction
and public work in the post-tsunami
reconstruction effort.
In 2006, LOLC became a PFI for the
Revolving Fund of the Second Perennial
Crop Development Project, which seeks to
provide support for the perennial crop sector,
increasing enterprise profitability and farmer
income and broadening the agricultural export
base whilst encouraging a greater private
sector participation in commercial agriculture.
Social Impact
It’s all about empowering entrepreneurship…
from the humblest to the most sophisticated.
From the initial inputs LOLC offers
throughout a well structured portfolio of
financial solutions and services that span
the gamut of Micro, SME and Corporate
sectors in this country, we are providing and
enhancing wealth creation and sustainable
prosperity of the people. In the process we
are also closely involved with knowledge
enhancement in critical areas
A CHOICE PICKFishing, Negombo - The bountiful sea fare
in the shallow waters of the lagoon
PROTECTING THEIR FUTURESloth Bear, Yala National Park -These two playful bear cubs,
a brother and sister, will need our intervention to protect their shrinking jungle habitat
Sustainability Review I
of entrepreneurship that builds social worth
as well as business acumen, in service
to the community.
LOLC catalysed initiatives such as solar
power in rural electrification across the
country, the new bio-digester that will place
clean, renewable and affordable energy at
the disposal of rural communities across the
land, a significant contribution to nutritional
well being in the country through supporting
agro-farming and dairy farming among many
other Company initiatives.
LOLC has facilitated community centres at
LOLC Ridhee Gama in Seenigama and at
Medhabadda. This is the centre of village
community life where everything from business
to welfare can be discussed or enjoyed.
In another measure of social upliftment, we
have recruited 60 field officers to promote
micro finance - they are all from these villages
and we are expecting to increase cadre.
Our outreach is closely linked with all
Post Offices and Sub Post Offices of
Sri Lanka Post.
Returning peace in the Country has allowed
us to go in and serve the people of the
country. We are planning to set up three
fully-fledged branch offices in Trincomalee,
Batticaloa and Ampara. Each branch will be
in close proximity to about five or six Post
Offices, to expand reach and provide more
customer convenience.
In addition to our own micro finance Group
Loan facilities, under the Government’s
Poverty Alleviation Micro Finance
programme, we have been qualified as a
PFI where we’ll be granting the facility at a
subsidised interest rate, with the support of
the State, which will be promoted especially
in the post-conflict areas of the country.
Environmental Impact
The ethos that LOLC has, of looking well
beyond the financial solution to impact that
spread across the entire supply chain has
enabled the Company to fully embrace a
sustainability mindset. This mindset influences
our core business model and radiates
outwards to every product, service and
interaction we have with our stakeholders.
There are innumerable examples of projects
we have chosen to fund because they have
impeccable ‘credentials of sustainability’,
whilst enhancing the enterprises of our
business audiences.
From solar power and other clean
and renewable energy generation,
environmentally responsible agricultural
and dairy farming to our own environmental
best practices within the Group itself, we are
committed fully to preserving and enhancing
natural resources wherever possible.
In 2007, LOLC became a PFI in the
Environmentally-Friendly Solutions Fund
Project II (E-Friends II) which has as its main
objectives the control of industrial pollution,
minimising industrial waste, protection and
saving of resources, recycling waste and
energy saving. E-Friends II assists industries
to comply with the regulations and standards
of the National Environmental Act.
ON A HIGH PERCHLittle Cormorant, Thalangama - A resourceful water bird
REFRESHEDA domesticated elephant - A welcome dip in the Menik Ganga, Kataragama, to beat the daytime heat
52 | Sustainability Review | LOLC | Annual Report 2008/09
LOLC I Annual Report 2008/09 | 53
The project is ongoing and to date, LOLC
has disbursed funding facilities for projects
such as waste water treatment plants, energy
saving and converting industries from using
fossil fuel to bio-mass produced energy.
LOLC continues to be a PFI in the
Renewable Energy for Rural Economic
Development (RERED), under which we
provide additional financing to promote
Grid Connected Renewable Energy. We
concentrate mainly on financing Grid
connected mini-hydro power projects.
Internally within the scope of LOLC’s own
operation, we have a plethora of initiatives
that we apply across the Group, with
the wholehearted support of our staff, in
heightened environmental consciousness, to
enact our business affairs with responsibility.
These measures range from maximising
natural lighting sources within our office
complexes, to the proliferation of energy
saving lighting (CFL bulbs), a way of
life that sees LOLC people switching off
unnecessary power draw offs, such as lights,
air-conditioners, computers, a responsible
approach to IT which is not only power
saving but also working towards a paperless
office environment amongst others.
Our responsibility and commitment as well as
our stewardship of Business Sustainability is
only as strong as each strand of the ‘closely
woven fabric’ that is our business operations.
It is where the strength of LOLC is to be
clearly seen.
NEW HORIZONSOrange Migrant - This butterfly found in Wariyapola made history in being a new species to the country and
carried the message of the possibility more new discoveries for those who strive
Sustainability Review I
54 | LOLC | Annual Report 2008/09
The LOLC Group is firmly on course to
attain its goal of becoming a total financial
solutions provider. That journey is going
to encompass crucial national goals of
resurgence and rebuilding of North and East
as peace gradually returns, to which effort
the Group expects to contribute immensely.
Developing the ideal business model to
deliver the desired results began with our
recent restructuring and is now
firmly established.
Whatever the business plan, whatever the
corporate goals it must be driven by people
who are competent, passionate, innovative
and ethically sound. Today, we have built
the LOLC Team into a committed, service
oriented, energised and multi-skilled work
force robustly led and much admired by the
financial industry.
HumanResources
The HR processes begin as we seek the
‘right’ employee to drive our business
goals. The Company employs a multitude of
means to reach the right employee: on-line
recruitment, job fairs, recruitment camps,
direct recruitment (through a referral scheme),
head hunting, walk-in interviews and more. At
the conclusion of the financial year, LOLC has
been able to deploy diverse employee cadres
in addition to its core cadre, in pursuit of
realising its corporate goals while being able
to attract a pool of talented individuals within
and outside the industry, ensuring diversity
of the workforce. The graphs below highlight
the segmentation of the staff within the
management, executives and non-executive
cadres of the Company:
The LOLC Team has made immense progress in growing the success of the Group as well as their own personal development - we can truly subscribe to this motto ‘as we grow, so would you’
The Company continually invests in the
skill and competency development of
the employees, guided by our corporate
goals. During the year in review 82% of
our workforce was exposed to continuous
learning initiatives. An investment of
Rs. 6.6 Mn was made for training with 152
interventions being provided to the staff. The
introduction of new products and services
LOLC I Annual Report 2008/09 | 55
has provided our employees with many
opportunities to acquire new skills thereby
enhancing their own personal capacities.
Bespoke training programmes were
conducted throughout the year, which
fostered team bonding, development of
leadership skills and more. We received
great support from our donor agencies
such as FMO, ACTED and International
Development Ireland Limited, whereby we
were able to offer our Team overseas as well
as local training opportunities.
Statistically, the LOLC Team has grown as a
consequence of our targeted approach to
acquiring the skills and aptitudes that will drive
our business objectives into the future. At the
end of the financial year in review, we had a
total employee strength of 664 (Company) and
1,164 (Group). The diversity of the LOLC Team
is outlined in the ensuing charts:
Human Resources I
HARMONY IN NATUREAsian Elephant and Spotted Deer - Elephants are messy feeders.
At Yala National park, Deer will seek the company of Elephants to feed on the leaves of branches broken by them, creating for
themselves, an otherwise unavailable opportunity
RESILIENCEWaves, Kirinda - Momentum of the transitional wave is no match for the stability of the rock
techniques that are fully inclusive and
transparent to constantly improving
assessment standards we offer a very
comprehensive rewards and recognition
regime that is in itself a great motivator.
Awards were presented once again to our
employees whose service exceeded 10
years which included three of our employees
who successfully completed 25 years with
the Company.
We also recognise the vital importance of
balancing these initiatives with adequate
recreational opportunities to truly enhance
the quality of our employees’ working life.
This latter aspect is the province of SPIRIT,
the Group’s Recreation Club. During the
year under review, the Club organised a full
calendar of recreational opportunities for
the employees - the Annual Staff and Family
Trip, a Group Dinner Dance, Kiddies Party,
a Sinhala New Year Sports Festival and the
Annual Pirith Ceremony, among others.
Employees are encouraged to identify with
LOLC in its core pursuit of true sustainability
and care for society. Within the many CSR
initiatives enthusiastically supported by staff,
the donation of medical supplies to the
Sri Lanka Army Medical Unit, Anuradhapura
was a good example of our response in the
hour of need.
LOLC CARE a new CSR initiative organised
by the Group, engages the LOLC Team in
contributing to the society through diverse
charitable events both financially and
through active participation. The success
of this initiative will ultimately draw all
stakeholders of LOLC to contribute to
Employee retention rates are sound and we
have been able to augment them year on
year through the application of simple and
practical initiatives aimed at obtaining a
better return on human capital investment.
The spread of employees based on the
years of service with the Company is
graphically represented below:
A significant acquisition by the Group was
that of Commercial Leasing Company PLC
(CLC). The staff strength of CLC stands at
268, with an employee growth rate of 18.06%.
We introduced our HR policies and
processes into CLC and Lanka ORIX
Securities (Pvt) Ltd. with a view to
streamlining it’s HR systems and operations
and aligning them with the Group Company.
This has been successfully completed and
the benefits of the HR architecture operating
as a shared services entity have been
derived by the Group.
Performance management has been
significantly enhanced over the year.
From emancipated performance appraisal
DROP AT A TIMENelum leaf - These tiny droplets on the impermeable lotus leaf provides nourishment for many even tinier insects
56 | Human Resources | LOLC | Annual Report 2008/09
LOLC I Annual Report 2008/09 | 57
this initiative and thereby become worthy
corporate citizens who act with responsibility
to the continued enrichment of society.
Our multi-talented employees have
represented the Company in the knowledge
base and sports arena and have received
high commendation, thus strengthening the
image and reputation of the Company:
· 1st Prize in this year’s final of FMO Asset
and Liability Management Competition
held in Netherlands.
· Champions in the Inter-Firm Badminton
Team Championship - 2008 organised
by the Mercantile Badminton Association
· Our Insurance Brokering arm won the
Hayleys AIG Inter Broker Six-a-Side
Cricket Tournament and became the
Joint Champions of HNB Assurance
Beach Rugby Challenge Cup 2009
· Winner of the Mercantile Open
Badminton Men’s Single Plate
Championship
· Representation in Ari-Lanka Mercantile
Badminton Team sponsored by the
Mercantile Badminton Association in India.
Overall, the capability, competence
and capacity of the organisation and its
workforce have appreciated significantly,
over this financial year. We are confident that
we are geared to meet and overcome the
challenges of the future.
The LOLC Team has made immense
progress in growing the success of the
Group as well as their own personal
development - we can truly subscribe to this
motto ‘as we grow, so would you’.
An extension to the social sphere of the Sustainability Policy of LOLC, lies ‘LOLC Care’ the Company’s Strategic CSR initiative, focused on contributing to the society at large with the total commitment and support from the internal society, i.e. LOLC Team. LOLC Care an integral component of the Sustainability Policy of LOLC, will enable LOLC to leap into the paradigm of a Socially Responsible Business (SRB), which would be the ultimate that a commercial entity would desire to be in.
CSR is not alien to the LOLC team who has risen to many occasions in the past to support the needy, whether, for internal staff or for the community. LOLC Care brings the formal entity into life within which the staff will look forward to serve the community at large. LOLC care would be a ‘not for profit entity’ within the umbrella of the LOLC Group and would be run by the staff who would zealously engage in all its endeavours, considering it to be an obligation that they need to fulfil for society it belongs to.
All channel offices of the LOLC Group would have a specially designed till placed in a conspicuous position, that would prompt staff as well as customers to contribute regularly for a worthy cause. The cause would be proposed and decided by the staff from time to time. The ultimate ownership of the concept and the obligation to fulfil the objectives would also rest with staff and it is envisaged that this would facilitate not only the efficient operation of the LOLC care concept, but total commitment of the team.
During the year under review, the staff of LOLC rose to the needs of the Army Hospital in Anuradhapura and collected funds to donate a large stock of material needed by the injured soldiers.
In the coming months, the LOLC team will utilise contributions made to LOLC Care for Internally Displaced People and work is already underway to identify the requirements.
LOLC Care not only focuses on raising funds for worthy causes but also will prompt the LOLC Team to habitually take part in contributing to the society at large.
LOLC Care
Human Resources I
CONSERVATIONAnagi Mala Ella, Kanneliya - A feeder forest for the State Plywood Corporation, later converted to a forest reserve
striking a balance between development and conservation.
LOLC I Annual Report 2008/09 | 59
LOLC Branches
1. Rajagiriya
2. Kandy
3. Kegalle
4. Matara
5. Badulla
6. Ratnapura
7. Embilipitiya
8. Polonnaruwa
9. Anuradhapura
10. Kochchikade
11. Colombo 7
12. Kurunegala
13. Kalutara
14. Galle
15. Nuwara Eliya
16. Gampaha
17. Kiribathgoda
18. Wattala
19. Chilaw
20. Mahiyangana
21. Mount Lavinia
22. Union Place
23. Ampara
24. Dambulla
25. Horana
26. Wellawatte
LOLC Service Centres
at LIOC Filling Stations
27. Morawaka
28. Trincomalee
29. Pilimathalawa
30. Seeduwa
31. Aluthgama
32. Kadawatha
33. Ambalangoda
34. Debarawewa
35. Beliatta
36. Talawakelle
37. Panadura
38. Batticaloa
39. Padukka
40. Deraniyagala
At Post Offices
41. Melsiripura
42. Kuliyapitiya
43. Godakawela
44. Balangoda
45. Elpitiya
46. Bulathsinhala
47. Thambuththegama
48. Padaviya
49. Eheliyagoda
50. Divulapitiya
51. Nikaweratiya
Expanding our Reach I
A SEA OF ATTRACTIONSanderling -These migrant birds running down the beach in
unison to feed on what the receding waves at Chilaw offers - the value of working in harmony
60 | LOLC | Annual Report 2008/09
The Directors believe that good governance
benefits all stakeholders. Following the
implementation of a strategic plan that
focused on optimising group strengths and
synergizing expertise and functions, the
Group is now working within a business
unit structure. Procedures are constantly
being reviewed to ensure speed and
efficiency, while eliminating duplication of
work or under-utilisation of resources. By
establishing clear lines of accountability and
a regular reporting process, the Board is
able to monitor productivity, profitability and
compliance with required standards.
The Board now takes a holistic view of the
Group. Reports of the subsidiary CEOs,
relating not only to performance but also
to compliance and risk management are
reviewed by the Company’s Board of
Directors regularly. Believing that a chain is
only as strong as its weakest link the Board
seeks to ensure that every group company
is in sound financial health and alive to its
compliance requirements.
The Company acknowledges with gratitude
the favourable position it holds in the eyes
of shareholders, financiers and regulators.
In a turbulent and uncertain environment,
the Company and the Group which it heads
can still avail itself of borrowing, be sure
of steady demand for its products and
be able to immediately honour all
commitments to stakeholders.
The Company, which was a pioneer in
leasing, remains a leader in a field which
now numbers over 70 players. Recognising
the need to carry the pioneering spirit further,
the Company has, over the past several
years, gradually expanded into a group by
the judicious incorporation of subsidiaries,
within the financial services sector. Thus
Group companies now offer leasing, hire
purchase, fleet management, factoring,
insurance broking, shariah compliant
financial products, fixed and savings
deposits, pawning and micro finance.
Acquisitions too have been synergistic
with the Group’s core products. Associate
companies focus on cultivation and
reforestation, tying in with the Group’s
concept of sustainable development and a
sharper focus on micro finance.
Group procedures, practices and policies
are adopted by each new company
within the Group, thereby ensuring the
maintenance of tried and tested checks
and balances. The Board seeks to establish
a corporate culture which stresses the
importance of team work, ethical behaviour,
risk appraisal and mitigation and compliance
with regulatory and statutory requirements.
EnterpriseGovernance
The Board seeks to establish a corporate culture which stresses the importance of team work, ethical behaviour, risk appraisal and mitigation and compliance with regulatory and statutory requirements
LOLC I Annual Report 2008/09 | 61
This has ensured sustainable growth and
development for the LOLC Group, thereby
enabling it to play a significant role in helping
to rebuild the nation and to restore hope and
opportunities for all areas of Sri Lanka.
Governance Principle Conformance
Board of Directors and Board Committees
Composition of the Board The Board is made up of 11 Directors, including the Non-executive Chairman and the Executive Managing Director.
Of the 11 Directors, 8 are Non-Executive. In this way, LOLC observes the recommended best practice of having the majority of its Directors Non-Executive. Further, LOLC is in compliance with the Corporate Governance requirements of the Colombo Stock Exchange relating to the number of Independent Directors.
The names of the Directors and their profiles are given on pages 22 to 25.
Procedure for appointment of new Directors
As part of the review of Corporate Governance practices and procedures begun last year, a Nomination Committee was set up. As there were no vacancies in the Board, the Committee did not face the necessity of making a recommendation to the Board for appointment of a new director.
While no appointments have been made, the Board is always aware of the need for the Company to have Directors who are conscious of their duties and responsibilities and who bring to the Company the benefit of their experience and expertise.
Disclosure of details of new Directors to shareholders
The appointment of a new Director is disclosed to the Colombo Stock Exchange for dissemination to the public, together with a brief resume of the said Director. This resume will provide details of the Director’s qualifications and experience. The Central Bank of Sri Lanka is also notified of the appointment and full disclosure is made of other directorates and significant shareholdings.
Detailed below are the corporate
governance principles advocated by the
Institute of Chartered Accountants of
Sri Lanka and LOLC’s compliance thereto.
Enterprise Governance I
AWAITING REVIVALUdawalawe tank - As sure as the setting sun will rise tomorrow,
the seemingly ‘dead’ tree will spring in to life when the water level in the tank recedes
Governance Principle Conformance
Holding of regular Board meetings
Board meetings are held every month. As recommended by the Corporate Governance Committee, the Board papers were reviewed and additional papers requested. The Managing Director/CEO provides the Board with a brief review of the macro environment and current market conditions. Comprehensive board papers are provided, covering not only the performance of the Company but also confirmations of compliance with relevant statute and regulation and risk reviews. Minutes of Meetings of Board Sub committees are also included, so that the whole Board is kept well informed of the affairs of the Company.
Availability of formal schedule of matters specifically reserved for the decision making of the board
The Board is conscious that it is responsible to all stakeholders, including the regulators, for ensuring that the operations of the Company and of the Group are carried out ethically and in accordance with regulations.
Authority for routine operations has been delegated to board subcommittees or subcommittees comprising Executive Directors and Senior Management.
The Board remains responsible for:
· Formulating the strategy, vision, values and ethics of the Company
· Appointing the CEO and key senior officers
· Approving budgets and targets
· Monitoring performance against the budgets and targets
· Ensuring that controls are implemented, including an adequate risk management system and monitoring these controls
· Ensuring compliance with statutory and regulatory requirements
· Obtaining periodic reports on issues in the micro and macro environment which could impact the Company
· Approving investments, acquisitions and diversifications
· Approving policies and procedures
· Approving shareholder communication including interim and annual financial statements
Obtaining of independent professional advice
Whenever felt necessary, the Board seeks the independent professional advice of third parties. These include the Company’s lawyers, auditors or tax consultants and such advice is sought at the Company’s expense.
Company Secretary The Company Secretary is a qualified Chartered Secretary, with over ten years experience with the Company, apart from many years experience prior to her joining the Company. The Company Secretary is present at all Board and Board subcommittee meetings. Her advice and support can be sought by any Director, and she is the contact point for any shareholder. She advices the Board on good Corporate Governance practices and requirements, together with relevant statutory and regulatory requirements. The removal of the Company Secretary is a matter for the whole Board.
BEAUTY OF THE ORDINARYMushroom - A ray of light which pierced the canopy very briefly at Sinharaja forest brought out the beauty of this otherwise common mushroom.
62 | Enterprise Governance | LOLC | Annual Report 2008/09
LOLC I Annual Report 2008/09 | 63
Governance Principle Conformance
Independent judgment The Directors take into consideration the information provided by the Management in Board papers and their recommendation. However, in full awareness of the fact that it is the Directors who are answerable for such decisions, the Board critically reviews all such information and recommendations and draw on their expertise and experience to help take decisions.
If any Director should have any interest in a transaction being discussed, he/she discloses it and such disclosure is recorded in the Minutes.
Dedication of adequate time and effort
At the monthly Board meetings adequate time is devoted to discussion to enable all Directors to be apprised of the Company’s performance in comparison to agreed targets and conformance with all regulations. Following the Corporate Governance review and the expansion of the Board papers requested, the Board has redesigned certain Board meetings to ensure that there is in-depth discussion of strategy and risk management apart from careful monitoring of performance and compliance. If is felt that an issue needs to be studied in even greater detail, it is referred to a Board Subcommittee or a Management Subcommittee with a report to be submitted subsequently.
Training for Directors While formal training has not been considered necessary, the Board ensures that it stays abreast of market and competitor information, new trends and requirements and potential risks by information provided both by senior management and also from other sources.
Chairman and CEO
Clear division of responsibilities
The roles of Chairman and Chief Executive Officer are separate and distinct. This ensures a balance of power between the Non-Executive Chairperson and the Executive Managing Director .
Role of the CEO The Managing Director, who also functions as Group CEO, oversees the operational functions of the Company and reports to the Board on Company and Group performance, adherence to agreed policies and procedures, risk mitigation measures and governance and compliance issues.
Role of the Chairman The Non-Executive Chairperson ensures that Directors are provided with the information necessary to assist in decision making and critical analysis of Company performance. She encourages all Directors to contribute at meetings.
Financial acumen There is a sufficient amount of financial acumen and knowledge available among the Directors. The advice of the auditors and tax consultants is called for when required.
Balance of the Board/ independence of Directors
The majority of the Directors are Non-Executive. Reports from the senior management and the Executive Managing Director help to maintain a good flow of information and a system of checks and balances.
All Board subcommittees include at least one of the independent directors and where required by the Corporate Governance requirements of the Listing Rules of the Colombo Stock Exchange, the relevant Committee comprises only Independent Directors.
Enterprise Governance I
PURITY WITHINRed Water lily - Even though the inception is in mud and murky
water this flower which reflects the impermanence of life is fit enough to be picked and offered to the holiest of beings
Governance Principle Conformance
Balance of the Board/ independence of Directors (Contd.)
The composition of the Audit Committee, the Corporate Governance Committee, the Remuneration Committee and the Nomination Committee are given on pages 89 and the reports of the Committees appear on pages 91 to 96 respectively.
Mr. M.T.L. Fernando has served as a Director for over nine years. Over the course of his illustrious career, Mr. Fernando has served on the Boards of several private and quoted companies, and also with state enterprises. The Board values his expertise and integrity and is satisfied that Mr. Fernando remains independent, despite his years of service.
Mr. R.A. Fernando has just completed nine years on the Board. Mr. Ravi Fernando holds a Postgraduate Certificate in Sustainable Business from Cambridge University and is currently reading for his Ph.D. at PIM on ‘Strategic Corporate Responsibility and Sustainable Business’. His expertise is especially valuable to the LOLC Group as it focuses on sustainable development and environmental responsibility. The Board is satisfied that Mr. Ravi Fernando’s ability to function as an independent Director is not affected by his years of service.
Supply of quality information
The Board has reviewed the information it receives and has further refined and enlarged its scope. Reports submitted regularly by Senior Management, including CEOs of subsidiary companies, provide information on performance, compliance and risk. The Board seeks to ensure that focus shifts from micro to macro, so that facts can be viewed in context and areas for concern are highlighted
Availability of management information
Any additional information which the Board seeks is provided by the Management. In the event that it cannot be provided immediately, it will be made available by circulation subsequently.
Re-election of Directors With the exception of the Executive Managing Director, all Directors retire by rotation and offer themselves for re-election. The Board considers each Directors’ performance and if thought appropriate, recommends to the shareholders the re-election of a retiring Director.
Appraisal of Board performance
It is the opinion of the Board that the Company’s performance, and the satisfaction of the stakeholders and regulators is a measure of the effectiveness of the Board.
The Group’s finance company, Lanka ORIX Finance Co Ltd (LOFIN) is the only non-bank to have obtained the approval of the Central Bank of Sri Lanka (CBSL) to operate foreign exchange savings products. LOFIN is also approved by the CBSL to offer shariah compliant Islamic finance products. The Company continues to enjoy funding from both local and foreign banks. The Group’s clientele continue to seek our products and services. The Board feels that all this reflects the standing the Company and the Board has in the eyes of all stakeholders.
The Nomination Committee did not make recommendations on new appointments as there are no vacancies on the Board at present. However, Board performance is being reviewed.
ESSENCE OF LIFESunset, Kalpitiya - Just before dying, for a few minutes, the sun will appear as a ball of fire form the beach at Kalpitiya. This primary source of all life on earth will present you with this splendid view if you are there at the right time during these few minutes
64 | Enterprise Governance | LOLC | Annual Report 2008/09
LOLC I Annual Report 2008/09 | 65
Governance Principle Conformance
Appraisal of CEO/MD The MD also serves as the Group CEO, and reports to the Board on all operational, financial, risk mitigation and compliance issues of the Company and the Group. It follows therefore that his performance is measured against the standards laid down for each of those areas. The profile of the MD is found on page 22.
Directors’ Remuneration
Directors’ remuneration policy
The Remunerations Committee increased its scope and widened its area of review. Remuneration of Directors and of senior management is being reviewed, in the light of respective skill set, experience and contribution.
All recommendations of this Committee are reviewed by the Board as a whole, to ensure balance and control.
The Remuneration Committee comprises independent Directors. The Non-Executive Chairperson is invited to attend meetings.
The Remuneration Committee Report is on page 89
Disclosure of remuneration
The Directors remuneration is disclosed on page 89
Relationship with Shareholders
Constructive use of shareholder meetings
All shareholders receive the prescribed period of notice of any shareholder meeting. Shareholder meetings have always been cordial and conflict free. The Board ensures that any shareholder query is responded to. As the senior management is always present at all shareholder meetings, shareholders are free to seek additional clarification.
Should a shareholder be unable to attend, such shareholder has the opportunity to convey his/her views through a proxy. As the Company provides two way proxy forms, all shareholders are able to communicate their wish on any decision which has been submitted for their approval.
Each decision voted on separately
Each item on the agenda is taken up separately for discussion and voting. Re-election of Directors are always voted on separately for each such Director.
Procedures for voting For each agenda item, the Chairperson calls for a show of hands on assent and on dissent. The outcome of each decision is then declared by the Chairperson based on the show of hands.
Should a poll be called for, the Auditors will be available to oversee the counting of the poll votes, after which the Chairman will declare the result.
The Board encourages shareholders to actively participate at all shareholder meetings.
Availability of subcommittee Chairmen
At shareholder meetings the entire Board is present. Therefore, those Directors who serve as Subcommittee Chairmen are available at such meetings.
MASTERING THE ELEMENTS‘Gini Keli’, Dalada Perahera, Kandy - The traditional art of
illuminating the path of the pageant
Enterprise Governance I
Governance Principle Conformance
Disclosure of major transactions
There have been no such transactions, but should there be any, they will be disclosed in accordance with the regulations.
Enhancing shareholder value
The Board is deeply committed to enhancing shareholder value and retaining stakeholder confidence. The Board has always been conservative in lending, prudent in investing and conscious of the need for synergies when diversifying or acquiring new businesses. This has resulted in the Company being one of the few which are not in need of Government support during this time of crisis being faced both locally and internationally. The Group’s finance company has liquidity ratios which are better than satisfactory and more than legally required.
As at 31 March 2009, the Company’s market capitalisation was Rs. 3.3 Bn The share price as at end of trading on 31 March 2008 was Rs. 69.25.
An interim Dividend of Rs. 2.80 per share was paid on 26 June 2008.
Financial Reporting
The Company provides shareholders with interim Financial Statements. These Financial Statements are issued within the stipulated timelines. The Annual Report contains comprehensive financial reports. All these Financial Statements are prepared in accordance with the Company’s Act No. 7 of 2007, the Listing Rules of the Colombo Stock Exchange and Sri Lanka Accounting Standards and comprise both Company figures and Group consolidated figures.
All reports required by the Central Bank of Sri Lanka or of the Colombo Stock Exchange are submitted in the manner required and within the prescribed timelines. At its monthly meetings the Board monitors compliance with statutory and regulatory requirements.
All price sensitive information is disclosed promptly.
The Annual Report contains detailed reviews of the operation of the Group.
Declaration by the Directors
The Directors’ annual report on the affairs of the Company is found on page 91 to 96
All Directors’ are requested to make regular disclosures of any interests in contracts with companies of which they (or their spouses) are Directors and/or significant shareholders.
Such disclosures are tabled at Board Meetings and recorded in the Minutes.
Directors’ responsibility for financial reporting
The statement by Directors’ on their responsibility for preparation and presentation of Financial Statements is on page 97.
Management report Business Impact Report on pages 32 to 43.
Going concern The Board is confident that the business is a going concern. This statement is also included in the Annual Report of the Board of Directors on the Affairs of the Company on pages 91 to 96.
SHROUDED IN BLESSINGMaskeliya - The areas surrounding the foothills of the Adams peak, where Lord Buddha is believed to have tread, is often covered with white carpets of pure mist symbolizing philosophy the advocated
66 | Enterprise Governance | LOLC | Annual Report 2008/09
LOLC I Annual Report 2008/09 | 67
Governance Principle Conformance
Summoning an EGM if assets fall below half shareholders funds
Asset management is carefully monitored and stringently controlled. Therefore, such a situation has not arisen. However, should such a situation arise, the statutory procedure will be complied with.
Internal Controls
Periodic review of controls Following the Corporate Governance review, risk reports are now being requested regularly from all senior managers and subsidiary CEOs. It is expected that these will enhance the effectiveness of existing controls and highlight any controls which need to be introduced or further refined.
The Enterprise Risk Management Division reviews controls as a part of its regular audit reviews and these are discussed by the Audit Committee. The Committee will then forward its recommendation to the Board or the Executive Committee for approval and implementation.
In the current financial environment, the Executive Directors have been tasked with asset management and maintenance of liquidity.
Reporting to the shareholders on risks
The Risk Management review is on page 72.
Audit & Auditors
Audit Committee The Audit Committee comprises three Independent Directors. The Committee is chaired by a person with accounting qualifications and experience. The Chairperson, CEO and CFO are invited to attend Meetings of the Committee. The Audit Committee Charter details the role of the Committee.
The Audit Committee meets quarterly to review the financials and also study reports of the Enterprise Risk Management Division and make recommendations to the Board for implementation by the Executive Managing Director. Should the need arise, additional meetings are held. Minutes of the Audit Committee Meetings are copied to all Directors and tabled at Board Meetings.
Relationship with external auditors
The Audit Committee also meets with the External Auditors to review the audits and the objectivity and independence of the Auditors.
The Audit Committee Report is on page 88.
Corporate Governance Practices
The Company ensures compliance with the Corporate Governance Rules of the Colombo Stock Exchange. It also benchmarks its governance practices against the code of Corporate Governance for banks and other finance institutions issued by the Central Bank of Sri Lanka, the Code of Corporate Governance issued by the Institute of Chartered Accountants and OECD principles.
ADAPTATIONSNew cultivation, Knuckles range - Non traditional crop
cultivation. Tomatoes replacing paddy, the traditional crop, as it provides a higher income to the farmers
Enterprise Governance I
Governance Principle Conformance
Compliance The Company complies with all requirements of the Central Bank of Sri Lanka applicable to companies registered under the Finance Leasing Act No. 56 of 2000, the Listing Rules of the Colombo Stock Exchange, the Companies Act No. 7of 2007, the Financial Transactions Reporting Act, the Anti Money Laundering Act and all other applicable laws and regulations.
In keeping with world trends, the Company is moving towards enterprise governance, which covers both conformance and performance.
Self-governance initiatives by the Company
Codes of Ethics have been formulated for Directors and for employees. The standards and values expected from the practice of these ethics are captured in the bi annual performance appraisals, which means that adherence is rewarded and deviation noted for corrective action.
The Company is a member of The Financial Ombudsman Sri Lanka (Guarantee) Ltd. A Compliance Officer has been appointed for the head office and every branch location. This Officer is available to meet with any client who is dissatisfied with the Company’s service.
The Company has adopted the Voluntary Code on dealings by Directors, CEOs and connected parties issued by the Colombo Stock Exchange. For several years now, such transactions, when they occur, have been disclosed to the CSE for publicising.
The funding decisions of the Company are also influenced by the impact the applicant’s operations have on the environment. As a further development to this, the Company is currently formulating an environmental policy.
The Company complied with the directive of the Central Bank of Sri Lanka to establish a reserve fund.
A Group IT Steering Committee, comprising the Chairperson, Executive Director, Chief Information Officer and Chief Risk Officer meet periodically to review IT developments within the Group and connected controls. This Committee also discusses available technology and makes recommendations to the Board on Improving systems.
The Company was proactive in taking cautionary measures with funding and was one of the first to issue an Anti Money Laundering Policy. This policy, recently reviewed, includes procedures to be followed. Provisions of this policy are built into credit appraisals.
A policy on Corporate Social Sustainability was recently reviewed. With the Group’s increasing focus on sustainability it is envisaged that there will be more initiatives next year.
REBUILDINGWaves - The beauty of these waves breaking on the shores off Tangalle hides the havoc they created with the Tsunami and the efforts that went in to rebuilding of the nation
68 | Enterprise Governance | LOLC | Annual Report 2008/09
LOLC I Annual Report 2008/09 | 69
Governance Principle Conformance
Relationship with stakeholders
The Board is aware of the environment within which it operates and seeks to interact with all its stakeholders for mutual benefit.
With the intensifying of the Group’s focus on micro finance, a subsidiary, LOLC Micro Credit Ltd. will be reaching out to support the rural entrepreneur. It is expected that this will lead to development of the rural areas as well as the upliftment of the lifestyle of the individual entrepreneur.
LOFIN has established a Shariah Council, which reviews and endorses all Shariah compliant products offered by the Group. The Group seeks in this way to provide facilities to a section of society which previously did not have access to financial products. These products offered, while economically benefiting them are also religiously acceptable.
LOFIN is looking at providing migrant workers with reliable and secure ways to remit home their hard earned wages for the care of their families here in Sri Lanka. The workers are also offered a measure of control over the money being remitted.
The Group is conscious of the value added by its employees. Long service awards have been set up and the Company is gratified by the number of employees who look on the Company as their employer of choice and have put in years of service ranging from 30% to 75% of the Company’s own lifetime. While keeping in mind the need for liquidity and the conservation of resources (which will be crucial to face turbulent financial times ahead) the Directors are ensuring that remuneration packages remain attractive and that jobs stay secure.
The Group is frequently reminded of the desire of its employees to provide assistance to the wider community, from orphaned children to those caught in both sides of the current armed conflict. To help channel these efforts, the Company is in the process of setting up a dedicated project which will serve as the focal point for all donations and other offers of support.
Board Committees
Audit Committee The Audit Committee comprises the following:
M.T.L. Fernando - Independent Director (Committee Chairman)
M.D.D. Pieris - Independent Director
R.A. Fernando - Independent Director
The Chairperson, Chief Executive Officer, Chief Financial Officer and Chief Risk Officer are invited to attend meetings.
The Audit Committee meets quarterly to review the interim Financial Statements prior to dispatch. The Committee also meets periodically with the External Auditors, to discuss any issues of concern. Reports submitted by the Chief Risk Officer are discussed, and on occasion the head of the relevant front office or support function Division is also called in, to ensure that an issue is properly understood and that appropriate and timely remedial action can be taken.
ENJOY THE JOURNEYThe Hamilton Canal - built by the Dutch to transport spices and other tradeware from Chillaw to Colombo, along Muthurajawela
is bordered by lush mangroves
Enterprise Governance I
Governance Principle Conformance
Corporate Governance Committee
The Corporate Governance Committee meets every quarter. The new initiatives introduced, which include monthly or quarterly risk and macro reviews at Board level, are being evaluated for effectiveness and possible expansion.
The Committee comprises the following :
M.D.D. Pieris - Independent Director (Committee Chairman)
M.T.L. Fernando - Independent Director
Mr. R.A. Fernando - Independent Director
Mrs. R.L. Nananyakkara (Non-Executive Chairperson)
The Executive Director and the CEO are invited to attend meetings.
The Corporate Governance Committee, which has a documented charter, reviews the Company’s compliance with all applicable legislation and regulations and ensures that periodic reports are submitted to the Board confirming compliance. The Committee meets quarterly. The Corporate Governance Committee Report is on page 90.
Executive Committee The Executive Committee comprises the following :
Mrs. R.L. Nanayakkara - Non-Executive Chairperson (Committee Chairperson )
I.C. Nanayakkara - Executive Deputy Chairman
M.D.D. Pieris - Independent Director
K.U. Amarasinghe - Executive Director
W.D.K. Jayawardena - Managing Director and Group CEO
This Committee, which meets monthly, reviews the performance of all business units. Issues relating to support functions are also taken up for discussion and decision. All Divisional Heads are invited to attend Executive Committee Meetings. The Divisional Heads and their profiles are provided on pages 26 to 31.
The presence of the Heads of all Divisions, both front line and back office functions, ensure that decisions taken have the support of all and have been taken after considering all facets of the issue. The Minutes of these Meetings are tabled at Board Meetings, ensuring that the entire Board is kept informed of the decisions taken.
The Managing Director also chairs weekly management meetings at which performance against goals, set every quarter, are monitored.
DARE TO VENTUREMoon - Early humans who worshiped the moon never imagined that one of them will walk on it some day. There are those who still worship the moon in the deep jungles of the Amazon but the future will belong to those who dream and dare to venture, breaking convention
70 | Enterprise Governance | LOLC | Annual Report 2008/09
LOLC I Annual Report 2008/09 | 71
Governance Principle Conformance
Remuneration Committee The Remuneration Committee comprises Independent Directors. The Non-Executive Chairperson and the Cheif Executive Officer are invited to attend meetings.
The Remuneration Committee meets annually.
The Committee comprises
R.A. Fernando - Independent Director (Committee Chairman)
M.T.L. Fernando - Independent Director
M.D.D. Pieris - Independent Director
The Remuneration Committee at it’s meeting this year expanded it’s scope and made further recommendations to the Board on the remuneration of Executive and Non-Executive Directors and Senior Management.
The Remuneration Committee Report is on page 89.
Nominations Committee The Nomination Committee comprises the following three Independent Directors and one Executive Director:
M.D.D. Pieris - Independent Director (Committee Chairman)
M.T.L. Fernando - Independent Director
R.A. Fernando - Independent Director
I.C. Nanayakkara - Executive Deputy Chairman
This Committee meets annually to make recommendations to the Board on potential candidates who may be suitable for Board seats. As there have been no vacancies on the Board, no candidates have been identified/recommended .
The Nominations Committee report is on page 89.
CONTINUITYStilt Fishermen, Southern Coast - Most of these fishermen lost everything they owned in the Tsunami, but they have resumed
their livelihoods. Some still engage in ‘stilt fishing’ there are others who own deep sea trawlers now
Enterprise Governance I
72 | LOLC | Annual Report 2008/09
Enterprise Risk Management
Having defined risk as ‘anything which
hinders the achievement of our corporate
objectives’ and conscious of the myriad
of risks and their inter-related nature,
LOLC focuses on an Enterprise Level Risk
Management Strategy. We strongly believe
that with the evolution and expansion of
business, the risk management initiatives
should be adopted to effectively provide the
management with reasonable assurance
over strategy delivery, implementation
of plans and the control environment.
Further we believe that as each business
entity is unique, the risk management
initiatives should be tailor-made to suit the
organisational dynamics to be effective.
As such, at LOLC we strive to inculcate a
culture where conscious appraisement of
risk pervades across the organisation, at
Enterprise Risk Management
all levels. Thereby decisions at all levels
are taken with a consciousness of potential
risks and rewards, which gives a reasonable
assurance that adequate and effective risk
mitigation controls are in place to manage
the risks within levels.
The Enterprise Risk Management (ERM)
division synergises the resources and the
expertise of the Internal Audit, Information
Systems Audit and Risk Management
functions and Risk Management & Audit
Committee (part of the Governance
framework) in providing the Board with a
reasonable assurance that LOLC’s risk
control framework is both effective and
consistent in defense against the identified
profile of risks.
Risk Management Framework & Strategy
The Risk Management Framework of LOLC
is formulated encompassing the Business
Units, Sales and Channels and Corporate
Solutions whilst keeping the risk ownership
We at LOLC strongly believe that the ultimate risk mitigation strategy, is building an organisation culture where all levels of employees have the required skills and knowledge to appraise and manage the risk on operations under their purview which will enhance the value-creation ability of LOLC
LOLC I Annual Report 2008/09 | 73
Defence in Depth/Layered Defence
Risk Environment
with them. We adopt a defense in-depth
strategy and our risk mitigation controls are
layered to provide preventive, detective as
well as compensating controls addressing
both macro and micro-level-risks.
Risk Mitigation Model
Identified risks are categorised at three
levels as depicted above. The ultimate
objective of the above strategy is to lower
every risk identified to compliance level
which in practice means that there are
laid down policies, procedures and best
practices in order to manage the risk at
acceptable level within the risk appetite of
the organisation. We practice total quality
management concepts at ERM where we
constantly try to improve on our approach,
reporting mechanism and mitigation
Enterprise Risk Management I
RAYS OF LIFESunrise, Randenigala - The first rays of the morning sun beaming through the clouds and mist over these mountains will be greeted by an army of birds with their pleasing calls that would announce
the dawn of a new day
strategies in line with the dynamic business
environment, ensuring that embedded risk
controls are both current and are constantly
reviewed for effectiveness.
Self risk assessment by the process owners
is an integral part of the management
supervision function as the risk ownership
remains with the process owner. The control
mechanisms formulated are reviewed by
ERM for adequacy and consistency thus
ensuring that minimum controls are built in
to each and every process/activity of the
organisation. The second level denotes
the formal function of risk assessment
undertaken by the Internal Audit/ERM. The
perceived risk assessment is an initiative
formulated by ERM in order to function as
an indicator of perceived risk levels among
stakeholders of a process excluding the
process owner and formal mechanisms are
in place to communicate concerns which
includes monthly reporting to ERM; ERM
conducts interviews and fraud management
initiatives which in turn facilitate execution of
a comprehensive risk assessment.
Risk Categorisation & Prioritization
LOLC adopts a two dimensional risk
categorisation matrix which is customised to
profile risks both on qualitative and quantitative
aspects. The categorisation and ratings
allow us to prioritize risk responses and has
a secondary usage as a risk scoring model
which ERM uses to decide on allocation of
ERM resources and on the audit frequency.
The Risk Management Process at LOLC
Risk Assessment
The ERM division adopts a 3600 approach to risk assessment.
PR
OB
AB
ILIT
Y (
P)
(5) Very High p>80% 5 10 15 20 25
(4) High 60%<p>80% 4 8 12 16 20
(3) Medium 40%<p<60% 3 6 9 12 15
(2) Low 20%<p<40% 2 4 6 8 10
(1) Very Low P<20% 1 2 3 4 5
(1) Isolated (2) SBU (3) Process (4) Regional (5) Enterprise
Level Level /Channel Level Level
IMPACT
RISK MATRIX
FOCUS ON DETAILLindernia -This tiny wild flower found at Hettipola is one of the 3771 flowering plants found in the country
74 | Enterprise Risk Management | LOLC | Annual Report 2008/09
LOLC I Annual Report 2008/09 | 75
Risk Score Qualitative Measure Rank Priority for Action
1-3 Negligible/Low Acceptable Risk
4-5 Low/Medium Risk 5
6-8 Medium Risk 4
9-12 High Risk 3
13-20 Critical 2
20> Catastrophic 1
Risk Control and Monitoring
The annual risk review plan of LOLC and
its subsidiaries is formulated by ERM and
is subjected to a review quarterly in order
to retain a high degree of flexibility which
enhances the ability of ERM to address high
risk areas on a priority basis.
Risk Reporting
ERM conducts its Risk Audits and Reports
to the Audit Committee/Integrated Risk
Management Committee. Reporting
mechanism constitutes a three tier approach
Pre-planned reviews as for the yearly
Plan of ERM
Monthly reviews initiated by ERM
based on emerging risks and changing
business and operational practices
Investigative and forensics oriented
reviews and reviews requested by the
management.
Risk Profile of LOLC
We maintain a risk registry and the process
maps of LOLC including embedded controls
in order to clearly identify the risks involved.
The following is a broad level risk profile of
LOLC and the perceived confidence level
of the mitigation strategies adopted by the
risk owners.
Identified control weaknesses require risk
owners to formulate mitigation strategies
based on recommendations made. The
effectiveness of the controls are subsequently
reviewed by ERM for consistency.
Enterprise Risk Management I
ADAPTING, SURVIVINGRose-ringed Parakeets - These birds commonly found in Colombo feed on raw rice kept for them by bird friendly
home owners. Their adaptability has resulted in their success as a species
A NATURAL BOUNTYRubber with a multitude of users, is a main export crop of
Sri Lanka, growing in abundance with little attention
Risk Category Risk Primary Impact Secondary Impact
Control ConfidenceLevel
Financial Liquidity Solvency Sustainability Maintenance of the appropriate asset & liability mix & maturity structure and constant monitoring by ALCO
High
Interest Rate Profitability Cost of Funds
Maintenance of matching interest rate maturity structure
Negotiating long-term funding lines
Maintenance of an appropriate volume of floating rate assets
Medium
High
High
Balance Sheet Structure
FinancialLeverage
Sustainability Maintenance of appropriate asset & liability mix
Asset securitising
Constant monitoring by ALCO
High
High
High
Foreign Exchange
Profitability Liquidity Maintenance of matching FOREX reserves at banks
High
Income and Profitability Structure Risk
Profitability Sustainability Strategic steering of the business
Maintenance of a diverse product portfolio
Diversification of income generating activities
High
High
Medium
CapitalAdequacy
Borrowing Sustainability Constant monitoring & maintenance of a healthy gearing ratio
Asset securitisation
High
High
Credit Asset Quality Profitability Credit policy
Delegated lending limits
Monitoring of credit concentration
Constant credit monitoring
Aggressive recovery mechanisms
Collateral based lending
High
V. High
High
V. High
V. High
V. High
Investment Asset Value Return on Assets
Diversified investments
Mark to market & prudent provisioning policies
Medium
V. High
THE FIST OF DETERMINATIONKnuckles Range - The forest reserve that is nestled in this mountain range is home to many endemic plants and animals
76 | Enterprise Risk Management | LOLC | Annual Report 2008/09
LOLC I Annual Report 2008/09 | 77
Risk Category Risk Primary Impact Secondary Impact
Control ConfidenceLevel
Operational Failure of Internal controls
Operationaleffectiveness
Reputation & Image
Internal control framework
Internal control reviews Review by external
auditors
High
V. High
High
Technology Operationaleffectiveness
Availability Implementation of a proper ICT security infrastructure
Recovery strategies IT audit reviews
High
High
High
Mismanagement& fraud
Financial Reputation & Image
Fraud management policy & guidelines
Zero tolerance on fraud & abuse
Corporate whistle blowing hot line & witness protection programme
Management insight
V. High
V. High
High
High
Business BusinessStrategy
Market Share Profitability Regular review of the strategic plan
Aggressive marketing strategy
Market research & intelligence
High
V. High
High
Statutory Legal Regulatory Reputation & Image
Anti money laundering policies
100% regulatory compliance
Constant monitoring of the legal environment & regulatory requirements
Staff awareness & non- disclosure agreements
High
V. High
V. High
High
Image & reputation
Publicconfidence
Reputation Corporate governance policy
Code of ethics Strategic CSR
V. High
V. High
Medium
Event Disasterrecovery
Availability Sustainability Disaster recovery & business continuity planning framework & periodic testing
Reduction of inter-dependability of branch network & head office
Medium
High
We at LOLC strongly believe that the ultimate risk mitigation strategy, is building an organisation culture where all levels of employees have the required skills and knowledge to appraise
and manage the risk on operations under their purview which will enhance the value-creation ability of LOLC.
PERSEVERANCECotton Teal - This male is enjoying a well earned rest after
having to fight for hours with two other males to win over his female. In the animal kingdom it’s only the
strongest that is able to pass on his genes
Enterprise Risk Management I
78 | LOLC | Annual Report 2008/09
LOLC Group
The financial year saw the Group steer through a period where the global as well as local financial industries witnessed an extremely challenging period. The global recession and tightening of liquidity had a negative impact on the local economy with a reduction in foreign investments as well as a slowdown in exports.
With the recent military victory as the country returns to normalcy after three decades, LOLC looks forward to play a vital role in the positive economic change, being part of the resurgence and rebuilding of the nation. LOLC sees great opportunities and potential to partner the best bilateral and multilateral funding institutions in the world who will add this initiative to their development goals and LOLC is geared with its strategies and processes to be the catalyst in taking same to the neediest through the SME and Micro Sector business model. The Group looks forward to this in the coming year and the years to come.
The Group acquired Commercial Leasing Company PLC (CLC) during the first quarter of the year, a move which saw the Group becoming the market leader in the leasing industry. During the fourth quarter, the Group spun-off its Micro Credit Business Unit as a separate company, LOLC Micro Credit Ltd. (LOMC). Lanka ORIX Factors Ltd. (LOFAC) the pioneer debt factoring company in the country was merged with the Parent Company, LOLC.
FinancialReview
With the recent military victory as the country returns to normalcy after three decades, LOLC looks forward to play a vital role in the positive economic change, being part of the resurgence and rebuilding of the nation
During the year under review, the Group’s income increased by 66% to Rs. 9.8 Bn from Rs. 5.9 Bn recorded during the previous year. In addition, the Group reported sales revenue from instalment sales of Rs. 3.5 Bn during the year.
LOLC I Annual Report 2008/09 | 79
However, the high interest rate and high inflationary environment that the Group operated within had a negative impact on profitability during the year under review. The Group’s net interest expense increased by 89% to Rs. 6.4 Bn when compared with the previous year due to the increase in the quantum of borrowings as well as the increase in cost of funds.
Provisioning for doubtful debt during the year was Rs. 370 Mn increasing from the previous year’s provision of Rs. 172 Mn.
Financial Review I
POWER OF NATURESt. Claire’s Falls - The upper Kotmale Hydro Power Project may
compromise the beauty of this water fall, but will provide much needed energy to develop the country
The Group’s Profit Before Tax increased by 5.4% from the previous year to Rs. 1.25 Bn. However, due to the taxation charge, profit after tax reduced to Rs. l.l Bn.
The lease and loan portfolio of the Group increased by 51% from Rs. 20.2 Bn to Rs. 30.5 Bn, contributed to by organic growth as well as acquisition of CLC. The total borrowings of the Group increased by 39% from the previous year to Rs. 31.8 Bn. The deposits canvassed by the Finance Company increased the deposit base by 59% to Rs. 5.3 Bn.
Lanka ORIX Leasing Co. PLC (LOLC)
LOFAC was merged with LOLC during the 4th quarter and the financials have been restated to reflect the impact of the merger. During the year under review, the Company’s strategic investments in subsidiaries, associates and joint ventures, increased to Rs. 3.3 Bn from Rs. 1.3 Bn during the previous year, fuelling the growth of the Group. The increase in strategic investments had a negative impact on the financial performance of the Company as the benefits of the investments are reflected in the consolidated financials.
The Company’s net interest expense increased by 42% to Rs. 4.2 Bn when compared with previous year due to the increase in the quantum of borrowings as well as the increase in cost of funds.
GETTING A HEAD STARTFishing Wadduwa - Fishermen heading out to sea on a locally crafted fishing vessel,
PRECIOUS WATERBopath Ella, Ratnapura - The water fall gets its name from its shape, which resembles the Bo- Leaf, the leaf of the Bo-Tree
80 | Financial Review | LOLC | Annual Report 2008/09
The executions of the Company were maintained at the same level as the previous year with new executions of Rs. 12.2 Bn. The aggressive growth seen in the previous year was not seen in the current year, with the change in strategic direction by the Company to concentrate on credit quality of the new portfolio given the possible impact from the economic crisis.
The income of the Company increased by 23% to Rs. 6.1 Bn during the year under review and reported sales revenue from instalment sales of Rs. 3.5 Bn. The Company was able to report a gross profit of Rs. 503 Mn from instalment sales.
The Company’s provisioning for doubtful debt during the year increased to Rs. 200 Mn from Rs. 115 Mn during the previous year, reflecting the negative economic conditions prevailing in the country and the resultant dip in collections. The Company’s other income declined to Rs. 71 Mn from Rs. 261 Mn,
LOLC I Annual Report 2008/09 | 81
primarily due to marked to market losses of the Company’s share portfolio, main contributor being the drop in share price of Peoples Merchant Bank. The resultant Profit Before Tax for the year was Rs. 580 Mn and the Profit After Tax for the year was Rs. 504 Mn. The increase in operating expenses and increase in the borrowing cost affected the cost to income ratio.
The Company’s lease and loan portfolio remained at the same level as the previous year. The transfer of the Company’s Micro Credit Portfolio to LOLC Micro Credit Ltd. (LOMC) as well as the change in focus during the second half of the year towards maintaining a high asset quality within the turbulent economic environment contributed towards the lack of growth in the Company’s loan book. In addition, the Company has a factoring portfolio of Rs. 1.2 Bn following the merger of LOFAC.
Financial Review I
BLESSINGS FROM AFARSigiriya & Pidurangala - the historically renowned fortress
kingdom and the naturally fortified mountain temple, an uncommon site only seen from the bund of the Thalkote Tank
The increase in interest cost had a negative impact on the Company’s interest cover with the interest cover coming down to 1.14 times from 1.28 times at the end of the year.
GREEN ABUNDANCEValley, Nuwara Eliya - Lush green beauty, co-existing with civilization, a true representation of green Sri Lanka
82 | Financial Review | LOLC | Annual Report 2008/09
Lanka ORIX Finance Company Ltd. (LOFIN)
The financial year completed was a challenging year which saw major changes within the Company. The approval to mobilise foreign currency deposits, setting up of a dedicated Islamic Business Unit (IBU) and launching of the island-wide ATM network were highlights for the year changing the landscape for the financial results of the Finance Company. The upgrading of the Company’s credit rating to A-(lka) by Fitch Ratings, during the turbulent year which saw the collapse of a number of financial institutions as well as the down grading of credit ratings of many financial institutions, was another significant achievement by the Company.
The deposit base increased by 59% from Rs. 3.3 Bn to Rs. 5.3 Bn which can be considered the greatest achievement given the challenges faced in the light of the collapse of several finance companies in the country. Savings deposits too saw significant growth, with the savings deposit base growing by 56% when compared with the previous year.
Although the financial markets contracted during the year and many financial institutions were faced with liquidity problems, the Company was able to source additional financing locally as well as from international funding partners. The Company’s total borrowings increased by 12% from the previous year to Rs. 24.8 Bn. The Company’s debt to equity ratio increased to 4.87 times from 4.68 times by end of the year.
LOLC I Annual Report 2008/09 | 83
The income of the Company increased from Rs. 725 Mn to Rs. 1.1 Bn, a 53% growth over last year. The interest costs including deposits increased 85% to reach Rs. 872 Mn, clearly reflecting the impact of the growth in the deposit base and in the high interest rates.
UNIQUECeylon Blue Magpie - This endemic species found in the
Sinharaja World Heritage Site has drawn many from all over the world to the country
ON TOP OF THE WORLDAdam’s-Peak - Those who have the will to make the climb
to the peak and endure the extreme cold in the night will be rewarded with the breathtaking beauty that surrounds the
peak during sun rise
Financial Review I
The product profile of the Company saw significant changes with the introduction of foreign currency deposits as well as specialised products designed for the IBU. The lending portfolio saw a shift towards an increased loan portfolio accounting for 64% of the total portfolio. The reduction came from leases and hire purchases.
The Company made provisions against bad and doubtful debt of Rs. 72 Mn and this was 46% higher than last year.
With the expansion of the branch network the operating expenses saw an increase and reached Rs. 245 Mn by the year end. The resultant Profit Before Tax was Rs. 103 Mn, marginally higher than last year’s Rs. 100 Mn.
Commercial Leasing Company PLC (CLC)
The newest addition to the LOLC Group, completed a very successful year with very positive contributions made to the Group. The Company’s financial year end was changed from December to March in line with the LOLC Group’s financial year end. Further, the Company was de-listed on the 24th of March 2009, with LOLC acquiring further shares, increasing LOLC’s stake to 99.6%.
The Company performed well within the turbulent market conditions and continued to expand its portfolio in Leasing, Hire Purchase
and Factoring business. The executions for the 15 months were Rs. 4.4 Bn. The corresponding executions for the period since the acquisition by LOLC were Rs. 3.3 Bn.
The funds in use for the factoring business at the year end were Rs. 772 Mn, a growth of 51% over the previous financial year.
The product mix of the Company at the year end was primarily leases and hire purchases; 31% leases, 59% hire purchases and 9% factoring receivables.
The Company’s operating expenses were Rs. 628 Mn. The Company made a Rs. 80 Mn provision against bad and doubtful debt which includes provisions made under the Direction No. 2 of Central Bank and a general provision.
The borrowing costs increased significantly and ended the year at Rs. 1.6 Bn.
The resultant Profit After Tax for the Company was Rs. 415 Mn, an increase of Rs. 87 Mn recorded for the financial year end December 2007. A provision of Rs. 99 Mn is set aside as taxes.
The net assets grew to Rs. 1.7 Bn and the debt to equity ratio was of the Company was 3.85 times.
LOLC Micro Credit Ltd. (LOMC)
The Micro Credit Company of LOLC started its independent operations in February, with the transfer of the Micro Credit Portfolio from the Parent Company, totaling a book of Rs. 2.3 Bn. During the two months up to the year end, the Company executed facilities up to Rs. 389 Mn. The resultant top line was Rs. 149 Mn.
A FIGHTING CHANCEThe Sri Lankan Leopard - an animal threatened with extinction from the jungles of Sri Lanka due to loss of habitat and poaching in Yala
REWARDBlue Wanderer - Photographing butterflies is a test of patience, but offers a worthy reward
84 | Financial Review | LOLC | Annual Report 2008/09
The Micro Credit Portfolio of LOMC consists of agriculture related financing, self-employment and skill enabled facilitates and many related products.
The Company recorded a Profit After Tax of Rs. 28 Mn for the two months in operation.
Lanka ORIX Insurance Brokers Ltd (LOIB)
During the year the Company achieved a significant milestone surpassing the Rs. 1 Bn mark in gross written premiums. Gross written premium recorded for the last year was Rs. 867 Mn. The Company derived Rs. 144 Mn as commission from this business, an increase of Rs. 36 Mn over the last year.
The Company is pursuing strategies to broad base the corporate business having less dependency on the Group business.
LOLC I Annual Report 2008/09 | 85
During the year, the Company operating expenses increased by 24% to reach Rs.130 Mn which is being carefully managed within the Group expense management initiatives.
The Company recorded a Profit After Tax of Rs.15 Mn. The Company contributed Rs. 22 Mn as royalty fees to the Parent Company and this was a twofold increase from the last year.
Lanka ORIX Information Technology Ltd. (LOIT)
LOIT completed yet another successful year with growth in top line to Rs. 92 Mn from Rs. 74 Mn recorded in the previous financial year. The Company concentrated in Group business and also has made significant investments in infrastructure and human resources in preparation for future expansion of external business. The resultant Profit After Tax was Rs. 41 Mn.
Lanka ORIX Project Development Ltd. (LOPD)
The Company is yet to realise income and profits and was focusing on reaching finalisation of many projects undertaken. However, in the interim, the Company made further losses of Rs. 4 Mn, relatively less than the last year’s loss of Rs. 14 Mn.
FUNDAMENTALSAsian Elephant - Fresh water holes at Yala attract many animals particularly during periods of drought. Knowledge of its location
would be a life saving factor
Financial Review I
Lanka ORIX Securities Ltd. (LOSEC)
LOSEC was directly impacted from the global economic meltdown with many large international institutional investors and local investors choosing a ‘cut losses and exit’ strategy rather than an investing or ‘stay and watch’ strategy. The activities in the Colombo Stock Exchange were minimal, further affected by the long-drawn military offensive in the North, not seeing revival during the financial year. With the recent military victory, the Company can look forward to a positive year ahead with new investments and renewed activity in the market.
The Commission income saw a dip during the year and deteriorated by 51% compared with the previous year. The resultant bottom line was a loss of Rs. 2 Mn.
Touchwood Investments PLC (TIL)
Touchwood Investments began the year on a very positive note with growth strategies put in place for plantation expansion and rapid top line growth. However, the turbulent economic conditions towards the latter half of the year prevented the Company from taking the full benefits from execution of these strategies.
The Company’s top line grew by 22% compared with the previous year to Rs. 727 Mn. This includes the fair value of the plantations amounting to Rs. 502 Mn, an
increase of 10% over the last year. Plantation expansion and other related direct expenses saw a significant increase compared with the previous year in line with the expansion strategy. The Company made a Rs. 244 Mn provision for purchase back guarantees in line with the commitments to the customers on account of the tree sales, an increase of 79% over the previous year.
The Company recorded a 10% decline in profits compared with the previous year’s Rs. 284 Mn and ended the year at Rs. 255 Mn. LOLC’s share of this profit is Rs. 74 Mn, an increase of 29% compared with last year.
Gal Oya Holdings Ltd.
The 50:50 joint venture between LOLC and Browns PLC, for the investment in Gal Oya Holdings Ltd., the Management Company of Gal Oya Plantations Ltd., formally known as Hingurana Sugar, the Public Private
THE BRAVE, RETURNDawn at Dickwella - Fishermen coming home in with the tide after having been at sea throughout the night
86 | Financial Review | LOLC | Annual Report 2008/09
Partnership with the Government, required the two investor companies to make initial investments into resurrecting the plantations and the factory. Towards this LOLC has extended project financing of Rs. 208 Mn which will form the equity investment required in Gal Oya Plantations Ltd.
The Company made a loss of Rs. 26 Mn for the year, due to operating expenses. It is expected that the commencement of full operations at Gal Oya Plantations will see positive cash flows coming in to Gal Oya Holdings Ltd., soon after the renovations of the factory is completed.
Sundaya Lanka (Pvt) Ltd.
Sundaya reported a turnover of Rs. 9 Mn for the year. However, the net loss for the year was Rs. 3.4 Mn due to operational expenses.
PRASAC Micro Finance Company - Cambodia
LOLC’s investment in PRASAC, two years ago is giving very positive returns with the excellent performance of the Company with steady growth of top line and bottom line. The share of profits recorded in LOLC books was Rs. 60 Mn, for the 12 months to December 2008. The previous year’s share of profits was Rs. 30 Mn, for the 9 months to December 2007.
FinancialReport
Audit Committee Report 88 I Remuneration Committee Report 89 I Nomination Committee Report 89
Corporate Governance Committee Report 90 I Annual Report of the Directors on the Affairs of the Company 91 I Directors’ Responsibility for Financial Reporting 97
Chief Executive Officer’s and Chief Financial Officer’s Responsibility Statement 98 I Independent Auditor’s Report 99 I Income Statements 100 I Balance Sheets 101
Statements of Changes in Equity 102 I Cash Flow Statements 103 I Notes to the Financial Statements 105 I Milestones 140 I Ten Year Summary 142
Summarised Quarterly Statistics 143 I Value Addition 144 I Group Companies 146 I Investor Information 149 I Economic and Financial Indicators 151
Glossary 152 I Notice of Meeting 155 I Form of Proxy Enclosed I Corporate Information Inner Back Cover
88 | LOLC | Annual Report 2008/09
AuditCommitteeReport
The Audit Committee comprises the
following:
M.T.L. Fernando
Independent Director (Committee Chairman)
Deshamanya M.D.D. Pieris
Independent Director
R.A. Fernando
Independent Director
The composition of this Committee fulfils
the requirements of the Listing Rules of
the Colombo Stock Exchange. Further, the
recommendations of the Code of Corporate
Governance for banks and financial
institutions issued by the Central Bank of
Sri Lanka, which recommends that the
Chairman of the Committee should possess
accountancy qualifications as well as
knowledge and experience in accounting
and auditing is also fulfilled.
The Chairman, Executive Deputy Chairman
and the Executive Managing Director are
invited to attend meetings along with the
Chief Financial Officer. The Committee met
on eight occasions.
The Audit Committee, which has written
terms of reference, reviews matters relating
to the Company’s financials and the financial
accounting systems, the accounting policies
and compliance with Accounting Standards.
The Audit Committee also reviews internal
controls. Internal Audit Reviews are
periodically submitted by the Chief Risk
Officer (CRO) and discussed at meetings to
which the CRO is invited.
If an issue needs to be discussed in depth,
the relevant Divisional Head is also invited
to attend.
The Committee, having thus assessed the
business and control risks prevalent in the
Company, has advised the Board on action to
be taken where weaknesses were observed.
The Audit Committee meets with the External
Auditors to discuss audit issues, as well as
issues highlighted in the Management Letter,
including the Management response and
corrective action taken.
The Committee recommends the payment of
fees to the External Auditors and has given
consideration to the independence of the
External Auditors.
The Audit Committee has recommended
to the Board of Directors that Messrs Ernst
and Young be reappointed as Auditors for
the financial year ending 31st March, 2010.
The reappointment of the Audit Firm and
acceptance of its fee will be subject to the
approval of the shareholders at the Annual
General Meeting to be held on 30th June, 2009.
M.T.L. Fernando
ChairmanAudit Committee
29 May 2009
LOLC I Annual Report 2008/09 | 89
RemunerationCommitteeReport
Following the introduction of the new
Corporate Governance Rules of the
Colombo Stock Exchange, the Remuneration
Committee was reconstituted. The
Remuneration Committee now comprises
three Independent Directors -
Mr. R.A. Fernando (Chairman of the
Committee), Mr. M.T.L. Fernando and
Deshamanya M.D.D. Pieris.
The Committee initially defined its scope and
purpose as being ‘To ensure the attraction,
retention and motivation of LOLC Talent
through a competitive remuneration and
reward system’. In order to do so, they have
initiated a comprehensive salary survey in
2009. The committee reviewed and redrafted
the remuneration policy based on currently
available information until the comprehensive
survey information is available to impact the
2010 policies. Based on the recommendation
of the Committee, the Board approved
adoption of the policy.
The policy covers remuneration to Executive
and Non-Executive Directors, including the
Non-Executive Chairperson and the Executive
Managing Director/Group CEO, all General
and Deputy General Managers in the holding
company and all its subsidiaries. Under the
terms of this policy, remuneration will be
related to performance and contribution.
The aggregate remuneration paid to the
Executive & Non - Executive Directors
is Rs. 58 Mn.
Ravi A. Fernando
ChairmanRemuneration Committee
29 May 2009
NominationsCommitteeReport
The Nomination Committee comprises the following:
Deshamanya M.D.D. PierisIndependent Director (Committee Chairman)
Mr. R.A. FernandoIndependent Director
Mr. M.T. L. FernandoIndependent Director
Mr. I.C. NanayakkaraExecutive Deputy Chairman
The Board is of the view that the appointing of a Director is a matter that should be deliberated and decided upon by the Board as a whole. However, it was agreed that, in line with recommended governance practices, a Nominations Committee be set
up to assist the Board with Board evaluation and a succession plan.
The Committee has written terms of reference and at its meeting has deliberated methods of Board evaluation.
As there is no vacancy on the Board at present, the Nomination Committee has not been called upon to assess and recommend potential candidates for appointment as Directors.
M.D.D. Pieris
ChairmanNomination Committee
29 May 2009
90 | LOLC | Annual Report 2008/09
CorporateGovernanceCommitteeReport
The Corporate Governance Committee
comprises the following:
Deshamanya M.D.D. Pieris
Independent Director (Committee Chairman)
Mr. R.A. Fernando
Independent Director
Mr. M.T.L. Fernando
Independent Director
Mrs. R.L. Nanayakkara
Non-Executive Chairman
Having pioneered leasing and factoring,
the Company has strategically increased its
range of operations. The Group now offers
a wide portfolio of products and services,
all of which are financial in nature. This
has two implications. Firstly, the financial
services sector is strictly regulated. Secondly,
stakeholder and regulator confidence is of
vital importance, especially given certain
spectacular collapses of companies in both
the local and global market.
With this in mind, the Corporate Governance
Committee has reviewed the reports submitted
to the Board. Their purpose is to ascertain
whether the information contained therein is
comprehensive, timely, accurate and focused
enough to enable the Board to assess key
areas such as liquidity, extent of liabilities, risk
mitigation, levels of compliance and reporting
to regulators.
Accordingly, several changes have been
instituted. The Group CEO is now required to
regularly and formally brief the Board on the
macro environment and the proposed route
the Group will pursue over the short term and
the long term. In today’s volatile environment, it
is prudent to remain agile enough to meet the
challenges of the changing circumstances,
while not losing sight of the main focus. It is
also necessary to ensure that measures taken
to cope with short-term emergencies do not
undermine long-term progress or go against
agreed controls.
Newly designed risk review reports now
cover all operational areas and also all
support functions, including such key areas
as Information Technology. These reports
identify risks and detail the measures taken
to mitigate them, or make recommendations
for corrective action. The reports also confirm
compliance with regulator and statutory
requirements. In this way, the Board not
only monitors governance, it also reinforces
the message to the management that good
governance is required and expected.
As these reports cover all areas, all Group
companies are also reviewed by the Holding
Company. This ensures that there is no
possibility of distress in one subsidiary going
undetected until it adversely impacts the
whole group.
This cohesive approach also enables
standards to be upheld across the group.
Use of resources is optimised, whether it
be human resources, funding or information
technology. This also contributes towards
reducing waste, managing cost and
increasing productivity.
While the Company’s key ratios are noted and
discussed each month, the Board also looks
at the Group position, to ensure that there is
growth and development overall, even if it is
not indicated in the Company’s figures.
The Committee has also reviewed the
improvements made, to further enhance them
and increase their effectiveness.
M.D.D. Pieris
ChairmanCorporate Governance Committee
29 May 2009
LOLC I Annual Report 2008/09 | 91
Annual Report of the Board of Directors on the Affairs of the Company
The Directors take pleasure in presenting
their report together with the audited
financial statements for the year ended
31st March, 2009.
PRINCIPAL ACTIVITIES
The principal activities of the Company are
the provision of financial services, including
finance and operating leasing, factoring,
mortgage finance, loans and hire purchase.
In order to better meet client needs, the
LOLC Group constantly expands its product
range. Group companies now provide
Shar-iah compliant financing, micro finance
facilities, fixed and savings deposits, pawning,
margin trading financing, insurance broking
and trading in equity and debt securities.
In keeping with the Group’s movement to
sustainable development with a greater focus
on environmental responsibility, the Group
has sought to improve the productivity and
efficiency of the operations of companies in
which it has made strategic investments and
which are engaged in reforestation, cultivation
and provision of solar power.
Directorate
The Directors of the Company during the year
under review are as follows:
Mrs. R.L. Nanayakkara
Non-Executive Chairperson
Mr. I.C. Nanayakkara
Executive Deputy Chairman
Deshamanya M.D.D. Pieris
Independent Director
Mr. M.T.L. Fernando
Independent Director
Mr. R.A. Fernando
Independent Director
Mrs. K.U. Amarasinghe
Executive Director
Mr. T.H.M. Wickremasinghe
Non-Executive Director
Mr. R.M. Nanayakkara
Non-Executive Director
Mr. W.D.K. Jayawardena
Managing Director - Group CEO
Mr. M. Inoue (appointed w.e.f. 06.02.09)
Mr. H. Ichida (appointed w.e.f. 06.02.09)
Alternate to Mr. M. InoueMr. M. Sekimoto (appointed w.e.f. 06.02.09)
Alternate to Mr. H. IchidaMr. Y. Matsuoka (appointed w.e.f. 06.02.09)
Mr. Y. Oshima
Non-Executive Director (resigned w.e.f. 06.02.09)
Mr. K. Fushitani
Non-Executive Director(resigned w.e.f. 06.02.09)
Alternates to Mr. OshimaMr. T. Mori (appointed w.e.f. 23.04.08 and
resigned w.e.f. 31.07.08)
Mr. K. Katayama (appointed w.e.f. 31.07.08
and resigned w.e.f. 31.10.2008)
Mr. Y. Matsuoka (appointed w.e.f. 31.10.08
and ceased w.e.f. 06.02.09)
Alternate to Mr. Fushitani Mr. M. Sekimoto (ceased to be alternate
w.e.f. 06.02.09)
The profiles of the Directors are given on
pages 22 to 25.
INDEPENDENT DIRECTORS
The Independent Directors are
Mr. M.T.L. Fernando, Deshamanya
M.D.D. Pieris and Mr. R.A. Fernando.
Mr. M.T.L. Fernando has served as a Director
for over nine years. Over the course of his
illustrious career, Mr. Lal Fernando has
served on the Boards of several private
and quoted companies and also with state
enterprises. The Board values his expertise
and integrity and is satisfied that Mr. Lal
Fernando remains independent, despite his
years of service.
Mr. R.A. Fernando has just completed nine
years on the Board. Mr. Ravi Fernando holds
a Postgraduate Certificate in Sustainable
Business from Cambridge University and
is currently reading for his Ph.D. at PIM on
‘Strategic Corporate Responsibility and
Sustainable Business’. His expertise is
especially valuable to the LOLC Group as
it focuses on sustainable development and
environmental responsibility. The Board is
satisfied that Mr. Ravi Fernando’s ability to
function as an Independent Director is not
affected by his years of service.
Accordingly, the Board is of the opinion
that both Mr. Lal Fernando and Mr. Ravi
Fernando should be considered Independent
Directors. Both Directors meet all other
qualifying criteria necessary to be viewed as
Independent Directors.
DIRECTORS’ MEETINGS
Board Meetings are held monthly. If a Board
decision is required before a Meeting, it is
obtained by a Circular Resolution. Copies
of these resolutions, together with copies of
Minutes of Board subcommittee Meetings are
tabled at Board Meetings, ensuring that all
Directors are kept well informed .
RE-ELECTION OF DIRECTORS
In terms of Article 84 of the Articles
of Association of the Company, Messrs
I.C. Nanayakkara and T.H.M.
Wickremasinghe retire by rotation.
Mr. Wickremasinghe has communicated
to the Board that he will not be seeking re-
election as a Director. The Board thanks
Mr. Wickremasinghe for the services he
rendered over his years as a Director.
Mr. Nanayakkara will be seeking re-election.
The Board of Directors recommends his
re-election.
In terms of Article 91 of the Articles of
Association of the Company, Mr. H. Ichida
and Mr. M. Inoue retire by rotation and
seek re-election. The Board of Directors
recommends their re-election.
The Company has received notices from
shareholders of their intention in terms of
Section 210 of the Companies Act No. 7
of 2007 to propose the re-elections of
Mrs. R.L. Nanayakkara, Mr. M.T.L. Fernando
and Deshamanya M.D.D. Pieris, all of whom
are over 70 years of age. The Board of
Directors recommends their re-election .
The Directors’ interests in shares as at 31 March 2009 were as follows: As at As at
31.03.2009 31.03.2008
Mrs. R.L. Nanayakkara – –
Mr. I.C. Nanayakkara 5,989,550 5,989,550
Deshamanya M.D.D. Pieris – –
Mr. M.T.L. Fernando 81,844 76,844
Mr. R.A. Fernando 1,500 1,500
Mrs. K.U. Amarasinghe 5,243,200 5,243,200
Mr. T.H.M. Wickremasinghe – –
Mr. R.M. Nanayakkara 14,660,724 14,598,122
Mr. W.D.K. Jayawardena – –
Mr. M. Inoue (appointed w.e.f. 06.02.09) – –
Mr. H. Ichida (Appointed w.e.f. 06.02.09) – –
Mr. K. Fushitani (Resigned w.e.f. 06.02.09) – –
Mr. Y. Oshima (resigned w.e.f. 06.02.09) – –
Mr. M. Sekimoto (Alternate) – –
Mr. Y. Matsuoka (Alternate) – –
92 | Annual Report of the Board of Directors on the Affairs of the Company I LOLC | Annual Report 2008/09
DIRECTORS’ INTERESTS IN CONTRACTS
The Directors have made the declarations
required by the Companies Act No. 7 of 2007.
These have been noted by the Board, recorded
in the Minutes and entered into the Interest
Register which is maintained by the Company.
DIRECTORS’ REMUNERATION
The Directors’ remuneration is disclosed
on page 89.
BOARD SUBCOMMITTEES
In compliance with regulatory guidelines
and also with best practices, the Board has
formed the following subcommittees :
the Executive Committee
the Audit Committee
the Remuneration Committee
the Nomination Committee
the Corporate Governance Committee
The Reports of these Committees (except for
the Executive Committee) can be found on
pages 88, 89 and 90.
In order to ensure speedy response to volatile
economic conditions, the Board has tasked
the Managing Director/Group CEO with
assets and liability management and liquidity
management. The MD meets with the key
senior management to ensure that resources
are optimised, liquidity is maintained and risk
is recognised and provided for.
Following focused efforts, the Group IT
Steering Committee (comprising the
Chairperson, one of the Executive Directors,
the Chief Information Officer, the Chief
Finance Officer and the Chief Risk Officer)
has been able to streamline IT development
within the Group and increase automation.
This has further increased the accuracy
and comprehensiveness of management
information. The Chief Information Officer is
tasked with reviewing licensing and IT security.
REVIEW OF BUSINESS
Following its purchase of 67% of the stated
capital of Commercial Leasing Company
PLC (CLC), the Company, in accordance
with the provisions of the Take Over and
Mergers Code of the Securities and Exchange
Commission, made an offer to all the
remaining shareholders for the purchase of
the remaining shares and acquired a further
30% of the stated capital.
The Board of Directors of CLC then
recommended to the shareholders that
CLC be de-listed. In order to provide the
remaining shareholders with an exit option,
the Company then made a further offer to the
few remaining shareholders.
Currently the Company holds 99.6% of the
stated capital.
The Company has sharpened its focus on
micro finance by incorporating a subsidiary
company, LOLC Micro Credit Ltd. (LOMC)
to pursue this area of operations. The
Company is delighted that its vision in
this area is shared by several foreign
development financiers. LOMC has invited
the Nederlandse Financierings -
Maatschappij voor Ontwikkelingslanden
N.V. (FMO) to invest in 20% of the stated
capital of the Company and also provide
significant loans. Other foreign financing is
also being successfully pursued.
DIRECTORS’ RESPONSIBILITY FORFINANCIAL REPORTING
The Directors are responsible for the
preparation of Financial Statements of the
Company to reflect a true and fair view of the
state of its affairs. The Directors are of the
view that the Financial Statements (appearing
on pages 100 to 139) have been prepared in
accordance with the requirements of the Sri
Lanka Accounting Standards, the Companies
Act No. 7 of 2007, the Finance Leasing Act
No. 56 of 2000 and all relevant directions of
the Central Bank of Sri Lanka.
Annual Report of the Board of Directors on the Affairs of the Company I LOLC I Annual Report 2008/09 | 93
In accordance with the Listing Rules of the
Colombo Stock Exchange, interim Financial
Statements are dispatched to all shareholders
following each of the first three quarters of
the financial year. The Company sends out
its Annual Report (with a review of the entire
financial year) within three months of the
financial year end thus making dispatch of last
quarter accounts unnecessary.
RESPONSIBILITY STATEMENTS
The Chief Executive Officer’s and Chief
Financial Officer’s Responsibility for Financial
Reporting Statement appears on pages 98.
The Directors Responsibility for Financial
Reporting Statement appears on page 97.
GOING CONCERN
The Directors believe that the Company is
in a position to continue its operations in the
foreseeable future. Accordingly, the Financial
Statements are prepared on the basis that
the Company is a going concern.
FINANCIAL STATEMENTS
The Financial Statements are given on
pages 100 to 139.
INCOME
The income of the Company was
Rs. 6,120,691,922 /- (2008 -
Rs. 4,960,979,140/-). The income of the
Group was Rs. 9,843,453,815/-
(2008 - Rs. 5,934,772,221/-)
PROFIT
Despite difficulties faced due to increasing
cost of funds, the Company made a profit of
Rs. 503,952,740 /- (2008 - Rs. 1,059,236,649/-).
The profit of the Group was
Rs. 1,055,176,529 /- (2008 - Rs. 1,343,495,401/-)
PROFIT AND APPROPRIATIONS2008/09 2007/08
(Restated)Rs. Rs.
Net profit of the Group for the year after providing for all expenses,
known liabilities and depreciation of property, plant & equipment 824,180,680 650,107,421
to which income earned on other activities is added 282,660,615 313,375,519
Goodwill on consolidation is added – 131,292,503
share of profit of Associate companies 140,457,638 88,276,885
and income tax and deferred tax on Group Profit has
to be added/(deducted) (192,122,404) 160,443,073
leaving the Group with a Profit after taxation of 1,055,176,529 1,343,495,401
from which the amount attributable to minority interest is adjusted (1,022,907) (2,616,118)
and transfer to Reserve Fund (48,206,669) (71,692,027)
transfer from retained earnings (32,185,234) –
and deduct the payment of the interim Dividend of Rs. 2.80 per share
for 2008/09 on a Stated Capital of Rs. 475,200,000/-
(2007/08 Rs. 2.25 per share on a Stated Capital of Rs. 475,200,000/-) (134,718,375) (106,920,000)
leaving a sum of 839,043,344 1,162,267,256
to be carried forward out of the year’s profit which when added
to the profit brought forward from previous years of 4,142,813,661 2,980,546,405
leaves an unappropriated profit of 4,981,857,005 4,142,813,661
after these appropriations, the total reserves of the Group stand at 5,536,269,470 4,649,019,458
94 | Annual Report of the Board of Directors on the Affairs of the Company I LOLC | Annual Report 2008/09
SIGNIFICANT ACCOUNTING POLICIES
The Significant Accounting Polices adopted
when preparing these Financial Statements
and any changes thereof if applicable are
given on pages 105 to 114.
STATUTORY PAYMENTS
For the year under review, all known statutory
payments have been made and all retirement
gratuities have been provided for. Further, all
management fees and payments to related
parties for the year under review have been
reflected in the accounts. Details are given in
Note 12 of page 117.
DONATIONS
During the year under review, the Company
made donations amounting to Rs. 546,125/-
(2008 - Rs 118,000/-)
AUDITORS
The Auditors, Messrs Ernst and Young retire
and offer themselves for reappointment. The
Board recommends their reappointment for
the year 2009/10, at a fee to be decided
upon by the Board.
During the year under review, the
Auditors were paid Rs. 1,975,000/- as
audit fees. They were paid a further
amount of Rs 373,690/- for provision
of professional services.
As far as the Directors are aware, the
Auditors do not have any other relationship
with the Company or any of its subsidiaries
nor do they have any interest in contracts
with the Company or any of its subsidiaries.
AUDITOR’S REPORT
The Auditor’s Report appears on page 99.
INTERNAL CONTROLS
Internal controls are periodically reviewed.
The Enterprise Risk Management Division
periodically submits reports to the Audit
Committee, analysing risk in operational
areas, procedures or practices, and
recommending corrective measures.
Following the recommendation of the
Corporate Governance Committee, risk
reports are called for from all Group
companies and analysed by the Board
of the holding Company.
The Risk Management Report on pages 72 to
77 and the Enterprise Governance Report on
pages 60 to 71 give further details.
COMPLIANCE WITH LAWS ANDREGULATIONS
The Company has not engaged in any
activity that contravenes any applicable
law or regulation.
CORPORATE GOVERNANCE
The Corporate Governance committee
meets quarterly and regularly recommends
improvements to existing controls, policies
and procedures. All aspects of risk are being
reviewed, together with mitigating measures
being taken.
Details of steps taken in this connection are
given in the Enterprise Governance Report
found on pages 60 to 71.
ADOPTION OF APPLICABLE REGULATORYAND STATUTORY REQUIREMENTS
Following the revision of the Listing Rules
of the Colombo Stock Exchange (CSE), the
Company has submitted to the CSE the
required listing undertaking.
All group companies have been re-registered
under the Companies Act No. 7 of 2007.
The Board is constantly reviewing risk
assessment and management and compliance
with regulatory and statutory requirements. The
introduction of new procedures and additional
reports enhance Board control and serve to
remind senior management of the need for
strict compliance. It also serves to highlight
non-compliance early.
Annual Report of the Board of Directors on the Affairs of the Company I LOLC I Annual Report 2008/09 | 95
The Company complies with all Directions
and Regulations of the Central Bank of
Sri Lanka on management of companies
engaged in leasing. The Group complies
with any such direction or regulation on
leasing and also those applicable to finance
companies. Monthly compliance reports are
submitted to the Board.
SHAREHOLDINGS
The stated capital of the Company is
Rs. 475,200,000/-, divided into 47,520,000
shares. The shareholding structure is given
on pages 149 to 150, together with the 20
largest shareholders. During the year, the
share price ranged from Rs. 58/- to Rs. 136/-.
As at the end of trading on 31st March, 2009,
the share price was Rs. 69.25.
EQUITABLE TREATMENT OFSHAREHOLDERS
The Directors have made every endeavour
to ensure the equitable treatment of
all shareholders and are committed to
maximising shareholder wealth.
Notice of shareholders’ Meetings are sent
out as required by the Companies Act
No. 7 of 2007, and by the Company’s Articles
of Association. Two way proxies enable all
shareholders to indicate their consent or
dissent on any decision, even if they are
unable to be present at the meeting.
DIVIDENDS
An interim Dividend of Rs. 2.80 per share
(2008 - Rs. 2.25 ) was paid on 26th June,
2008. Taking into account the general decline
in businesses both locally and globally, and
believing that the LOLC Group needs to be
able to immediately honour all commitments,
the Directors are of the view that maintaining
liquidity is crucial.
EVENTS OCCURRING AFTER THEBALANCE SHEET DATE
The Company responded to an invitation
by the Central Bank of Sri Lanka (CBSL) to
invest in a percentage of the stated capital
of Seylan Bank PLC. Working within very
strict time frames and always conscious of
the need to maintain confidentiality of price
sensitive information, the Company followed
up its initial response with a bid. The CBSL
is currently reviewing the bids.
NOTICE OF MEETING
The Notice of Meeting is found on page
155 If you are unable to be present, please
complete and return the Form of Proxy.
HUMAN RESOURCES
During the year under review, the
implementation of the BU structure was
strengthened by the physical relocating of
staff. This has not only enhanced teamwork
but also facilitated training, as group
employees are exposed to the whole range
of the Company’s products and services.
Uniformity of practices and procedures
can be better ensured, while controls are
strengthened.
The refurbishment of the Head Office
building is nearing completion. The improved
environment is having a positive impact on
the workforce and also lends itself to better
security, in terms of physical resources,
human capital and IT safety needs.
Remuneration continues to be linked to
performance. Performance appraisals were
once more reviewed, to ensure that they enable
an employee’s performance to be assessed
as accurately as possible, with regard to both
qualitative and the quantitative aspects.
Kapila JayawardenaGroup Managing Director/Chief Executive Officer
27 May 2009
96 | Annual Report of the Board of Directors on the Affairs of the Company I LOLC | Annual Report 2008/09
Directors’ Responsibilityfor Financial Reporting
The Directors confirm that the Company’s
Financial Statements for the year to
31st March, 2009 are 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, the Finance
Leasing Act No. 56 of 2000 and the
Companies Act No. 7 of 2007. They believe
that the Financial Statements present a true
and fair view of the state of the affairs of the
Company and of the Group as at the end of
the financial year.
The Directors also accept responsibility for
the integrity and accuracy of the Financial
Statements presented and confirm that
appropriate accounting policies have been
selected and applied consistently and
reasonable and prudent judgment has
been exercised so as to accurately report
transactions.
The Directors have taken reasonable steps
to safeguard the assets of the Company, to
prevent, deter and detect fraud, and to ensure
the integrity, accuracy and safeguarding of
operational and financial records.
The Directors confirm that to the best of their
knowledge, all statutory payments due in
respect of the Company and its subsidiaries
as at the balance sheet date have been paid
for, or where relevant, provided for.
The external Auditors, Messrs Ernst and
Young, were provided with the opportunity
to make appropriate inspections of financial
records, minutes and other documents
to enable them to form an opinion of the
Financial Statements. The Report of the
Auditors is set out on page 99.
Kapila Jayawardena
Group Managing Director/Chief Executive Officer
27 May 2009
LOLC I Annual Report 2008/09 | 97
98 | LOLC | Annual Report 2008/09
Chief Executive Officer’s and Chief FinancialOfficer’s ResponsibilityStatement
The Financial Statements are prepared in
compliance with the Sri Lanka Accounting
Standards issued by the Institute of
Chartered Accountants of Sri Lanka and the
requirements of the Companies Act No. 7
of 2007 and any other applicable statutes
to the extent applicable to the Company.
There are no departures from the prescribed
accounting standards in their adoption. The
accounting policies used in the preparation
of the Financial Statements are appropriate
and are consistently applied.
The Board of Directors and the management
of your 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 that the Financial Statements reflect
in a true and fair manner, the form and
substance of transactions and reasonably
present the Company’s state of affairs. To
ensure this, the Company has taken proper
and sufficient care in installing a system of
internal controls and accounting records,
for safeguarding assets and for preventing
and detecting frauds as well as other
irregularities, which is reviewed, evaluated
and updated on an ongoing basis. Our
Internal Auditors have conducted periodic
audits to provide reasonable assurance that
the established policies and procedures of
the Company were consistently followed.
However, there are inherent limitations
that should be recognised in weighing the
assurances provided by any system of
internal controls and accounting.
The Financial Statements were audited by
M/s. Ernst & Young, Chartered Accountants,
the Company’s External Auditors. The Audit
Committee of your Company meets periodically
with the Internal Auditors and the External
Auditors to review the manner in which these
auditors are performing their responsibilities
and to discuss auditing, internal control and
financial reporting issues. To ensure complete
independence, the External Auditors and the
Internal Auditors have full and free access to
the members of the Audit Committee to discuss
any matter of substance.
It is also declared and confirmed that the
Company has complied with and ensured
compliance by the Auditor with the guidelines
for the audit of listed companies where
mandatory compliance is required. It is further
confirmed that all the other guidelines have
been complied with.
Kapila Jayawardena
Group Managing Director/Chief Executive Officer
Sunjeevani Kotakadeniya
Chief Financial OfficerLOLC Group
27 May 2009
LOLC I Annual Report 2008/09 | 99
IndependentAuditor’s Report
HMAJ/TWC/JJ
INDEPENDENT AUDITOR’S REPORT TO THE SHAREHOLDERS OF LANKA ORIX LEASING COMPANY PLC
Report on the Financial StatementsWe have audited the accompanying financial statements of Lanka Orix Leasing Company PLC (“the Company”) and the consolidated financial statements of the Company and its subsidiaries, (‘the Group’) which comprise the balance sheets as at 31 March 2009, and the income statements, statements of changes in equity and cash flow statements for the year then ended, and a summary of significant accounting policies and other explanatory notes.
Management’s Responsibility for the Financial StatementsManagement is responsible for the preparation and fair presentation of these financial statements in accordance with Sri Lanka Accounting Standards. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.
Scope of Audit and Basis of OpinionOur responsibility is to express an opinion onthese financial statements based on our audit. We conducted our audit in accordance with Sri Lanka Auditing Standards. Those standards require that we plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement.
An audit includes examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.
We have obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purposes of our audit. We therefore believe that our audit provides a reasonable basis for our opinion.
OpinionIn our opinion, so far as appears from our examination, the Company maintained proper accounting records for the year ended 31 March 2009 and the financial statements give a true and fair view of the Company’s state of affairs as at 31 March 2009 and its profit and cash flows for the year then ended in accordance with Sri Lanka Accounting Standards.
In our opinion, the consolidated financial statements give a true and fair view of the state of affairs as at 31 March 2009 and the profit and cash flows for the year then ended, in accordance with Sri Lanka Accounting Standards, of the Company and its subsidiaries dealt with thereby, so far as concerns the shareholders of the Company.
Report on Other Legal and Regulatory RequirementsIn our opinion, these financial statements also comply with the requirements of Sections 151(2) and 153(2) to 153(7) of the Companies Act No. 07 of 2007.
27 May 2009Colombo.
100 | LOLC | Annual Report 2008/09
IncomeStatements
Group Company
For the year ended 31 March 2009 2008 2009 2008 Restated Note Rs. Rs. Rs. Rs.
GROSS REVENUE 3 13,621,721,231 6,248,147,740 9,687,377,538 5,222,232,312
REVENUE
Revenue from instalment sales 3,495,606,802 – 3,495,606,802 –
Less: cost of sales (2,993,076,288) – (2,993,076,288) –
Gross profit 502,530,514 – 502,530,514 –
INCOME 4 9,843,453,815 5,934,772,221 6,120,691,922 4,960,979,139
OPERATING EXPENSES 5
Direct expenses excluding interest costs 6 (497,742,300) (218,144,472) (314,921,094) (174,335,683)
Provision for bad and doubtful debts (369,767,923) (171,592,067) (200,446,301) (114,887,215)
Staff costs 7 (727,552,967) (521,628,481) (358,807,279) (360,542,736)
Depreciation (498,266,606) (319,886,314) (409,933,410) (298,137,043)
Other operating expenses 8 (987,292,400) (649,448,292) (624,799,364) (460,937,228)
OPERATING PROFIT BEFORE NET INTEREST COST 7,265,362,133 4,054,072,595 4,714,314,988 3,552,139,234
Net interest costs 9 (6,441,181,453) (3,403,965,174) (4,205,473,730) (2,972,056,968)
RESULTS FROM OPERATING ACTIVITIES 824,180,680 650,107,421 508,841,258 580,082,266
Other income/(expenses) 10 282,660,615 313,375,519 71,078,814 261,253,173
Negative Goodwill 11 – 131,292,503 – –
Share of profit of associate companies 140,457,638 88,276,885 – –
PROFIT BEFORE TAXATION 1,247,298,933 1,183,052,328 579,920,072 841,335,439
Taxation 12 (192,122,404) 160,443,073 (75,967,332) 217,901,210
PROFIT FOR THE YEAR 1,055,176,529 1,343,495,401 503,952,740 1,059,236,649
Attributable to:
Equity holders of the Company 1,054,153,622 1,340,879,283 503,952,740 1,059,236,649
Minority interest 1,022,907 2,616,118 – –
PROFIT FOR THE YEAR 1,055,176,529 1,343,495,401 503,952,740 1,059,236,649
BASIC/DILUTED EARNINGS PER SHARE 13 22.18 28.22
Figures in brackets indicate deductions.
The above Income Statements should be read in conjunction with the Notes, which form an integral part of these Financial Statements,
disclosed on pages 105 to 139.
LOLC I Annual Report 2008/09 | 101
BalanceSheets
Group Company
As at 31 March 2009 2008 2009 2008 Restated Note Rs. Rs. Rs. Rs.
ASSETSCash and cash equivalents 14 1,832,565,294 1,072,750,722 552,835,056 606,030,326Short-term investments 920,295,148 863,356,920 13,351,058 178,838,916Rentals receivable on lease assets/hire purchase/others 15 17,193,230,490 11,602,159,331 6,497,919,685 9,984,330,771Advances and other loans 16 10,297,960,442 8,562,905,852 7,532,245,716 6,742,226,553Instalment sales 17 2,954,951,809 – 2,954,951,809 – Factoring receivable 1,897,170,734 1,109,135,185 1,138,142,223 1,109,135,185Inventories 19,572,061 20,884,442 – – Real estate stocks 124,121,566 160,757,548 3,135,535 39,290,372Advances for margin trading 51,070,162 79,880,328 – – Other current assets 18 2,423,498,281 1,587,243,130 3,636,303,826 1,771,252,175Investment Securities 19 292,711,686 365,660,795 289,966,285 365,482,970Investment in term deposits 3,864,491,419 4,362,623,372 2,281,454,487 4,239,553,926Deferred tax asset 20 548,735,133 563,105,368 539,311,406 562,231,103Investments in joint venture 21 – – 10,000,000 100,000,000Investments in associate companies 22 676,420,661 492,585,403 278,190,903 278,190,903Investments in subsidiary companies 23 20 20 2,997,494,547 911,245,620Goodwill 151,415,234 – – – Intangible assets 24 144,206,594 – – – Property, plant and equipment 25 2,969,649,409 2,151,209,445 2,603,966,056 2,108,258,683Total assets 46,362,066,143 32,994,257,861 31,329,268,592 28,996,067,503 LIABILITIES AND EQUITYLiabilitiesBank Overdraft 2,750,579,613 1,090,023,468 1,909,632,293 786,837,530Deposits from customers 26 5,303,920,975 3,339,664,870 – – Short-term borrowings 27 9,792,087,865 7,865,273,046 7,525,259,970 7,555,533,046Finance lease liabilities 28 612,754,819 961,803,300 612,754,819 961,151,033Provision for taxation 165,528,410 21,301,187 113,855,355 8,739,146Long-term borrowings - current 29 6,676,896,050 3,867,594,352 4,442,165,898 3,867,594,352Trade and other payables 30 2,611,688,796 1,500,815,506 1,212,462,796 1,909,078,611Long-term borrowings - non-current 29 11,931,366,227 9,102,258,984 10,359,946,685 9,102,258,984Deferred taxation 351,416,535 15,881,811 – – Retirement benefit obligations 31 74,349,053 51,772,347 51,819,459 42,737,849Total liabilities 40,270,588,343 27,816,388,871 26,227,897,275 24,233,930,551 Equity Stated capital 32 475,200,000 475,200,000 475,200,000 475,200,000Reserves 33 554,412,465 506,205,796 529,406,289 494,396,232Retained earnings 34 4,981,857,006 4,142,813,662 4,096,765,029 3,792,540,720Equity attributable to equity holders of the Company 6,011,469,471 5,124,219,458 5,101,371,317 4,762,136,952Minority interest 35 80,008,329 53,649,532 – – Total equity 6,091,477,800 5,177,868,990 5,101,371,317 4,762,136,952Total liabilities & equity 46,362,066,143 32,994,257,861 31,329,268,592 28,996,067,503
The above Balance Sheets should be read in conjunction with the Notes, which form an integral part of these Financial Statements, disclosed on pages 105 to 139.
The Board of Directors is responsible for the preparation and presentation of these Financial Statements.
The Chief Financial Officer - LOLC Group certifies that the Financial Statements have been prepared in compliance with the requirements of the Companies Act No. 07 of 2007.
Mrs. S.S. KotakadeniyaChief Financial Officer - LOLC Group
Signed on behalf of the Board
Mrs. R.L. Nanayakkara Mr. W.D.K. Jayawardena Chairperson Group Managing Director/CEO 27 May 2009Rajagiriya (Greater Colombo)
102 | LOLC | Annual Report 2008/09
Statement of Changes in EquityGROUP Attributable to Equity Holders of the Company Stated Subsidiary Revaluation Future Statutory Retained Minority Total Capital Share Reserve Taxation Reserve Earnings Interest Premium ReserveFor the year ended 31 March 2009 Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs.
Balance as at 31.03.2007 475,200,000 536,504 – 205,000,000 123,574,424 2,980,546,405 40,061,662 3,824,918,995
Profit for the year – – – – – 1,340,879,283 2,616,118 1,343,495,401
Dividends – – – – – (106,920,000) – (106,920,000)
Addition to minority through
acquisition of subsidiary – – – – – – 10,971,752 10,971,752
Transfers during the year – – – – 71,692,027 (71,692,027) – –
Revaluations during the year – – 105,402,842 – – – – 105,402,842
Balance as at 31.03.2008 475,200,000 536,504 105,402,842 205,000,000 195,266,451 4,142,813,661 53,649,532 5,177,868,990
Profit for the year – – – – – 1,054,153,622 1,022,907 1,055,176,529
Dividends – – – – – (134,718,375) – (134,718,375)
Addition to minority through
acquisition of subsidiary – – – – – – 25,335,890 25,335,890
Transferred back to retained earnings – – – – – (32,185,234) – (32,185,234)
Transfers during the year – – – – 48,206,669 (48,206,669) – –
Balance as at 31.03.2009 475,200,000 536,504 105,402,842 205,000,000 243,473,120 4,981,857,005 80,008,329 6,091,477,800
COMPANY Attributable to Equity Holders of the Company Stated Subsidiary Revaluation Future Statutory Retained Minority Total Capital Share Reserve Taxation Reserve Earnings Interest Premium ReserveFor the year ended 31 March 2009 Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs.
Balance as at 31.03.2007 475,200,000 – – 205,000,000 115,542,388 2,898,544,546 – 3,694,286,934
Transferred to retained
earnings through merger – – – – – 14,284,169 – 14,284,169
Profit for the year – – – – – 1,059,236,649 – 1,059,236,649
Dividends – – – – – (111,073,642) – (111,073,642)
Transfers during the year – – – – 68,451,002 (68,451,002) – –
Transferred to retained earnings – – – – – – – –
Revaluations during the year – – 105,402,842 – – – – 105,402,842
Balance as at 31.03.2008 475,200,000 – 105,402,842 205,000,000 183,993,390 3,792,540,720 – 4,762,136,952
Profit for the year – – – – – 503,952,740 – 503,952,740
Transferred to retained earnings
to factoring receivables – – – – – (30,000,000) – (30,000,000)
Dividends – – – – – (134,718,375) – (134,718,375)
Transfers during the year – – – – 35,010,056 (35,010,056) – –
Revaluation during the year – – – – – – – –
Balance as at 31.03.2009 475,200,000 – -105,402,842 205,000,000 219,003,446 4,096,765,029 – 5,101,371,317
LOLC I Annual Report 2008/09 | 103
Cash Flow Statement
Group Company
For the year ended 31 March 2009 2008 2009 2008 Restated Note Rs. Rs. Rs. Rs.
CASH FLOW FROM OPERATING ACTIVITIES
Net profit before taxation 1,247,298,933 1,183,052,328 579,920,072 841,335,439
Adjustment for:
(Profit)/Loss on sale of property, plant and equipment (16,173,288) (6,158,934) (9,468,008) (3,176,819)
Depreciation 498,266,606 319,886,314 409,933,410 298,137,043
Provision for gratuity 8,146,452 18,448,564 9,235,879 15,797,824
Allowances for doubtful debts 274,320,990 119,014,628 121,115,756 76,585,720
Provision for fall/(increase) in value of investments 180,997,507 (138,353,860) 178,573,279 (136,427,230)
Capital gain on treasury bond trading (25,196,300) – (25,196,300) –
Investment income (3,175,105) (1,789,404) (28,159,560) (8,659,278)
Interest cost 6,612,437,228 3,633,596,534 4,376,729,505 3,290,826,740
Interest income (171,255,775) (229,631,360) (171,255,775) (229,631,360)
(Profit)/Loss on sale of investments – (47,744,537) – (47,744,537)
Negative Goodwill – (131,235,677) – –
Share of profit of equity accounted investees (140,457,638) (88,276,885) – –
7,217,910,677 3,447,755,383 4,861,508,186 3,255,708,103
Operating profit before working capital change 8,465,209,610 4,630,807,711 5,441,428,258 4,097,043,542
(Increase)/Decrease in accounts receivables & others (4,550,833,939) (580,419,322) 1,260,954,321 (1,291,710,514)
Change in inventories 1,312,381 (3,447,493) – –
Increase/(Decrease) in accounts payables 1,411,882,380 (108,579,785) (846,619,083) 976,122,896
(Increase)/Decrease in real estate stocks 36,635,982 (10,772,430) 36,154,837 7,475,345
(Increase)/Decrease Investment in leases 6,151,356,956 (1,463,786,152) 2,177,476,125 (1,217,757,622)
(Increase)/Decrease in factoring account receivable (798,386,414) (615,752,485) (39,357,903) (621,445,221)
(Increase)/Decrease Investment in advances and other loans (8,603,212,043) (2,811,783,189) (5,675,538,397) (1,523,839,200)
2,113,964,913 (963,733,145) 2,354,498,158 425,889,226
Interest paid (6,128,877,313) (3,022,107,835) (4,526,732,775) (3,107,052,885)
Income tax paid (51,739,684) (156,744,952) (6,186,532) (114,240,753)
Gratuity paid (3,278,593) (1,507,264) (1,111,361) (750,800)
Net cash used in operating activities (4,069,930,677) (4,144,093,196) (2,179,532,510) (2,796,155,212)
Group Company
For the year ended 31 March 2009 2008 2009 2008 Restated Note Rs. Rs. Rs. Rs.
CASH FLOW FROM INVESTING ACTIVITIES
Investment in subsidiary companies – – (2,086,248,927) (36,244,900)
Net cash & cash equivalents on acquisition of subsidiary (1,313,539,634) 10,404,153 – –
Investment in equity accounted investees (183,835,258) (216,359,359) – (216,359,359)
Investment in joint venture – – 90,000,000 (100,000,000)
Purchase of property, plant and equipment (1,106,008,424) (805,358,312) (1,003,347,160) (794,014,472)
Net proceeds from short term investments (56,938,228) (458,808,018) 165,487,860 (144,060,251)
Net additions to investments 259,010,614 (101,087,928) 654,089,963 (105,278,385)
Increase in investment in term deposits 498,131,954 (1,349,244,407) 1,958,099,439 (1,226,174,961)
Proceed from the sale of property, plant and equipment 120,057,274 67,542,412 107,174,385 65,869,586
Interest received 171,255,775 229,631,360 171,255,775 229,631,360
Dividend received 2,545,905 1,789,404 28,159,560 8,659,278
Rent received 629,200 – – –
Net cash flow from investing activities (1,608,690,820) (2,621,490,695) (84,670,895) (2,317,972,104)
CASH FLOW FROM FINANCING ACTIVITIES
Net proceed from short term borrowings (334,616,265) 2,463,914,708 (430,273,076) 2,369,020,304
Net Increase/(Decrease) in lease liability (349,048,481) (69,904,082) (348,396,214) (69,455,109)
Net Proceeds from customer deposits 1,964,256,104 1,593,500,130 – –
Proceeds from long term loans 8,314,957,324 6,935,999,832 6,515,209,629 6,935,999,833
Repayments of long term loans (4,682,950,382) (4,274,501,532) (4,682,950,382) (4,274,501,532)
Dividend paid (134,718,375) (106,920,000) (134,718,375) (106,920,000)
Net cash generated from financing activities 4,777,879,925 6,542,089,056 918,871,582 4,854,143,496
Net Increase/(Decrease) in cash & cash equivalents during the year (900,741,573) (223,496,835) (1,175,990,033) (259,983,820)
Cash & cash equivalents at the beginning of the year (17,272,746) 206,224,089 (180,807,204) 79,176,616
Cash & cash equivalents at the end of the year (918,014,319) (17,272,746) (1,356,797,237) (180,807,204)
Analysis of Cash & Cash Equivalents at the end of the year
Cash at bank and in hand (Note 14.1) 1,832,565,294 1,072,750,722 552,835,056 606,030,326
Bank overdraft (Note 14.2) (2,750,579,613) (1,090,023,468) (1,909,632,293) (786,837,530)
(918,014,319) (17,272,746) (1,356,797,237) (180,807,204)
104 | Cash Flow Statement I LOLC | Annual Report 2008/09
Notes to the Financial Statements
1. CORPORATE INFORMATION
1.1 General
Lanka ORIX Leasing Company PLC is
a public quoted company incorporated
on 14 March 1980 and domiciled in
Sri Lanka. The Consolidated Financial
Statements of the Company for the year
ended 31 March 2009 comprise of the
Company and its subsidiaries (together
referred to as the ‘Group’).
The Financial Statements were authorised
for issue by the Directors on 29 May 2009.
1.2 Principal Activities and Nature of Operations
During the year, the principal activities
of the Group comprised of leasing,
hire purchase, loans, operating leases,
instalment sales, factoring, insurance
broking, accepting deposits, pawn
broking, Islamic Financing and assembly
and distribution of solar light systems.
1.3 Directors’ Responsibility Statement
The Board of Directors takes the
responsibility for the preparation and
presentation of these Financial
Statements.
2. ACCOUNTING POLICIES
2.1 Statement of Compliance
The Financial Statements of the
Company and those consolidated with
such are prepared in accordance with
the Sri Lanka Accounting Standards
laid down by the Institute of Chartered
Accountants of Sri Lanka and therefore
present fairly the financial position,
financial performance and cash flow of
the Company.
The preparation of Financial Statements
in conformity with SLASs require
management to make judgments,
estimates and assumptions that affect
the application of policies and reported
amounts of assets and liabilities, income
and expenses. The estimates and
associated assumptions are based
on historical experience and various
other factors that are believed to be
reasonable under the circumstances, the
results of which form the basis of making
the judgments about carrying values of
assets and liabilities that are not readily
apparent from other sources. Actual
results may differ from these estimates.
2.2 Basis of Preparation
The Financial Statements are presented
in Sri Lanka Rupees which is also the
Company’s functional currency where
appropriate the significant Accounting
Policies have been disclosed in the
succeeding Notes. The Financial
Statements are prepared on the
historical cost basis and no adjustment
has been made for inflationary factors
affecting the Financial Statements
except for revaluation of land. Assets
and liabilities are grouped by nature and
listed in an order that reflect their relative
liquidity. These Financial Statements
are in compliance with the Companies
Act No. 07 of 2007.
Previous period figures and Notes have
been restated and reclassified wherever
necessary to conform to the current
presentation Note 44.
The specific policies used are
explained below and relate to both the
Consolidated Financial Statements and
that of the Company, except as stated
otherwise.
The Accounting Policies have been
consistently applied by the Company
and are consistent with those used in
the previous year except where the
Company has during the year adopted
SLAS 16 (Revised 2006) - Employee
Benefits Note 31.
LOLC I Annual Report 2008/09 | 105
Key assumptions concerning the future
and other key sources of estimation of
uncertainty at Balance Sheet date that
may have a significant risk of causing
material adjustments to the carrying
amounts of assets and liabilities within
the next financial year, considered in the
financials include:
· Provision for cost of defined
benefit plan (gratuity) using
an actuarial valuation.
· Deferred tax assets recognised for all
unused tax losses to the extent that it
is probable that taxable profit will be
available against which, the losses
can be utilised.
2.3 Basis of Consolidation
(i) Subsidiaries
The Financial Statements of the
Group represent the consolidation
of the Financial Statements of Lanka
ORIX Leasing Company PLC, and its
subsidiaries as disclosed in Note 23.
Subsidiaries are entities controlled by
the Company. Control exists when the
Company has the power, directly or
indirectly, to govern the financial and
operation policies of an entity so as
to obtain benefits from its activities.
In assessing control, potential voting
rights that presently are exercisable or
convertible are taken into account.
Subsidiaries are consolidated from
the date the Parent Company obtains
control until such time as control
ceases. Acquisition of subsidiaries
are accounted for using the purchase
method of accounting.
The Group Financial Statements are
prepared in accordance with the
Sri Lanka Accounting Standards No. 26
on Consolidated Financial Statements.
The interest of the outside shareholders
of the Group is disclosed separately
under the heading ‘Minority Interest’.
(ii) Associates and Jointly Controlled Entities
Associates are those entities in which
the Group has significant influence,
but not control, over the financial and
operating policies. Joint ventures are
those entities over whose activities the
Group has joint control, established by
contractual agreement and requiring
unanimous consent for strategic
financial and operating decisions.
Significant influence is presumed to exist
when the Group holds between 20% and
50% of the voting power of another entity.
Associates are accounted for using
the equity method (equity accounted
investees) and are initially recognised at
cost. The Group’s investment includes
goodwill identified on acquisition, net
of any accumulated impairment losses.
The Consolidated Financial Statements
include the Group’s share of the income
and expenses and equity movements
of equity accounted investees, after
adjustments to align the accounting
policies with those of the Group, from
the date that significant influence
commences until the date that significant
influence ceases. When the Group’s
share of losses exceeds its interest in an
equity accounted investee, the carrying
amount of that interest (including any
long-term investments) is reduced to nil
and the recognition of further losses is
discontinued except to the extent that
the Group has an obligation or has made
payments on behalf of the investee.
Jointly controlled entities are accounted
for using proportionate consolidation
method, from the date that significant
influence or joint control commences
until the date that significant influence or
joint control ceases.
106 | Notes to the Financial Statements I LOLC | Annual Report 2008/09
(iii) Business Combinations
All business combinations have been
accounted for by applying the purchase
method in accordance with the Sri Lanka
Accounting Standards No. 25 (Revised
2004) - Business Combinations.
Applying this method involves the entity
that obtains control of the other entity
to recognise the fair value of assets
acquired and liabilities and contingent
liabilities assumed, including those not
previously recognised.
(iv) Transactions Eliminated on Consolidation
Intra-group balances and any unrealised
gains and losses or income and
expenses arising from intra-group
transactions are eliminated in preparing
the Consolidated Financial Statements.
(v) Goodwill
Goodwill represents the excess of the
cost of any acquisition of a subsidiary
or an associate over the Group’s interest
in the net fair value of the identifiable
assets, liabilities and contingent
liabilities acquired.
Goodwill is initially recognised at cost.
The Company will test the goodwill for
impairment annually and asses for any
indication of impairment to ensure that
its carrying amount does not exceed the
recoverable amount. If an impairment
loss is identified, it is recognised
immediately to the Income Statement.
Carrying amount of the goodwill arising
on acquisition of subsidiaries and joint
ventures is presented as an intangible
and the goodwill on an acquisition of
and equity accounted investment is
included in the carrying value of the
investment.
In the Group’s interest in the net fair
value of the identifiable assets, liabilities
and contingent liabilities exceeds the
cost of the acquisition of the entity, the
Group will reassess the measurement
of the acquiree’s identifiable assets
and liabilities and the measurement
of the acquiree’s identifiable assets
and liabilities and the measurement of
the cost and recognise the difference
immediately to the Consolidated
Income Statement.
(vi) Intagibale Assets
Intangible assets acquired separately
are measured as initial recognition
at cost. Following initial recognition
intangible assets are carried at cost
less any accumulated amortisation and
any accumulated impairment losses.
The useful life of intangible assets are
assessed to be either finite or indefinite.
Intangible assets with finite areas are
amortised over the useful economic life
and assessed for impairment when ever
there is an indication that the intangible
asset may be impaired. The amortisation
period and the method for an intangible
assets with a finite useful life is reviewed
at least at each financial year end.
2.4 Assets and Bases of their Valuation(i) Cash and Cash Equivalents
Cash and cash equivalents comprise
of cash in hand and cash at banks.
Bank overdrafts that are repayable
on demand and form an integral part
of the Group cash management are
included as a component of Cash and
Cash Equivalents for the purpose of the
statement of cash flows.
(ii) Rentals Receivable on Leased Assets, Mortgage Loans, Hire Purchases
Rentals receivable on leased assets are
accounted for as finance leases and
reflected in the Balance Sheet at balance
cost recoverable after eliminating
unearned income and deducting
pre-paid rentals, rental collections and
provision for doubtful debts.
Notes to the Financial Statements I LOLC | Annual Report 2008/09 | 107
Advances and Other Loans to Customers
Advances and other loans to customers
comprised of revolving loans and loans
with fixed instalments.
Revolving loans to customers are
reflected in the Balance Sheet at
amounts disbursed less repayments
and provision for doubtful debts. Loans
to customers with fixed instalments
are stated in the Balance Sheet net of
possible loan losses and net of interest,
which is not accrued to revenue.
(iii) Provision for Doubtful Debts
The Company computes its provisioning
for bad and doubtful debts according to
the Central Bank Direction No. 2 of 2006.
The specific provisions for doubtful debts
are arrived at using the following bases:
Lease, hire purchase and loan receivables
of Lanka ORIX Leasing Company PLC
and LOLC Micro Credit Ltd.
Twenty percent (20%) of all lease,
hire purchase and loan receivables
(net of unearned income) which are in
arrears for a period of 6 to 12 months.
Fifty percent (50%) of all lease, hire
purchases and loan receivables (net of
unearned income) which are in arrears
for a period of 12 to 18 months.
One hundred percent (100%) of
all lease, hire purchases and loan
receivables (net of unearned income)
which are in arrears for a period of
18 months and more, with additional
specific provisions on a case-by-
case basis.
High risk Micro products of Lanka ORIX Leasing
Company PLC, LOLC Micro Credit Ltd. and
lease, hire purchase and loan receivables
of Lanka ORIX Finance Company Ltd. and
Commercial Leasing Company PLC.
Computation is based on the Direction
No. 1 of 1991 of Section 2 of the Finance
Companies Act No. 78 of 1988.
Fifty percent (50%) on all receivables
(net of unearned income) which are
in arrears for a period of 6 to
12 months.
One hundred percent (100%) on all
receivables (net of unearned income)
which are in arrears for a period of
12 months and more with additional
specific provisions.
Additional specific provisions are
made upon management review
on the performance of the lease,
hire purchase and loan portfolios.
Facilities that are overdue for 18
months or more and fully provided
have been written off against the
provisions made:
The values of the following items held
as collateral for a particular advance
have been deducted in arriving at the
above provisions:
With regard to vehicles that have
been repossessed by the Company,
eighty percent (80%) of the valuation
obtained during the preceding 6
months from a professional valuer
with regard to land and buildings,
the full value, in case of a primary
mortgage, such value shall not
exceed the value decided by a
qualified professional valuer at the
time of providing the accommodation
(iv) Factoring Debtors - (Subsidiary)
Factoring receivables of the Group have
been stated net of specific provisions
based on company provisioning policy.
Any amount uncollectable is written off
against profits.
Further Commercial Leasing Company
PLC makes a general provision of 0.75%
of factoring receivables to absorb any
losses arising from unforeseen events.
108 | Notes to the Financial Statements I LOLC | Annual Report 2008/09
(v) Inventories
Inventories are stated at the lower of
cost and net realisable value. Inventories
has been valued based on the weighted
average cost method and includes
expenditure incurred in acquiring the
inventories and bringing them to their
existing condition and location.
(vi) Real Estate Stocks
Real Estate Stocks of the Company
represent the purchase value of
properties acquired for resale with
buy-back agreements, less repayments.
Real Estate Stocks of Lanka ORIX
Finance Company represent the
purchase value of properties acquired
and any subsequent expenditure
incurred on such for development.
(vii) Short-Term Investments
Short-term investment comprises
of call deposits, interest earning
demand deposits with banks and
securities purchased under repurchase
agreements (Repos). Call deposits and
deposits with banks are stated at the
amounts to be realised and Repos are
stated at purchase value plus interest
accrued on a time proportionate basis.
(viii) Investments in Term Deposits
Term deposits are stated at principal
amount plus interest accrued on a time
proportionate basis.
(ix) Investments in Subsidiary Companies
In the Parent Company’s Financial
Statements, the investments in the
Subsidiary Companies are reflected at
cost of acquisition, net of any provision
for diminution in value other than
temporary.
Provision made for fall in value of such
investments is charged against profits.
(x) Investment Securities
Investments in quoted shares are stated
at their respective market values on an
aggregate portfolio basis. Provision for
fall in market value is also made on an
aggregate portfolio basis for each class
of investment.
Investment in Treasury Bills and
commercial papers are shown at initial
cost plus accumulated interest.
Investment in non-quoted shares
are stated at cost of acquisition and
adjusted for any fall in value, which are
other than temporary.
(xi) Receivable from Clients on Share Purchases
Amounts receivable from clients for
shares purchased on behalf of them are
stated at net of specific provisioning.
(xii) Other Receivables
Other receivable balances are stated
at estimated amounts receivable after
providing for doubtful receivables.
(xiii) Property, Plant and Equipment (Other than Operating Lease Assets and Leasehold Vehicles and Machinery)
(a) Recognition and Measurement
Items of property, plant and equipment
are measured at cost/revaluation
less accumulated depreciation/
impairment losses.
Cost includes expenditure that is directly
attributable to the acquisition of the
asset. The cost of self-constructed
assets includes the cost of materials and
direct labour, any other costs directly
attributable to bringing the asset to
a working condition for its intended
use, and the costs of dismantling and
removing the items and restoring the site
on which they are located.
Notes to the Financial Statements I LOLC | Annual Report 2008/09 | 109
When parts of an item of property, plant
and equipment have different useful
lives, they are accounted for as separate
items of property, plant and equipment.
Gains and losses on disposal of an item
of property, plant and equipment are
determined by comparing the proceeds
from disposal with the carrying amount
of property, plant and equipment
and are recognised net within ‘other
income’ in profit or loss. When revalued
assets are sold, the amounts included
in the revaluation surplus reserve are
transferred to retained earnings.
(b) Subsequent Costs
The cost of replacing part of an item
of property, plant and equipment is
recognised in the carrying amount of
the item if it is probable that the future
economic benefits embodied within the
part will flow to the Group and its cost
can be measured reliably. The carrying
amount of the replaced part
is derecognised. The costs of the
day-to-day servicing of property, plant
and equipment are recognised in profit
or loss as incurred.
(c) Depreciation
Property, plant and equipment are stated
in the Balance Sheet, at cost/revaluation
less accumulated depreciation together
with any incidental expenses thereon.
The cost includes expenditure that is
directly attributable to the acquisition of
the asset and any other costs incurred
in bringing the asset to the working
condition.
Depreciation is provided from the date
the asset is available for use up to the
date it derecognises. The Company and
its subsidiaries provide depreciation for
the following assets on the straight line
method over the estimated useful life
stated below. Land is not depreciated.
Building 40 years
Motor Vehicles 4 years
Furniture & Fittings 5 years
Office Equipment 5 years
Commercial Leasing Company PLC,
a subsidiary company, depreciates
fixtures and office furniture over 10 years
and computer equipment over 4 years.
Lanka ORIX Securities (Pvt) Ltd., a
subsidiary Company, depreciates
computers categorised under office
equipment over 3 years and furniture
and fittings over 4 years.
Gal Oya Holdings (Pvt) Ltd., a Joint
Venture Company, depreciates
computers over 4 years and office
equipment over 8 years.
Sundaya Lanka (Pvt) Ltd., a subsidiary
Company, depreciates motor vehicles
over 5 years. Equipments & tools,
furniture & fittings and computers are
depreciated over 4 years.
(xiv) Operating Lease Assets
Operating lease assets are motor
vehicles and equipments shown under
property, plant and equipment in the
Balance Sheet at cost less accumulated
depreciation.
Motor vehicles are depreciated net of
cost and the estimated residual value
over the effective useful life. Residual
value is the estimated net amount the
Company would currently obtain from
disposal of the assets at the end of
useful life.
(xv) Leasehold Vehicles
Leasehold vehicles are assets obtained
on finance leases facilities by the
Company for the business of hiring and
shown under the property, plant and
equipment in the Balance Sheet at cost
less accumulated depreciation.
110 | Notes to the Financial Statements I LOLC | Annual Report 2008/09
These assets are depreciated net of cost
and the estimated residual value over
the effective useful life.
(xvi) Leasehold Machinery
Leasehold machinery are machinery and
equipments shown under property, plant
and equipment in the Balance Sheet
at cost less accumulated depreciation.
Depreciation on leasehold machinery is
computed over the lease period.
(xvii) Capital Work-in-Progress
Capital work-in-progress is stated
at cost. These are expenses of a
capital nature directly incurred in the
construction of building.
2.5 Foreign Currency Transactions
Transactions denominated in foreign
currencies are converted into Rupees
at the monthly average exchange rate
applicable for the transactions. Assets
and liabilities denominated in foreign
currencies are converted into Rupees
at the rate of exchange prevailing at
the date of the Balance Sheet. Profit or
loss arising on conversion is credited or
debited to the Income Statement.
2.6 Liabilities and Provisions
Liabilities are recognised in the
Balance Sheet when there is a present
obligation as a result of a past event, the
settlement of which is expected to result
in an outflow of resources embodying
economic benefits. Obligations payable
at the demand of the creditor or within
one year of the Balance Sheet date
are treated as current liabilities in the
Balance Sheet. Liabilities payable after
one year from the Balance Sheet date
are treated as non-current liabilities in
the Balance Sheet.
(i) Finance Leases
Property and Equipment on finance
leases, which effectively transfer to
the Group substantially all of the risk
and benefits incidental to ownership
of the leased items, are disclosed as
finance leases at their cash price and
depreciated over the period the Group is
expected to benefit from the use of the
leased assets.
The corresponding principal amount
payable to the lessor is shown
as a liability. Lease payments are
apportioned between the finance
charges and reduction of the lease
liability so as to achieve a constant rate
of interest on the outstanding balance
of the liability. The interest payable over
the period of the lease is transferred to
an interest in suspense account. The
interest element of the rental obligations
pertaining to each financial year is
charged to the Income Statement over
the period of lease.
(ii) Income Tax
The tax rates and tax laws used to
compute the amount are those that are
enacted or substantively enacted as at
the Balance Sheet date. Accordingly,
provision for taxation is made on the
basis of the profit for the year as adjusted
for the taxation purposes in accordance
with provision of the Inland Revenue Act
No.10 of 2006 and amendments thereto.
The rates used are specified in Note 12
to Financial Statements.
(iii) Deferred Taxation
Deferred taxation is provided on the
liability method for temporary differences
between the carrying amount of assets
and liabilities for financial reporting
purposes and the amounts used for
taxation purposes. The amount of
deferred tax provided is based on
the expected manner of realisation or
settlement of the carrying amount of
assets and liabilities.
Notes to the Financial Statements I LOLC | Annual Report 2008/09 | 111
A deferred tax asset is recognised for
carried forward unused tax losses to
the extent that it is probable that future
taxable profit will be available against
which the asset can be utilised.
The carrying amount of deferred tax
asset is reviewed at each Balance Sheet
date and reduce to the extent that is
no longer probable that the related tax
benefit will be realised. Unrecognised
deferred tax asset in relation to
deductible differences, unused tax
credits and unused tax losses carried
forward are reassessed at each Balance
Sheet date and recognised to the extent
that has become probable that future
taxable profits will allow the deferred tax
asset to be recovered.
Deferred tax liabilities and assets are
measured at the applicable tax rate
prevailing in the year. Deferred tax asset
and the liabilities in the same entity are
set off in line with provision of prevailing
tax laws.
(iv) Retirement BenefitsDefined Benefit Plan- Gratuity
The Company changed the policy to
value its gratuity plan on an actuarial
basis and to recognise the gratuity
liability in terms of the statute for the
Company and the Group. Towards this
liability, the Company carries a provision
in the Balance sheet.
The actuarial valuation is done on an
ongoing basis and uses a Projected
Unit Credit Method. When complying
with the new SLAS, the Company has
created a transitional liability/(asset).
The difference between the actuarial
gratuity liability attributed to the past
service at the beginning of the year and
the provision made in the Balance Sheet
prior to adoption of SLAS has created an
asset, which is recognised in the current
year’s financials.
The gratuity liability is not funded.
Defined Contribution Plan - EPF & ETF
All employees of the Company are
members of the Employees’ Provident
Fund (EPF) and Employees’ Trust Fund
(ETF), to which the Company
contributes 12% and 3% of employee
salaries respectively and charged
against the profits.
2.7 Income Statement
(i) Gross income represents the gross
income receivable for the year on
all performing contracts, rentals on
operating leases, income on factoring
of client debtors, commission earned
on insurance premiums, brokerage
on share transactions and fees for IT
services provided. It includes all income
related to operations such as interest
on overdue rentals, profit/loss on leases
and loans terminated and collections on
contracts written-off.
(ii) Revenue Recognition(a) Earned Income on Leases
The Group follows the financing method
of accounting for lease income.
The excess of aggregated contract
receivable over the cost of the leased
assets constitutes the total unearned
income at the commencement of
a contract.
The unearned income is recognised
as income over the term of the lease
commencing with the month that the
lease is executed in proportion to the
declining receivable balance, so as
to produce a constant periodic rate of
return on the Lessor’s net investment
outstanding on the lease.
112 | Notes to the Financial Statements I LOLC | Annual Report 2008/09
Non-performing leases are those
leases where the rentals are overdue
for 6 months and over. Lease income
accrued is suspended from the date a
lease is classified as non-performing
and credited to the ‘Earned Income in
Suspense’. Thereafter, such income is
recognised on cash basis.
Profit or loss on leases terminated,
collections on contracts written off,
interest on overdue rentals, interest
on revolving loans, interest earned on
property sale and buy back agreements,
interest income on pawn broking are
accounted for on cash basis.
b) Factoring
Revenue is derived from two sources,
Funding and providing Sales Ledger
related services.
Funding - Discount income relating to
factoring transactions is recognised at
the end of a given accounting month.
In computing this discount, a fixed rate
agreed upon at the commencement of
the factoring agreement is applied on
the daily balance in the Client’s
Current Account.
Sales Ledger related services - A
service charge is levied as stipulated in
the Factoring Agreement.
Income is accounted for on an
accrual basis and deemed earned on
disbursement of advances for invoices
factored, except where the account is
classified as non-performing.
(c) Securitisation of Lease Receivables (Subsidiary)
LOLC Funding One Ltd. was established
to securitise lease receivables of LOLC
and to provide a cost-effective method
of long-term finance to LOLC. Currently
LOLC Funding One Ltd. is dormant.
(d) Insurance Broking
Lanka ORIX Insurance Brokers Ltd. and
LOIB Financial Services Ltd., derive their
income from commission on insurance
premiums. Income is accounted for on
premium collection basis.
(e) Brokerage on Share Transaction
Lanka ORIX Securities (Pvt) Ltd., earns
brokerage income on the value of share
transactions carried out on behalf of its
clients. This income is accounted for on
an accrual basis.
(f) IT Service Fee
Lanka ORIX Information Technology Ltd.,
earns fee for IT services provided for
Group Companies and is accounted for
on an accrual basis.
(g) Turnover from Sale of Solar Systems
Sundaya Lanka (Pvt) Ltd., earns revenue
from sale of solar systems and its
accounted on an accrual basis.
(h) Royalty Income
Royalty Income is charged from the
Group Companies for the usage of
‘LOLC’ logo and ORIX brand, usage of
infrastructure support and is accounted
for on accrual basis.
(i) Treasury Management Fees & Management Fees
Treasury management fee and
management Fee collected from
subsidiaries is accounted for on
accrual basis.
(j) Other Income
Rent income, non-operational interest
income and foreign exchange gains are
accounted for on accrual basis.
Dividend income is recognised when the
right to receive payment is established.
Profit on sales of property, plant and
equipment are accounted for on
accrual basis.
Notes to the Financial Statements I LOLC | Annual Report 2008/09 | 113
(iIi) The Group Profits are stated after:
(a) Providing for all bad and doubtful debts
and depreciation of property, plant and
equipment.
(b) Charging all expenses incurred in the
day-to-day operations of the business
and in maintaining the property, plant
and equipment in a state of efficiency.
(iv) Borrowing Costs
Borrowing costs are recognised as
expenditure in the period in which
they are incurred. However, borrowing
costs that are directly attributable to the
acquisition, construction or production of
qualifying assets that take a substantial
period of time to get ready for its
intended use or sale, are capitalised as
part of the assets. During the year no
borrowing cost has been capitalised.
2.8 Movement of Reserves
Movement of reserves is disclosed in the
Statements of Changes in Equity.
2.9. Cash Flow Statements
The cash flow statements are prepared
using the indirect method as stipulated
in SLAS 9 - Cash Flow Statements,
Cash and Cash Equivalents for Cash
Flow Statements comprise mainly of
cash in hand, balances at banks and
bank overdraft.
2.10 Related Party Transactions
Transactions with related parties are
conducted on normal business terms.
The relevant disclosures are given in
Note 45 to the Financial Statements.
2.11 Segmental Reporting
Segment is a distinguishable component
of the Group that is engaged either in
providing products or services (business
segment), or in providing products or
services within a particular economic
environment (geographical segment),
which is subject to risks and rewards that
are different from those of other segments.
In accordance with the Sri Lanka
Accounting Standards No. 28 on
Segment Reporting, segmental
information is presented in respect of
the Group. The segment comprises
of leasing, hire purchase and other
advances factoring, insurance broking,
IT services and stock brokering and
others are described in Note 38.
Segment results, assets and liabilities
include items directly attributable to a
segment as well as those that can be
allocated on a reasonable basis.
Segment capital expenditure is the
total cost incurred during the period
to acquire segment assets that are
expected to be used for more than
one period.
114 | Notes to the Financial Statements I LOLC | Annual Report 2008/09
Group Company
For the year ended 31 March 2009 2008 2009 2008 Restated Rs. Rs. Rs. Rs.
3. GROSS REVENUE
Revenue 3,495,606,802 – 3,495,606,802 –
Income 9,843,453,815 5,934,772,221 6,120,691,922 4,960,979,139
Other income 282,660,615 313,375,519 71,078,814 261,253,173
Gross revenue 13,621,721,231 6,248,147,740 9,687,377,538 5,222,232,312
Revenue from instalment sales 3,495,606,802 – 3,495,606,802 –
Less:cost of sales (2,993,076,288) – (2,993,076,288) –
Gross profit 502,530,514 – 502,530,514 –
4. INCOME
Leasing interest income 2,271,869,419 1,586,383,566 1,389,300,901 1,381,745,650
Hire purchases interest income 2,345,112,502 948,165,721 941,003,160 809,056,422
Advances and other loans interest income 2,715,191,638 1,875,691,500 2,119,074,193 1,563,222,581
Deferred instalment income 175,777,795 – 175,777,795 –
Operating lease and hire rental income 653,255,496 531,295,664 611,411,113 530,496,056
Overdue interest income 488,791,526 226,819,876 252,073,633 189,345,477
Other operational incomes 276,627,872 248,814,658 242,906,888 234,463,391
Debt factoring 604,072,617 252,649,562 389,144,239 252,649,562
Insurance broking 147,116,705 110,961,106 – –
Securities trading/others 161,275,475 162,450,757 – –
IT consultancy fee 92,024,245 73,500,000 – –
9,931,115,290 6,016,732,410 6,120,691,922 4,960,979,139
Inter-company income (87,661,475) (81,960,189) – –
9,843,453,815 5,934,772,221 6,120,691,922 4,960,979,139
5. EXPENSES
Expenses are stated after including the following;
Auditors remuneration and expenses:
Audit related 3,785,498 1,730,000 1,975,000 1,175,000
Non - Audit related 393,690 236,758 373,690 216,758
Legal expenses 25,341,687 8,982,510 12,912,490 7,866,217
Donations 784,858 164,800 546,125 118,000
6. DIRECT EXPENSES EXCLUDING INTEREST COSTS
VAT on leases/general expenses /VAT on financial services 240,622,790 162,423,892 110,610,221 131,555,945
BTT,debits tax and others 257,119,510 55,720,580 204,310,873 42,779,738
497,742,300 218,144,472 314,921,094 174,335,683
Notes to the Financial Statements I LOLC | Annual Report 2008/09 | 115
Group Company
For the year ended 31 March 2009 2008 2009 2008 Restated Rs. Rs. Rs. Rs.
7. STAFF COSTS
Salaries and other benefits 662,852,370 464,664,567 316,266,175 317,564,867
Defined contribution to EPF 45,243,316 30,812,280 26,644,180 21,470,220
Defined contribution to ETF 11,310,829 7,703,070 6,661,045 5,367,555
Provision for retiring gratuity 8,146,452 18,448,564 9,235,879 16,140,094
727,552,967 521,628,481 358,807,279 360,542,736
8. OTHER OPERATING EXPENSES
Administration cost 577,781,940 393,761,364 304,387,314 214,205,835
Operating and marketing cost 385,642,762 235,890,976 304,779,009 240,874,136
Specific provisions (95,446,932) (92,902,939) (79,330,545) (37,330,961)
Specific bad debts written-off 119,314,630 112,698,891 94,963,586 43,188,218
987,292,400 649,448,292 624,799,364 460,937,228
9. NET INTEREST COSTS
Overdraft and other short term borrowings 2,813,750,028 1,206,071,606 2,246,161,541 1,231,676,183
Long term borrowings 2,811,988,605 1,833,148,638 1,988,537,258 1,812,573,093
Finance lease interest 142,192,716 157,606,052 142,030,706 157,439,052
Interest on customer deposits 844,505,878 436,770,238
6,612,437,228 3,633,596,534 4,376,729,505 3,201,688,328
Less: Interest income on US$ and EURO deposits (171,255,775) (229,631,360) (171,255,775) (229,631,360)
6,441,181,453 3,403,965,174 4,205,473,730 2,972,056,968
10. OTHER INCOME/(EXPENSES)
10.1 Other Income
Rent income 629,200 – – – Profit on sale of property, plant and equipment 16,115,261 6,158,934 9,468,008 3,176,819Sales proceeds received in excess on refinances 2,534,608 2,745,826 2,534,609 2,745,827Profit on sale of vehicles 58,027 963,249 – 963,249Dividends received 1,962,757 1,789,404 28,159,560 12,812,920Interest received from US$ current accounts, treasury bills, call deposits 228,163,308 78,547,232 7,357,305 6,521,875Debenture interest income 583,148 – 583,148 – Royalty Income – – 31,631,927 20,862,973Foreign exchange gain 54,376,893 434,538 54,376,893 – Restructuring fee – – 50,000,000 – Capital gain on bond trading 25,196,300 – 25,196,300 – Reversal of provision for fall in value of investments and others 721,656 19,588,857 – 17,578,002Appreciation in market value - People’s Merchant Bank shares – 136,929,540 – 136,929,540Profit on sale of quoted and non quoted shares – 47,744,537 – 47,744,537Sundry income 132,756,448 17,145,237 40,344,343 10,446,296Supplier payments unclaimed – (193,203) – (193,203)Due diligence fee – 25,652,174 – 25,652,174
463,097,606 337,506,325 249,652,093 285,241,009
116 | Notes to the Financial Statements I LOLC | Annual Report 2008/09
Group Company
For the year ended 31 March 2009 2008 2009 2008 Restated Rs. Rs. Rs. Rs.
10.2 Other Expenses
Fall in market price 143,260,527 – 143,260,527 – Loss on sale of quoted and non-quoted shares 8,210,702 58,745 6,630,021 – Provision for fall in value for investment 28,804,621 18,164,536 28,682,731 18,080,311Foreign exchange loss 161,141 5,907,525 – 5,907,525
180,436,991 24,130,806 178,573,279 23,987,836 282,660,615 313,375,519 71,078,814 261,253,173
The foreign exchange gain was mainly derived from profits earned on foreign currency denominated leases and foreign currency deposits converted in to the reporting currency.
11. NEGATIVE GOODWILL Group Company
For the year ended 31 March 2009 2008 2009 2008 Restated Rs. Rs. Rs. Rs.
Touchwood Investment Ltd. – 126,117,616 – – Sundaya Lanka (Pvt) Ltd. – 5,174,887 – –
– 131,292,503 – –
12. PROVISION FOR INCOME TAX
All Group Company operations were taxed at the rate of 35% during the year
12.1 Major component of income tax expense for the years ended 31st March are as follows: Group Company
For the year ended 31 March 2009 2008 2009 2008 Restated Restated Rs. Rs. Rs. Rs.
Current income taxCurrent income tax charge 172,939,233 148,931,233 48,234,700 92,968,699Under provision of current taxes in respect of prior years 4,812,935 5,446,950 4,812,935 2,093,469Deferred income taxDeferred Taxation Charge/(Reversal) (Note 20) 14,370,236 (314,821,256) 22,919,697 (312,963,378)Income tax expense reported in the income statement 192,122,404 (160,443,073) 75,967,332 (217,901,210)
12.2 A reconciliation between tax expense and the product of accounting profit multiplied by the statutory tax rate is as follows:
Group Company
For the year ended 31 March 2009 2008 2009 2008 Restated Restated Rs. Rs. Rs. Rs.
Accounting profit before income tax 1,247,298,933 1,183,052,327 579,920,072 841,335,439
Income tax expense at the statutory income tax rate of 35% 436,554,626 414,068,315 202,972,025 294,467,404Tax effect of other allowable credits (2,709,080,995) (2,282,267,159) (1,690,746,010) (2,005,406,859)Tax effect on losses claimed (24,376,511) (67,005,812) (24,376,511) (45,823,756)Non deductible expenses 2,486,200,990 1,774,761,583 1,587,369,417 1,538,010,988Social Responsibility Levy 1.5% of tax 2,824,294 – 748,411 851,013Income tax expense 192,122,404 (160,443,073) 75,967,332 (217,901,210)
Effective income tax rate of the Company for the year 13% (2008 - 26%) Income tax rate of the Group for the year 15% (2008 - 14%)Social Responsibility Levy 1.5% of tax.
Notes to the Financial Statements I LOLC | Annual Report 2008/09 | 117
13. BASIC/DILUTED EARNINGS PER SHARE
The calculation of basic earnings per share as at 31 March 2009 is based on the profits attributable to ordinary shareholders and a weighted average number of ordinary shares outstanding during the year ended 31 March 2009 of 47,520,000 (2008: 47,520,000); calculated as follows:
Group
31.03.2009 31.03.2008
Pofit for the year (Rs.) 1,054,153,622 1,340,879,283Weighted average number of ordinary shares 47,520,000 47,520,000Earnings per share (Rs.) 22.18 28.22
14. CASH AND CASH EQUIVALENTS
14.1 Cash in hand and favourable bank balances Group Company
31.03.2009 31.03.2008 31.03.2009 31.03.2008 Restated Rs. Rs. Rs. Rs.
Cash in hand 3,275,045 2,438,531 1,116,991 886,635
Balances at banks 1,829,290,249 1,070,312,191 551,718,065 605,143,691
1,832,565,294 1,072,750,722 552,835,056 606,030,326
14.2 Bank overdraft balanceBank overdrafts (2,750,579,613) (1,090,023,468) (1,909,632,293) (786,837,530)
(2,750,579,613) (1,090,023,465) 1,909,632,293) (786,837,530)New cash and cash equivalents (918,014,319) (17,272,746) (1,356,797,237) (180,807,204)
15. RENTALS RECEIVABLE ON LEASED ASSETS, HIRE PURCHASE AND OTHERS
15.1 Rental receivable on leased assets
Receivable from one to five yearsRentals receivable 7,033,321,755 6,265,563,761 3,040,309,142 5,478,902,085Unearned income (1,782,112,960) (1,416,557,269) (818,983,990) (1,251,672,758)Provision for doubtful debts (45,455,158) – (17,508,882) – Deposits received from lessees (836,136,584) (165,216,186) (101,416,490) (152,546,101)
4,369,617,053 4,683,790,306 2,102,399,780 4,074,683,226
Receivables within one yearRentals receivable 5,257,788,219 3,759,838,736 2,375,360,418 3,215,973,267Unearned income (1,271,096,051) (1,314,765,873) (558,648,799) (1,139,085,697)Provision for doubtful debts (108,142,914) – (9,427,859) –
3,878,549,254 2,445,072,863 1,807,283,760 2,076,887,570
Overdue rental receivableRentals receivable 233,828,953 159,605,717 157,158,888 109,262,268Earned income in suspense (20,274,246) (15,450,985) (17,584,716) (7,162,486)Provision for doubtful debts (103,833,220) (95,339,612) (58,240,063) (55,390,007)
109,721,487 48,815,120 81,334,109 46,709,775
TotalRentals receivable 12,524,938,927 10,185,008,214 5,572,828,448 8,804,137,620Unearned income (3,053,209,011) (2,731,323,142) (1,377,632,789) (2,390,758,455)Earned income in suspense (28,371,897) (15,450,985) (17,584,716) (7,162,486)Provision for doubtful debts (257,431,292) (95,339,612) (85,176,804) (55,390,007)Deposits received from lessees (836,136,584) (165,216,186) (101,416,490) (152,546,101)Balance as at 31 March 8,349,790,143 7,177,678,289 3,991,017,649 6,198,280,571
Rentals receivable on leased assets to the value of Rs. 19,624,802,733/- (31 March 2008 - Rs. 10,709,542,366/-) have been assigned against bank loans.
118 | Notes to the Financial Statements I LOLC | Annual Report 2008/09
Group Company
31.03.2009 31.03.2008 31.03.2009 31.03.2008 Restated Rs. Rs. Rs. Rs.
15.2 Rentals Receivable on Hire - Purchase
Receivable from one to five years
Rentals receivable 7,376,974,912 3,940,389,407 1,674,846,119 3,358,629,276
Unearned income (2,226,598,560) (967,475,056) (531,292,607) (827,529,548)
Provision for doubtful debts (69,537,727) – 15,064,663 –
5,080,838,625 2,972,914,351 1,128,488,849 2,531,099,728
Receivables within one year
Rentals receivable 5,272,661,685 2,383,509,492 1,641,222,104 2,048,832,494
Unearned income (1,546,708,708) (978,273,849) (335,681,264) (835,532,426)
Provision for doubtful debts 50,348,180 – 8,111,742 –
3,675,604,797 1,405,235,643 1,297,429,098 1,213,300,068
Overdue rental receivable
Rentals receivable 125,155,720 79,376,985 101,099,828 68,756,902
Earned income in suspense (27,081,822) (8,347,557) (22,946,010) (7,455,814)
Provision for doubtful debts (44,357,041) (31,495,388) (30,449,798) (26,447,692)
53,716,857 39,534,040 47,704,020 34,853,396
Total
Rentals receivable 12,774,792,317 6,403,275,884 3,417,168,051 5,476,218,672
Unearned income (3,773,307,268) (1,945,748,905) (866,973,871) (1,663,061,974)
Earned income in suspense (27,081,822) (8,347,557) (22,946,010) (7,455,814)
Provision for doubtful debts (164,242,948) (31,495,388) (53,626,204) (26,447,692)
Balance as at 31 March 8,810,160,279 4,417,684,034 2,473,621,966 3,779,253,192
15.3 Rentals Receivable on Operating Leases and Hire
Total
Rentals receivable 2,808,856,604 2,114,619,350 2,808,856,604 2,114,619,350
Unearned income (2,731,879,510) (2,106,204,221) (2,731,879,510) (2,106,204,221)
Earned income in suspense (43,697,025) (745,195) (43,697,025) (745,195)
Provision for doubtful debts – (872,926) – (872,926)
Balance as at 31 March 33,280,069 6,797,008 33,280,069 6,797,008
15.4 Total Receivable on Leased Assets, Hire Purchase and Others
Rentals receivable 28,108,587,848 18,702,903,448 11,798,853,103 16,394,975,642
Unearned income (9,558,395,789) (6,783,276,268) (4,976,486,170) (6,160,024,650)
Earned income in suspense (99,150,744) (24,543,737) (84,227,751) (15,363,495)
Provision for doubtful debts (421,674,240) (127,707,926) (138,803,007) (82,710,625)
Deposits received from lessees (836,136,585) (165,216,186) (101,416,490) (152,546,101)
Balance as at 31 March 17,193,230,490 11,602,159,331 6,497,919,685 9,984,330,771
Notes to the Financial Statements I LOLC | Annual Report 2008/09 | 119
Group Company
31.03.2009 31.03.2008 31.03.2009 31.03.2008 Restated Rs. Rs. Rs. Rs.
15.5 Provision for Doubtful Debts
Balance as at 01 April 127,707,926 84,486,139 82,710,625 25,814,224Provisions made during the year– Charged against profits 304,280,005 119,014,628 66,406,073 78,790,852– Written off during the year (10,313,691) (75,792,841) (10,313,691) (21,894,451)Balance as at 31 March 421,674,240 127,707,926 138,803,007 82,710,625
16. ADVANCES AND OTHER LOANS
Rentals receivable on loans to customers 10,046,681,545 8,715,324,134 6,899,560,019 6,818,267,517Capital outstanding of revolving loans 2,146,110,751 1,584,410,829 2,034,132,649 1,584,410,828Receivables under Textile Debt Recovery Fund scheme 7,202,445 7,202,445 7,202,445 7,202,445Overdue loan instalments 408,200,785 271,735,744 357,285,466 251,425,436Earned income in suspense (101,879,843) (48,624,999) (62,937,947) (31,936,976)Unearned loan income (2,048,555,764) (1,920,884,425) (1,604,527,480) (1,853,637,697)Provision for doubtful debts (159,799,477) (46,257,876) (98,469,436) (33,505,000)
10,297,960,442 8,562,905,852 7,532,245,716 6,742,226,553
Less: Provision for Doubtful DebtsBalance as at 01 April 46,257,876 26,012,263 33,505,000 19,460,195Provisions made during the year– Charged against profits 182,558,455 37,355,711 133,981,290 29,481,315– Written-off during the year (69,016,854) (17,110,098) (69,016,854) (15,436,510)Balance as at 31 March 159,799,477 46,257,876 98,464,436 33,505,000
17. INSTALMENT SALES
Rentals receivable on loans to customers 4,088,071,115 – 4,088,071,115 – Overdue instalments 18,849,222 – 18,849,222 – Instalment in suspense (945,822) – (945,822) – Deferred income on instalment sales (1,150,471,368) – (1,150,471,368) – Provision for doubtful debts (551,338) – (551,338) –
2,954,951,809 – 2,954,951,809 –
18. OTHER CURRENT ASSETS
Insurance commission receivable 83,246,009 63,838,659 – – Securities clients/ brokers receivable 195,038,400 392,569,640 – – Amount due from subsidiaries – – 2,458,257,133 981,366,965Finance charges suspended 216,032,318 56,804,225 216,032,318 56,804,225Other accounts receivable 1,844,303,623 1,030,540,582 902,014,375 714,195,824VAT refunds due from IRD 24,502,930 43,336,272 – 18,885,161ACT recoverable – – – – ESC recoverable 60,375,001 153,751 60,000,000 –
2,423,498,281 1,587,243,130 3,636,303,826 1,771,252,175
Above receivables are shown after deducting provisions for doubtful debts.
Finance charges suspended include expenses incidental to obtaining long-term loans such as guarantee fees, structuring fees, placement fees and front end fees. These charges are written-off over the period of corresponding loans as the Directors are of the opinion that these are part of the financing cost of the long-term borrowings.
120 | Notes to the Financial Statements I LOLC | Annual Report 2008/09
19. INVESTMENT SECURITIESGroup Company
31.03.2009 31.03.2008 31.03.2009 31.03.2008 Restated Rs. Rs. Rs. Rs.
Investment in Bank of Ceylon debentures 29,609,408 – 29,609,408 –
Investment - Mudarabah deposit 75,000,000 – 75,000,000 –
Investment in REPO investment 3,100,000 – 3,100,000 –
Quoted ordinary shares (Note 19.1) 180,889,296 357,120,657 178,326,395 356,942,832
Non-quoted ordinary shares (Note 19.2) 182,500 – – –
Acquired properties 3,930,482 8,540,138 3,930,482 8,540,138
Total 292,711,686 365,660,795 289,966,285 365,482,970
19.1 Quoted Ordinary Shares-Company No.of 31.03.2009 31.03.2009 No.of 31.03.2008 31.03.2008 Shares Cost Market Value Shares Cost Market Value Rs. Rs. Rs. Rs.
Brown & Company Ltd. 1,676,600 61,274,065 30,178,800 36,700 34,363,357 33,947,500
Central Finance Co. Ltd. – – – 3,900 937,471 780,000
Chemical Industries (Colombo) Ltd. – – – 137,440 5,767,985 4,638,600
Chemical Industries (Colombo) Ltd. 40 1,679 820 27,500 715,792 653,122
Dialog Telekom Ltd. – – – 831,600 21,432,993 13,929,300
HDFC Bank (par value Rs. 100/-) 47,200 7,749,236 2,395,400 47,200 7,749,236 7,749,236
Housing Development Finance Co. – – – 34,400 1,909,885 4,196,800
Peoples’ Merchant Bank 4,982,953 152,081,734 145,751,375 4,987,953 152,081,734 289,011,274
Property Development Ltd. – – – 67,900 2,823,104 2,037,000
Veyangoda Textiles Mills Ltd. 10,300 262,060 – 10,300 262,060 –
Total cost of quoted ordinary shares 221,368,774 178,326,395 228,043,617 356,942,832
Less:
Provision for fall in market value
Balance as at 01 April (128,899,215) – 7,528,015 –
Provision/(Reversal) made during the year 171,941,594 – (136,427,230) –
Balance as at 31 March 43,042,379 – (128,899,215) –
178,326,395 178,326,395 356,942,832 356,942,832
Notes to the Financial Statements I LOLC | Annual Report 2008/09 | 121
No. of 31.03.2009 31.03.2009 No. of 31.03.2008 31.03.2008 Shares Cost Market Value Shares Cost Market Value Rs. Rs. Rs. Rs.
Quoted Ordinary Shares - Subsidiaries
Ahot Properties Ltd. 300 9,150 7,425 300 9,150 12,000
Dialog Telekom Ltd. 9,000 274,491 54,216 9,000 274,491 165,825
Royal Ceramics (Lanka) Ltd. 11,000 300,000 302,500 – – –
Asian Hotels Corporation Ltd. 5,000 139,425 123,750 – – –
Colombo Drydocks Ltd. 8,400 184,548 480,900 – – –
Lanka Ventures Ltd. 10,000 96,168 57,500 – – –
DFCC Bank 66 20,028 4,488 – – –
Central Finance Ltd. 166 22,472 26,062 – – –
Overseas Realty Ceylon Ltd. 113,680 1,664,891 881,020 – – –
Lanka IOC Ltd. 10,000 270,000 160,000 – – –
HDFC 1,200 264,000 60,900 – – –
Seylan Bank Ltd. 72,400 1,104,210 398,200 – – –
Sierra Cables Ltd. 5,400 16,200 5,940 – – –
Total Cost of Quoted Ordinary Shares 4,365,583 2,562,901 – 283,641 177,825
Less:
Provision for fall in Market Value
Balance as at 01 April – (105,816) – – 117,609 –
Provision/(Reversal) made during the year – (121,890) – – (223,425) –
Balance as at 31 March – (227,706) – – (105,816) –
2,562,901 2,562,901 – 177,825 177,825
Quoted Ordinary Shares - Group – 180,889,296 180,889,296 – 357,120,657 357,120,657
19.2 Non-Quoted Ordinary Shares- Company No. of 31.03.2009 No. of 31.03.2008 Shares Cost Shares Cost Rs. Rs.
Indo Lanka Steel Ltd. 200,000 6,000,000 200,000 6,000,000
Lanka Glass Manufacturing Ltd. 3,000,000 3,000,000 3,000,000 3,000,000
Magpek Exports Ltd. 25,000 1,000,000 25,000 1,000,000
Total cost of non-quoted ordinary shares 10,000,000 10,000,000
Less: Provision for fall in value
Balance as at 01 April 10,000,000 10,000,000
Provision/(Reversal) made during the year – –
Balance as at 31 March 10,000,000 10,000,000
– –
Non-Quoted Ordinary Shares - Subsidiaries
Equity Investments Lanka Ltd. 17,250 172,500 – –
Credit Information Bureau 100 10,000 – –
182,500 – –
122 | Notes to the Financial Statements I LOLC | Annual Report 2008/09
20. DEFERRED TAX
Deferred Tax assets, liabilities and income tax relate to the followings:Company Balance Sheet Income Statement
2009 22008 2009 2008 Restated Restated Rs. Rs. Rs. Rs.
Deferred Tax Liability
Capital allowances for tax purposes on
property, plant and equipment (234,611) 12,015,495 (12,250,106) 12,456,798
Operating Lease Assets 52,848,531 35,927,725 16,920,806 11,664,021
Unamortised VAT (28,770,168) – (28,770,168) –
23,843,752 47,943,220 (24,099,468) 24,120,819
Deferred Tax Assets
Defined benefit plans (40,681,839) 14,014,917 (54,696,755) 5,397,908
Capital allowances for tax purposes on Lease Receivables (6,900,532) (41,724,447) 34,823,915 35,979,727
Brought forward Tax losses 610,737,529 637,883,853 (27,146,325) 295,706,562
563,155,158 610,174,323 (47,019,165) 337,084,197
Deferred tax expense (22,919,697) 312,963,378
Net Deferred tax Liability/Asset 539,311,406 562,231,103
Group Balance Sheet Income Statement
2009 2008 2009 2008 Restated Restated Rs. Rs. Rs. Rs.
Deferred Tax Liability
Capital allowances for tax purposes on
property, plant and equipment (7,311,214) 12,084,561 (19,395,775) 11,542,250
Operating Lease Assets 52,848,531 35,927,725 16,920,806 11,664,021
Unamortised VAT (28,770,168) – (28,770,168) –
16,767,149 48,012,286 (31,245,137) 23,206,271
Deferred Tax Assets
Defined benefit plans (38,948,385) 14,958,248 (53,906,633) 6,341,238
Capital allowances for tax purposes on Lease Receivables (7,645,736) (41,724,447) 34,078,711 35,979,727
Brought forward Tax losses 612,096,403 637,883,853 (25,787,451) 295,706,562
565,502,282 611,117,654 (45,615,373) 338,027,527
Deferred tax expense – – (14,370,236) 314,821,256
Net Deferred tax Liability/Asset 548,735,133 563,105,368
Notes to the Financial Statements I LOLC | Annual Report 2008/09 | 123
21. INVESTMENT IN JOINT VENTURE Group Company 31.03.2009 31.03.2008 31.03.2009 31.03.2008 Rs. Rs. Rs. Rs.
Gal Oya Holdings (Pvt) Ltd. (GHL)
Cost of Investment as at 31 March 08 – – 10,000,000 100,000,000
Percentage of ownership – – 50% 50%
Principal activity Plantation Management
The investment in the GHL has been recognised in the Financial Statements on the basis of proportionate consolidation stated capital of GHL
was reduced to Rs. 20 Mn (2,000,000 shares of Rs. 10/- each) during the financial year. Accordingly, LOLC investment is Rs. 10 Mn, being 50%
of the stated capital, with the balance converted to a loan. As at As at 31 March 2009 31 March 2008
Current Assets 486,279,338 102,669,333Long-Term Assets 16,609,082 116,463Current Liabilities 6,861,832 7,810,594Long-Term Liabilities 512,265,629 – Income 658,326 984,774Expenses 26,846,771 5,953,246
22. INVESTMENTS IN EQUITY ACCOUNTED INVESTEES Commercial Touchwood PRASAC Micro Insurance Brokers Investments PLC Finance Institution
Insurance Forestry Micro Finance Broking Management Services
Principal Activity
Carrying Amount 49,113,139 474,654,664 152,652,858Holding 39.25% 29.20% 19.00%Cost 785,040 216,359,359 61,831,544Profit share recognised 5,735,520 74,347,843 60,374,275Last published financial statements 31 Dec 2008 31 Mar 2009 31 Dec 2008 Assets 253,715,080 3,148,158,296 6,836,946,750Liabilities 130,332,233 1,523,539,876 4,627,466,550Revenue 101,806,381 727,010,387 1,584,228,040
Profit/(Loss) 21,217,154 254,620,476 317,759,345
The reporting date of the financial statements of PRASAC MFI is 31 December, profit share relating to 12 months ended December 2008 is
reflected in LOLC financials for 2008/09.
Commercial Insurance Brokers is an investment by Commercial Leasing Company PLC and profit recognised relates to the post acquisition share.
124 | Notes to the Financial Statements I LOLC | Annual Report 2008/09
23. INVESTMENTS IN SUBSIDIARIES Principal No. of Holding Cost No. of Holding Cost Activity Ordinary 31.03.2009 Ordinary 31.03.2008 Shares Shares % Rs. % Rs.
Group
Lanka Orient Investment Ltd. No operations 2 100 20 2 100 20
Company
LOLC Funding One Ltd. Securitisation of
(Par value Rs.100/-) lease receivables 7 100 700 7 100 700
Lanka ORIX Insurance Brokers Ltd. Insurance broking 1,000,000 100 10,000,000 1,000,000 100 10,000,000
LOIB Financial Services (Pvt) Ltd. Investment advice 500,000 100 – 500,000 100 –
Lanka ORIX Finance Finance business
Company (Pvt) Ltd. and pawn
broking 80,000,000 100 800,000,000 80,000,000 100 800,000,000
Lanka ORIX Information Technology Ltd. Software design,
development
and distribution 2,000,000 100 20,000,000 2,000,000 100 20,000,000
Lanka ORIX Securities (Pvt) Ltd. Stock broking 270,000 30 23,000,000 270,000 30 23,000,000
Lanka ORIX Project Development Ltd. Property and
infrastructure 5,200,000 100 52,000,000 5,200,000 100 52,000,000
Sundaya Lanka (Pvt) Ltd. Assembling and
distribution of
solar systems 624,490 51 6,244,900 624,490 51 6,244,900
Commercial Leasing Company PLC Leasing, hire
purchase and
factoring 17,315,310 98 1,626,123,927 – –
LOLC Micro Credit Ltd. Agro and Micro
financing 40,000,000 100 460,125,000 – –
2,997,494,527 911,245,620
Lanka ORIX Factors Ltd., a fully owned subsidiary of Lanka ORIX Leasing Company PLC merged with the Parent Company on 01 February 2009.
LOLC Micro Credit Ltd., a fully owned subsidiary of Lanka ORIX Leasing Company PLC commenced its business operations on 01 February 2009
On 09 May 2008 the Company acquired 66.55% of the shares in Commercial Leasing Company PLC for Rs. 1,102,793,101/-, further 31.26%
was acquired in July 2008. Percentage holding as at 31 March 2009 stands at 98.13.
The Company is in the business of leasing, hire purchasing and factoring. During the period the subsidiary contributed a post aquisition
profit of Rs. 320,218,884/-.
Notes to the Financial Statements I LOLC | Annual Report 2008/09 | 125
The acquisition had the following effect on the Group’s assets and liabilities on acquisition date:
Recognised values Recognised values Total on acquisition on acquisition as at 30.04.2008 as at 30.06.2008 Rs. Rs. Rs.
Property, Plant and Equipment 300,986,000 313,017,000 –
Lease receivables 7,226,410,000 7,256,012,000 –
Investments 49,081,618 49,081,618 –
Other current assets 728,556,000 768,869,703
Cash and cash equivalents 206,656,996 105,927,297 –
Tax payable (79,388,000) (110,741,000) –
Retirement benefit obligations (19,174,000) (19,831,000) –
Short-term loans (3,462,205,000) (3,287,781,000) –
Long-term loans (2,656,966,000) (2,796,177,000) –
Trade and other payable (939,096,996) (883,506,000) –
Net identifiable assets and liabilities 1,354,860,618 1,394,871,618 –
Percentage acquired 66.55% 31.58% –
Net assets applicable to Group 901,659,741 440,500,457 1,342,160,198
Intangible assets acquired 144,206,594 – 144,206,594
Positive goodwill on acquisition 56,926,766 94,488,468 151,415,234
Consideration paid, satisfied in cash 1,102,793,101 523,330,826 1,626,123,927
Cash acquired 206,656,996 105,927,297 312,584,293
Net cash inflow/(outflow) (896,136,105) (417,403,529) (1,313,539,634)
Pre-acquisition carrying amounts were determined based on applicable SLASs immediately before the acquisition
24. INTANGIBLE ASSETS
Arising from the acquisition of Commercial Leasing Company PLC the Group recognises intangible assets as follows:
Brand Value 94,784,945
Customer Base 49,421,649
144,206,594
126 | Notes to the Financial Statements I LOLC | Annual Report 2008/09
25. PROPERTY, PLANT & EQUIPMENT Land & Motor Leasehold Furniture Office Computers Leasehold Assets for Capital Total Building Vehicles Motor & Fittings Equipment & Software Machinery Operating Work-in- Vehicles Lease progress Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs.
Group Cost/ValuationBalance as at 01 April 2008 487,743,267 167,946,669 1,008,230,909 156,784,924 169,320,997 186,807,187 123,343,978 671,746,629 61,144,615 3,033,069,175Additions 127,460,848 164,240,522 17,887,659 53,954,204 37,143,106 76,438,504 – 602,699,836 26,183,745 1,106,008,424Disposals – (32,418,287) (63,250,481) – – (1,326,194) (123,343,978) (149,803,923) – (370,142,862)Acquisition of subsidiary 186,936,598 188,644,745 2,608,696 21,136,941 18,449,122 58,597,456 – – – 476,373,558Transferred from CWIP 37,486,276 – – – – – – – (37,486,276) –Balance as at 31 March 2009 839,626,989 488,413,649 965,476,784 231,876,069 224,913,225 320,516,953 – 1,124,642,542 49,842,084 4,245,308,295 Accumulated DepreciationBalance as at 01 April 2008 10,780,571 66,647,112 244,196,605 62,952,496 105,205,326 111,653,400 107,925,981 172,498,238 – 881,859,729Charge for the year 7,655,386 80,288,689 141,090,178 31,706,012 17,440,433 48,213,921 15,417,997 156,453,990 – 498,266,606Depreciation on disposals – (29,229,532) (24,241,063) – – (1,326,195) (123,343,978) (88,118,108) – (266,258,876)Acquisition of subsidiary 6,939,856 92,812,532 2,500,000 11,865,312 11,618,811 36,054,916 – – – 161,791,427Balance as at 31 March 2009 25,375,813 210,518,801 363,545,720 106,523,820 134,264,570 194,596,042 – 240,834,120 – 1,275,658,886
Written Down Valueas at 31 March 2009 814,251,176 277,894,848 601,931,064 125,352,249 90,648,655 125,920,911 – 883,808,422 49,842,084 2,969,649,409
as at 31 March 2008 476,962,696 101,299,557 764,034,304 93,832,428 64,115,671 75,153,786 15,417,997 499,248,391 61,144,615 2,151,209,445
Land & Motor Leasehold Furniture Office Computers Leasehold Assets for Capital Total Building Vehicles Motor & Fittings Equipment & Software Machinery Operating Work-in- Vehicles Lease progress Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs.
CompanyCost/ValuationBalance as at 01 April 2008 (Restated) 487,743,267 159,680,058 1,007,204,909 126,774,923 130,625,275 123,206,546 123,343,978 671,746,629 61,144,616 2,891,470,201Additions 127,460,848 115,583,564 15,639,584 47,333,042 16,454,781 51,991,760 – 602,699,836 26,183,745 1,003,347,160Disposals – – (57,006,650) – – (1,326,195) (123,343,978) (149,803,923) – (331,480,746)Transferred from CWIP 37,486,276 – – – – – – – (37,486,276) –Balance as at 31 March 2009 652,690,391 275,263,622 965,837,843 174,107,965 147,080,056 173,872,111 – 1,124,642,542 49,842,085 3,563,336,615
Accumulated DepreciationBalance as at 01 April 2008 (Restated) 10,780,571 62,244,784 244,196,606 42,092,816 80,077,098 63,395,424 107,925,981 172,498,238 – 783,211,518Charge for the year 4,754,337 31,288,304 140,509,733 24,835,603 7,825,065 28,848,381 15,417,997 156,453,990 – 409,933,410Depreciation on disposals – – (20,986,088) – – (1,326,195) (123,343,978) (88,118,108) – (233,774,369)Balance as at 31 March 2009 15,534,908 93,533,088 363,720,251 66,928,419 87,902,163 90,917,610 – 240,834,120 – 959,370,559
Written Down Valueas at 31 March 2009 637,155,483 181,730,534 602,117,592 107,179,546 59,177,893 82,954,501 – 883,808,422 49,842,085 2,603,966,056
as at 31 March 2008 (Restated) 476,962,696 97,435,274 763,008,303 84,682,107 50,548,177 59,811,122 15,417,997 499,248,391 61,144,616 2,108,258,683
Lands of LOLC were revalued in March 2008 by Mr. G.J. Sumanasena and Mr. S.N. Wijepala independent professional valuers.
The total market value of Lands as per the revaluation on the basis of existing use as at March 2008 was Rs. 365,780,000/-. If the Lands were
stated on the historical cost basis, the cost of the land would amount to Rs. 327,178,979/- (31 March 2008 - Rs. 260,377,158/-). Company
policy is to revalue the lands every 3-5 years.
Notes to the Financial Statements I LOLC | Annual Report 2008/09 | 127
Motor Vehicles include vehicles used for short-term hire and vehicles held for replacements of Operating Leases. Total net book value of such
vehicles as at 31 March 2009 is Rs. 128,068,943/- (31 March 2008 - Rs. 51,716,274 /-).
LOLC has not pledged any of its property, plant & equipment against any liability.
Property plant & equipment of the Group includes assets acquired with the business combination during the financial year. The net book value of such assets as at 31 March 2009 is made up as follows:
Subsidiary Cost Accumulated Net Book Depreciation Value
Commercial Leasing Company PLC 507,501,695 196,161,398 311,340,297
26. DEPOSITS FROM CUSTOMERSGroup Company
31.03.2009 31.03.2008 31.03.2009 31.03.2008 Rs. Rs. Rs. Rs.
Deposits maturing within one year 4,720,876,692 2,826,801,429 – –Deposits maturing after one year 583,044,283 512,863,441 – –
5,303,920,975 3,339,664,870 – –
27. SHORT-TERM BORROWINGS Group Company
31.03.2009 31.03.2008 31.03.2009 31.03.2008 Restated Rs. Rs. Rs. Rs.
Commercial papers 1,774,798,835 973,547,200 1,042,441,792 973,547,200Short-term loans and others 8,017,289,030 6,891,725,846 6,482,818,178 6,581,985,846
9,792,087,865 7,865,273,046 7,525,259,970 7,555,533,046 28. FINANCE LEASE LIABILITIES
Group Company
31.03.2009 31.03.2008 31.03.2009 31.03.2008 Rs. Rs. Rs. Rs.
Gross lease rentals payable as at 01 April 1,201,033,499 1,326,765,053 1,200,012,766 1,325,943,757Leases obtained during the year – 301,273,916 – 301,273,916Lease rentals paid during the year (474,143,095) (427,204,907) (473,122,362) (427,204,907)Gross lease rentals payable as at 31 March 726,890,404 1,200,834,062 726,890,404 1,200,012,766Less: Interest in suspense (114,135,585) (239,030,762) (114,135,585) (238,861,733)Net lease liability 612,754,819 961,803,300 612,754,819 961,151,033
Repayable within one year
Gross lease rentals payable 393,178,840 465,208,750 393,178,840 464,592,778Less: Interest in suspense (76,347,571) (127,097,449) (76,347,571) (126,942,252)Net lease liability 316,831,269 338,111,301 316,831,269 337,650,526
Repayable after one year
Gross lease rentals payable 333,711,564 735,625,312 333,711,564 735,419,988Less: Interest in suspense (37,788,013) (111,933,313) (37,788,013) (111,919,481)Net lease liability 295,923,551 623,691,999 295,923,551 623,500,507
128 | Notes to the Financial Statements I LOLC | Annual Report 2008/09
29. LONG-TERM BORROWINGS Group Company
31.03.2009 31.03.2008 31.03.2009 31.03.2008 Restated Rs. Rs. Rs. Rs.
Balance as at 01 April 12,969,853,336 10,308,355,035 12,969,853,336 10,308,355,035
Received during the year 11,589,750,255 6,935,999,833 6,515,209,629 6,935,999,833
Repaid during the year (5,951,341,314) (4,274,501,532) (4,682,950,382) (4,274,501,532)
Balance as at 31 March 18,608,262,277 12,969,853,336 14,802,112,583 12,969,853,336
Long-term borrowings - current 6,676,896,050 3,867,594,352 4,442,165,898 3,867,594,352
Long-term borrowings - non-current 11,931,366,227 9,102,258,984 10,359,946,685 9,102,258,984
18,608,262,277 12,969,853,336 14,802,112,583 12,969,853,336
Analysis of non-current portion of long-term borrowings
Repayable within 3 years 7,843,847,939 6,865,527,023 6,272,428,396 6,865,527,023
Repayable after 3 years 4,087,518,288 2,236,731,961 4,087,518,289 2,236,731,961
11,931,366,227 9,102,258,984 10,359,946,685 9,102,258,984
30. TRADE AND OTHER PAYABLES Group Company
31.03.2009 31.03.2008 31.03.2009 31.03.2008 Restated Rs. Rs. Rs. Rs.
Accounts payable 2,084,706,234 973,843,976 978,745,731 812,136,892
Creditors for leased equipment 494,942,214 440,582,529 198,406,482 405,098,488
Amount due to subsidiaries – – 33,532,746 689,969,077
Clients payable 9,120,195 64,301,807 – –
Insurance premium payable 17,499,841 20,213,040 – –
Unclaimed dividends 5,420,312 1,874,154 1,777,837 1,874,154
2,611,688,796 1,500,815,506 1,212,462,796 1,909,078,611
31. RETIREMENT BENEFIT OBLIGATIONGroup Company
2009 .2008 2009 2008 Rs. Rs. Rs. Rs.
Net Benefit expense
Current service cost 9,829,566 18,448,564 6,184,653 15,797,824
Transitional asset recognized during the year (9,766,298) – (2,188,278) –
Interest cost on benefit liability 7,885,831 – 5,169,828 –
Net benefit expense 7,949,099 17,114,263 9,166,203 15,797,824
Benefit Liability
Defined benefit liability 74,349,053 51,772,347 51,819,459 42,737,849
74,349,053 51,772,347 51,819,459 42,737,849
Notes to the Financial Statements I LOLC | Annual Report 2008/09 | 129
Group Company
2009 2008 2009 2008 Rs. Rs. Rs. Rs.
Change in the defined benefit obligation are as follows:
Defined benefit obligation as of 01 April 69,678,547 34,831,047 42,737,849 27,690,825
Interest cost on benefit liability 7,885,831 5,169,828 -
Current service cost 9,829,566 18,448,564 6,184,653 15,797,824
Benefits paid (3,278,593) (1,507,264) (84,593) (750,800)
Transitional difference (over provision) recognised during the year (9,766,298) (2,188,278) -
Defined benefit liability as of 31 March 74,349,053 51,772,347 51,819,459 42,737,849
Key assumptions used in the above valuation are as follows:
Discount Rate 12% 12%
Salary increment rate 13% 13%
The unrecognised loss of Rs. 3,978,495/- has not been recognised in the Company financials in line with Company policy.
The total number of employees of the Group as at 31 March, 2009 was, 1,164 and the number of qualifying employees in respect of the above
was 1,150 (as at March 2008 - 814 and 1,027 respectively).
32. STATED CAPITALGroup Company
31.03.2009 31.03.2008 31.03.2009 31.03.2008 Rs. Rs. Rs. Rs.
Issued and fully paid
At the beginning of the year 47,520,000 of Rs.10/- each 475,200,000 475,200,000 475,200,000 475,200,000
Issued and fully paid – – – –
At the end of the year 47,520,000 shares 475,200,000 475,200,000 475,200,000 475,200,000
33. RESERVES Group Company
31.03.2009 31.03.2008 31.03.2009 31.03.2008 Rs. Rs. Rs. Rs.
Share premium of subsidiary 536,504 536,504 – –
Future taxation reserve 205,000,000 205,000,000 205,000,000 205,000,000
Statutory reserve 243,473,119 195,266,451 219,003,447 183,993,390
Revaluation reserve 105,402,842 105,402,842 105,402,842 105,402,842
Total Reserves as at 31 March 554,412,465 506,205,796 529,406,289 494,396,232
Subsidiary Share Premium
The premium of Rs. 536,504/- has arisen on the date on which shares were issued to the Parent over the par value by subsidiaries. The use of this reserve is restricted to write off preliminary expenses, to charge discounts when debentures are issued at less than par value or to redeem any debentures or preference shares
Future Taxation Reserve
The reserve has been created over the years since year 1987 to year 2000 for any future tax liabilities.
Reserve Fund
The Company’s reserve fund was created according to the Direction No. 5 of 2006 issued by the Central Bank, under Section 34 of the Finance Leasing Act of No. 56 of 2000.
130 | Notes to the Financial Statements I LOLC | Annual Report 2008/09
34. RETAINED EARNINGS Group Company
31.03.2009 31.03.2008 31.03.2009 31.03.2008 Rs. Rs. Rs. Rs.
Balance brought forward 4,142,813,662 2,980,546,405 3,792,540,720 2,912,828,715
Transferred back to retained earnings (32,185,234) – (30,000,000) –
Transfers to statutory reserves (48,206,669) (71,692,026) (35,010,056) (68,451,002)
Net profit for the year 1,054,153,622 1,340,879,283 503,952,740 1,059,236,649
Dividends (134,718,375) (106,920,000) (134,718,375) (111,073,642)
Balance carried forward 4,981,857,006 4,142,813,662 4,096,765,029 3,792,540,720
34.1 Dividends Group Company
31.03.2009 31.03.2008 31.03.2009 31.03.2008 Rs. Rs. Rs. Rs.
Interim of Rs. 2.80 per share (on a stated capital
of Rs. 475,200,000) paid on 30 June, 2008 for 2008/09 134,718,375 106,920,000 134,718,375 111,073,642
134,718,375 106,920,000 134,718,375 111,073,642
Dividend per share – – 2.80 2.25
In terms of the Inland Revenue (Amendment) Act No. 10 of 2006 a Withholding Tax of 10% has been imposed on dividends.
35. MINORITY INTEREST
The Minority Interest relates to the Net Assets of Lanka ORIX Securities (Pvt) Ltd., Sundaya Lanka (Pvt) Ltd. and Commercial Leasing Company
PLC which is not represented by the Parent Company’s investment.
36. BUSINESS COMBINATIONS THAT WERE EFFECTED DURING THE PERIOD Commercial Leasing Company PLC
Principal Activity Financial Services
Acquisition Date 9th May, 2008
Percentage holding as at 31 March, 2009 98.13%
No. of shares 17,315,310
Cost (Rs.) 1,626,123,927
Profit Share recognised (Rs.) 320,218,884
Assets as per last audited statements as at 31 March, 2009 (Rs.) 9,450,887,870
Liabilities as per last audited statements as at 31 March, 2009 (Rs.) 7,775,808,565
Notes to the Financial Statements I LOLC | Annual Report 2008/09 | 131
37. MATURITY ANALYSIS - COMPANY Assets/Liabilities 0-12 Months 12-36 Months 36-60 Months More than Total
60 Months Rs. Rs. Rs. Rs. Rs.
Assets(a) Interest Earning AssetsInvestments in Govt securities – – – – –Fixed deposits and savings deposits with banks/finance companies 481,909,164 1,009,714,439 665,493,607 124,337,277 2,281,454,487(b) Loans and Advances Net of ProvisionsLeasing - Finance and operating leases 1,840,563,829 1,626,535,719 557,198,170 – 4,024,297,718Hire Purchase and instalment sales 2,402,661,631 2,592,927,943 432,984,201 – 5,428,573,775Advances and other loans 4,781,693,294 1,857,525,675 893,026,747 – 7,532,245,716Loans to real estate/housing 3,135,535 – – – 3,135,535Factoring 1,138,142,223 – – – 1,138,142,223(c) Non-Interest Earning AssetsCash and bank balances 552,835,056 – – – 552,835,056(d) Investments inSubsidiary companies – – – 2,997,494,547 2,997,494,547Associate companies – – – 278,190,903 278,190,903Joint ventures – – – 10,000,000 10,000,000Dealing securities 260,356,877 – – – 260,356,877Debentures/Commercial papers 29,609,408 – – – 29,609,408Stocks (vehicles/real estates/machineries etc.) 45,698,979 – – – 45,698,979Short-term investments 13,351,058 – – – 13,351,058(e) Fixed AssetsProperty, plant and equipment – – – 2,603,966,056 2,603,966,056(f) Other Current AssetsOther current assets 1,132,347,714 – – – 1,132,347,714Amount due from subsidiaries 2,458,257,133 – – – 2,458,257,133Deferred tax asset – 539,311,406 – – 539,311,406Total assets 15,140,561,903 7,626,015,182 2,548,702,725 6,013,988,782 31,329,268,592
Liabilities & Equity(a) Interest Bearing LiabilitiesBank overdrafts 1,909,632,293 – – – 1,909,632,293Bank loans-short term loans 6,482,818,178 – – – 6,482,813,178Commercial papers 1,042,441,792 – – – 1,042,441,792Long-term borrowings 4,442,165,898 6,272,428,618 1,892,709,242 2,194,808,821 14,802,112,580Finance lease liabilities 316,831,269 295,923,550 – – 612,754,819(b) Non-Interest Bearing LiabilitiesAmount due to subsidiaries/associates – – – – – Leased equipment creditors 198,406,482 – – – 198,406,482Taxation 113,855,355 – – – 113,855,355Trade and other payables 1,014,056,318 – – – 1,014,056,318Retirement benefit obligation – – – 51,819,459 51,819,459(c) Shareholders FundsShareholders funds excluding redeembale preference shares – – – 5,101,371,318 5,101,371,318Total liabilities and equity 15,520,207,583 6,568,352,169 1,892,709,242 7,347,999,598 31,329,268,592
132 | Notes to the Financial Statements I LOLC | Annual Report 2008/09
38. SEGMENTAL INFORMATION Leasing, Factoring Insurance IT Services Stock Broking Total Hire Purchase and Broking and Other Other Products Rs. Rs. Rs. Rs. Rs. Rs.
2008/09Operating profit before interest 6,853,043,041 440,649,663 39,856,082 (46,217,023) (21,969,629) 7,265,362,134Net Interest cost (6,073,783,915) (350,521,828) (10,776) (2,308) (16,862,626) (6,441,181,453)Other income/(expenses) 250,728,890 3,284,863 9,689,803 – 18,957,059 282,660,615Share of profit of associate companies – – – – – 140,457,638Profit before taxation 1,029,988,016 93,412,698 49,535,109 (46,219,331) (19,875,197) 1,247,298,933
2007/08Operating profit before interest 3,667,255,859 407,323,677 15,851,081 (40,765,389) 4,407,367 4,054,072,595Net Interest cost (3,196,091,132) (203,277,186) (110,089) (1,913) (4,484,854) (3,403,965,174)Other income/(expenses) 294,609,398 2,863,335 10,751,566 – 5,151,220 313,375,519Goodwill on consolidation – – – – – 131,292,503Share of profit of associate companies – – – – – 88,276,885Profit before taxation 765,774,125 206,909,826 26,492,558 (40,767,302) 5,073,733 1,183,052,328
2008/09Capital expenditure 1,076,470,080 2,098,010 685,766 11,370,370 15,384,198 1,106,008,424Depreciation of property, plant and equipment 480,535,822 1,225,041 3,953,899 2,287,041 10,264,803 498,266,606Provision/(reversal) for doubtful debts and bad debts written-off 256,765,306 104,536,089 – – 32,334,226 393,635,621Provision/(reversal) for fall in value of investments 27,961,075 – 121,890 – – 28,082,965Provision for gratuity 6,298,366 – 458,602 521,732 867,752 8,146,452
2007/08Capital expenditure 799,532,391 1,128,034 1,256,746 3,119,446 5,343,387 810,380,004Depreciation of property, plant and equipment 302,802,841 1,535,235 4,325,865 2,042,842 9,179,531 319,886,314Provision/(reversal) for doubtful debts and bad debts written off 163,494,922 8,697,932 16,036,054 – 3,159,111 191,388,019Provision/(reversal) for fall in value of investments (502,310) – 1,926,630 – – 1,424,320Provision for gratuity 16,999,159 – 454,460 698,795 296,150 18,448,564
As at 31 March, 2009Total assets 42,271,554,058 2,448,225,798 178,833,608 130,689,420 1,332,763,257 46,362,066,143Total liabilities 37,550,989,226 2,031,618,871 76,481,288 23,933,779 587,565,176 40,270,588,343
As at 31 March, 2008
Total assets 30,058,040,809 1,975,198,888 139,964,835 63,142,078 757,911,251 32,994,257,861Total liabilities 26,740,518,638 561,562,252 60,490,675 3,741,767 450,075,538 27,816,388,871
Notes to the Financial Statements I LOLC | Annual Report 2008/09 | 133
Portfolio Analysis by Customer Segment
The total rent receivable to the Group is attributable to: Group 2009 Rs. Mn
Corporate/Public 4,056 9%
SME 37,043 83%
Micro 3,725 8%
Total Receivable 44,824 100%
39. LOANS TO EMPLOYEES (Rs. 20,000/- and above) Group Company
2009 2008 2009 2008 Rs. Rs. Rs. Rs.
Balance as at 01st April 92,252,743 83,670,011 69,852,455 63,546,664Loans granted during the year 40,069,999 44,391,050 33,533,249 35,603,400Recoveries during the year (33,250,034) (35,808,318) (26,178,928) (29,297,609)Balance as at 31st March 99,072,708 92,252,743 77,206,776 69,852,455
40. CAPITAL COMMITMENTS
The Company as at 31st March, 2009 has a capital commitment of approximately Rs. 140 Mn for the construction of the fleet management
workshop.
41. CONTINGENT LIABILITIES
Contingent Liabilities exist as at 31st March, 2009 on guarantees given by the Company to Hatton National Bank, in relation to the banking
facilities obtained by the Company’s subsidiary Lanka ORIX Insurance Brokers Ltd. (LOIB). The balances outstanding on these facilities as at
31st March, 2009 amounted to Rs. 2,050,000/-.
Contingent Liabilities exist as at 31st March, 2009 on guarantees given by the Company to banks on Letter of Credit opened by the Company
for import of equipment and vehicles for execution of leases. The value of LC’s at the year end was Rs. 9,028,500/-.
The Company does not anticipate any material liability to arise out of any contingent event.
42. CONSOLIDATION OF ACCOUNTS WITH THOSE OF THE SUBSIDIARY COMPANY
The results of the Company’s subsidiary, Lanka Orient Investments (Pvt) Ltd., incorporated on 27th February, 1986 have not been consolidated
with that of the Company in accordance with Section 153 (6) (a) of the Companies Act No. 07 of 2007.
43. EVENTS AFTER THE BALANCE SHEET DATE
There have been no material events occurring after the Balance Sheet date that require adjustment to or disclosure in the Financial statements,
other than the following:
1. The Company submitted a bid for the purchase of 33 1/3% of Seylan Bank PLC and awaiting decision of the Central Bank of Sri Lanka.
2. The Company has offered to purchase all remaining shares of Commercial Leasing Company PLC at Rs. 90/- per share in line with the
de-listing of the Company.
134 | Notes to the Financial Statements I LOLC | Annual Report 2008/09
44. COMPARATIVE INFORMATION IN THE FINANCIAL STATEMENTS HAS BEEN RESTATED AS FOLLOWS:
CompanyIncome statement for year ended 31 March 2008
As per last year Prior year Impact due to Restated in financial adjustment merger 2008/09 financial statements Note 44.1 Note 44.2 statements Rs. Rs. Rs. Rs.
Income 4,480,432,084 480,547,056 4,960,979,140Operating Profit before Net Interest 3,153,837,331 398,301,903 3,552,139,234Net Interest Cost 2,768,779,783 203,277,185 2,972,056,968Other Income/(Expenses) 440,602,192 (179,349,019) 261,253,173Profit before Taxation 825,659,740 15,675,699 841,335,439Profit after Taxation 977,871,455 72,705,920 8,659,274 1,059,236,649
Balance Sheet as at 31 March 2008Assets 27,653,040,450 42,705,920 1,300,321,133 28,996,067,503Liabilities 22,982,399,219 1,251,531,332 24,233,930,551Equity 4,670,641,231 42,705,920 48,789,801 4,762,136,952
44.1 Prior Year Adjustments
Decrease in Factoring receivables (30,000,000)Increase in deferred tax asset 72,705,920
42,705,920
44.2 The restatement of last year financials, is in view of the merger of the fully owned subsidiary Lanka ORIX Factors Ltd., in February 2009.
45. RELATED PARTY TRANSACTIONS
45.1 The Directors of the Company are also Directors of the following Companies in the Group through which they have control.
LOIB LFSL LOFIN LOSEC LOIT LOPD LFOL Sundaya CLC LOMC
Mrs. R.L. Nanayakkara -Mr. I.C. Nanayakkara -Mr. M.D.D. Pieris - - - - - -Mrs. K.U. Amarasinghe - - -Mr. M.T.L. Fernando - - - - - -Mr. T.H.M. Wickramasinghe - - - - - - - - -Mr. W.D.K. Jayawardena - - -Mr. R.M. Nanayakkara - - - - - - - - -
Notes to the Financial Statements I LOLC | Annual Report 2008/09 | 135
As at As at 31 March, 2009 31 March, 2008 Rs. Rs.
Amounts due from Subsidiary & Join Venture Companies to ParentLOIB 49,228,418 41,638,773LOFIN 191,764,934 225,637,470LOPD 6,772,336 6,448,654LOSEC 4,778,786 4,854,190LOIT – 1,866,056Sundaya 5,064,056 4,831,157Gal Oya 64,819,452 – LOMC 1,815,122,592 – CLC 320,706,558 –
2,458,257,132 285,276,300
Amount due to Subsidiary Companies from ParentLOIT 33,532,746 28,155,864
Inter-Company Transactions
1. The Company has received following income from subsidiaries: LOSEC LOIB LOIT LOPD Rs. Rs. Rs. Rs.
2007/08
Royalty 10,000,000 9,921,255 – –
Operating lease rental income 4,594,206 – – 665,604
14,594,206 9,921,255 – 665,604 LOSEC LOIB LOIT LOPD Rs. Rs. Rs. Rs.
2008/09
Royalty 10,000,000 21,631,927 – –
Operating lease rental income 5,403,018 – – 661,475 15,403,018 21,631,927 – 661,475
136 | Notes to the Financial Statements I LOLC | Annual Report 2008/09
2. The Company has paid IT service fee of Rs. 45,000,000/- to LOIT (2007/08 - Rs. 36,000,000/-)
3. The subsidiary companies have the following transactions with other subsidiaries and the parent.
3.1 LOIB has earned Rs. 3,047,893/- (2007/08 - Rs. 1,560,452/-) as insurance commission from premium paid by the following:
2008/09 2007/08
Rs. Rs.
LOLC 2,843,118 1,384,438
LOSEC – –
LOFIN 204,775 176,014
3,047,893 1,560,452
3.2 LOIT has received IT service fee as follows:
LOIB 4,500,000 4,500,000
LOLC 52,500,000 45,000,000
LOFIN 30,000,000 24,000,000
87,000,000 73,500,000
3.3 Due from LOIB to LFSL Rs. 500,230/- (2007/08 - Due from LFSL to LOIB Rs. 1,727,789/-).
3.4 Due from LOFIN to LOIT - Nil (2007/08 - Rs. 16,000,000/-).
3.5 Due from LOFIN to LOFAC/LOLC Rs. 6,643,285/- (2007/08 - Rs. 6,121,588/-).
3.6 Due from LOIB to LOFIN - Rs. 6,381,863/- (2007/08 - Rs. 6,115,431/-).
3.7 Due from LOIB to LOSEC - Nil (2007/08 - Rs. 239,755/-).
3.8 Due from LOFIN to LOMC - Rs. 114,416/- (2007/08 - Nil).
3.9 Due from LOMC to LOIB - Rs. 23,452/- (2007/08 - Nil).
45.2 Transactions with Key Management Personnel
Key Management Personnel include all the members of the Board of Directors of the Group having authority and responsibility for planning, directing and controlling the activities of the Company as well as the subsidiaries, directly or indirectly.
Group has paid fees amounting to Rs. 20,656,598/- for the year 2008/09. (2007/08 - Rs. 12,468,103/-).
Emoluments paid to key management personnel during the year 2008/09 amounted to Rs. 36,901,514/- (2007/08 - Rs. 32,203,919/-).
In addition to the above company has provided the following benefits and facilities:
2008/09 2007/08
Short-term Long-term Total Short-term Long-term benefits benefits benefits benefits Total Rs. Rs. Rs. Rs. Rs. Rs.
Total benefits and facilities 30,401,616 – 30,401,616 11,586,928 7,055,833 18,642,760
Group has not incurred any amount as Termination benefits or post-employment benefits on account of the key managerial personnel
during the year.
Group has not provided leases, loans, advances or other credit facilities in the names of key managerial persons as at 31.03.2009.
Notes to the Financial Statements I LOLC | Annual Report 2008/09 | 137
45.3 Other Related Parties
The Company carries out transactions in the ordinary course of its business on arm’s length basis with related parties. Names of Directors, their relationship, accommodations granted and balance outstanding as at 31 March 2009 are listed below: Name of Related Party Name of Director Relationship
Ishara Traders Mr. R.M. Nanayakkara Proprietor
Mr. I.C. Nanayakkara Director Mrs. K.U. Amarasinghe Director
Brown & Co .Ltd. Mrs. R.L. Nanayakkara Chairperson Mr. M.T.L. Fernando Director Mr. I.C. Nanayakkara Director
Taprobane Fund Management (Pvt) Ltd. Mrs. R.L. Nanayakkara Director Mr. M.T.L. Fernando Director Mr. I.C. Nanayakkara Director
The Colombo Land Exchange Ltd. Mr. I.C. Nanayakkara Director
1. The Group and Company paid Rs. 79,172,762/- and Rs. 66,822,762/- (2007/08 - Rs. 36,772,500/- and Rs. 25,817,500/-) respectively for the
supply of lease vehicles to Ishara Traders (Pvt) Ltd.
2. The Company has obtained Rs. 3,148,681,375/- (2007/08 Rs. 700,000,000/- & fully settled on 24 December 2007) loan from Ishara Traders
during the year and Rs. 162,272,581/- (2007/08 - Rs. 14,738,356/-) paid as interest - Loan outstanding balance as at 31 March 2009 -
Rs. 1,226,102,079/-.
3. The Group and Company paid Rs. 8,168,450/- and Rs. 4,677,700/- for the supply of lease vehicles to Brown & Company Ltd.
(2007/08 - Rs. 411,130,700/- for Company).
4. LOLC/LOFAC has advanced Rs. 213,007,500/- to Standard Finance Ltd. and earned Rs. 43,986,679/- (2007/08 - Rs. 11,978,417/-) as
interest income and earned Rs. 26,612/- (2007/08 - Rs. 254,155/-) as discount charge income during the year from Mason’s Mixtures Ltd.
5. The Company has granted Rs. 204,690,823/- loan facility to Galoya Holdings (Pvt) Ltd. & earned Rs. 64,819,452/- as interest income during
the year 2008/09.
6. Amount due from related party transactions are as follows: Balance outstanding
As at As at 31 March, 2009 31 March, 2008
Name of the Company Nature of transactions Rs. Rs.
The Colombo Land Exchange Ltd. Loan Granted 100,250,897 –
Brown & Company Ltd. Finance Lease 635,970 1,362,736
Brown & Company Ltd. Loan Granted 290,327,796 –
Gal Oya Holdings (Pvt) Ltd. Loan Granted 7,241,886 10,164,210
Gal Oya Holdings (Pvt) Ltd. Finance Lease – 2,443,170
Touchwood Investments PLC Loan Granted 46,861,330 25,074,574
Touchwood Investments PLC Finance Lease 3,713,274 5,506,372
Touchwood Investments PLC Operating Leases 18,011,675 –
138 | Notes to the Financial Statements I LOLC | Annual Report 2008/09
8. Interest Income earned from loans granted to related party transactions as follows: 2008/09 2007/08
Name of the Company Rs. Rs.
Brown & Company Ltd. 24,653,748 13,930,168
Gal Oya Holdings (Pvt) Ltd. 7,019,192 2,188,951
Gal Oya Holdings (Pvt) Ltd. 2,028,571 1,607,910
Touchwood Investments PLC 1,080,223 2,606,339
46. FOREIGN EXCHANGE RISK
The Company received approval from Central Bank of Sri Lanka to enter into SWAP agreements to hedge against foreign exchange exposure. Lanka ORIX Finance Company the fully owned subsidiary of LOLC received approval from Central Bank of Sri Lanka to mobilise Foreign Currency deposits and the Company currently accepts deposits in US Dollars, Great Britain Pounds, EURO and Australian Dollars.
Notes to the Financial Statements I LOLC | Annual Report 2008/09 | 139
1980
The first to introduce leasing to Sri Lanka
1992
Launched its first subsidiary LOFAC
1995
First branch office opened in Kandy
Negotiated the first long-term Rupee loan
from FMO
1996
The first to extend Dollar denominated
leases to BOI companies
1997
The first to introduce export factoring
through LOFAC
Branch office opened in Matara
1998
Branch offices opened in Badulla and
Rathnapura
1999
LOFAC enters into strategic alliance with
Dunn and Bradstreet
Branch office opened in Anuradhapura
Launched its insurance broking subsidiary,
LOIB
2000
Negotiated the second tranche of Long-
term Rupee loan from FMO
Branch office opened in Kochchikade
2001
Launched its finance subsidiary, LOFIN
Branch offices opened in Kurunegala and
Kaluthara
Milestones
2002
The first leasing company to be recognised
as a Participating Financial Institution for
the Indian Line of Credit
Branch office opened in Galle
2003
Received the first US Dollar Long-term
Loan from OPEC Fund
The first to win the leasing category ‘Award
for Excellence in Annual Reports and
Accounts’ conducted by the Institute of
Chartered Accountants of Sri Lanka
Negotiated the third tranche of Long-term
Rupee loan from FMO
Branch offices opened in Nuwara Eliya and
Kiribathgoda
2004
Entered into stock broking through LOSEC
Launched LOIT, the Information Technology
arm
The first to win the Non-Banking Sector
Award at the South Asian Federation of
Accountants (SAFA) for Best Presented
Accounts Competition
Branch office opened in Gampaha
2005
The first leasing company to be ranked
among the top 10 Brands by Sting
Consultants Brand Power Index
Launched LOPD, the project development
subsidiary
LOLC cricket team emerged Mercantile ‘C’
Division Champions
Negotiated the second tranche of Long-
term US Dollar loan from OPEC Fund
Negotiated the fourth tranche of Long-term
Rupee loan from FMO
Negotiated the long term US Dollar loan
from PROPARCO
Branch offices opened in Kegalle,
Embilipitiya and Polonnaruwa
140 | LOLC | Annual Report 2008/09
2006
Negotiated the Long-term US Dollar loan
from DEG
Negotiated the Long-term US Dollar loan
from OPEC
Branch office opened in Wattala
The first Regional Expansion to Cambodia
through 17.91% holding of PRASAC
First to introduce a branded product
‘Guardian’ range from an insurance broker,
through LOIB
Won the leasing category ‘Award for
Excellence in Annual Reports and
Accounts’ conducted by the Institute of
Chartered Accountants of Sri Lanka for
2005/06
2007
Branch offices opened in Chilaw and
Mahiyangana
Ranked among the top 50 brands by
Super Brands
Launched the new Strategic Plan for the
Company and its Subsidiaries
Opened the first Hospital Savings Centre in
Oasis
Opened the first Student Savings Centre at
Royal College - Polonnaruwa
LOFIN operations expanded to Wattala,
Kegalle, Mahiyanganaya, Mount Lavinia
and Chilaw
LOPD received Cabinet sub-committee
approval for the project on offshore Sand
Mining, Washing, Sieving and Grading to
supply construction and related industries
Signed up with LIOC to establish LOLC
sub branches at LIOC filling stations.
LIOC centers opened in Morawaka and
Trincomalee
Set up the Islamic BU with an in-house
Shari’ah Supervisory Board
Dairy farmer loans, cultivation loans,
business set up loans and skills enable
loans were introduced
Partnered with GTZ for capacity building
of the micro finance staff, setting up low
cost branch network and development of a
micro banking system
2008
Launched a lottery for customers with a
house as the prize
Launched Western Union Money transfer
services at LOLC branches
Entered into a joint venture agreement with
Agri Tec for manufacture of precipitated silica
and allied products using rice husk ash
LIOC centers opened in Pilimathalawa,
Seeduwa, Aluthgama, Kadawatha,
Ambalangoda, Debarawewa, Beliatta and
Talawakele
LOLC Micro Credit Ltd. was appointed as
the only representative from the private
sector to the Micro Finance Steering
Committee appointed by Department of
Development Finance attached to Ministry
of Finance and Planning
Won Bronze Award at Effie Awards 2008, in
the Financial Services/Products category
Spin off of Micro Finance Business Unit as
LOLC Micro Credit Ltd. (LOMC) together
with FMO
Won the International Assets and Liability
Management competition held by FMO
and DEG
Joined with Sri Lanka Post to open up
Isuru Diriya centers at post offices and
sub post offices
Milestones I LOLC I Annual Report 2008/09 | 141
142 | LOLC | Annual Report 2008/09
Ten Year Summary
For the year ended 31st March, (Rs. ‘000) 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009Restated
COMPANY
OPERATING RESULTS
Gross income/profit 860,738 938,381 1,062,137 1,130,880 1,401,776 1,566,952 1,908,291 3,034,110 4,960,979 6,623,222
Other operating expenses (239,310) (289,072) (352,377) (415,469) (588,339) (617,719) (621,628) (972,865) (1,408,840) (1,908,907)
Operating profit before interest 621,428 649,309 709,760 715,411 813,437 949,233 1,286,663 2,061,245 3,552,139 4,714,315
Interest costs (529,136) (562,269) (566,914) (492,557) (493,338) (532,298) (703,399) (1,442,881) (2,972,057) (4,205,474)
Other income/(expenses) 25,933 94,198 69,862 32,679 97,806 145,294 93,449 291,840 261,254 71,079
Income tax expense – – – – – – (12,701) 76,390 217,901 (75,967)
Net profit after tax 118,225 181,238 212,708 255,533 417,905 562,229 664,012 986,594 1,059,237 503,953
As at 31 March
ASSETS
Total assets 5,587,654 5,502,316 5,527,821 5,980,825 7,616,680 8,746,741 13,297,988 20,888,694 28,996,068 31,329,269
LIABILITIES
Current liabilities 2,486,632 3,077,791 2,222,274 3,044,815 3,713,713 2,999,461 5,003,038 7,840,922 13,279,129 15,552,646
Non-current liabilities 1,683,013 1,107,767 1,841,339 1,257,849 2,058,618 3,439,150 5,444,697 9,353,485 10,954,802 10,675,251
Total liabilities 4,169,645 4,185,558 4,063,613 4,302,664 5,772,331 6,438,611 10,447,735 17,194,407 24,233,931 26,227,897
SHAREHOLDERS’ FUNDS
Share capital & reserves
Share capital 118,800 237,600 237,600 237,600 475,200 475,200 475,200 475,200 475,200 475,200
Reserves 1,299,209 1,079,158 1,226,608 1,440,560 1,369,149 1,832,930 2,375,053 3,219,087 4,286,937 4,626,171
Share holders’ funds 1,418,009 1,316,758 1,464,208 1,678,160 1,844,349 2,308,130 2,850,253 3,694,287 4,762,137 5,101,371
INVESTOR RATIOS
Bonus issues 10:1 1:1 – – 1:1 – – – – –
Gross dividends 26,730 71,280 77,220 77,220 92,664 110,009 142,560 71,280 106,920 133,056
Total assets to shareholders’
funds (times) 4 4 4 4 4 4 5 6 6 6
Return on assets (%) 2 3 4 4 6 7 6 6 4 2
Return on equity (%) 8 14 15 16 24 27 26 30 23 10
OTHER INFORMATION
No. of employees 166 170 179 201 259 269 346 414 521 664
No. of branches 6 6 8 9 12 12 16 18 22 26
No. of LIOC branches 0 0 0 0 0 0 0 0 10 14
No. of Postal branches 0 0 0 0 0 0 0 0 0 11
No. of subsidiary companies 3 4 5 5 6 7 8 8 9 9
No. of associate companies 0 0 0 0 0 0 0 0 2 2
No. of joint ventures 0 0 0 0 0 0 0 0 1 1
LOLC I Annual Report 2008/09 | 143
Income Statements (Rs.’000)2008/09 2007/08
For the 3 months ended June 30 Sept 30 Dec 31 March 31 June 30 Sept 30 Dec 31 March 31
COMPANY
Operating Profit before Interest 879,980 1,112,725 1,127,030 1,594,580 688,794 673,582 901,725 1,288,038
Interest costs (853,047) (1,049,839) (1,021,025) (1,281,563) (543,425) (632,194) (683,299) (1,113,139)
Other income/(expenses) 16,384 71,216 (27,091) 10,570 52,912 67,709 296,689 (156,057)
Taxation (15,161) (19,652) – (41,154) (48,000) (36,000) (41,093) 270,288
Profit available to shareholders’
of the Company 28,156 114,450 78,914 282,433 150,281 73,097 474,022 289,131
Balance Sheets (Rs.’000)
As at June 30 Sept 30 Dec 31 March 31 June 30 Sept 30 Dec 31 March 31
Assets 29,673,348 31,250,667 31,461,465 31,329,269 22,958,188 24,149,170 26,514,031 29,323,361
Liabilities 25,107,607 26,570,474 26,702,358 26,227,897 19,220,540 20,338,425 22,229,265 24,633,930
Net assets 4,565,741 4,680,193 4,759,107 5,101,371 3,737,648 3,810,745 4,284,766 4,689,431
Share capital & reserves 4,565,741 4,680,193 4,759,107 5,101,371 3,737,648 3,810,745 4,284,766 4,689,431
Share capital 475,200 475,200 475,200 475,200 475,200 475,200 475,200 475,200
Reserves 4,090,541 4,204,993 4,283,907 4,626,171 3,262,448 3,335,545 3,809,566 4,214,231
GROUP
For the 3 months ended June 30 Sept 30 Dec 31 March 31 June 30 Sept 30 Dec 31 March 31
Operating profit before interest 1,312,673 1,954,086 2,065,321 1,933,282 852,784 896,332 1,161,680 1,143,277
Interest costs (1,178,277) (1,640,181) (1,710,390) (1,912,333) (645,811) (781,669) (863,445) (1,113,040)
Other income/(expenses) 35,070 13,341 (31,673) 292,244 29,298 36,263 264,799 (16,984)
Goodwill on consolidation – – – – – 5,175 – 126,118
Share of profit of associate
companies 24,303 29,906 28,389 57,860 – – (4,473) 92,750
Taxation (48,053) (77,934) (56,924) (9,211) (48,525) (68,828) (54,446) 332,242
Minority interest (22,002) (5,249) 482 27,791 (9,776) (1,395) (18,295) 32,082
Profit available to shareholders’
of the Company 123,714 273,969 295,205 361,266 177,970 85,878 485,820 591,211
Balance Sheets (Rs.’000)
As at June 30 Sept 30 Dec 31 March 31 June 30 Sept 30 Dec 31 March 31
Assets 46,138,261 48,654,109 48,843,150 46,359,550 26,915,804 28,620,658 32,058,118 32,921,552
Liabilities 40,575,227 43,234,136 43,128,453 40,270,588 22,990,310 24,616,746 27,550,092 27,816,389
Net assets 5,563,034 5,419,973 5,714,697 6,088,962 3,925,494 4,003,912 4,508,026 5,105,163
Share capital & reserves 5,563,034 5,419,973 5,714,697 6,088,962 3,925,494 4,003,912 4,508,026 5,105,163
Share capital 475,200 475,200 475,200 475,200 475,200 475,200 475,200 475,200
Reserves & minority interest 5,087,834 4,944,773 5,239,497 5,613,762 3,450,294 3,528,712 4,032,826 4,629,963
The above statements relating to the Company, are as per Published Financials and does not reflect any restatement effected in view of the merger
with Lanka ORIX Factors Ltd.
Summarised Quarterly Statistics
Value Addition
2008/09 % 2007/08 % (Restated) Rs. Rs.
Company
Value added
Income 6,623,222,436 4,960,979,140
Cost of borrowing and services (5,546,086,790) (3,837,104,310)
Provisions 200,446,301 114,887,215
Other income 71,078,814 261,253,173
Value added tax 599,707,761 659,754,698
1,948,368,522 2,159,769,915
Distribution of Value added
To Employees 358,807,279 18 360,542,736 17
Remuneration and other benefits 358,807,279 360,542,736
To Government 675,675,093 35 441,653,488 20
Indirect taxes 599,707,761 659,754,698
Direct taxes 75,967,332 (217,901,210)
To Providers of Capital 168,066,056 9 179,524,644 8
Dividends to shareholders 133,056,000 111,073,642
Reserves 35,010,056 68,451,002
To Expansion and Growth 745,820,094 38 1,177,849,648 55
Retained profits 335,886,684 879,712,005
Depreciation 409,933,410 298,137,043
1,948,368,522 100 2,159,769,915 100
144 | LOLC | Annual Report 2008/09
Value Addition
2008/09 % 2007/08 % (Restated) Rs. Rs.
Group
Value added
Income 10,345,984,329 5,934,772,221
Cost of borrowing and services (8,665,751,999) (4,614,742,071)
Provisions 369,767,923 171,592,067
Other income 282,660,615 313,375,519
Goodwill on consolidation – 131,292,503
Share of profits of associate companies 140,457,638 88,276,885
Value added tax 701,576,919 746,258,089
3,174,695,425 2,770,825,213
Distribution of Value added
To Employees 727,552,966 23 521,628,482 19
Remuneration and other benefits 727,552,966 521,628,482
To Government 893,699,323 28 585,815,016 21
Indirect taxes 701,576,919 746,258,089
Direct taxes 192,122,404 (160,443,073)
To Providers of Capital 181,262,669 6 182,765,669 7
Dividends to shareholders 133,056,000 111,073,642
Reserves 48,206,669 71,692,027
To Expansion and Growth 1,372,180,467 43 1,480,616,046 53
Retained profits 873,913,861 1,160,729,732
Depreciation 498,266,606 319,886,314
3,174,695,425 100 2,770,825,213 100
Value Addition I LOLC I Annual Report 2008/09 | 145
Group Companies
Lanka ORIX Finance Company Ltd. (LOFIN)
Date of Incorporation
13 December 2001
Stated Capital
Rs. 800,000,000/- (80,000,000 shares)
Group Holding
100%
Status of the Company
Unquoted Public Company
Principal Activities
Finance Business and Pawn Broking,
Islamic Financing, Advances for Margin
Trading
Registered Office
No. 100/1,
Sri Jayewardenepura Mawatha,
Rajagiriya, Sri Lanka.
Directors
Mrs. R.L. Nanayakkara - ChairpersonMr. I.C. Nanayakkara - Deputy ChairmanDeshamanya M.D.D. Pieris
Mr. J.M. Swaminathan
Mrs. K.U. Amarasinghe
Mr. B.C.G. de Zylva - Managing DirectorMr. W.D.K Jayawardena
Mr. R.N. Asirwathan (Appointed
w.e.f. 26.11.2008)
Lanka ORIX Insurance Brokers Ltd. (LOIB)
Date of Incorporation
2 February 1999
Stated Capital
Rs. 10,000,000/- (1,000,000 shares)
Group Holding
100%
Status of the Company
Unquoted Public Company
Principal Activity
Insurance Broking
Registered Office
No. 100/1, Sri Jayewardenepura Mawatha,
Rajagiriya, Sri Lanka.
Directors
Mrs. R.L. Nanayakkara - ChairpersonMr. I.C. Nanayakkara - Deputy ChairmanDeshamanya M.D.D. Pieris
Mrs. K.U. Amarasinghe
Mr. N.D.J. Silva (Retired w.e.f. 26.03.2009)
Mr. W.D.K.Jayawardena
Lanka ORIX Information Technology Ltd. (LOIT)
Date of Incorporation
5 March 2004
Stated Capital
Rs. 20,000,000/- (2,000,000 shares)
Group Holding
100%
Status of the Company
Unquoted Public Company
Principal Activities
Software Design, Development and
Distribution
Registered Office
No. 100/1, Sri Jayewardenepura Mawatha,
Rajagiriya, Sri Lanka
Directors
Mrs. R.L. Nanayakkara - ChairpersonMr. I.C. Nanayakkara - Deputy ChairmanMrs. K.U. Amarasinghe
Deshamanya M.D.D.Pieris
Mr. M.T.L. Fernando
Mr. F.K.C.P.N. Dias - Managing DirectorMr. W.D.K. Jayawardena
146 | LOLC | Annual Report 2008/09
Lanka ORIX Project Development Ltd. (LOPD)
Date of Incorporation
12 May 2005
Stated Capital
Rs. 52,000,000 - (5,200,000 shares)
Group Holding
100%
Status of the Company
Unquoted Public Company
Principal Activities
Property and Infrastructure Development
Registered Office
No. 100/1, Sri Jayewardenepura Mawatha,
Rajagiriya, Sri Lanka
Directors
Mrs. R.L. Nanayakkara - Chairperson
Mr. I.C. Nanayakkara - Deputy Chairman
Mrs. K.U. Amarasinghe
LOLC Micro Credit Ltd. (LOMC)
Date of Incorporation
16 May 2008
Stated Capital
Rs. 460,125,000/- (40,000,000 shares)
Group Holding
100%
Status of the Company
Unquoted Public Company
Principal Activities
Leasing and Finance, Micro Credit Operations
Registered Office
No. 100/1, Sri Jayewardenepura Mawatha,
Rajagiriya, Sri Lanka.
Directors
Mrs. R.L. Nanayakkara - Chairperson
Mr. I.C. Nanayakkara - Deputy Chairman
Mrs. K.U. Amarasinghe
Mr. R.D. Tissera
Mr. W.D.K. Jayawardena
Commercial Leasing Company PLC (CLC)
Date of Incorporation
30 April 1998
Stated Capital
176,458,400/- (17,645,840 shares)
Group Holding
98.13%
Status of the Company
Quoted Public Company
Principal Activities
Leasing, Hire Purchase and Factoring
Registered Office
No. 68, Bauddhaloka Mawatha,
Colombo 4, Sri Lanka.
Directors
Mrs. R. L. Nanayakkara - Chairperson
Mr. I.C. Nanayakkara - Deputy Chairman
Mr. W.D.K. Jayawardena
Mrs. K.U. Amarasinghe
Lanka ORIX Securities (Pvt) Ltd. (LOSEC)
Date of Incorporation
19 December 1990
Stated Capital
Rs. 9,000,000/- (900,000 shares)
Group Holding
30%
Status of the Company
Private Limited Liability Company
Group Companies I LOLC I Annual Report 2008/09 | 147
Principal Activity
Stock Broking
Registered Office
No. 42, Sir Mohamed Macan Markar
Mawatha, Colombo 3, Sri Lanka.
Directors
Mrs. R. L. Nanayakkara - ChairpersonMr. I.C. Nanayakkara - Deputy ChairmanMr. T.H.M. Wickramasinghe - ManagingDirectorMrs. K.U. Amarasinghe
Mr. R.F. Senewiratne (Resigned w.e.f. 11.07.08)
Mr. V.S. Premawardhana
(Resigned w.e.f. 30.11.08)
Mr. K.A.K.P. Gunawardena
(Appointed w.e.f. 16.02.09)
Sundaya Lanka (Pvt) Ltd.
Date of Incorporation
6 June 2005
Stated Capital
Rs. 12,244,900/- (1,224,490 shares)
Group Holding
51% acquired along with the assets of
LOFAC, when LOFAC was amalgamated
with LOLC
Principal Activities
Manufacturing, assembly and sales of solar
power systems
Registered Office
No. 100/1, Sri Jayewardenepura Mawatha,
Rajagiriya, Sri Lanka
Directors
Mrs. R.L. Nanayakkara - Chairperson
Mr. I.C. Nanayakkara - Deputy Chairman
Mr. M.C. Adema
Mr. R.D. Tissera
Mr. P.S.T. Loh
Mr. T.S.R. Visweswaran
Mr. W.D.K. Jayawardena
Agrisil Holdings Limited
Date of Incorporation
23 April 2008
Stated Capital
Rs. 54,000,000/- (1,000,000 shares)
Group Holding
(50% Joint Venture of Lanka ORIX Project
Development Limited)
Status of the Company
Unquoted Public Company
Principal Activity
Management Services
Registered Office
No. 100/1, Sri Jayewardenepura Mawatha,
Rajagiriya, Sri Lanka.
Directors
Mrs. R.L. Nanayakkara - Chairperson
Mr. I.C. Nanayakkara - Deputy Chairman
Mr. G.R. Wellen (Appointed w.e.f. 16.06.2008)
Mr. C.W. Wellen
(Appointed w.e.f. 16.06.2008)
Mr. N.M.C. Mendis
(Appointed w.e.f. 29.05.2008)
Mr. D. Stephens
(Appointed w.e.f. 16.06.08, deceased
on 11.10.08)
148 | Group Companies I LOLC | Annual Report 2008/09
InvestorInformation1. SHAREHOLDING INFORMATION
1.1 Shareholding as at 31 March,2009 2008
No. of % of No. of % of Shares Shares Shares Shares
Residents 33,160,368 69.78 33,070,268 69.60ORIX Corporation 14,256,000 30.00 14,256,000 30.00Other foreign investors 103,632 0.22 193,732 0.40
47,520,000 100 47,520,000 100
1.2 Analysis of Ordinary Shares as at 31 March,2009 2008
Range No. of No. of % of No. of No. of % ofShareholders Shares Shares Shareholders Shares Shares
1 - 1,000 1,133 302,395 0.63 1,156 337,813 0.711,001 - 5,000 307 708,029 1.49 356 840,803 1.775,001 - 10,000 66 488,352 1.03 76 567,067 1.19
10,001 - 50,000 68 1,360,922 2.86 72 1,415,907 2.9850,001 - 100,000 8 546,220 1.15 10 733,228 1.55
100,001 - 500,000 9 1,915,692 4.03 10 1,952,394 4.11500,001 - 1,000,000 2 1,324,302 2.79 1 800,200 1.68
Over 1,000,000 Shares 6 40,874,088 86.02 6 40,872,588 86.01 1,599 47,520,000 100 1,687 47,520,000 100
1.3 Categories of Shareholders as at 31 March,2009
Resident Non-Resident
Range No. of No. of % of No. of No. of % ofShareholders Shares Shares Shareholders Shares Shares
1 - 1,000 1,118 296,707 0.62 15 5,688 0.011,001 - 5,000 300 691,209 1.45 7 16,820 0.045,001 - 10,000 63 466,416 0.98 3 21,936 0.05
10,001 - 50,000 65 1,301,734 2.74 3 59,188 0.1250,001 - 100,000 8 546,220 1.15 – – –
100,001 - 500,000 9 1,915,692 4.03 – – – 500,001 - 1,000,000 2 1,324,302 2.79 – – –
Over 1,000,000 Shares 5 26,618,088 56.02 1 14,256,000 30.00 1,570 33,160,368 69.78 29 14,359,632 30.22
2008
Resident Non-Resident
Range No. of No. of % of No. of No. of % ofShareholders Shares Shares Shareholders Shares Shares
1 - 1,000 1,140 331,525 0.70 16 6,288 0.011,001 - 5,000 350 824,483 1.74 6 16,320 0.035,001 - 10,000 72 534,431 1.12 4 32,636 0.07
10,001 - 50,000 69 1,361,719 2.87 3 54,188 0.1150,001 - 100,000 9 648,928 1.37 1 84,300 0.18
100,001 - 500,000 10 1,952,394 4.11 – – – 500,001 - 1,000,000 1 800,200 1.68 – – –
Over 1,000,000 Shares 5 26,616,588 56.01 1 14,256,000 30 1,656 33,070,268 69.60 31 14,449,732 30.4
LOLC I Annual Report 2008/09 | 149
1.4 Categories of Shareholders as at 31 March,2009 2008
No. of No. of % of No. of No. of % ofShareholders Shares Shares Shareholders Shares Shares
Individual 1,463 16,987,996 35.75 1,537 17,419,631 36.66Institutions 136 30,532,004 64.25 150 30,100,369 63.34Total 1,599 47,520,000 100 1,687 47,520,000 100
2009 2008
No. of % of Issused No. of % of Issused Shares Capital Shares Capital
1. ORIX Corporation 14,256,000 30.00 14,256,000 30.00
2. Mr. R.M. Nanayakkara
- Through a Margin Trading Account 12,019,708 25.29 12,019,708 25.29
- In his Own Name 2,123,614 4.47 2,122,114 4.47
3. Mr. I.C. Nanayakkara 5,989,550 12.60 5,989,550 12.60
4. Mrs. K.U. Amarasinghe 5,243,200 11.03 5,243,200 11.03
5. Sri Lanka Insurance Corporation - Life Fund 1,242,016 2.61 1,242,016 2.61
6. DPMC Financial Services (Pvt) Ltd. (A/C No. 01) 806,900 1.70 800,200 1.68
7. Mrs. I. Nanayakkara 517,402 1.09 456,402 0.96
8. DPMC Financial Services (Pvt) Ltd. (A/C No. 02) 321,400 0.68 128,700 0.44
9. Employees’ Trust Fund Board 237,700 0.50 107,900 0.23
10. Mr. G.G. Ponnambalam 208,992 0.44 208,992 0.44
11. HSBC - Mr. C.P. de Silva 200,000 0.42 200,000 0.42
12. HSBC - Mr. R.C. de Silva 200,000 0.42 200,000 0.42
13. HSBC - Mr. C.L. de Silva 200,000 0.42 200,000 0.42
14. Swastika Mills Ltd. 200,000 0.42 200,000 0.42
15. Capital Alliance Holdings Ltd. 197,600 0.42 – –
16. Mr. M. Radhakrishnan 150,000 0.32 150,000 0.32
17. Mr. D.J. Wilson 85,216 0.18 85,216 0.18
18. Mrs. S.N. Fernando 81,844 0.17 – –
19. Miss F.A.J.A. Cader 75,900 0.16 75,900 0.16
20. Hi-Line Tading (Pvt) Ltd. 70,500 0.15 – –
43,357,042 91.24
The Public Sharehoding as at 31 March, 2009 was 15.33%
150 | Investor Information I LOLC | Annual Report 2008/09
Economic and Financial IndicatorsDecember 2005 2006 2007 2008 2009
Economic Growth
GDP at Current Market Prices (Rs. Bn) 2,091 2,453 2,939 3,578 4,411
GDP Growth Rate % 5.4 6.2 7.7 6.8 6.0
External Finance
Trade Balance - US $ Mn (2,243) (2,516) (3,371) 3,657 (5,871)
Balance of Payment (Rs. Mn) (7.5) 48.1 33.5 60.0 (126.0)
Exchange Rates - Rs. US $
Annual Average 101.19 100.5 103.96 110.62 108.33
Year End 104.61 102.12 107.71 108.72 113.14
Rate of Inflation
CCPI* Annual Average Change % 9.0 11.0 10.0 15.8 22.6
Money Supply - Percentage change Dec. to Dec.
Narrow Money - M1 % 16.6 22.4 12.6 2.7 4.0
Broad Money - M2b % 19.6 19.1 17.8 16.6 8.5
Interest Rates - Per cent per annum at year end
Repurchase Rate - Overnight % 7.5 8.8 10.0 10.5 10.5
Reverse Repurchase Rate - Overnight % 9.0 10.3 11.5 12.0 12.0
Treasury Bill Rate
91 Days % 7.25 10.10 12.76 21.30 17.33
364 Days % 7.65 10.37 12.96 19.66 19.12
CB’s** Weighted Average Deposit Rate % 5.3 6.2 7.6 10.3 11.6
CB’s** Weighted Average Prime Lending Rate % 10.2 12.2 15.2 18.0 18.5
Share Market
All Share Price Index - ASPI 1,506.90 1,922.20 2,722.40 2,541.00 1,503.00
Market Capitalisation Rs. Bn 382.1 584.0 834.8 820.7 488.8
* CCPI - Colombo Consumers Price Index
** CB - Commercial Bank
LOLC I Annual Report 2008/09 | 151
Glossary
TERMS
Accrual Basis
Recognising the effects of transactions and
events when they occur, without waiting
for receipt or payment of cash or cash
equivalent.
Associate Company
A Company other than a subsidiary in
which the Holding Company has significant
influence over its financial and operating
policy decisions.
Cash Basis
Recognising the effects of transactions and
events when receipt or payment of cash or
cash equivalent occurs.
Cash Equivalents
Short-term highly liquid investments that are
readily convertible to known amounts of cash
and which are subject to an insignificant risk
in change in value.
Consolidated Financial Statements
Financial Statements of a Group presented
as those of a single Company.
Corporate Governance
The process by which corporate entities
are governed. It covers the way in which
power is exercised over the management
and direction of entity, the supervision of
Executive actions and accountability to
owners and others.
Executions
Advances granted to customers under
leasing, hire purchase, instalment sales
and loan facilities.
Finance Lease
A lease that transfers substantially all the
risk and rewards incident to ownership of
the asset to the lessee. Title may or may not
eventually be transferred.
Gross Dividend
The proportion of profit distributed to
shareholders inclusive of tax withheld.
Gross Portfolio
Total rental receivable of the advances
granted to customers under leasing, hire
purchase, instalment sales and loan facilities.
Hire Purchase
A Hire Purchase is a contract between hirer
and financier where the hirer takes on hire
a particular article from the financier, with
the option to purchase the article at the
conclusion of the agreed rental payments.
Interest Cost
The sum of monies accrued and payable to
the sources of borrowed working capital.
Interest in Suspense
Interest income of non-performing portfolio;
these interests are accrued but not
considered as part of income.
Lease
A lease is an agreement whereby the lessor
conveys to the lessee in return for a payment
or series of payments the right to use an
asset for an agreed period of time.
Minority Interest
Part of the net results of operations and of net
assets of a subsidiary attributable to interests
who are not owned, directly or indirectly
through subsidiaries, by the parent.
Net Portfolio
Total rental receivable excluding interest of
the advances granted to customers under
leasing, hire purchase, instalment sales and
loan facilities.
Non-Performing Portfolio
Facilities granted to customers which are in
default for more than six months.
152 | LOLC | Annual Report 2008/09
Operating Lease
An operating lease is a lease other than a
finance lease.
Provision
Amounts set aside against possible losses
on net receivable of facilities granted to
customers, as a result of them becoming
partly or wholly uncollectible.
Related Parties
Parties are considered to be related if one
party has the ability to control the other
party or exercise significant influence
over the other party in making financial or
operating decisions.
Related Party Transactions
A transfer of resources or obligations
between related parties, regardless of
whether a price is charged.
Residual Value
The estimated amount that is currently
realisable from disposal of the asset, after
deducting estimated costs of disposal, if
the asset was already of the age and in the
condition expected at the end of its useful life.
Revenue Reserve
Reserves set aside for future distribution and
reinvestment.
Segmental Analysis
Analysis of information by segments of an
enterprise, specifically the different industries
and the different geographical areas in which
it operates.
Shareholders’ Funds (Equity)
Total of issued and fully paid ordinary share
capital and reserves.
Stated Capital
All amounts received by the Company or due
and payable to the Company (a) in respect
of the issue of shares (b) in respect of calls
on shares.
Subsidiary Company
Subsidiary is a Company that is controlled
(power to govern the financial and operating
policies of an enterprise so as to obtain
benefits from its activities) by another
Company known as the parent.
Substance Over Form
The consideration that the accounting
treatment and the presentation in Financial
Statements of transactions and the events
should be governed by their substance and
financial reality and not merely by legal form.
Value Addition
Value of wealth created by providing leasing
and other related services considering the
cost of providing such services.
RATIOS
Method of Computation and Indicates
Cost to Income Ratio
Operating expenses excluding provision for
bad and doubtful debts as a percentage of
total operating income, net of interest cost.
Efficiency of cost management in generating
income.
Debt to Equity (Gearing) Ratio
Total debts divided by equity. The extent to
which debt contributes to fund total assets,
compared to the contribution from equity.
Dividend Cover
Profit attributable to ordinary shareholders
divided by gross dividends of ordinary
shares. Number of times dividend is covered
by current year’s distributable profits.
Glossary I LOLC I Annual Report 2008/09 | 153
Dividend Per Share (DPS)
Value of the dividend proposed and paid out
to ordinary shareholders divided by the
number of ordinary shares in issue. Share
of current year’s dividend distributable to an
ordinary share in issue.
Earnings Per Share (EPS)
Profit attributable to ordinary shareholders
divided by the weighted average number of
ordinary shares outstanding during the year.
Share of current year’s earnings attributable
to an ordinary share in issue.
Interest Cover
Earnings before interest and tax divided by
interest charges. Ability to cover or service
interest charges of the debt holders.
Market Capitalisation
No. of ordinary shares in issue multiplied by
market value of a share. Total market value of
all ordinary shares in issue.
Net Asset Value per Ordinary Share
Ordinary shareholders’ funds divided by the
number of ordinary shares in issue. Book
value of an ordinary share.
Non-Performing Facilities Ratio
Total gross non-performing portfolio divided
by total gross portfolio. Percentage of total
gross non-performing portfolio against the
total gross portfolio.
Price Earning Ratio (PER Ratio)
Market price of a share divided by Earnings
Per Share (EPS). Number of years that would
be taken to recoup shareholders’ capital
outlay in the form of earnings.
Return on Assets (ROA)
Net profits expressed as a percentage of
average total assets. Overall effectiveness
in generating profits with available assets;
earning power of invested total capital.
Return on Equity (ROE)
Net profit, less preference share dividends if
any, expressed as a percentage of average
ordinary shareholders’ funds. Earning power on
shareholders’ book value of investment (equity).
154 | Glossary I LOLC | Annual Report 2008/09
Notice of Meeting
NOTICE IS HEREBY GIVEN THAT THE ANNUAL GENERAL MEETING of the Company will be
held on Tuesday, 30th June, 2009 at 10.00 a.m. at ‘LOLC Auditorium’,
No. 100/1, Sri Jayewardenepura Mawatha, Rajagiriya for the following purposes:
1. To receive and consider the Report of the Directors and Statement of Accounts for the year
ended 31st March, 2009 with the Report of the Auditors thereon.
2. To re-elect as a Director Mr. I.C. Nanayakkara, who retires by rotation in terms of Article 84
of the Articles of Association of the Company.
3. To re-elect as a Director Mr. H. Ichida, who retires by rotation in terms of Article 91 of the
Articles of Association of the Company.
4. To re-elect as a Director Mr. M. Inoue who retires by rotation in terms of Article 91 of the
Article of Association of the Company.
5. To re-elect as a Director Mrs. R.L. Nanayakkara, who retires in terms of Section 210 of the
Companies Act No. 7 of 2007. As Mrs. R.L. Nanayakkara is over 70 years, Special Notice
has been received from a shareholder of the intention to pass a resolution which is set out
below in relation to her re-election (see Note 4 below).
6. To re-elect as a Director Mr. M.T.L. Fernando, who retires in terms of Section 210 of the
Companies Act No. 7 of 2007. As Mr. M.T.L. Fernando is over 70 years, Special Notice has
been received from a shareholder of the intention to pass a resolution which is set out below
in relation to his re-election (see Note 5 below).
7. To re-elect as a Director Mr. M.D.D. Pieris, who retires in terms of Section 210 of the
Companies Act No. 7 of 2007. As Mr. Pieris is over 70 years, Special Notice has been
received from a shareholder of the intention to pass a resolution which is set out below in
relation to his re-election (see Note 6 below).
8. To reappoint Messrs Ernst & Young as Auditors for the year 2009/10, at a fee to be decided
upon by the Board.
9. To authorise the Directors to make donations.
BY ORDER OF THE BOARD,
Chrishanthi Emmanuel
Secretary
29th May, 2009
Rajagiriya (in the Greater Colombo)
LOLC I Annual Report 2008/09 | 155
NOTE:
1. A member entitled to attend and vote at the Meeting is entitled to appoint a Proxy to attend and
vote instead of him/her. A Proxy need not be a member of the Company.
2. The completed Form of Proxy should be deposited at the Registered Office of the Company,
No. 100/1, Sri Jayewardenepura Mawatha, Rajagiriya, not later than 10.00 a.m. on Sunday,
28th June, 2009.
3. A Form of Proxy accompanies this Notice.
4. Special Notice has been received by the Company from a shareholder of the Company
giving Notice of intention to move the following Resolution at the above Annual General
Meeting: ‘Resolved that Mrs. R.L. Nanayakkara (a Director retiring) of the Company who is 73 years be and is hereby re-elected a Director of the Company and it is further specifically declared that the age limit of 70 years referred to in Section 210 of the Companies Act No. 7 of 2007 shall not apply to the said Director, Mrs. R.L. Nanayakkara.’
5. Special Notice has been received by the Company from a shareholder of the Company
giving Notice of intention to move the following Resolution at the above Annual General
Meeting: ‘Resolved that Mr. M.T.L. Fernando (a Director retiring) of the Company who is 83 years be and is hereby re-elected a Director of the Company and it is further specifically declared that the age limit of 70 years referred to in Section 210 of the Companies Act No. 7 of 2007 shall not apply to the said Director, Mr. M.T.L. Fernando.’
6. Special Notice has been received by the Company from a shareholder of the Company
giving Notice of intention to move the following Resolution at the above Annual General
Meeting: ‘Resolved that Mr. M.D.D. Pieris (a Director retiring) of the Company who is 71 years be and is hereby re-elected a Director of the Company and it is further specifically declared that the age limit of 70 years referred to in Section 210 of the Companies Act No. 7 of 2007 shall not apply to the said Director, Mr. M.D.D. Pieris.’
156 | Notice of Meeting I LOLC | Annual Report 2008/09
Form of Proxy
I/We .......................................………...............................................................................................of
.............................................................................................................being a member/members of
Lanka ORIX Leasing Company PLC hereby appoint .....................................................................of
...................................................................................................................................... whom failing.
Mrs. Rohini Lettitia Nanayakkara of Colombo or failing herMr. Ishara Chinthaka Nanayakkara of Colombo or failing him Mr. Malawige Tissaka Lal Fernando of Colombo or failing him Mr. Ravindra Ajith Fernando of Colombo or failing him Mrs. Kalsha Upeka Amarasinghe of Colombo or failing herMr. Minuwanpitiyage Dharmasiri Dayananda Pieris of Colombo or failing himMr. Raja Mahinda Nanayakkara of Colombo or failing him Mr. Tushan Harsha Mendis Wickramasinghe of Colombo or failing him Mr. Waduthantri Dharshan Kapila Jayawardena of Colombo
as my/our proxy to represent me/us * ………… and vote on my/our behalf at the Annual General Meeting of the Company to be held on Tuesday, 30th June, 2009 and at any adjournment thereof and at every poll which may be taken in consequence of the aforesaid Meeting.
For Against1. To receive and consider the Report of the Directors and Statement of
Accounts for the year ended 31st March, 2009 with the Report of the Auditors thereon.
2. To re-elect as a Director Mr. I.C. Nanayakkara, who retires by rotation in terms of Article 84 of the Articles of Association of the Company.
3. To re-elect as a Director Mr. H. Ichida, who retires by rotation in terms of Article 91 of the Articles of Association of the Company.
4. To re-elect as a Director Mr. M Inoue who retires by rotation in terms of Article 91 of the Articles of Association of the Company.
5. To re-elect as a Director Mrs. R.L. Nanayakkra, who retires in terms of Section 210 of the Companies Act No. 7 of 2007.
6. To re-elect as a Director Mr. M.T.L. Fernando, who retires in termsof Section 210 of the Companies Act No. 7 of 2007.
7. To re-elect as a Director Mr. M.D.D. Pieris, who retires in termsof Section 210 of the Companies Act No. 7 of 2007.
8. To reappoint Messrs Ernst & Young, as Auditors at a remuneration to be fixed by the Directors.
9. To authorise the Directors to make donations.
Dated this ……….………………….. day of June, Two Thousand Nine.
.....................................................
Signature of ShareholderNOTE:
1. A Proxy need not be a member of the company.
2. If you wish your Proxy to speak at the Meeting you should insert the words ‘and to speak’ immediately
before the word ‘vote’ marked * and initial the alteration.
3. Instructions as to completion appear on the reverse hereof:
We hereby certify that the Stamp Duty payable, namely cents 50 in respect of this instrument has been
compounded in terms of Section 13 of the Stamp Duty Act No. 43 of 1982.
LOLC I Annual Report 2008/09
INSTRUCTIONS AS TO COMPLETION
1. Please return the completed Form of Proxy after filling in legibly your full name and address,
signing on the space provided and filling in the date of signature.
2. The completed Form of Proxy should be deposited at the registered office of the Company,
No. 100/1, Sri Jayewardenepura Mawatha, Rajagiriya not less than 48 hours before the time
appointed for the holding of the Meeting.
Form of Proxy I LOLC | Annual Report 2008/09
Corporate InformationName of the CompanyLanka ORIX Leasing Company PLC
Country of IncorporationSri Lanka
Legal FormA quoted public company with limited liability
Date of Incorporation14th March 1980
Company Registration No.PQ 70
Stock Exchange ListingThe ordinary shares of the Company are listed on the Colombo Stock Exchange of Sri Lanka
Principal ActivitiesFinance Leases, Hire Purchase,Consumer Finance, Operating Leases,Fleet Management, Loans, Factoring
Company SecretaryMs. Chrishanthi S. Emmanuel, FCIS
AuditorsErnst & Young, Chartered Accountants
LawyersJulius & CreasyNithya Partners
RegistrarsSSP Corporate Services (Pvt) Ltd.No. 101, Inner Flower Road, Colombo 3.
BankersBank of Ceylon, Standard Chartered Bank, Citi Bank N A , Hatton National Bank, Hongkong & Shanghai Banking Corporation, National Savings Bank, Deutsche Bank, Nations Trust Bank, Commercial Bank of Ceylon, NDB Bank, Public Bank of Berhad, Sampath Bank, Seylan Bank, Union Bank, ICICI Bank, MCB Bank, State Bank of India, Indian Overseas Bank, Indian Bank
Registered OfficeNo. 100/1, Sri Jayewardenepura Mawatha, Rajagiriya, Sri LankaTelephone: 011-5880880Fax: 011-2865606 (Gen.) 011-2865612 (Mkt.), 2865642 (Fin.)Website: www.lankaorix.com
Head OfficeNo. 100/1, Sri Jayewardenepura Mawatha, Rajagiriya, Sri LankaTel: 011-5880880Fax: 011-2865606 (Gen.)
Union PlaceNo. 323, Union Place, Colombo 2Tel: 011-5333801, 011-5358117Fax: 011-2303166
Colombo 7No. 79, C.W.W. Kannangara MawathaTel: 011-5039943-7, 5034141, 5034140, 5018229, 011-2665780-2Fax: 011-4723376
Colombo 3LOSEC (Head Office)No. 42, Sir Mohamed Macan Markar MawathaTel: 011-5335225Fax: 011-5365725
AnuradhapuraNo. 7/488, Maithripala Senanayake MawathaTel: 025-2224921-2, 025-5810810-4Fax:025-2224923
BadullaNo. 32, Udayaraja MawathaTel: 055-5760760-3Tel/Fax: 055-2230900, 055-2230899
ChilawNo. 89, Kurunegala RoadTel: 032-5676880-3, Fax: 032-2223267
EmbilipitiyaNo. 335, Ratnapura RoadTel: 047-5670880-3Fax: 047-2261825
GalleNo. 71/21, Sri Gnanobasha Mawatha, OroppuwattaTel: 091-5458860-3, 091-2232580/2Fax:091-2232583
GampahaNo. 58B, Queen Mary’s RoadTel: 011-5353582-3, 011-5353597-8Tel/Fax: 033-2234771Fax: 033-2234772
HoranaNo. 192 C, Ratnapura RoadTel: 034-5626880-3Fax: 034-2265514
Kalutara
No. 546, Galle Road, Kalutara SouthTel: 034-5588860-3Fax: 034-2224280-2
KandyNo. 202/3, Katugastota RoadTel: 081-2213315-9, 081-5741010-8Fax: 081-4472614
KiribathgodaNo. 101, Kandy RoadTel: 011-5510520-1, 011-5510523-4Fax: 011-2907950
KochchikadeNo. 60/1, Regal Building, Chilaw RoadTel: 031-2276121-3, 031-5318682, 031-5310240, 031-5310008Fax: 031-5319580
KurunegalaNo. 18, Mihindu MawathaTel: 037-5260330, 037-222191-2Fax: 037-2220372
KegalleNo. 108 A & 106, Main StreetTel: 035-5880880-3Fax: 035-2223972
MataraNo. 387A, Anagarika Dharmapala Mawatha,PamburanaTel: 041-2227300-2, 041-5419900-1, 041-5419985-6Fax: 041-2227303
Mount LaviniaNo. 459C, Galle RoadTel: 011-5552880-3, 011-2715749Fax: 011-2715741
MahiyanganaNo. 43, Kandy Road, MiyugunagamaTel: 055-5676880, 055-5676882, 055-2257301Fax: 055-2257300
Nuwara EliyaNo. 72, Tharanga Building, Park RoadTel: 052-5720720-2, 052-2224071-2Fax: 055-2224070
Polonnaruwa
No. 421, Main Street, KaduruwelaTel: 027-5870001, 027-5670880Fax: 027-2224999
RatnapuraNo. 240A, Colombo RoadTel: 045-5440100-2, 045-2230054Fax: 045-2230056
WattalaNo. 503, Negombo RoadTel: 011-5355880-3Fax: 011-2931360
WellawatteNo. 116A, Galle RoadTel: 011-5555880-4Fax: 034-5555885
Located at LIOC Filling StationsMorawaka, Trincomalee, Pilimatalawa, Seeduwa, Aluthgama, Kadawatha, Ambalangoda, Debarawewa, Beliatta, Thalawakelle, Panadura, Padukka, Batticaloa, Deraniyagala
Located at Post OfficesBulathsinhala, Elpitiya, Balangoda, Melsiripura, Kuliyapitiya, Godakawela, Eheliyagoda, Padaviya, Thambuththegama, Divulapitiya, Nikaweratiya
Board of DirectorsMrs. R.L. Nanayakkara - ChairpersonMr. I.C. Nanayakkara - Deputy ChairmanDesamanya M.D.D. PierisMr. M.T.L. FernandoMr. R.A. FernandoMrs. K.U. AmarasingheMr. T.H.M. WickramasingheMr. R.M. NanayakkaraMr. W.D.K. Jayawardena - Managing Director and Group CEOMr. M. Inoue (appointed w.e.f. 06.02.09)Mr. H. Ichida (appointed w.e.f. 06.02.09)Mr. K. Fushitani (resigned w.e.f. 06.02.09)Mr. Y. Oshima (resigned w.e.f. 06.02.09)Mr. M. Sekimoto (Alternate to Mr. Fushitani up to 06.02.09)(Alternate to Mr. M. Inoue from 06.02.09)Alternates to Mr. Y. Oshima Mr. Mori (from 23.04.08 to 31.07.08)Mr. K. Katayama (from 31.07.08 to 31.10.08)Mr. Y. Matsuoka (from 31.10.08 to 06.02.09)Mr. Y. Matsuoka (Alternate to Mr. H. Ichida w.e.f. 06.02.09)
Corporate ManagementKithsiri Gunawardena - Chief Operating Officer & Chief Legal OfficerSunjeevani Kotakadeniya - Chief Financial OfficerAnura Dharmaprema - Corporate Executive Officer - Recoveries Jacqueline Lord - Chief HR OfficerJayantha Kelegama - Chief Credit OfficerRohan Perera - Group TreasurerSharmini Wickremasekera - Chief Risk OfficerConrad Dias - Chief Information Officer/
Managing Director - LOITKrishan Thilakaratne - Chief Executive Officer - Auto FinanceRavi Tissera - Chief Executive Officer - Micro FinanceBrindley de Zylva - Managing Director/CEO - Lanka ORIX Finance Co. Ltd.Sanjiv Keerthiratne - Chief Executive Officer - Lanka ORIX Insurance Brokers Ltd. Tushan Wickramasinghe - Managing Director - Lanka ORIX Securities (Pvt) Ltd.Gunendra Jayasena - General Manager VenturesNimal Mendis - CEO- LOPDDr. H.S.D. Soysa - General Manager/CEO - Commercial Leasing Company PLC
Prod
uced
by:
Sm
art M
edia
P
rinte
d by
: Aitk
en S
penc
e Pr
intin
g